Cautious, sustainable budget incoming: HSBC

HSBC has joined other economists in expecting a “cautious, ‘inflation-fighting’” Federal Budget for 2023 coming on Tuesday night, with cost of living, energy policy and defence measures forecasted.

Paul Bloxham, HSBC’s Chief Economist for Australia, New Zealand and Global Commodities, said the Budget comes at a time where monetary and fiscal policy is unusually coordinated at this stage of the cycle.

“The short-term challenge facing Australian policymakers is that inflation is too high and needs to be tamed. This is, of course, primarily the role of the RBA, which has lifted interest rates sharply and substantially to seek to tackle this challenge,” he said.

“However, we expect the Budget 2023/24 on 9 May to be cautious in its spending initiatives and likely see a rise in net taxes, with the aim of not adding to aggregate demand in the economy and helping to ease the high-inflation challenge.

“Despite the budget bottom line that is likely to be much better than had been expected six months ago (our central case is a small budget surplus in 2022/23), we expect the government to save much of the revenue windfall.”

Bloxham suggested the Budget will focus on policies surrounding climate change and Australia’s transition to net zero and a green economy. This follows announcements on electric vehicle incentives, changes to the petroleum resources rent tax, energy infrastructure investment, the ‘Safeguard Mechanism’ reforms and the gas price cap extension.

“Other policy areas are likely to include cost of living support (including a rise in the unemployment benefit and housing policy changes), health and aged care policy (including reforms emerging from the NDIS Review), superannuation, and defence and national security (following the Defence Strategic Review),” he said.

“Budget sustainability is the key long-term fiscal challenge. Estimates are set to show a 1.5-2.0% of GDP structural budget deficit over the coming decade. We expect the budget to start to set out plans for a combination of spending consolidation and reform in areas such as health, ageing and disability insurance. We also expect some focus on revenue generation, including tax reform.”