Economic Update

The Federal Government's 2022 budget provided an interesting insight to the strength of the domestic economy and the Government's efforts to further boost long-term efficiencies.

Basically, the economy has not just bounced back from the impact of the pandemic, it has bolted back! Economic growth is expected to reach a massive 4.25 per cent during the next twelve months.

Much of this is due to the economy recovering from the severe lock-downs imposed on it during the pandemic spurred on by Government spending, but a big chunk is due to the incredible boost to Australia's trading performance.

Record prices for Australia's main export commodities, namely iron ore, coal and wheat, have bolstered both profits and Government's tax takes and this appears unlikely to change any time soon.

In fact, sadly, the war in Europe is likely to send prices even higher and secure Australia's trading success for several years to come.

This is why so little is being made of the Government's record deficit of $78 billion. This continued strong growth of the economy will alone cause the deficit to slowly disappear during the next decade.

What has been largely overlooked by most analysis of the 2022 budget, has been the strong focus on boosting domestic efficiency by providing significant tax breaks for added training and for boosting digital adoption.

The Government is trying to drive greater efficiencies in every business, large and small throughout the economy and by doing so, achieve an even greater level of production from existing assets.

It is also spending big on major infrastructure projects that clear blockages, both physical and non-physical, that are holding back companies around Australia from being as efficient as possible.

These are important steps that need to be taken if Australia is to keep pace with surging efficiencies within our trading partners economies, particularly in Asia.

Sadly, nothing was done in this year's budget to change the Federal Government's heavily reliance on taxing individuals with some 60% of the entire tax take effectively coming from pay packets.

As well, there was nothing to address the continuing problem of bracket creep, where people end up paying more taxes for simply working in a better paying position or doing more overtime.

This is a major disincentive for all Australians to work hard and provide for themselves as well as they can and it is disappointing that nothing of substance has been done to address this.

Needless to say, with a Federal election just weeks away, there were some cash handouts but nothing that was seen as particularly excessive given the surge in economic growth.

All in all a good budget for investors as it confirms a strong economic outlook which in turn will deliver higher profits to businesses and with that, stronger dividend payments to shareholders.