2007-2008 Australian Budget Impact

Sharemarket analyst Macquarie Research Equities have provided a 2007/2008 Australian Budget Impact statement. Investors who had been eagerly awaiting the release of the 2007-2008 Budget were last night greeted with a host of initiatives that included a significant boost to household disposable income. The key initiatives announced in the Federal Budget that have notable implications for the Australian listed market are as follows: Personal tax relief aimed at low and medium income earners; Increased investment in transport and water infrastructure; Child care benefits increased by 10%; A one-off ‘Seniors bonus’ payment of $500 to be paid by 30 June 2007; An extra $1.1bn will be placed in superannuation accounts for lower income earners.

The fiscal stimulus of the 2007–08 Budget is expected to boost GDP by between 0.5% and 0.75%. the analyst's expect this year's budget to aid discretionary spending via tax savings and direct payments to families and the elderly. The government will provide funding of $22.3bn over five years from 2009–10 for road and rail infrastructure. The government will also invest $10bn over 10 years in the area of water infrastructure. This will provide many of the engineering and construction services companies with a longer duration of workflow, extending significant works out to 2014. The delay in commencing
these big projects until 2009 is a blessing for many of the engineering companies since they are at the moment mostly at capacity. From 1 July 2007, child care benefits will increase by 10%. The child care tax rebate will be a direct payment shortly after the end of the financial year. Childcare facilities are the obvious beneficiary providing them with ammunition to increase prices. Senior citizens will be paid a bonus of $500. Couples will each be given the bonus. This is expected to be worth $1.3bn and will be paid by 30 June 2007. This should provide retailers with much activity in the coming months, similar to what we saw with the ‘baby bonus’ in July 2004. Firms exposed to the consumer should also benefit longer term from the changes to income tax. The government will double the co-contribution for eligible superannuation contributions made in 2005–06 by low income earners. The superannuation industry will receive an extra $1.1bn due to this initiative.

Stocks/sectors likely to benefit most from the budget changes announced: Construction services and engineering sectors: UGL, TSE, LEI, DOW, TPI, and COA; Discretionary retail stocks, such as HVN, DJS, CGJ and WOW, as well as the smaller specialty retailers, which are likely to see some modest boost to sales as a result of the personal income tax savings; AMP, PPT, and the major banks CBA, WBC, ANZ, and NAB, to varying degrees through their exposure to superannuation; ABS, due to the potential to increase prices on the back of the increased child care rebate. swould highlight, however, that ABS centres have higher than average occupancy rates and so the ability to increase revenues is dampened somewhat.