Budget – Market Implications

Wednesday, May 09 2012

The primary aim of the Financial Year 2012/2013 budget is a return to a headline surplus of $1.5bn. We would flag that this forecast relies on still optimistic growth rates over the next two years for both the economy (3.25% & 3.0%) and unemployment (5.5% & 5.5%) respectively.

The forecast budget turnaround is reliant on growth in income and company tax receipts ($19.1bn). The analysis highlights that already announced new taxes (MRRT $5.7bn) and a number of other receipts ($11.4bn likely to include the sale of 5G spectrum estimated at $5bn) and specified spending cuts (defence and road spending $4.7bn) and unspecified spending cuts ($2.4bn) to round out the $46bn forecast budget turnaround.

Essentially we see the budget as less restrictive on the economy than feared largely because to arrive at the surplus they need the economy to grow strongly to drive taxes higher. This might not occur. Nonetheless once the sugar hit from the handouts washes through the economy then the impact of the mining tax and some reduced spending will be somewhat restrictive.

Key implications for the market:

1. Cash handouts: In 2008/2009 when the Government handed cash to households to stimulate the economy the money was spent in retail (JB Hi Fi, Big W, Kmart, Bunnings), it was gambled on the pokies (Tabcorp, Tatts, Crown) and travel increased (Wotif, Flight Centre). We expect these companies to benefit once again although the retailers will face increased competition from the internet and some of the cash might find its way offshore.

2. Better than feared for mining companies with no cut to the diesel rebate.

3. No 1% cut to the company tax rate will have a small negative impact on all companies but has not been factored into forecasts. 



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