Australian Budget: Resetting the debt narrative

First Sentier Investors

First Sentier Investors

The 2017/18 Commonwealth Budget has seen the Government reset its Budget and economic narrative, embracing debt to fund infrastructure, using new taxes to fund focussed spending initiatives on jobs, small businesses, health, housing affordability and education, while also addressing the revenue issue evident in recent years. Our Economic and Market Research  team considers the Budget's economic forecasts to be relatively conservative and achievable.

Highlights:

  • If the focus on infrastructure, jobs, growth and productivity bears fruit, then this should be supportive for the equity market. Over time, the renewed focus on infrastructure investment could lift potential economic growth in Australia, helping support the equity market.
  • The Budget has had a minimal impact on the Australian dollar, with some initial weakness on the release but then recovery after.
  • This Budget should help reduce some of the near-term pressure on the AAA rating, but ratings agencies will continue to warn of the dangers and the need for fiscal consolidation. Our fixed income team provide their views on the impact a Sovereign downgrade could have on various assets  here.
  • The Budget impact on financial markets is expected to be limited apart from the banking sector. The implications for monetary policy are minimal and we continue to expect the RBA to remain on hold at 1.5% well into 2018.

Download the full analysis, where we break down the headline budget numbers, summarise key policy initiatives and explore their implications for key asset classes.


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