Budget Australia 2018 and Stock Market

Higher income tax is always an unwelcoming encumber for both business and individuals.

The government was at high risk of falling behind of other OECD countries as most of them have revised their tax slabs while Australia stood still. With this new budget, the government has tried to lure both the individuals, business and FDI with reduced taxes.

Business tax cuts should result in higher dividends for shareholders – although with a lower franking credit – and to more investment, as companies have greater certainty about their future finances and the economy in a bigger picture.

Personal tax cuts should be positive for consumer spending and looking to invest, particularly with interest rates remaining low and the job market continues to show growth in the number of jobs and participation in the workforce.

Tax cuts for lower income workers, a continuation of planned infrastructure spending, a boost to tourism funding and focus on aged care are all likely to have a mildly positive impact on equities. 

Industries which will be directly benefited from the new budget:

• Consumers discretionary -  even though the tax cuts are small the add-on cash will allow consumers to spend more in consumers discretionary like electronic retail stores, QSR, entertainment and Consumer staples like Supermarkets and Hyper marts business.
• Tourism - Government plans to increase funding for tourism in Australia especially with projects like ‘protecting the reef’. They also intend to focus more on promoting regional tourism and move tourists from major cities to smaller towns. This could boost the businesses of air, water transport, and hotel and resort industries.
• Infrastructure companies - with an extra A$25 billon allocated for road, rail, and public transport spending, there is likely some support for the firms that provide the materials and know-how for those projects. Infrastructure companies are bound to get benefit from these spending.
• Energy companies - Demand for energy will increase and so could affect the stock price of such companies.

Possible loosers from the new budget:

• Health and wellness industry - Government plans to provide A$1.4 billion over four years for people to stay in their homes rather than in nursing homes and retirement villages, allowing ~74,000 people to access home care packages by 2022.  Government is also extending plan to allow people to borrow against the equity in the home. These moves will put strong pressure on old age caretaking industry like hospitals and nursing homes.
• Insurance companies -The government has introduced new rules meaning those under 25 and with low pension, balances don’t have to have life insurance as a component of their superannuation. This will put direct pressure on the insurance industry.