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Unpacking the 2022-23 Federal Budget, the Housing Accord and implications for the residential sector

Restrained spending has characterised the Albanese Government’s first federal budget. With Treasury forecasting annual headline inflation to hit 7.75% in the December quarter, key considerations for fiscal policy range include increasing productivity and moderating spending to minimise inflationary pressures.

Various measures seek to increase labour force capacity, including upskilling workers through subsidised tertiary education, boosting skilled migration and increasing childcare subsidies.

Cost saving measures included a spending audit, identifying more than $20 billion in budget cuts, while the vast majority of tax revenue windfalls will be used to reduce the budget deficit. However, the result is still a budget deficit, with high expenditure across the NDIS in particular running at $35.8 billion over 2022-23.

Another striking figure in an otherwise modest budget was a target for one million new homes to be built by 2030. Below we unpack the direct and indirect implications of this budget for the housing market.

‘Restrained expenditure’ and monetary policy

The housing market has reacted strongly to the rate tightening cycle, with the national CoreLogic Home Value Index down around -6% since its peak in May, year-to-date sales volumes running around -11% lower than in 2021, and the value of new monthly housing finance secured through August down -13.9% since April. From a housing growth perspective, the Federal Budget would ideally reign in expenditure to compliment monetary policy, and reduce the need for further rate hikes.

However, other sectors seem relatively resilient to rate increases, with persistently high consumer spending and further expectations for wage increases meaning there could be more to come in the way of strong cash rate rises.

Economists generally report expenditure in this budget does not stoke inflation further, but that further restraint in spending will be needed so as not to put more pressure on the RBA to keep lifting rates down the line. An obvious target would be increased efficiency and productivity within NDIS operations, which is attracting more spend than aged care, Medicare and state hospitals.

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