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3 things to expect in this year’s Budget?


Ongoing issues with getting spending under control, action on the housing sector and stronger headline numbers are likely to feature in this year’s Federal Budget.

In this video, Shane Oliver, Chief Economist, and Head of Investment Strategy at AMP Capital discusses some key expectations for the 2017-18 Australian Federal Budget, which is due to be released at approximately 7.30pm (AEST) on Tuesday 9 May 2017. He believes the big focus this year will be on Australian housing and addressing the issue of affordability through changes to capital gains taxation.

Other key developments over the past week

This week, the Australian Federal Government announced its plan to abolish the 457 visa (a foreign migrant skilled visa) and replace it with a more targeted skilled visa focused on areas where there is a ‘genuine skills shortage’. The number of 457 visa holders is only around 0.8% of the labour market and has declined because of the slowing mining investment boom in Western Australia and Queensland. The change in policy is unlikely to have much of a large impact on wage inflation.

The April Reserve Bank of Australia (RBA) Board minutes noted that the developments in the labour and housing markets warranted careful monitoring over coming months. The minutes pre-date the very strong March employment figures so the RBA is probably a little more comfortable around the labour market outlook. Nevertheless, while low underlying inflation and sub-trend growth may indicate lower interest rates, the RBA’s concerns around the risks to financial stability from high household debt and booming house prices will keep the central bank on hold for the remainder of 2017 and we don’t see the RBA lifting rates until the end of 2018.

What to watch over the next week?

Australian consumer price inflation data for the March quarter is expected to show quarterly headline inflation rising by 0.5% with annual growth rising to 2.2%. Higher petrol prices will lift transport costs and the tobacco excise will put pressure on alcohol and tobacco prices. Clothing and footwear prices are likely to come under pressure because of seasonal weakness (post-Christmas sales) and overall soft demand. 

While headline inflation is rising, underlying inflation is still too low and expected to have risen by 0.4% over the March quarter (1.7% over the year). As the RBA aims to get core inflation back in its 2-3% target band, we still see limited upward inflationary pressures in the Australian economic landscape. 

Underemployment is still high, keeping a lid on wages growth and capacity utilisation still has room to rise. Consequently, below-target inflation is likely to persist for some time. 

Other Australian data next week includes the first quarter export and import prices which should show another step up in the terms of trade, the March credit data, and a speech from RBA Governor Lowe.

Here it first

Be among the first to access commentary from Shane Oliver, Head of Investment Strategy and Chief Economist, and a team of experts on what the Budget means for the economy and investment markets.

AMP Capital’s coverage will go live by 0.01am (AEST) on Wednesday 10 May 2017. To ensure you receive the latest updates, please register here

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