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2021 Budget Wrap

Good morning! Australia recorded yet another a new community COVID-19 case yesterday, this time a man in his 30s who had fled India via the Maldives via Singapore into Adelaide. He was released from hotel quarantine just over a week ago and flew to Melbourne, where he developed symptoms and subsequently tested positive for COVID-19.

When will we learn? That's a question we try to answer in the Corona Wrap below.

Market Wrap

Daily % change

AUD/USD

78.4

0.2%

10Y Bond

1.68

0.7%

ASX200

7,097

-1.1%

Brent (bbl)

68.6

0.5%

Gold (oz)

1,838

0.1%

Iron ore (t)

222.0

0.0%

Bitcoin

56,849

3.1%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract.

The US S&P500 (-0.87%) fell overnight for the second day in a row, with potential inflationary pressures once again causing some trepidation. The official US CPI figures for April are due out tonight.

Jobs galore: The ABS payroll jobs report showed a 0.4% increase in the number of jobs in the fortnight to 24 April, following a 1.6% fall over the previous two weeks (attributable to the Easter break). The ABS said "the seasonal pattern... is similar to what we saw during the Spring 2020 school holiday period". In other words, there was no noticeable impact in the number of jobs due to the end of the government's JobKeeper programme (which ended on 28 March and so was fully captured in this survey).

"Transitory": US consumer expectations for inflation over the next year increased to 3.4% in April (from 3.2% in March), the measure's highest level since September 2013.

Input costs rising: China's producer price index for April rose at 6.8% from a year prior, the fastest rate in three and a half years. Could higher Chinese wholesale prices soon be passed on to global consumers?

Only in China: After sitting on the 2020 Census data for an extra month, China reported that its population increased by 12 million people last year, despite a decline in births to... 12 million. How convenient. 😉


Special Wrap

2021 Commonwealth Budget

The 2021-22 Commonwealth budget was unveiled last night and the government was true to its word – it really was a big spender. While there was a $104 billion improvement in forecast revenue over four years to 2024-25 compared to the Mid-Year Economic and Fiscal Outlook (MYEFO), $96 billion (~92%) was allocated to new spending and tax breaks, half of which are permanent.

Given the expected increase in recurrent spending as a result of this budget, deficits and rising debt will now be the name of the game for at least another decade.

Key assumptions

  • Unemployment falling to 4.75% by 2022-23.
  • Real GDP growth to rebound to 4.25% in 2021-22 before slowing to 2.5%.
  • Wages growth of 1.5% in 2021-22, rising to 2.25% in 2022-23.
  • Iron ore falling to $US55 per tonne (FOB) by the end of the March quarter 2022 (it's currently over $US200).
  • Non-mining business investment to grow 1.5% in 2021-22 before jumping to 12.5% in 2022-23 (not a typo!).

In terms of new spending – which, let's be honest, is what this 'not an election but really is' budget is all about – there was plenty, with the headline items being:

Housing: Plenty more stimmy for the sector that least needs it, housing, with first home buyers to be able to withdraw $50,000 from their superannuation to use as a deposit. Another 10,000 will be able to build a new home with only a 5% deposit, and 10,000 single parents will be able to buy a home with just a 2% deposit (with the government chipping in the rest). Expect further price rises and no improvement in affordability for first home buyers. 🔥

Tax cuts: The low and middle income tax offset will be extended for another year, benefiting over 10 million people with cuts up to $1,080 for individuals and $2,160 for dual income couples. Two business tax cuts (expensing of depreciable assets and the carry-back of tax losses) were also extended.

Infrastructure: Road, rail and community infrastructure projects will receive $15.2 billion over 10 years, which the government claims takes its total infrastructure spending to $110 billion over the next 10 years. Inflate both the cost and timeline and you'll get closer to something resembling the truth.

Aged care: A whopping $17.7 billion was allocated aged care spending over 5 years, including 80,000 additional home care packages. This is the gift that keeps on giving – total aged care spending will now grow to just under $30 billion by 2023-24 (up from an estimated $26.1 billion at the MYEFO) and rise every year thereafter.

Other highlights included:

  • Childcare subsidies, with the government covering 95% of the daily fee for families with more than one child in the childcare system and the annual cap of $10,560/child/year ditched.
  • A 'Digital Economy Strategy', which includes funding for skills training, AI development, tax breaks for game developers and upgrades to the MyGov online portal and MyHealth digital records platform.

Corona Wrap

When will we learn

Poorly ventilated hotels are the perfect environment for aerosol transmission.
Poorly ventilated hotels are the perfect environment for aerosol transmission. Environment International

Authorities believe yesterday's new community coronavirus case in Victoria may have contracted the virus during his hotel quarantine stay in Adelaide.

Really??: It has now been 479 days since Australia's first confirmed COVID-19 case and 409 days since mandatory quarantine was introduced for all arrivals. Yet for some reason we're still using quarantine hotels, which must surely rank as one of the worst possible options given their relatively high cost, dense inner city locations and most importantly, lack of airflow.

We were warned: In October 2020, the federal health department published a review of the hotel quarantine system. Two of the six recommendations were:

  • "Options for new models of quarantine should be developed for consideration by National Cabinet."
  • "The Australian Government should consider a national facility for quarantine."

The government might be able to argue that its NT Howard Springs facility is the answer to the second point (although as the report makes clear, it should be capable of "handling emergency situations, emergency evacuations or urgent scalability", like... the India crisis?). However, on the first point it has failed dismally – where are the new models?

The review was also conducted before aerosols were considered to be an important factor in transmission. But both the World Health Organisation (30 April) and US Centers for Disease Control and Prevention (CDC, 7 May) recently added aerosols to their respective lists of how COVID-19 spreads – the CDC even went so far as to rank it #1.

Yet here we are, 223 days after the government's own report recommended finding new models of quarantine, twiddling our thumbs and counting the days until the next hotel quarantine breach and subsequent lockdown... 🤦‍♂


The Wrap Up

  • Public Health England said data from the rollout of AstraZeneca's COVID-19 vaccine show one dose of the shot results in 80% lower risk of death from the disease.
  • The US Food and Drug Administration (FDA) approved the Pfizer vaccine for use in children from the age of age 12, following a successful clinical trial in March.
  • In the UK, people will soon have to carry photo ID to vote.

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