Shane Oliver
Chief Economist and Head of Investment Strategy

The impending Australian election is fuelling additional interest in the budget this year, with taxation and negative gearing to be key areas of interest among voters. In this video, Shane Oliver provides an outlook for federal budget outcomes as well as discussing recent Australian dollar and property market movements.
 

How will the Australian dollar perform in the coming months?

The 10% or so rise in the Australian dollar over the past few months is due to the negative outlook at the beginning of the year giving way to improving confidence in the global economy – rising prices for iron ore and oil for instance. This pushes up the value of our dollar as well as global share markets. In the short term, we could see the Australian dollar rise to 80 cents however, this isn’t likely to be sustained through the medium term. We see the Australian dollar trending downwards as commodity prices remain in a long term bear market – over the next 12 months the dollar will probably drop below 70 cents and into the 60s.

Australian property market movements

Uncertainty about the Australian property market has caused some volatility recently. Cooling in the market was pronounced in the December quarter of last year however, we have seen some price growth resume this year. This volatility has particularly impacted Sydney and Melbourne although price growth remains slower than it was this time last year. Sydney auction clearance rates are running at around 70% - this is also down from the highs in the 80s we saw last year. Although the property market has cooled down, a crash still looks to be a long way off, if it is to happen at all.

Federal budget outlook

There will be added interest in the May 3 announcement as it’s likely to be the final major economic statement the Government makes before the election later this year. With the opposition taking a strong stance on capital gains tax and negative gearing, we’re looking at a focus this year on taxation. Corporate tax could be cut by up to 1.5% however, there is likely to be minimal – if any – relief in terms of personal income tax. There will probably be some changes to superannuation. Overall, the outlook is for minimal growth in government spending, with spending offset by savings elsewhere in the Budget. Where sharemarkets are concerned, historically we have seen some sideways tracking in election years but there has been no evidence to date of a lasting impact caused by an election. In fact, Australian economic growth has actually been strong during election years since 1980.

Shane Oliver

Dr Shane Oliver has extensive experience analysing economic and investment cycles and how current positioning affects the return potential for asset classes such as shares, bonds, property and infrastructure. Shane is a regular media commentator, providing economic forecasts and analysis of key variables and issues that affect all asset markets.

 

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