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Budget 2017: Here’s what it means for stock market investors like you

Shadow Treasurer Chris Bowen didn’t have a good night last night. He sat across the chamber from Treasurer Scott Morrison and watched ScoMo either take Labor policies or introduce new ones that Labor couldn’t really complain about… because they were akin to Labor policies in the first place.

So when he appeared on the ABC and Sky News, he did his best to find stuff to disagree with, but his was a devil of a job.

This was, as one wag said on Twitter overnight, paraphrasing Paul Keating, the Budget we had to have. Or, perhaps more accurately, the Budget the government had to have.

Trailing in the polls and with the Ghost Of Budgets Past still hanging around their necks, decisive action was required. And to give ScoMo and PM Malcolm Turnbull their due, they grasped the nettle.

Fixing The Problems

The budget was in structural deficit (recurring revenue wouldn’t cover recurring spending, over the full economic and budget cycle).

The Senate — and much of the Australian voting public — weren’t going to cop the Abbott/Hockey budget cuts of previous years.

And so the government had two choices: either cop ongoing, growing budget deficits or address the imbalance by raising revenue.

They — smartly, and in the public interest — did the latter.

And it was a political budget, too.

Who can really complain about a 0.5% increase in the Medicare Levy, if the proceeds are going to the National Disability Insurance Scheme?

Who really thinks the banks are making so much money that they can’t share a little of the largesse with the government?  And 0.06% isn’t that much.

Let’s take it a little further…

Which government doesn’t want the Bankers’ Union screaming at them about how unfair it all is? To the average punter, when the banks are squealing, the government is probably doing something right…

And, in this post-Trump world, taxing foreign-owned property, foreign workers and cutting foreign aid wasn’t going to lose them too many votes… and might just win a few.

Oh sure, the students aren’t loving university funding cuts and earlier HECS repayment, but they probably weren’t voting for the Coalition in large numbers anyway.

And the government got the Doctors’ Union off their back by removing the freeze on the indexation of Medicare payments and the reinstatement of bulk-billing incentives for medical testing.

Under pressure, the government also took baby steps toward improving first-home buyer access to the housing market, essentially by letting them save for their deposit in a very tax-effective manner, inside Superannuation.

That won’t scare the horses too much — the Boomers and Gen-Xers who own their homes are unlikely to see price falls — but it shows the government is doing something… if not much.

… And Chasing Some Votes

And in a little naked vote-grabbing, the obligatory dole-bludger / single-parent / foreigner bashing parts of the budget were also apparent.

There’s nothing like ‘energising the base’ of your most loyal voters by playing to their preconceptions and prejudices.

Budgets are, as they must be, a combination of policy and politics. It’s distasteful, but both sides of politics do it (as do the minor parties when they pick and choose what to congratulate or complain about).

Such, as Ned Kelly said, is life.

And even good policy — of which there was a decent amount in this budget — should almost always necessarily please some people and upset others.

Budgets are balancing acts, just like at home. Every family member would prefer the money be spent slightly differently, and the job of getting it through the Home of Representatives is being fair and reasonable.

On balance, it’s hard to say this wasn’t a fair and reasonable budget. Labor is unhappy about parts of it. So are the Greens. Ditto Jacqui Lambie.

But, perhaps crucially, so is part of the Liberal Party’s own Right faction. Maybe when everyone is just a little annoyed, you’ve got it just about right?

Don’t get me wrong. I’d change a decent slug of the Budget, were I Treasurer for a day. (Indeed, when The Motley Fool launches our political wing, I’ll be asking for your vote. But we’re getting ahead of ourselves.) But I’m a pragmatic realist.

The NDIS is worthy. A prosperous country (and we are) providing worthwhile and useful services to its people is right.

Proponents of small-government are spitting out their coffee as they read this, but we have a health care, education and social welfare system that is the envy of most, and strikes the right balance between universality and being punitive, tax-wise.

The government has sniffed the wind. They know that we’re happy to be taxed a little more, have our banks taxed in recognition of their profits and protected status, and that we want the budget fixed. This budget is a (belated) recognition of that reality, by getting to surplus in a few years with some targeted cuts and some additional revenue.

ScoMo might have previously said we had a spending problem, rather than a revenue problem, but he was wrong.

Last night’s budget is a welcome acknowledgement of that, and a responsible act from a government that wants to get it back to balance, even if there’s some political pandering along the way.

What’s In It For Investors?

Of course, The Motley Fool is a company of investors, working for investors. So what’s in it for us?

The answer, to the relief of many who might have been expecting the worst, is ‘not much’.

Which, given the concerns about a cut to the Capital Gains Tax discount, or a winding back of Negative Gearing, is a welcome sigh of relief.

There are a couple of changes worth bearing in mind, though:

Firstly, if you own shares in the Big Five banks (the Big Four plus Macquarie), you’ll have a little less in the kitty.

The 0.06% tax on bank liabilities will reduce profits… assuming they can’t pass that new tax impost on to customers. I’d bet they will be able to pass it on, but it bears monitoring.

Second, if you’re looking to downsize your home in retirement, the government has announced plans to allow you to put a decent chunk of any surplus into Super. That’s good news if you were thinking about downsizing.

Third, if you’re so inclined, there’s some extra benefit, by way of an increased CGT discount, if you want to invest in the provision of affordable housing.

And what about individual sectors? Well, most of the big-ticket announcements were already released, but here’s a quick list of what could happen:

Big Banks are likely to come under pressure, until they can show that they can pass on the tax impost. But Regional Banks don’t suffer the same imposts.

Healthcare is likely to benefit from the abandonment of Medicare cuts and freezes.

Infrastructure companies will see greater project opportunities if the government follows through on its plans.

Childhood Education may benefit from more funding for the sector.

and:

Discretionary Retailers could get some extra business from small businesses taking advantage of accelerated depreciation.

… or not.

The investment landscape is littered with the financial corpses of investors who bet big on expected macro, political or economic events and outcomes.

Remember those who bet big on President Trump being a disaster for markets?

Or those US investors who backed up the truck on ‘Clean Energy’ when President Obama took office and suffered?

You won’t see huge, stupid macro bets from us here at The Motley Fool.

Will we watch carefully to see if some companies will benefit from this budget? You betcha. And we’ll act decisively if we find it.

But we’re not in the business of jumping at every shadow.

You know where our biggest stock market winners have come from?

Thoughtful, careful business analysis that owes little-to-nothing to macro calls (or even macro tailwinds).

We’ve found great businesses with good market opportunities. That are executing well. And run by great management teams.

The Federal Budget matters. Socially, economically and yes, financially.

But for investors, it’s rarely what should move the dial. Budgets shouldn’t be exciting. They shouldn’t even be market-moving.

And great investing shouldn’t get caught up in the headlines.

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