Australia to Get Budget Sweeteners as Government Trails in Polls

© Reuters.

(Bloomberg) — Australia’s center-right government will offer sweeteners and highlight the strong outlook for the nation’s $1.6 trillion economy in its budget Tuesday, aiming to boost its prospects in upcoming elections.

Treasurer Josh Frydenberg foreshadowed budget estimates showing the jobless rate falling in the third quarter to 3.75%, the lowest level since the early 1970s, and staying at “historically low levels” over the forecast horizon. He predicted wages growth would respond to the tight labor market by climbing at the fastest pace in a decade, after having ended last year at a tepid 2.3%.

The budget will be a key springboard for the government, which trails the opposition Labor party in opinion polls ahead of an election due by May 21, as it bids for a fourth term in office. It needs to soothe concerns of households and firms without dropping too much extra cash into an economy that’s already showing signs of running hot. 

“Treasurer Frydenberg has a tricky balancing act between politics and economics,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada. “Key in the upcoming election is economic management and the 2022/23 budget will be another test on that front.”

Multiple newspaper leaks and early pre-budget announcements by the government suggest electoral sweeteners including: 

a one-off cost of living payment to lower income households
a temporary cut to the fuel excise to ease costs on motorists
the announcement of support for first-home buyers; in addition
there are several smaller measures including for health, roads and railways, apprentices and tourism

Economists including Ong caution against too much spending in the near-term given the economy is strong, the labor market is near-full employment, inflation is quickening and the central bank still has a dovish bent. 

Reserve Bank of Australia Governor Philip Lowe has reiterated his patient policy stance, signaling he doesn’t intend to raise interest rates from a record-low 0.1% until inflation is “sustainably” within its 2-3% target. The RBA holds it monthly meeting a week from today.

The government’s budget deficit is expected to narrow in the coming fiscal year as stronger growth spurs hiring, which combined with soaring commodity prices will delivering additional revenue to the fiscal coffers.

Frydenberg has said he plans to use the windfall to drive down debt as a percentage of gross domestic product, while still offering assistance to households battling rising costs. 

“With more people in work and less people on welfare the budget bottom line is improving after providing unprecedented economic support to Australians,” he said. “But there is more to do and now is not the time to risk the gains.”

©2022 Bloomberg L.P.