Australia: Government to embark on debt-financed infrastructure spending - AmpGFX

The research team at Amplifying Global FX Capital, explains that the Australian government is expected to announce an increase in infrastructure spending in the annual Federal budget on Tuesday, next week, 9 May.

Key Quotes

“In the process it plans to split the borrowing to pay for spending on infrastructure into a separate part of the budget, allowing a much longer glide path to return to overall budget surplus. (Projects include a second Sydney airport, a rail line between the three major cities on the East coast Melbourne-Sydney-Brisbane).”

“It is interesting to note that the Trump administration got the market very excited about big infrastructure spending during and soon after his election campaign. But instead, Trump gave priority to policies on immigration, border control, healthcare, and trade.  Policies that are more clearly designed to boost growth face an uphill battle in Congress.”

“Of course, it will take a year or more before infrastructure spending will begin to significantly contribute to growth in Australia, but the shift in tact by the government is not likely to find much political resistance and will tend to boost economic confidence.”

“Budget to continue tax breaks for housing investors

The Australian government is also expected to allow first home buyers to access retirement savings, or direct income into a tax-preferred savings accounts, to help them save for a deposit to buy a house.  Whereas it has eschewed alternatives that might dampen investor demand for housing by reducing their tax incentives.  The result may be seen as a support for the housing market, dampening fear of a peaking in housing prices.

The housing market, more so for apartments that are moving into a period of over-supply in the major cities, is showing signs of peaking, after a renewed surge in the last year.  Banks have been tightening credit conditions for investors and foreigners under pressure from regulators in recent months.  Fear of fallout from a weaker housing market has probably dampened the AUD somewhat this year.  Such concerns remain, but the latest news of an expansionary budget and no significant tax changes for property investors tends to support overall economic confidence and the AUD.”