Why this Federal Budget is good for many ASX shares

I think ASX shares will benefit from the Federal Budget. Here's why the latest spending announcements are good for business and the economy.

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Investors in ASX shares have a lot to like about last night's Federal Budget. Tax cuts and monetary incentives look set to boost profits and encourage business activity in 2021.

Why the Federal Budget is good for ASX shares

There were some clear winners from last night's budget announcement by Treasurer Josh Frydenberg.

These include construction leaders like Mirvac Group (ASX: MGR) with further infrastructure spending. There were also coronavirus-related companies like CSL Limited (ASX: CSL) that could receive a boost alongside innovation companies in the fintech space.

But there are also the generic tax cuts that will sweep across most of corporate Australia. For one thing, the government wants to spark more capital expenditure by allowing full expensing of 'eligible capital assets'. 

That could trigger a spending spree that boosts ASX shares higher. More long-term investment is good for growth provided the assets deliver future benefits.

There's also the microeconomic impacts we could see flow through to earnings. These include a big boost for consumer discretionary shares with $17.8 billion in personal income tax cuts.

The government is hoping more handouts and bigger tax cuts will stimulate greater spending. That could see ASX retail shares like JB Hi-Fi Limited (ASX: JBH) and Super Retail Group Ltd (ASX: SUL) continue to book strong sales.

Looking even further upstream, we arrive at the ASX bank shares. I think investors in the Aussie banks would have to be happy with this budget and we could see shares like Commonwealth Bank of Australia (ASX: CBA) climb higher.

A stronger economy and lower unemployment, also boosted by incentives in the latest budget, are good for banks. These mean lower default rates and better loan quality which is good for investors.

Foolish takeaway

Overall, I feel this was a very 'business-friendly' Federal Budget given the sweeping tax cuts and government spending across the economy.

For investors worried about buying into ASX shares right now, I think this sends a strong signal that corporate Australia could bounce back strongly in coming years.

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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