Australian Federal Budget 2024-25: Investments 

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Investment implications

Historically, the Budget was a significant event for our domestic market, particularly in the bond market. However, the global influence of other central banks, along with overseas drivers of markets, especially the US equity market’s current focus on AI-related companies, means we expect the Budget announcement to have minimal immediate impact on domestic markets.

Inflation expectations are not far from the Reserve Bank of Australia’s (RBA) estimates. Measures like the $300 rebate to every household and $325 to around one million small businesses, are likely to have a direct impact on reducing inflation over the coming period.

Additionally, the Government’s announced increase to Commonwealth Rent Assistance by an additional 10 percent and the Stage 3 tax cuts should provide extra income for lower income households in the short term. 
Measures like the $300 rebate to every household and $325 to around one million small businesses, are likely to have a direct impact on reducing inflation over the coming period 

Impact on Australian equity markets

Significant Government spending could influence bond markets by affecting the supply of bonds over the next two to four years, depending on actions by the Treasury to finance the resulting projected larger deficits. However, such measures are unlikely to significantly change equity market returns in the short term, which generally price in future expected impacts on economic growth and inflation.

A number of the spending measures would be expected to permeate the economy gradually, rather than have an immediate impact on growth or inflation. For example, the Government’s announcements around changing the indexing of HECS or HELP debt will immediately reduce the total accrued student debt by $3 billion. However, this debt is typically repaid progressively as students enter the workforce. Similarly, the Stage 3 tax cuts are unlikely to have a significant immediate impact on inflation expectations, as they have been known for some time and it remains uncertain how this additional income will be directed. 

Real estate investment impact

The Government announced new regulatory requirements for public universities to establish new purpose-built student accommodation in addition to previously announced pledges to build 1.2 million homes over the next five years, starting from 1 July 2024. BuildSkills Australia has estimated that an additional 90,000 construction workers will be needed to construct the 60,000 new homes per quarter required to meet this target.

In the lead-up to the Budget, the Treasurer announced $90 million to cover the education costs of 20,000 individuals to support the construction industry. This includes 15,000 fee-free TAFE and VET positions, along with an additional 5,000 places for pre-apprenticeships. This is on top of the 24,200 fee-free TAFE places within the construction sector delivered in 2023.

The Government also hopes to fill some of the gap through fast-tracking visa applications for 4,500 individuals with building and construction skills. This includes 1,900 from countries with qualifications comparable to those in Australia, such as the UK or France, and an additional 2,600 with skills that are not recognised in Australia.

While these announcements may provide some supply-side benefits in improving availability of construction skills and labour, we do not believe such measures will have a significant impact on broader property market pricing across any of the major real estate sectors. 

Effect on government bonds and securities

Leading up to the Budget, the expectation was for a small budget surplus this year, followed by deficits over the next four years due to increased spending on the NDIS, social services, and the Future Made in Australia Act. The Treasurer's announcement of a $9.3 billion surplus this year, with higher budget deficits anticipated over the following four years is consistent with these expectations. Additionally, the Government announced it will issue $7 billion of green bonds by 2023-24 to support Australia’s sustainable finance market.

The measures announced seem to pose little risk to Australia’s AAA credit rating and government bond yields. Given that the Government’s inflation expectations are closely aligned with the RBA’s forecasts, it is unlikely that we will see a significant immediate impact on government bond yields.

A key risk will be whether the additional disposable income from the Stage 3 tax cuts, changes to rent assistance, and energy rebates will impact spending habits and put upward pressure on inflation.
Given that the Government’s inflation expectations are closely aligned with the RBA’s forecasts, it is unlikely that we will see a significant immediate impact on government bond yields.

Impact on foreign investment policy

The Budget includes several measures designed to streamline the approvals process for foreign investment. The Government has proposed establishing a new ‘front door’ for investors to simplify the process of investing in Australia. This single point of contact for foreign investors and companies is intended to support their navigation through the approvals process and potentially fast-track major projects where possible.

Additionally, the Government is allocating $96.6 million over four years to support timely environmental approval decisions, with an additional $19.9 million over the same period to assess renewable energy projects. Foreign investments will be categorised as high risk or low risk. Starting 1 January 2025, the Treasury will aim to process 50 percent of low-risk foreign investments within the 30-day statutory timeframe. Improving the speed of investment decisions should enhance Australia’s attractiveness as a destination for foreign investment.

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