Finance

Federal Budget 2024

My first comments are those involving inflation.

Inflation is triggered by too much money being pumped into the economy whereby goods and services are in relative scarcity. In other words, people and businesses compete for the goods and services therefore have to pay more to acquire them.

We are being taxed on inflation! If the inflation rate for HELP/HECS student debts were increased by 7.1% then the tax brackets need to be indexed the same. Let’s take a basic example. The first tax bracket is at $118,200 and if we factor in the 7.1% it would then be $19,492. Now it’s been quite a while since that $18,200 bracket has been lifted and I suggest it should be around $25,000.

So, we are paying tax on amounts over $18,200 and in fact we are paying tax on the inflationary dollars. In fact, we’re paying a higher percentage of tax on our income because of inflationary factors. Ideally inflation should be kept around 2-3 % Generally inflation affects house prices and we’ve seen house prices climb dramatically.

My next point is that immigration is at a really uncertainable level. Nearly 600,000 new migrants arrived putting pressure on housing. Immigrants are good if they are going to contribute o Australia’s economy. These immigrants should be, and I believe that they are skilled workers. That’s great! The federal government wants to build 1.2 million social houses in the next 5 years. The problem is where are we going to get the skilled workers from? The estimate is that we would need another 90,000 trade people to be able to do that. Another issue is the average cost of construction materials has risen by 96%!

I am surprised and delighted that the federal government has not touched the negative gearing for rental properties. Negative gearing is when the rental income is less than the allowable expenses. People say they want negative gearing disallowed. When Paul Keating was the treasurer he quarantined negative gearing (in other words not allowed to be claimed). The result – the real estate industry collapsed and rents rose dramatically. Keating had to revoke that disallowance of negative gearing in a few years!

People and certain political parties do not seem to realize that if negative gearing is disallowed as a tax deduction the consequences will be that rents will rise (dramatically) and landlords will exit the market. In fact, on the eastern seaboard over one third of the properties for sale are those held by landlords who are exiting the rental investment market. The thing is that those who want negative gearing disallowed don’t mention the capital gains tax when the rental property is sold. Another factor to take into account is that it is conveniently forgotten and not mentioned.

The federal budget shows or rather expects to have a very big surplus. That means that the government will spend less than what it receives. This will be short lived, and it is expected that the federal government will run massive deficits for many years. So, what are you saying? If the government runs at deficit, then it has to borrow (from overseas). Obviously, the loans and interest must be repaid, and that money is therefore removed from the Australian economy. This means that the government is not able to fund many projects or pump money into the economy. Managing the economy is very tricky. If the inflation factor is not curbed, then the Reserve Bank of Australia will increase interest rates to help curb

inflation. The RBA’s only tool is to manage interest rates. The RBA’s job is to keep inflation at 2-3% and ideally no more. Governments must not pump the economy with money to cause inflation. Treasurers have a habit of blaming the RBS for increased interest rates but that’s the job of the RBA. Most times it’s the federal government that causes massive inflation as experienced in the Whitlam years.

My opinion on the federal budget is that it is bland and a bit of a cash splash. My concern is that it will fuel inflation rather than bringing inflation down. I think the federal government hopes to get interest rates down before the next federal election. The shadow treasurer (Angus Taylor) is quoted as saying that the energy bill ($300 to households) won’t reduce inflation.

The biggest concern though is that the next federal budget and thereafter will comprise nothing but major deficits and note that we the taxpayers are going to pay for those deficits. Government spending will be cut to allow the government to pay off loans and interest.

The budget talks about making Australia more industrialized by manufacturing here. Personally, I cannot see how this will work. There are so many regulations about manufacturing here, I believe industry will not be so enthusiastic. This federal government’ s idea is fine in principle, but I would like to see the “fine print” on exactly how this will happen. Mind you I’m all for it and truly hope it can work.

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