The Commonwealth 2007/08 Budget is due to be delivered by the Treasurer on Tuesday 8 May 2007. We identify potential areas of policy focus, together with the likely beneficiaries in the listed equity market.
A possible A$12bn surplus, plus a looming federal election
The 2007/08 Commonwealth Budget is due to be delivered on 8 May. The Government once again, finds itself in a very strong fiscal position with a potential surplus of up to A$12bn, and no net debt. However, the recent Intergenerational Report 2007 highlights emerging Budget pressures due to an ageing population. This, combined with a federal election due at the end of the year, suggests to us that any programs will be carefully targeted, possibly with some initiatives held back to later in the year.
Enhanced infrastructure spending looks a good bet
More than a decade of strong and continuing economic growth is stretching Australia's infrastructure. Therefore, we believe further initiatives in the Budget are likely. Thealready announced A$10bn water plan may be enhanced, while road andrail spending via AusLink could also be supplemented. Listedbeneficiaries would include the capital goods sector and stocks such asLeighton’s (LEI), Lend Lease (LLC), Transfield (TSE) and Downer.
Some further personal tax cuts a possibility... plus some spending plans
The Commonwealth's strong fiscal position suggests the Governmentmay continue to reform and reduce tax rates, particularly on personalincome, possibly targeted at lower income earners. Such an initiativewould be a positive for consumer stocks such as Harvey Norman,Billabong and JB Hi-Fi. Spending initiatives could come in familysupport and healthcare, while the Future Fund may also receive a boost.
Super... the big initiative in 2006/07, less likely to be the focus this year
The superannuation reforms announced as part of the 2006/07 Budgetwere substantial and far-reaching. As a result, we expect any changesthis year to be far more modest in scope.
Ps Keep an eye out for next week’s newsletter where we will take a closer look at the announcements in the budget.