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Fiscal policy in a high inflation environment

CommBank’s Chief Economist Stephen Halmarick discusses the highlights of the May 2023–24 Federal Budget and what they mean for various industry sectors.

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Federal Budget highlights 

In a time of slowing economic growth and moderating inflation the 2023-24 Federal Budget improves the Government’s deficit and debt profile. It delivers targeted funding to support Australians experiencing cost of living pressures and helps to progress the Government’s policy agenda. As economic growth slows in the year ahead, the Budget may see some benefit from a larger workforce.

For Individuals

  • To counter cost of living pressures there’s $1.5 billion over two years in electricity bill relief to help more than 5 million households and 1 million small businesses.  Eligible households will get up to $500 and small businesses up to $650. That’s roughly between one-quarter to one-third of a household’s average annual spending on electricity bills.  
  • $1.9bn over five years will financially support more single parents for longer. Around 57,000 single parents are expected to benefit.
  • The Child Care Subsidy announced in October’s 2022 Budget begins 1 July. Families earning up to $530,000 per annum will be eligible, with the subsidy rate tapering down as family income increases. Around 1.2 million families will see childcare costs fall. 
  • Previously announced changes to the Paid Parental Leave Scheme, gives a $0.5bn boost for families. Around 180,000 families will benefit.  
  • JobSeeker payments, Austudy and Youth Allowance will increase by $40 per fortnight. What’s more, eligibility for a higher JobSeeker base rate will expand to people over 55 years old who have received the payment for more than nine consecutive months. Those eligible will get an extra $92.10 a fortnight. 

For Businesses and Institutions 

  • Small businesses will receive $310m for energy saving upgrades by accessing tax deductions for certain depreciating assets. 
  • Some small businesses will be able to access a $20,000 instant asset write-off. The Government anticipates this to provide $290m in cash flow support for small businesses over the forward estimates.
  • Small businesses and startups will get $392.4m in the new Industry Growth Program to help them commercialise their ideas and grow their operations.
  • The Government’s announcement to help protect small businesses to uplift cyber security is a welcome initiative, providing $101.6 million over 5 years from 2022–23, and investing $23.4 million to help build resilience to cyber security attacks by training in-house cyber wardens.

Key focus areas

  • Welfare

    • To counter cost of living pressures there’s $1.5 billion over two years in electricity bill relief to help more than 5 million households and 1 million small businesses.  Eligible households will get up to $500 and small businesses up to $650. That’s roughly between one-quarter to one-third of a household’s average annual spending on electricity bills.  
    • Around 57,000 single parents will share in $1.9 billion of new support over five years and JobSeeker payments, Austudy and Youth Allowance will increase by $40 per fortnight. The increase in the basic rates will occur in September, supporting around 1.1 million Australians. 
    • Eligibility for a higher JobSeeker base rate will expand to people over 55 years old who have received the payment over more than nine consecutive months. Those eligible will get an extra $92.10 a fortnight.
    • Around 180,000 families are expected to benefit from previously announced changes to the Paid Parental Leave Scheme, worth $0.5 billion.

  • Health and Aged Care

    • The bulk billing incentive for the most common consultations has been tripled. That’s an extra $3.5 billion that will benefit around 11.6 million Australians. 
    • There’s support for nurses and allied health professionals to work with GPs and for Medicare Urgent Care Clinics.
    • Australians will get faster access to new medicines with a $2.2 billion boost to the Pharmaceutical Benefits Scheme and other programs over five years. 
    • National Disability Insurance Scheme (NDIS) payments are expected to increase by an average 10.4%, down from 13.8% in the October 2022 Budget. To ensure the sustainability of the NDIS there’s an annual growth target of no more than 8% by July 2026.
    • 250,000 aged care workers get a 15% wage rise, worth $11.3 billion from July 2023, as handed down by the Fair Work Commission. 

  • Rural and Defence

    • A new Net Zero Authority will coordinate Australia’s transition to net zero. It’ll support workers in coal-dominated regions to upskill and find work and coordinate policies to attract investment in renewable energy industries in the regions.  
    • Defence spending measures include re-direction of savings from Defence to the AUKUS program. The recently announced $368 billion submarine deal could benefit engineering companies involved in government contracts, shipbuilders, construction companies, education and communications providers. 
    • The government is also set to spend $400 million to support the retention of Australian Defence Force members via a bonus for personnel who sign on for another term of employment.

  • ESG and Sustainability

    • The Government will establish a new Net Zero Authority to assist and coordinate Australia’s transition to net zero. 
    • Renewable energy gets an additional $4 billion, of which $2 billion is to be invested in a new program, Hydrogen Headstart, to support large-scale hydrogen production and attract investment. All up $40 billion will be invested in renewable energy as part of the Government’s ambition to become a renewable energy superpower. 
    • There’s $1.3 billion for a Household Energy Upgrades Fund to incentivise energy saving upgrades for households and provide low-interest loans to make them.

  • Housing

    • The Government’s first home buyer schemes will extend eligibility from 1 July to include any two borrowers, beyond the current scope of spouse or de facto couples.  
    • Commonwealth Rent Assistance will increase by 15%.  
    • An extra $2 billion will support around 7,000 new social and affordable homes.

  • Infrastructure

    • The infrastructure pipeline remains strong with $120 billion of spending expected over next 10 years.
    • The Government will provide up to $3.4 billion over 10 years for infrastructure relating to the Brisbane 2032 Olympic Games. 
    • There’s $300m for Tasmanian sports and recreation.

The Economists’ view

CommBank economists say the expected surplus in the 2022-23 Federal budget will help to moderate the inflation pulse running through the Australian economy. For 2023-24, lower inflation from the energy price relief is expected to be offset by increased government spending. Our inflation forecasts are unchanged. We expect to see a return to inflation within the 2% to 3% target range by mid-2024 together with slowing economic growth in the year ahead and higher unemployment.

Stephen Halmarick and Belinda Allen discuss the latest economic insights

CBA's Chief Economist says:

Chief Economist, Stephen Halmarick unpacks what the Federal Budget means for individuals, different sectors and businesses and Australia.

Read Stephen's report

For investors, read CommSec’s report

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