Federal Budgets impact the stock markets in different ways. This Budget’s will impact equities , though to a limited extend compared to some others before it.
The combination of income tax cuts, rental assistance and energy bill rebates is marginally positive for retail stocks, as the cuts will free some cash flow for some workers. Some of that cash will go on non-discretionary items such as food and beverage and other household costs. However, some people will no doubt spend it on consumer items.
For resources, the ‘Future Made in Australia’ initiatives are positive for renewable hydrogen and critical minerals, though that will be long-dated in nature.
Housing rental assistance is a marginal positive for developers and REITs, though the outlook for rates is more important for this sector. There is also $6.2 billion worth of initiatives intended to address Australia’s housing supply (1.2 million homes in 5 years to 30 June 2029 – or 240,000 a year.). The latter will buoy building-related stocks.
Healthcare – higher spending on public hospitals may decrease the appeal of private hospitals and private health insurance. Aged care saw a positive ongoing funding commitment for workers, though no indexation for GPs likely means more out of pockets for patients, which means less volume of patients seeing GPs and downstream services.
Global stocks – given the ~50 elections this year, other countries may also embark on pre-election budgets which are positive for growth in the short term – however post-election budgets are typically tighter
Interest rates
This Budget’s cost-of-living relief may lower near-term inflation, but additional fiscal spending and dollars in consumers’ pockets is likely to keep the RBA on hold for longer.
Additional subsidies and rental assistance over the next few quarters is likely to see headline CPI being held down for longer (lessening the chance of a hike).
However, the near term inflation drag (for financial year 2025) from the energy subsidy could be offset in the future (financial year 2026) by the stronger than expected fiscal impulse from other spending channels.
In short, this Budget means the outlook becomes even more complicated for the RBA and a return to the inflation target now looks less assured and may see the RBA holding interest rates higher for longer with risks that fiscal stimulus in FY26 slows the pace of RBA rate cuts.
A pre-election budget
Overall, the Federal Government is now expected to deliver a budget surplus of around $9.3 billion (0.3% of GDP) in the current financial year, down from the $22.1 billion surplus (0.9% of GDP) in 2022/23.
Government receipts are being supported by higher commodity prices and a strong labour market leading to higher income tax receipts enabling higher payments and subsidies.
The key positive surprise for many was that the FY25 Budget is larger than expected, more stimulatory and front-loaded.
The fiscal impulse is worth +1.3% to GDP, the most stimulatory budget (ex-COVID) since 2014.
With regard to the “Future Made in Australia” initiatives, the government has taken the playbook from what other governments around the world are doing and playing to Australia’s strengths.
