BUDGET 2020
Yetsenga: a new era of policy
07 October 2020
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
This publication is published by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (“ANZBGL”) in Australia. This publication is intended as thought-leadership material. It is not published with the intention of providing any direct or indirect recommendations relating to any financial product, asset class or trading strategy. The information in this publication is not intended to influence any person to make a decision in relation to a financial product or class of financial products. It is general in nature and does not take account of the circumstances of any individual or class of individuals. Nothing in this publication constitutes a recommendation, solicitation or offer by ANZBGL or its branches or subsidiaries (collectively “ANZ”) to you to acquire a product or service, or an offer by ANZ to provide you with other products or services. All information contained in this publication is based on information available at the time of publication. While this publication has been prepared in good faith, no representation, warranty, assurance or undertaking is or will be made, and no responsibility or liability is or will be accepted by ANZ in relation to the accuracy or completeness of this publication or the use of information contained in this publication. ANZ does not provide any financial, investment, legal or taxation advice in connection with this publication.