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Yetsenga: a new era of policy

The 2020-2021 Australian Federal Budget is the first in a new era of fiscal leadership.

Interest rates are, for monetary policy purposes, effectively at the lower bound. We're in a very different policy environment now.

At ANZ Research, we're assessing the budget from three perspectives. Firstly, what does it do to ensure the recovery? About $A100 billion in additional spending over the next couple of years will help.

The fiscal deficit is quite meaningful and the largest seen for some time, based on some reasonably credible economic forecasts. I think the government has done a pretty good job on the cycle part of its mandate.

The second issue for the budget is what it does around the structural agenda.

Certainly for the business sector, there's a range of measures to encourage investment, including some support for high-tech manufacturing. The government had planned to change some research and development tax concessions, although that hasn't come through.

The focus has been on the cyclical task but the government has also delivered on the structural agenda. I think the key for the structural agenda, though, is as we get increasingly through the emergency phase of COVID - which I'd argue we've already passed through - that structural agenda will only become more important.

Lastly is the equity piece. Monetary policy is a blunt instrument. The equity discussion doesn't really form part of the deliberation process.

But fiscal policy, naturally, is just the outcome of a sequence of much-smaller decisions on taxes, expenditure, infrastructure - a whole range of things. It's natural to talk about where that money is spent and how it benefits the less fortunate.

There are some things in this budget for those groups. Those on lower incomes have seen larger reductions in their income tax. The low and middle-income tax offsets have been extended. There is a modest amount for a women's economic security package.

The main focus of this budget is on securing the recovery and getting a recovery in the labour market. Ultimately, getting people into meaningful jobs is the single largest thing we could do for equity outcomes.

Overall, this budget is the start of a new era of fiscal policy leadership. We came in with high expectations. And this budget has largely delivered.

Richard Yetsenga is Chief Economist at ANZ

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