Daily Commentary BY THE CURVE TEAM –

Stimulatory Budget Confirmed

12th of May, 2021

Despite the drastically improved economy, the budget contained multiple stimulus measures.

There was some $53 billion of new spending measures announced. Last year’s budget emphasised tax breaks and cuts, which were meant to act as incentives for consumers and businesses to spend and invest.

Many of these tax cuts and breaks have been extended. Healthcare spending was at the forefront, with nearly $18 billion over 5 years to be spent on aged care services. In addition, $13.2 billion is to be spent on the NDIS and $2.3 billion on mental health services.

Another $15.2 billion was given to infrastructure, which was also a feature of last budget. Spending directly targeted at women was also a feature, with $1.7 billion to be spent on childcare and cash payments domestic violence victims.

Government debt and the fiscal deficit are set to continue to rise out until 2025, although the forecasts have improved since the mid-year economic and financial outlook. Given the continued government spending, government debt issuance is expected to be high this year and gradually decline as less spending is needed.

Australia’s AAA credit rating being downgraded is a potential downside of the budget. Australia’s forecasted increase in debt over the next 5 years is one of the highest in the world, especially when compared to countries with a AAA credit rating.

Such a drastic shift in debt will likely draw the attention of S&P, as they have already flagged a potential downgrade over the next 2 years.

Josh Stewart

Associate - Money Markets