My 2024 Budget verdict

That's a lot of 'stuff' to take in. And the numbers are mind-boggling.

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Well, only 364 days until the 2025 Federal Budget! Start the countdown.

And, as a finance, economics and policy nerd, I'm only very slightly kidding!

But before we get to that, let's take a look at what the Treasurer announced overnight in the 2024 Federal Budget.

The headlines?

Well, there's a $9.3b Budget surplus. Given the size of our national debt and inflation pressures, that's a good thing.

And, as we all well and truly know by now, every (income) taxpayer will get a tax cut from July 1. They'll cost $105 billion over the next five years.

The new 'what's in it for me' for everyone is a $300 saving on our energy bills (and $325 for one million small businesses), which will cost the Budget about $3.5 billion.

That's the biggest of the big stuff announced yesterday, but it's not the whole thing.

The government's other 'signature policy', the focus-group-named 'Future Made in Australia' program will cost $23b over a decade.

Additionally, there's $3b for additional medicines to be included in the Pharmaceutical Benefits Scheme, the previously announced $3b reduction in HECS/HELP debts and $1.9b in rent assistance. There's also the best part of $1b for victims of domestic violence, and another $1b for more housing.

That's a lot of 'stuff' to take in. And the numbers are mind-boggling.

Oh, and the bad news? This year's surplus is expected to be the last one for yonks. Indeed, the cumulative surplus of the next 4 years is forecast at $112 billion, wiping out this year's surplus a dozen times over.

Unfortunately, the Treasurer seems to have not received, or misplaced, my letter from yesterday. There is no Sovereign Wealth Fund. No structural Budget balance, and no plan to pay down the national debt.

And while the Budget was relatively restrained, there is spending in this Budget that will, unfortunately, put upward pressure on inflation. (Yes, the Treasurer said otherwise, but I don't know how you put extra money into the economy from tax cuts and energy rebates and have it magically not put upward pressure on inflation, even if you think they're justified).

I was asked on radio this morning: "You've been watching Budgets for years… what's your verdict on this one?"

My answer: It's better than it could have been, but not as good as it should have been.

How so? Let me explain.

I'm a broken record on Stage 3 tax cuts, but one more time: they're unaffordable and irresponsible, because they add to the national debt and – notably at this time in particular – are inflationary.

The $300/$325 energy rebate/subsidy is not means-tested. There are plenty of people in our country who need every spare dollar the government can give them. And plenty of people who don't. Giving everyone some money is politically convenient, but not economically responsible.

The Budget is still expansionary, despite the surplus. Which at first blush doesn't seem possible. The reason is that the surplus comes primarily from sales of commodities to overseas customers. The 'domestic balance' is still stimulatory, overall.

And as I've written before, the 'Future Made in Australia' thing is very, very likely to be a waste of money. If there are new, profitable, things that business could be doing, it already would. And if it's not profitable, there's only a very slight chance that government subsidies can make it so… without those subsidies going on forever. And they're subsidies that could otherwise be spent elsewhere or, more preferably, banked to help lower the national debt.

(Also, any assets – human and financial – that are dragged toward these subsidised activities would likely be coming from higher value activities elsewhere, so we lose, twice.)

Those are the very real downsides for the economy and the country from this Budget.

But it's also true that the Treasurer (and his ministerial colleagues) could have spent more of the extra revenue on other things. That they didn't, should count for something (yes, it's a function of low expectations and bitter experience that 'it could have been worse' is a positive, but here we are!).

Much of the new spending is objectively worthwhile, too, on social and welfare grounds. Not everything needs an economic return to be justified.

It is, overall, a bit of a nothing Budget, though. Some handouts, as we're used to expecting, but not that much in the way of newly announced spending. A surplus, which is welcome, but not particularly large, and not as a result of government policy… more just luck, internationally and domestically.

Not much ambition. No signature policies. No great nation-building. And no Sovereign Wealth Fund, unfortunately. But also, on the other side, no (new) grandiose spending plans of any significant scale.

So, a bit… nothing.

For all of that, every taxpayer and every household gets some extra cash from July 1. If that feels to you like a pre-election Budget, you're not alone. I could be wrong, but this seems designed to make us all feel like we're a little better off (even if it's funded by national debt!), without scaring the horses.

And the investing takeaways? It's really rare that any Federal Budget changes the outlook for the long-term investor. And that's the way I feel about this one, too. In the short term, retailers might get a little bump when the tax cuts are spent and when people find they've got a few bucks left over from lower energy prices. Builders and building materials companies may benefit if the government's plans for more housing come to fruition. Green energy and green metals may benefit – eventually – from some of the 'Future Made in Australia' piggybank, but that's years away, and it's unclear if the Opposition will support it, or retain it if they win the next election.

The bigger question for investors from any Budget should be 'How does this impact the Australian economy over the next 5, 10 and 20 years?'.

The answer? It doesn't change the outlook much, at all. Which isn't as good as it sounds, given we have a large and growing national debt (and national interest bill). At some point we may need to reckon with the can that's been kicked down the road by successive governments, but it shouldn't (needn't) derail our investing plans.

So, that's a wrap. I'll send the Treasurer my letter again next year. Hopefully with some time to think about it, he, and the Shadow Treasurer, might have an opportunity to plan for an even brighter future.

Fool on!

Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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