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Treasurer Frydenberg hands down an election-winning budget built

The Federal Budget unveiled this week was clearly intended to be an election-winning budget prepared to win over the public with many of its generous promises. Budget time doesn’t usually move markets, but with inflation on the rise, the market is on edge.

In the 2022-23 budget, Treasurer Josh Frydenberg delivered a long list of crowd-pleasing promises without going overboard on spending, partly due to rising inflation. A much-welcomed halving of the tax paid on fuel and a one-off cost of living payment are just some of the pre-election sweeteners the Coalition hopes will secure its fourth term in power. The centrepiece of this budget was a massive $9.9 billion tilt towards cyber-warfare and intelligence capabilities to “strike back” at enemy targets. The move is in response to the real threat Australia has already faced in recent times.

The Coalition will be judged on the extent of its stimulus spending during the pandemic and whether there has been an improvement to the budget deficit sparked by the pandemic. How the government will handle rising inflation, triggered by stimulus spending, in an environment where the cost of living has been rising due to the recent floods, skyrocketing fuel prices owing to the Ukraine conflict and US interest rate rises.

The three important things to consumers will need to be addressed by the Treasurer: 1. Rising fuel prices at the pump; 2. Rising house prices and; 3. Tax concessions. According to the ABS, over the twelve months to the December 2021 quarter, the CPI rose 3.5%. The most significant price rises were for New dwelling purchases by owner-occupiers (+4.2%) and Automotive fuel (+6.6%).

And the Treasurer hit all three targets.

• Due to the Ukraine crisis, petrol prices have skyrocketed to +$2 a litre. The Government will halve the fuel excise for six months which is set at 44 cents a litre. That saves $15 on the average tank of petrol.
• A one-off, $250 tax-free payment paid to pensioners and concession cardholders.
• Low-and middle-income earners will receive an extra $420 back on their tax returns.
• A tax offset for low- and middle-income earners, paid to about 10 million people in their tax returns after July 1.

Overall, the budget forecasts a deficit of $80 billion this financial year and in 2022-23. The deficit is lower than what was estimated in last year’s mid-year budget update but was slightly more than what economists were predicting. Net debt to peak at $864.7 billion in 2026. But on the positive side, unemployment is at 4%, and is tipped to drop to a record low of 3.75% later in the year. GDP is now tipped to hit 4.25% in 2021-22, 3.5% in 2022-23 and 2.5% in 2023-24 thanks to surging energy and iron ore prices.

Break down into stocks and sectors:

Cost of living:

• If you earn under $126,000 a year, you will receive a one-off $420 payment to be delivered with your tax return.
• Discretionary, online and homewares retailer stocks to benefit – JB Hi Fi (ASX:JBH), Harvey Norman (ASX:HVN), Kogan (ASX:KGN), Temple and Webster (ASX:TPW), Adairs (ASX:ADH) and Nick Scali (ASX:NCK).

Housing, building and construction:

• Extending the Home Guarantee Scheme to 50,000 places
• Stocks to benefit – Mortgage Choice (ASX:MOC), the Big 4 banks, Adelaide Brighton (ASX:ABC), Boral (ASX:BLD), CSR, James Hardie Industries (ASX: JHX)

Defence spending

• $9.9bn commitment towards cyber security.
• Shipbuilding stocks to benefit indirectly – Austal (ASX:ASB) and cyber security stocks  Tesserent (ASX:TNT) and Sovereign Cloud Holdings (ASX:SOV)

Infrastructure

• As part of a $17.9bn spend on infrastructure projects over the next 10 years – $2.6bn on infrastructure in the NT, $1.7bn in central and northern QLD, $1.5bn in the Pilbara, $750m in the Hunter region of New South Wales.
• $5.4bn for the proposed Hells Gates Dam in Queensland, $483m for the Urannah Dam in Queensland and $433m for the Dungowan Dam and pipeline in NSW.
• Stocks to benefit – Boral (ASX:BLD), Adelaide Brighton (ASX:ABC), CSR, CIMIC (ASX:CIM), James Hardie (ASX:JHX).

Healthcare

• The budget allocates an additional $2.4bn over four years for new medicines added to the pharmaceutical benefits scheme.
• To establish an mRNA vaccine manufacturing facility
• Stocks to benefit – CSL, Atomo Diagnostics (ASX:AT1)

Telecommunications

• The government will spend $480m to be spent on faster internet in rural areas and NBN Co will spend $270m from its own funding.
• Stocks that stand to benefit – Telstra (ASX:TLS) and TPG Telecom (ASX:TPM)

Recycling

• Provision of $83.1m over five years into the waste and recycling sector.
• Stocks to benefit – Cleanaway Waste Management (ASX:CWY)