2024 Federal Budget: Implications for households

The 2024/25 Federal Budget attempted to deliver cost-of-living support in the short term during a period of high inflation, while also keeping an eye on the medium-term economic challenges ahead - a tough assignment.

The immediate cost-of-living pressures on households are primarily due to inflation, so the budget needed to offer support without adding to inflation. It will take some time before we see exactly how this all pans out.

The main form of relief was tax cuts, which will help to unwind some of the ‘bracket creep’ that has built during the surge in inflation. Opinions are divided on what households will do with this extra cash.

Our forecasts for interest rates and inflation haven’t changed as a result of the budget, where we see rates on hold for all of 2024. However, it’s fair to say there are a lot of opinions ranging from higher rates ahead because of the spending in the budget, to rate cuts in spring as inflation moderates.

Here are some of the key points from the 2024 Federal Budget:

Cost of living relief

• Stage 3 tax cuts are worth $20 billion a year, starting July 1st.
• A $300 energy bill rebate will be available for all households.
• Commonwealth Rent Assistance to be expanded by 10%.

Promises of lower inflation ahead

• The budget forecasts lower inflation ahead helped by lower energy costs, however, the impact on demand will be important for inflation.
• How much of the household support will be saved, and how much will be spent?

A surplus now, but back to deficits next year

• The budget forecasts a surplus of $9.3 billion this financial year.
• A surplus might suggest that fiscal policy is working in tandem with monetary policy, however, deficits fare forecast or the foreseeable future, and public spending is rising.

Housing affordability

• The “Homes For Australia’ package will add to the existing Housing Australia Future Fund.
• Developers and social housing providers received $4.3 billion in budget support.
• Subsidies for construction apprentices and fee-free TAFE places will help, but do we have enough tradies now to build the houses quickly enough?

The effectiveness of the budget may become evident as economic data evolves this year. Will inflation return to around 3% by year end, and will that allow the RBA to cut rates by early next year, as hoped?

Other factors including overseas developments may overtake the impact of the budget, but rightly or wrongly it’s perceived success as fiscal policy will probably rest on what eventuates with RBA monetary policy.

You can read our full summary of the 2024 Federal Budget here.

If you’re interested in more regular Economic and market updates, you can watch our monthly Market update video or read our monthly Economic and market update on our Business banking hub page.

David Robertson
Chief Economist, Head of Economic and Markets Research
Bendigo and Adelaide Bank Limited
24 May 2024