The National Budget – it’s all about building confidence

After the marked reduction in consumer confidence that occurred last year, shortly after the 2014/15 budget was announced, it will be interesting to see what impact this year’s Federal Budget will have.

Consumer and business confidence is really what it’s all about.

If you can build confidence while at the same time maintaining a reasonably sound fiscal policy, it’s fair to say the country will fare well and all will be at peace for the government.

Consumer confidence leads to spending which leads to business growth which leads to strong employment which all leads to strong tax collection which leads to the ability of a government to provide benefits that the population sees as priorities.

While there will always be areas of disappointment in a budget, it would come as a surprise if overall consumer and business confidence doesn’t rise as a result of Federal Budget 2015/16.

The five key areas of focus

  • Reform of funding for early childhood care
  • Measures to encourage small business investment
  • An increase in funding for national security
  • Provisions to increase the integrity of the tax system particularly in relation to the tax rorting that has taken place by international corporations
  • A softening in policy on some of the reforms proposed in the last budget.

These measures, combined with the Reserve Bank lowering interest rates by 0.5% in two bites this year, should result in a level of stimulus for the economy as a result of improved confidence.

The reduction in company tax to 28.5% for corporations with a turnover of less than $2million, the 5% cut to taxes on profits (up to a maximum of $1,000 a year) for unincorporated small businesses and the allowance of asset purchases up to $20,000 to be treated as tax deductions rather than simply depreciable assets are not items to get really excited about – but there will be some spending stimulation as a result of them.

The more important outcome, according to many pundits is that the very perception of positive things happening is what leads to greater confidence, aspects that are crucially important because outside of residential construction, business confidence and job creation has been subdued.

Undoubtedly the area of most interest in the economy at present (apart from the hope for iron ore prices to rise) is the area of home building.

Private dwelling investment has been forecasted by the Treasury to have growth of 6.5% in 2015-16 following on from the marked improvement that has occurred in 2014-15.

Treasury has forecasted this growth to continue into 2016-17.

This has to be good news for a large slice of the economy because it’s not just the building industry that benefits but those who supply material and goods for homes as well as those who supply builders and sub-contractors with equipment and tools.

This industry has a long reach backwards and is also an enormous source of gst revenue – all good news for the economy.