May 7, 2024

2024 Federal Budget: NAB’s Chief Economist Alan Oster’s predictions

The Federal Government has a fine line to tread when it comes to next week’s Federal Budget. NAB Group Chief Economist Alan Oster explains what this might mean for Australian businesses, families and individuals.

The current state of our economy means Treasurer Jim Chalmers is faced with a tricky Federal Budget come May 14. The issue of inflation refuses to go away, even as there’s very real concern about a slowing economy.

The question is whether to spend or not to spend – to decide which will serve Australia better in the long term.

While Chalmers insists he’s leaving his options open for now – so he can shift his approach in response to a shifting economy – his overriding priorities are clear. As he’s said on more than one occasion, the Budget “will have a nearer-term focus on inflation but a longer-term focus on growth”. And not just any growth but “sustainable growth”.

What does this mean in real terms? And – most importantly for the many individuals and businesses struggling to stay afloat just now – does it leave room for short-term cost-of-living help?


The need for growth

The short answer is yes, says NAB Group Chief Economist Alan Oster.

While he doesn’t think the Government will be lavish in its spending, Oster is quietly confident the Budget will offer a number of measures to bolster the economy – including assistance to those small businesses and individuals in need.

“When Chalmers returned from overseas recently, he basically said that the world’s [in a pretty bad way] so we need to make sure we keep the economy going,” Oster points out.

Oster argues that the recent blip in inflation figures was, in fact, small and likely to be temporary – with the markets simply overreacting in recent weeks. “I still think we’re going to see a rate cut by the end of the year,” he says. Meanwhile, there’s very good reason to ensure the economy doesn’t slow too much. As Oster notes, “We don’t want a recession.”


Help in sight for business

So, just what kind of help are businesses likely to see come May 14?

Chalmers may have ruled out lowering the company tax rate, but there is the very real possibility of a business investment allowance – what The Australian Financial Review (AFR) describes as “essentially a turbocharged asset write-off scheme”. The idea is that it would be permanent, in contrast to the current instant asset write-off scheme, which has been rejigged each year.

In fact, last year’s scheme had still to be passed into law at the time of writing, as had last year’s Small Business Energy Incentive – a tax deduction of up to $20,000 for small businesses that invest in energy-efficient equipment. In the circumstances, a permanent business investment allowance would be welcomed by the business community.

So would the return of the energy price relief scheme introduced in last year’s Budget. This gave eligible small businesses up to $650 off their energy bill and is predicted to return after Prime Minister Anthony Albanese hinted as much at a recent address , noting, “Our government understands that for small business – as for Australian families – energy bills remain a source of financial pressure.”


Supporting individuals and families

Eligible individuals and families are also likely to receive support with their energy bills – up to $500 if last year’s scheme remains. And there are other forms of support in the offing. First and foremost, there are the Stage 3 tax cuts that, in their reworked form, provide a tax cut for every Australian taxpayer from July 1 – benefiting both lower and higher income earners.

Then there are other, less expansive measures. It’s already been revealed that Government-funded paid parental leave will now include superannuation payments. More recently, the Government announced relief for Australians with a proposal to cap the HELP indexation rate so it’s the lower of either the Consumer Price Index (CPI) or the Wage Price Index (WPI) – backdated to 1 June 2023. It’s also offering financial support to those Australians studying to be a teacher, nurse, midwife or social worker, through payment of $319.50 a week for mandatory workplace placements .

There will also be substantial investments in remote housing as part of the Closing the Gap initiative and new measures to combat violence against women, including $925 million to help victims of violence leave abusive relationships . A boost to childcare workers’ wages is almost certain to go ahead as well.

Less likely is increased access to childcare subsidies, which the Government has been considering. Potentially involving the abolishment of the activity test, the green light for this has not been given by the Government, but it has hinted there might be certain revisions in this or next year’s Budget. Another lift in JobSeeker payments, however, has all but been ruled out if the Government’s current responses to the issue are anything to go by.

Rental assistance may be on the cards though, Oster believes. “I would assume that there’ll be something there for further rent subsidies,” he says. Indirect support will also be available if the Government goes ahead with some kind of cap on international student numbers, as has been suggested. “That would help the Government slow down the population growth a lot, which would help with rents,” Oster says.

However, it’s still up in the air for now and the Government may well take a less direct approach. One option is a significant hike in the visa application fee, with the AFR suggesting it could almost triple in cost.


Investing in long-term gains

Most of these measures only amount to short-term solutions and are unlikely to fuel inflation.

For the sustainable growth Chalmers is touting – what he’s described as “protein, not carbs” – we need to look at the Government’s Future Made in Australia Act. It aims to encourage investment in local manufacturing through a series of investment incentives, including tax breaks, loans, subsidies and the cutting of red tape. Clean energy is the big focus – “making ourselves an indispensable part of the global net zero economy”, it. To this end, there have already been several initiatives announced. This includes $4 billion for the Critical Minerals Facility and a $2 billion Hydrogen Headstart program, which is slated to see more money come Budget time.

The hydrogen program makes a lot of sense, Oster says. “The advantage of producing hydrogen here is it’s very expensive to transport. To make money out of it, it is much better if you do it locally.”

However, he questions how far the Government will go. The stated aim of its $1.5 billion Medical Science Co-Investment Plan is to manufacture medicine and medical devices where we have a competitive advantage globally. For the Government’s $1 billion Solar SunShot program, Oster points out solar panels can arguably be made far more cheaply overseas.


The benefits of a resilient economy

It remains to be seen whether the Government finds the right balance in its spending. But there’s no doubt many of its measures will be welcome in the current climate.

And the fact is, we do have the available funds, thanks to a rise in commodity receipts and low unemployment. Oster is expecting a Budget surplus of around $20 billion . That puts Australia in a much better position than most countries around the world right now.


Follow NAB’s full coverage of the Federal Budget the morning after