9News: Budget 2019

Peter Overton, Nine News Sydney: Ross, we’ve heard from Chris on the politics impact of the budget, But of course we want to know how does it stack up economically?

Ross Greenwood: Well, there is one hero assumption in all this budget and that is that wages will start to grow, and grow significantly, over the next few years.

The reason why that is heroic is because just remember that the Government makes just a little under half of all its revenue from PAYG taxpayers.

So if – a) the number of jobs aren’t as great as what the government imagines or b) those people don’t get paid as much as what the government says in this budget… then quite clearly they wont have the revenues and that could curtail their ability to hand out the type of tax cuts they have announced tonight.

Now, clearly what they are banking on is that more jobs will be created and there will be more competition for employees and as a result, wages will eventually rise.

But certainly over the past couple of years Peter, there has not been much sign of that. So that in this budget is the heroic assumption.

Overton: Ross, tax cuts, you mentioned that. They are clearly the lynch-pin of this budget, the pre-election carrier to voters. Give us some perspective – just how significant are these cuts?

Greenwood: The one thing you’ve got to say and basically give acknowledgment to the government about is by five years – 2024 – flattening out the tax rate between $45,000 a year and $200,000 to make certain that people in those income tax brackets pay no more than 30cent in the dollar.

That basically is good tax policy. The reason is it gives people incentive to work, incentive to earn more. And that’s a good thing.

But do bear in mind also that there is another thing – the government had to give something to struggling families right now on low wages growth immediately, and this is the reason why these families on modest incomes and middle-income will get the $1000per individual taxpayer.

And that really, if you like, gives them a shot in the arm.

Bear in mind also that the Reserve Bank today did not move interest rates and that’s important. The reason for it is because if there is any economic downturn, with interest rates already so low, the it would be up to government to borrow and to hand out more tax cuts to Australian families to try and stimulate their spending and keep the economy on track, if there were a downturn.

Overton: Rossco, very quickly, the impact on markets – you mentioned interest rates – and how they were on hold for the 28^th consecutive meeting at the RBA, is there still mood for an interest rate cut, do you think?

Greenwood: Look, there is, There is no doubt the markets are now factoring in an 88 per cent chance that interest rates will be cut by the Reserve Bank this year.

Look, the dollar has rallied a little bit but the truth the government bonds are right now are at almost record lows and so the ability for the government to be able to fund the debt its got – $370 billion – well, they are adequately covered.

But the real issue is not much real horse power there if there were a significant downturn. Either in the commodity prices, the Chinese economy or indeed, the domestic economy as a result of falling house prices.

That, if you like, may be the Achilles heel – not only got this government if re-elected, but also potentially for a future Labor government.

Overton: Ross, as always, thank you.