Federal budget 2019: What it means for the Australian economy

Australia’s coalition government has announced the federal budget for 2019-20, with forecasts of a $7.1 billion return to surplus.

If the forecasts eventuate, it would be the first return to budget surplus in over a decade.

Treasurer Josh Frydenberg has said the surplus is possible, even with current projections.

Mr Frydenberg says the budget plans for a stronger economy without increasing taxes. 'Our plan is shaped by our vales, and our values embrace all Australians,' Mr Frydenberg says.

'I am pleased to announce a budget surplus of $7.1 billion... a total of $45 billion of surpluses over the next four years,' Mr Frydenberg says.

The government announced a cash splash of tax cuts and funding for roads, rail and airports.

Low and middle-income earners

The government has pledged A$158 billion of tax relief for low to middle income earners. As of July 1, low and middle-income earners will receive a lump sum of up to A$1,080 a year.

The government also announced it will lower the 32.5% tax bracket to 30% from 2024-25. The tax rebate is for low-to middle income earners, or people earning between A$48,000-A$90,000 a year.

Budget papers showed the cost of the tax cuts out to 2021/22 would be A$15 billion. The government said it would also accelerate tax cuts for small businesses, with the tax rate for businesses with turnover of less than A$50 million cut to 25 percent in 2021/22

Economic Growth

The government has forecast full-year economic growth of 2.25% in 2018/19, which would mean activity would need to pick up in the January-to-June period, as the economy grew 0.3% in the September quarter and 0.3% in the December quarter.

The government has forecast a budget surplus of A$7.1 billion in the fiscal year ending June 2020, up from a December forecast of a A$4.1 billion surplus.

The projected surpluses increase to A$11 billion in 2020/21 and A$17.8 billion in 2021/22 before easing to A$9.2 billion in 2022/23.

Economic growth is forecast to 2.75% in 2019/20 and 2020/21.

If enacted, tax cuts and increased spending, could offer a boost to the economy, with consumer spending and falling home prices and high debt levels weighing on sentiment.

Infrastructure

The government has also promised $100 billion on roads and rail over a decade. The $100 billion is projected over the next 10 years, with $42 billion to be spent over the next four.

Financial market reaction

Financial markets are fully pricing in a 25-basis points rate cut later this year.

Analysts say the reaction to the budget in markets has been minimal. Interest rate markets were largely unchanged with more reaction to the RBA.

SPI futures contracts indicated a gain for the ASX200 in early morning trading.


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