Federal Budget 2017: Snapshot

On Tuesday 9 May, the Federal Government handed down its Budget for the 2017–18 financial year.

According to Federal Treasurer Scott Morrison, this year’s Budget is founded on the principles of fairness, security and opportunity. Mr Morrison claims that the government’s proposed measures will raise almost $21 billion in revenue over the next four years, returning Australia’s budget to surplus by 2021.

Here are some of the key Budget announcements. Note that each of these proposals will only become law if it is passed by Parliament...

Read Budget Summary Here (Colonial First State)

Watch Budget Overview Here (MLC)

Read Budget Commentary Here (AMP)

RATES ON HOLD

The RBA has opted to leave the official cash rate on hold at 1.5%.

As lenders continue with their out of cycle rate increases, at its board meeting today the Reserve Bank of Australia decided to leave the official cash rate unchanged.

This follows new data released yesterday that indicates the strong Sydney and Melbourne property markets may be close to peaking following APRA's intervention into the levels of interest only and investment lending the banks are funding.

It also appears the Reserve Bank is waiting to gauge the impact of next Tuesday's federal budget on overall economic sentiment.

Trump Tantrum?

Since the US elections back in November, the 'Trump Trade' has sharply boosted global share markets, based on the promise of lower taxes, less regulation and other 'pro-growth' policies. After a lengthy period of economic 'stagnation' (not quite true), the prospect of Donald Trump ushering-in a thrilling, no-holds-barred period of Reaganesque optimism is an intoxicating idea, no doubt contributing to his election in the first place.

But is all of this about to come unstuck? Quite possibly.

With a Presidency already under fire for possible Russian collusion, bogus wiretapping claims and a myriad of other missteps, you could be forgiven for thinking that you've just stepped out of a time machine and it's 1974 all over again.

Nixon aside, Trump's massively eroded political capital and growing credibility problem points to short-term danger for the sharemarket. If Trump is no longer trusted, or even liked, his capacity to swiftly enact his pro-growth agenda is suddenly at risk, and with it, the quick sharemarket gains made since last November.

And Trump's first litmus test will be tonight's vote on his revised healthcare bill. If the vote doesn't pass or is post-postponed, markets will be rattled. Brace yourself, but don't forget the opportunities that come with uncertainty - we've been here before.

Rick Maggi

HOUSING OVERVALUED?

The cooling in the Sydney and Melbourne property markets evident in late 2015 in response to macro prudential tightening deployed by APRA has proved ephemeral.

Price gains have reaccelerated and auction clearance rates & lending to property investors have rebounded.

Over the last five years Sydney dwelling prices have risen a ridiculous 73% and Melbourne prices are up 47%. As a result the Australian housing market continues to cause much angst around poor affordability and high household debt. This note looks at the main issues.  Read more

Where are we now?

It’s now a decade since the first problems with US sub-prime mortgages started to appear and nearly eight years since share markets hit their global financial crisis lows. From those lows in 2009 lows US shares are up 239%, global shares are up 167% and Australian shares are up 80% (held back by relatively higher interest rates, the absence of money printing, the plunge in commodity prices from their 2011 highs and the high $A).

An obvious question is how close the next downturn is, which ultimately relates to where we are in the investment cycle. 

Read more here