The October Budget

The October Budget is interesting more for what it tells us about the future, than it is for what telling us what the Government might be doing in the next few months that might impact on investors and retirees.

Of all the numbers in the budget forecasts figures, the two that stand out to me are firstly that the Government expects economic growth to tumble to just 1.5 per cent next year and secondly that unemployment will spike to 5.5 per cent.

These two number suggest that a lot of the steam will be taken out of rising inflation, although given that the recent price hikes are driven by 'supply' driven rather than 'demand' driven factors may temper this affect.

With the inflation rate easing and falling back to more 'normal' levels and economic growth falling to just 1.5 per cent, there will be a lot of pressure on the Reserve Bank to stop increasing interest rates.

In fact, as there is a real risk that the economy may even tip into recession, it is more than likely that the Reserve Bank will start easing interest rates again sometime next year.

The other thing that took my eye in these budget papers was not so much that energy prices will explode by 50 per cent or more, it is that this government has a clear commitment to transition the economy to zero carbon.

This is really important. There will be some short term pain associated with this and yes, the next year or so will be tough on struggling households facing higher interest rates, higher fuel costs and higher energy costs.

However, there is a lot of speculation in the industry that there is so much new sustainable energy coming into the grid that by the end of this decade, Australia will be awash with solar, hyrdo and wind energy.

So much so that the price of electricity in Australia is set to crash. This will create a new economic boom period for the country and it is clear that big corporates are looking forward to this and how they can best exploit it.

Every company in the country, from the Commonwealth Bank to even Woodside, one of the worlds largest petroleum producers, is making plans around this new zero-carbon economy.

Making plans as to how they can exploit this new, potentially zero-cost energy source. When you look at the future through those eyes, these are exciting times.

Finally, I think the most impressive aspect of this October budget is that it highlighted that we now have a Federal Government that is pro-active, moderate and considered.

For a labour Government mindful of the cost pressures working people will face during the next year or so, it could have gone for the easy option of one off cash hand outs or subsidies.

It didn't. The centrepiece of the budget was building a million new homes over the next five years, is very much a considered piece of economic strategy.

If economic growth really is set to fall to 1.5 per cent during the next twelve months, it will be exactly the right thing for the Federal Government to be spending money at this grass root level.

That it will be ensuring the local building industry, which is very much the heart beat of the domestic economy, will keep ticking over, that tradies will stay busy and small business will get through.