Federal Treasurer Josh Frydenberg unleashed a wave of new spending last night that will likely give several ASX shares a nice boost.
If you haven’t already heard, spending is the new fiscal conservatism!
While many of the details from the 2021 federal budget has been leaked, Frydenberg still pulled a few rabbits out of the hat.
Never mind that the massive spend will punch a $161 billion hole in the budget this year. It’s all about keeping our economy on the path to COVID-19 recovery.
ASX shares to get slice of the multi-billion cash handout
ASX investors won’t be complaining either. Many of the billions of dollars that the government is throwing around will flow into the market.
One of the surprise spending initiatives that Frydenberg unveiled last night is the one-year extension of the instant asset write-off scheme.
It’s estimated that 99% of Australian companies will benefit. They can purchase capital equipment and immediately deduct that from the current year’s tax bill and there’s no cap.
Tax breaks in 2021 Federal Budget to boost ASX shares
ASX companies that sell capital equipment are likely to be grinning from ear to ear. These include auto accessories groups like the ARB Corporation Limited (ASX: ARB) share price and car yards like Eagers Automotive Ltd (ASX: APE) share price.
Another tax break extension is the $1080 tax credit for low- and middle-income singles. Any tax savings are likely to be spent by this group.
I won’t be surprised if the Harvey Norman Holdings Limited (ASX: HVN) share price gets a second government sponsored support from the initiative after the retailer refused to hand back its Jobkeeper payments.
Stimulus for innovation and technology
Another surprise was the Patent Box. Companies that develop local patented innovations will only have to pay a tax rate of 17% on income earned from that technology.
The biotech industry has been calling for such a program for years, and I believe the CSL Limited (ASX: CSL) share price and Starpharma Holdings Limited (ASX: SPL) share price could benefit from this.
ASX miners could also get a piece of the action. It’s worth pointing out that the better-than-expected budget position is due to high commodity prices. And while there is no specific handout to this sector, the government’s new $1.6 billion funding for priority energy technologies, which include batteries, will add demand for copper and other base metals.
Other ways the 2021 budget could flood the ASX
Then there are also changes that will encourage Aussies to put more cash into their superannuation. A good chunk of that retirement savings are likely to find its way into the market too.
Throw in the $15 billion in new funding for infrastructure, $1.7 billion for childcare and $2.1 billion extra for aviation and tourism. You can see how widespread the benefits to ASX shares could be.
One has to wonder how much extra pressure on inflation the 2021 federal budget will put on the economy though.