May 3, 2023

2023 Federal Budget: NAB Economist Alan Oster’s predictions

The Federal Government is signalling its budget will address cost-of-living pressures. But it’s also clear it wants to avoid spending up big. NAB Group Chief Economist Alan Oster shares key insights into what that might mean for Australian businesses, families and individuals.

Relief, repair, restraint.” All three are at the heart of May’s Federal Budget, according to Treasurer Jim Chalmers. This equates to cost-of-living relief, repair of supply chains and (perhaps above all) spending restraint. 

A degree of fiscal caution is hardly surprising given the nation’s economic challenges. But what does that mean for ordinary Australians – whether individuals, families or owners of small and medium-sized businesses?  

How far can the government go to ease household budget pain? What will this all mean for SMEs? And will Chalmers’ recent talk of “laying the foundations for future growth” translate into measures that may directly, or indirectly, bolster the outlook for Australia’s businesses?  

Help is at hand 

There’s no doubt cost-of-living relief is front of mind for the government, NAB Chief Economist Alan Oster notes.  

So far, there has been talk of energy price relief for lower income households and small businesses in the form of credits, as well as a higher cut off age for the Single Parent Payment. The government has also indicated it will seek to raise Job Seeker. Although by how much and for which age groups remains unclear – despite much speculation it will target over-55s only. 

Meanwhile, the Federal Government has flagged rental relief in the form of tax write-offs for new build-to-rent properties, among other things. It has also slated expanding the eligibility for its Home Guarantee Scheme (HGS), which involves the government acting as guarantor on up to 15 per cent of a home loan. Changes include allowing friends and family to team up to buy a first home rather than just a married or de facto couple, as well as allowing permanent residents to access the scheme, not just citizens. 

In addition, the government has announced it will allow individuals to buy 60 days’ supply of many common medicines for the price of a single prescription – a change estimated to save patients up to $180 annually. 

A boost for business 

But what about Australia’s businesses?  

In fact, the government’s new approach to prescription medications hasn’t been welcomed by the Pharmacy Guild of Australia –one argument being that it may put pressure on pharmacies’ viability. 

Nevertheless, there are other indications small businesses will get some of the support they are seeking, with Chalmers going so far as to say they would be “front and centre in the budget”. 

The Treasurer noted this at the same time he announced the government’s plan to offer a tax deduction of up to $20,000 for small businesses that invest in energy efficient equipment. The so-called Small Business Energy Incentive would be aimed at helping businesses with a turnover of up to $50 million manage the costs of cutting their energy consumption whether by electrifying their cooling and heating systems, installing batteries and heat pumps, or buying more efficient fridges and induction cooktops. 

As Oster says, it’s basically an investment allowance. “Typically, these sorts of things tend to change timing rather than the actual amount of money businesses spend.” Nonetheless, he sees it as a positive short-term move for businesses and the economy. 

A budget for the times 

Yet despite such announcements, Oster believes any business relief will be measured. “It’s highly unlikely that the government will be looking to spend up big when it comes to the business sector.”  

The same goes for individuals and families – despite the government talking up the need to tackle entrenched disadvantage.  

That’s because the government won’t want to encourage further inflation, Oster says – a significant risk if there’s too big a budget cash splash. However, it will also want to avoid increasing cost-of-living pressures by cutting back government spending.   

“I don’t think they’ll be loosening fiscal policy much, but I don’t think they’ll be tightening it much either,” Oster says. 

Improving productivity 

One thing NAB’s Group Chief Economist would be very happy to see – for business and the economy at large – is a suite of productivity measures. 

“I’d like to see measures that mean you’re not just spending on keeping the economy going – you’re spending on trying to improve productivity, on trying to improve investment,” Oster says. 

Certainly businesses would welcome all support around productivity, whether that’s more funds to improve processes, more reliable supply chains or a more highly skilled workforce.  

According to NAB’s latest quarterly Business Survey, 43 per cent of firms continue to be constrained by a lack of materials. Labour shortages, too, remain an issue for SMEs, having eased only slightly despite a strong rebound in migration. A huge 87 per cent of firms surveyed reported availability of labour as a constraint on output, down only slightly from a peak of 91 per cent. 

SMEs are also confronting a dearth of technical skills, something called out by the Productivity Commission in its five-year report released in March.  

After two decades of falling productivity, moves here could well be on the Treasurer’s radar. What that might look like, however, remains to be seen. As Oster points out, while the government’s former accelerated depreciation measures were popular, there’s no talk of them as yet. 

He does believe there may be something in there in terms of rectifying supply chain issues. “While the government can’t change things on the export side, they might be able to provide some incentives to invest locally.” 

Putting the economy first 

NAB’s Consumer Sentiment Survey in April saw consumer stress rise again as cost-of-living concerns increased to their highest since late 2018. Oster sees it as only a matter of time before consumers start to pull back on their spending or, at least, where they choose to spend.  

It’s one big reason why the government has a fine balancing act to tread this budget. While it doesn’t want to overheat the economy, it doesn’t want to tip it into recession, points out Oster. 

One bright spot here is our current deficit. A rise in commodity receipts and wages growth means it has improved recently, giving the government a little more wriggle room, despite a net budget debt of over $500 billion.  

Oster is confident the government will use some of this. “My assumption is that they’ll spend a little bit of this additional money trying to repair the economy.” 

Follow NAB’s full coverage of the Federal Budget as the Group Economics team decode it live.