Federal Budget and an election year. What does history tell us?

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Federal budget and an election year. What does history tell us?

So, bearing in mind that we are not yet post-pandemic, currently viewing the aftermath of record-rupturing floods, and living in the shadow of the ongoing conflict in Ukraine, this year’s election budget could either repeat history on the economy, interest rates, infrastructure and healthcare fronts, or completely buck the trend.

If history has a message for us about the federal budget 2022 in this election year, it’s probably that although Australian federal budgets have in the past affected election outcomes, it’s more often been the underlying economic conditions that have driven both the budget and the election result, and not always in the way that was expected.

The economy

Both the PM and the Treasurer have been plugging the strong economy of late, including the strong GDP growth and the strong recovery in the labour market, so we can expect that the Coalition will go to the polls relying heavily on its past record of sound economic management when there wasn’t a pandemic to derail its plans.

Indeed, Josh Frydenberg’s 2019 election budget – also, like this year, delivered only weeks before polling day – placed economic responsibility at the forefront, with its ‘Back in black’ first surplus in a decade. That promise – though it couldn’t be kept – with added tax cut sweeteners, paid off at the ballot box.

Fast forward three years, and Scott Morrison’s February 2022 address to the National Press Club indicated that budget repair, including low unemployment and deficit reduction after three years of unshackled spending, would dominate the government’s economic management pitch to the electorate once again.

However, inflationary pressures are building and the overall cost of living may rise significantly in the short term, overshadowing the federal budget and monopolising the election debate.

Interest rates

When the Reserve bank increased interest rates during an election campaign for the first time ever in 2007, it created a sensation. Since it happened less than three weeks before election day, it’s not too much of a stretch to say that it may have contributed to the thumping defeat of the Howard government, which had always relied on a policy of keeping interest rates low.

Interest rates have been continually falling to the current historic low since the Coalition was returned to power in 2013, but once again the spectre of an interest rate rise hangs over the budget and the election. The US Federal Reserve’s most recent meeting minutes indicate that an interest rate hike is planned, possibly in March. In the UK, the bank rate was increased by 0.15 percentage points in December 2021, and by 0.25 percentage points in February 2022.

In Australia, the cash rate is predicted to start rising in the second half of the year – after the election. Although rising rates can be a sign of a healthy economy, it will be hard to sell that message to home loan borrowers mortgaged to the hilt in response to booming property prices. Once again, this may be a signal for restrained budget policy settings, as the Coalition seeks to put the brakes on rate rises.

Infrastucture

Recent commitment to infrastructure spending by both federal and state governments has no doubt contributed to the falling unemployment rate, but the Coalition is committed to seeing it fall even further, despite future challenges posed by a reopened national border and the return of migrants. Scott Morrison wants to see an unemployment rate “with a 3 in front of it”, and more spending on infrastructure in the federal budget 2022 is the likely result.

The $15.2 billion infrastructure investment in the 2021-22 budget may be matched, or even exceeded this year, as part of the government’s 10-year, $110 billion rolling infrastructure pipeline, first announced in . . . the 2019 election budget.

Health care

The COVID pandemic is not yet over, borders have recently reopened, and new variants may be waiting down the track. The budget can hardly avoid yet another increase in healthcare spending, especially given recent adverse publicity about the plight of hospital nurses and aged care residents and their carers. Extra COVID medical supplies, including a guaranteed source of rapid antigen tests, will be needed for months to come.

Mental health, suicide prevention and the NDIS are also in voters’ sights, and are likely to figure in budget outlays, even given the possibility of spending restraint. The 2019-2020 election budget (pre-COVID) delivered $82 billion for healthcare. This rose to $94 billion for 2020-2021 and $121 billion for 2021-2022. Should we expect another increase this election year? Probably.


How will the election budget affect your business?

Election year budgets inevitably differ from the norm, as the incumbent government seeks to consolidate its appeal to voters via their wallets. But businesses are owned by voters too, and it can be confusing to sort out business implications in the morass of predictions and statistics.
Michael Beddoes will be helping to unpack the Federal Budget on Wednesday the 6th of April. If you would like to register your interest, please fill out the form below.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.

This information was sourced from this article: https://www.bentleys.com.au/knowledge-centre/federal-budget-and-election-year/