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Hear our thoughts on the 2021-22 Budget...
The 21/22 Budget was presented as “the COVID Budget” with some extraordinary measures pitched as addressing growth, jobs, infrastructure and women. It continues or extends a range of measures from previous budgets (tax cuts, programs like Home Deposit Schemes) and does provide some additional funding into housing, which, from our perspective, will tend to pump inflationary pressure without addressing our underlying supply issues.
In a year of predictions that never eventuated, like house prices will fall by 15% off the back of reduced demand from immigration, we have instead seen house prices go through the roof as the reality is of cashed up residents on a spending spree, encouraged by government incentives like Homebuilder and increased savings.
The budget forecasts or deficit levels have also surprised. The underlying cash deficit in 2021‑22 is forecast to be $106.6 billion (5.0 per cent of GDP). This is expected to improve over the forward estimates to a $57.0 billion deficit (2.4 per cent of GDP) in 2024‑25 and to a deficit of 1.3 per cent of GDP by the end of the medium term.
Compared to the 2020‑21 Budget, the underlying cash deficit has improved by $52.7 billion in 2020‑21. This is largely due to economic growth rebounding more quickly than expected, largely due to the containment of COVID-19 allowing economic activity and the growth of iron ore prices adding to revenue.
Real GDP is forecast to grow by 1.25 per cent in 2020-21, by 4.25 per cent in 2021-22 and 2.5 per cent in 2022-23. After falling by 2.5 per cent in 2020, real GDP is expected to grow by 5.25 per cent in 2021, and by 2.75 per cent in 2022.
Population growth is forecast to be around 0.1 per cent in 2020‑21, 0.2 per cent in 2021‑22 and 0.8 per cent in 2022‑23.
Despite the low population growth, house prices have not fallen, as banks, commentators and even the RBA predicted. Additional capacity expected due to low migration, international students and workers has been offset by personal savings growth and record low-interest rates and meant that house prices have grown at very high rates, rental markets have become increasingly tight, rents have risen and our regions have been impacted to a higher degree than cities.
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