The budget may not look like it will have much impact on the market at first blush, but there are two ways it could influence the direction of equities over the short to medium term.
The biggest thing that the budget can deliver to the Australian economy is not stimulus but confidence. Business conditions have been challenging over the past 12 months in large part because of government.
I am grateful to see the coalition government step out of the way of business this time and that should mean a step up for business sentiment, other than for those multinationals that are being accused of minimising their tax obligations.
Among the ASX-listed companies, mining giant BHP Billiton Limited (ASX: BHP) is most at risk from the government crackdown as it is fighting the Australian Tax Office over a $522 million tax bill relating to its Singapore tax shelter, I mean "trading hub".
The other way the budget can impact on stocks is from new spending initiatives. Much of this, such as childcare rebates, has been "leaked" by the government, prompting childcare centre operator G8 Education Ltd's (ASX: GEM) recent share price jump as covered by my colleague Ryan Newman.
But there were two big surprises in the budget.
One is the $5 billion infrastructure plan to open up the Northern Territory. This new spending could really give a bottom line boost to civil contractors like Cimic Group Ltd (ASX: CIM), the former Leighton Holdings, and Lend Lease Group (ASX: LLC).
While the stocks look fully valued, this is based on the assumption that earnings for both will contract sharply this financial year with a modest recovery in 2015-16.
These estimates will be upgraded if they win some of the new work and I think they stand a good chance given their strong track record. I would be looking to buy the stocks on dips.
The other budget surprise is the very generous deductions small businesses can make. Any purchases up to $20,000 can be written off their tax in that year instead of being amortised over many years.
What's more, there is no limit on this. Even Treasurer Joe Hockey admitted as much that he would be pleased if small businesses exceeded the $1.7 billion estimate in the budget. He wants people to spend and anyone with an Australian Business Number (ABN) can qualify.
I suspect this will lead to a surge in demand for laptops, mobile phones, power tools and flat screen televisions.
This should give big retailers like JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings Limited (ASX: HVN), Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW) a boost. Wesfarmers and Woolworths own home improvement superstores Bunnings and Masters, respectively.
On the small cap end of the market, computer hardware retailer Dicker Data Ltd (ASX: DDR) and mobile phone retailer Vita Group Limited (ASX: VTG) are also likely to benefit.
Now let's hope these measures will get past the Senate.
