The Budget – my three take aways

The Federal Government budget was released during the week, setting out the government’s income and expenses for the coming year.

 

While the budget is a mostly dry affair, it can have a big impact on the everyday person.

 

Here were my three main take aways from the budget and what they mean for us.

 

  1. Don’t run your household budget like our country runs theirs.

 

The Australian government spends more than it earns.

 

For some perspective, I did a comparison between this year’s budget and the budget from 2019 (i.e., pre-pandemic).

 

The Government is going to earn 8 per cent more income this year than it did in 2019:

 

INCOME

2019 ($Bn)

2022 ($Bn)

Difference

Tax revenue (companies and individuals)

 $    399

 $      429

8%

GST

 $      67

 $        80

18%

Non-tax revenue

 $      39

 $      39

1%

TOTAL INCOME

 $    505

 $      548

8%

 

However, the government is going to spend 25 per cent more than it did in 2019:

 

EXPENSES ($ millions)

2019

2022

Difference

TOTAL EXPENSES

 $    500,870

 $    628,468

25%

 

This means the government will end up spending $81 billion more than it earns this year (also called a deficit), versus spending slightly less than it earned in 2019 (this is called a surplus).

 

Could you imagine if your household spent 25 per cent more than it earned – you’d run out of cash very quickly!

 

(If you are spending more than you earn, be sure to download by my FREE budget tool to help you fix that).

 

  1. I’m not sure my generation can rely on a pension and health care in retirement.

 

The biggest costs the Government has are:

  1. Welfare and social security – payments to the unemployed and retired ($222 billion, or 35 per cent of total);
  2. Other purposes – interest on government debt, and payments to State Governments ($121 billion, or 19 per cent of total); and
  3. Healthcare – funding of Medicare, drug rebates and new hospitals ($106 billion, or 17 per cent of total).

 

These three expenses equate to 71 per cent of total Government costs.

 

All three expense items have increased by about 25 per cent in three years.

 

That’s a big problem – our three biggest expenses increasing by 25 per cent, while our revenue is only increasing by 8 per cent during the same period.

 

I’m not having a go at the Government, and I don’t think it matters which party is in power, we’d see the same result. It’s a very complex and difficult problem to try and solve. Lots of developed countries around the world are experiencing this problem, and no one has the answer.

 

With welfare and health care expenses growing three times faster than government income, it’s going to be increasingly difficult for the government to afford these costs in the future.

 

I don’t think anyone in Generation Y onwards can afford to rely on a pension or 100 per cent Government funding for health care (rebates on doctor visits and medications) as we age.

 

  1. The property market is a big winner.

 

The Government has doubled its spending on infrastructure between 2019 and 2022, announcing $18 billion worth of new projects in this budget alone. Infrastructure is great for property because it creates jobs and fosters growth and density (which increases land values).

 

It announced it will more than double its First Home Loan Deposit Scheme (FHLDS), an incentive that allows buyers to borrow 95 per cent of a property price without paying lenders mortgage insurance.

 

While property as a whole was a winner, Queensland benefited more than any other State.

 

Queensland will receive $4.4 billion of investment in infrastructure – more than any other State, despite having only the third largest population.

 

Queensland also benefits more than any other State from the First Home Buyer Support packages.

 

The income threshold under the FHLDS is $125,000 for singles, and $200,000 for couples. That threshold is the same across all States, despite people in Melbourne and Sydney earning more than people in Brisbane.

 

The maximum price under the scheme also favours Brisbane, where the maximum price is 72 per cent of the median house price, versus just 57 per cent in Sydney:

 

 

Maximum Price of FHLDS

Median Price as at Feb 2022

Max. Price as Percentage of Median

Sydney

 $      800,000

 $      1,410,128

57%

Melbourne

 $      700,000

 $         998,356

70%

Brisbane

 $      600,000

 $         828,175

72%

 

Interstate migration is already at its highest rate since 2004; that doesn’t look likely to slow down anytime soon, with demand for housing a by-product of population growth.

 

While we can’t do much about the government budget, we can choose to take control of our future. We can take steps to become financially independent so that we won’t need to rely on the government. The budget and its focus on infrastructure investment and support for first home buyers, presents a massive opportunity for investors and property.

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