York Park Group’s Analysis

The Budget surplus, though smaller than some forecasts, was achieved through higher-than-expected tax receipts from commodity prices and a continuing strong labour market.

Dr Chalmers’ narrative of “relief, restraint and reform” was quickly lost in the post-Budget commentary, as questions were raised over the Budget that tips $24 billion of government spending into an already hot-running economy (and around 80 per cent of that spending is committed within the next two financial years).

If the RBA raises interest rates again, the $300 handout and large government spending will likely be blamed; if rates decrease, the Government is unlikely to receive credit – “victory has a thousand fathers”, as the saying goes.

It’s a big spending budget and a big political risk, but one the Government feels is worth taking as Australia enters a Federal Election window (to be held anytime in the next 12 months). It’s worth noting there was $6.5 billion in funds allocated for ‘decisions taken not yet announced’, usually reserved for popular political announcements the Government keeps in its back pocket to unveil in the future (a la election announcements).

Key Take-Outs

The big announcement in the 2024-25 Federal Budget to please voters was $3.5 billion in energy bill relief for all Australian households and around one million small businesses, via a $300 energy rebate for households and $325 for eligible small businesses.

This support, combined with $9.5 billion of government expenditure, has led to commentary focused on the demand pressures and risk it will only raise inflation further.

The major policy announcement and narrative of the Budget was of a Future Made in Australia, with $19.7 billion for renewable energy initiatives under this policy. There was also $3.4 billion to deliver cheaper medicines, including a one year-freeze on the maximum PBS patient co-payment.

Economic Outlook

Growth is expected to remain subdued at two per cent in 2024-25 and remaining between 2.25 and 2.75 per cent until 2027-28, a downgrade compared to that predicted six months ago.

Despite the growth downgrade, the unemployment rate forecast remains unchanged at 4.5 per cent for this financial year and next. This continuing tight labour market and high inflation contributed to strong wage increases of 3.25 per cent over this year and next.

The Reactions

Shadow Treasurer, Angus Taylor MP: “It is a highly political Budget there is no doubt about that. It is not the Budget that is going to solve the problems Australians are facing, it is focused on solving a problem for the Government.”

Business Council of Australia: “The Federal Budget has taken some positive steps towards making Australia more globally competitive and the Business Council calls on the Government to use this momentum to go further by improving investment fundamentals to lift productivity.”

RACGP: "This Budget has dropped the ball for Australians struggling to afford essential healthcare, and it's a huge disappointment for GPs, practice teams, and our patients.”

For further detail on the economic outlook, key takeouts and reactions to the 2024-25 Federal Budget, please see the full York Park Group analysis paper.