26 September 2020
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We are Budget obsessed, but it's partly why we're so great

Peter Switzer
8 May 2017

By Peter Switzer 

In Australia, Budgets are actually very unique. I know of no other country that’s so obsessed with their economic game plan such that media outlets dedicate a huge chunk of their staff to producing the Budget coverage.

It will dominate our newspaper headlines and the landing page on the most-read websites this Wednesday. And everyone from my clients to my media followers to friends and family will ask me how the Budget will affect their lives.

And this economic obsession — even if it’s driven by self interest (I think it’s more than that) partly explains why we’ll break the world record for economic growth this year, going over 103 quarters without a recession.

Why? The calibre of the dialogue at Budget times and over the course of their relationship with us, from reformers such as Paul Keating, Bob Hawke, John Howard and Peter Costello, helped to not only create a damn good economy but a country of voters who could make better decisions to ensure the right people were steering the ship of state.

When I first set my eyes on the Budget documents on Tuesday, I want to see what kind of economy the Treasurer foresees. Next I want to test the assumptions that the Budget projections rest on to see if they pass ‘the dodgy’ test. Then, I want to look at the major taxing and spending plans to try and work out not only how the overall economy will be affected but also how important sector groups will be impacted.

Clearly, the effects on groups such as consumers, small business, big business investors, foreign company employers, exporters, farmers, etc. need to be assessed to work out whether the Treasurer’s guesses, (sorry, forecasts) have credibility and what could happen to these people’s interests over the course of the year and beyond.

To get ready for the promised future, I want to know what the current economy looks like and, to that base, I add the conjurings and incantations of the Treasurer on Tuesday.

So here’s what our economy looks like:

  • The RBA says economic growth is now seen at 2.75-3.75% in June 2018, which is around a quarter of one percentage point higher than previous forecasts.
  • The Performance of Services index rose by 1.3 points to 53.0 in April. The index remains over 50, signifying expansion of the services sector.
  • The Performance of Manufacturing index (PMI) rose by 1.7 points to 59.2 in April. A reading above 50.0 indicates that the sector is expanding. This was the seventh consecutive month of expansion for the Australian PMI and the strongest monthly result since February 2017 and before that, since May 2002.
  • Unemployment was steady at 5.9% in March and full-time jobs rose by 74,500, while part-time jobs fell by 13,600. It was the largest back-to-back gain in full-time jobs in 29 years (up 113,200).
  • The NAB business conditions index rose from +9.3 points to +14.2 points in March (long-term average +5.0 points), a 9-year high. The business confidence index eased from +6.7 points to +6.1 points.
  • The Westpac/Melbourne Institute survey of consumer sentiment fell by 0.7% in April to 99.0. The confidence index is up 4.1% on a year ago.
  • The annual rate of inflation rose from 1.5% to 2.1%.
  • Car sales remain around record high levels.
  • The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by 0.6% in trend terms in March – the strongest growth in 15 months.
  • Private sector credit rose by 0.3% in March after a 0.3% in February. Annual credit growth of 5% remains near 3-year lows but that’s what the RBA and APRA want to hit house prices.
  • Home building starts rose by 0.3% in the December quarter after a flat result in the September quarter. Work started on 231,658 new dwellings over 2016 – a record for a calendar year.
  • One measure of incomes in Australia – the terms of trade (or ratio of export prices to import prices) has posted the biggest back-to-back gain in almost seven years. But notably it is also the second biggest six-monthly gain in 44 years and third biggest increase ever recorded. (CommSec)
  • The CoreLogic Home Value Index of capital city home prices rose by 0.1% in April and was up 11.2% over the year. It was the smallest monthly lift in prices in 16 months.
  • The Chinese economy grew at a 6.9% annual pace in the March quarter, above forecasts (+6.8%). 

Finally, the two big disappointments are business investment and wages growth. These are related and one can only hope that the Budget will get businesses investing, which will create greater economic growth and bigger pay packets.

That said, the overall run of data says to me that what we have here is a pretty good economy for Budget day, though arguably the most economically literate consumer in the world needs a confidence lift. 

Go Scotty!

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