Budget misses the mark

19 October 2020
| By Oksana Patron |
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The Federal Budget has missed the by focusing on the supply side at a time when the biggest issue is demand and specifically lack of demand, according to Nucleus Wealth’s head of investments Damien Klassen. 

He stressed the budget should have focussed more on weak demand and giving money to companies to hire more workers when the existing workers are not at full capacity would not help.  

“Four months ago, I wrote what good government stimulus would look like. This Budget didn't tick many boxes. Do not get me wrong; the fiscal cannon is large enough to help. There is enough ammunition loaded into the cannon. But it has been pointed in the wrong direction. Which means it will likely need to be fired again within the next 12 months,” Klassen said. 

He also pointed out that since there was not much manufacturing happening in Australia anymore, there was no point granting tax credits to companies to spend on capital as this expenditure would be heading directly offshore, helping other countries. 

“$30 billion on company tax incentives and another $1.5 billion on a modern manufacturing strategy is a noble endeavour. But that money is going to buy Chinese, Japanese and US robots. I'm sure those countries will be grateful for the demand. Australian taxpayer-funded stimulus payments should really be targeted to support Australian jobs,” he added. 

Additionally, some companies would spend on capital to help automate processes so that they could reduce staff. 

Also, according to a manager, the drop off in spending was really large from Q3 to Q4 and in Q3, government (and superannuation drawdown) support was over $100 billion while in Q4 it looked like being almost 70% lower. Following this, Q1 of 2021 could be 70% lower than Q4.  

Klassen stressed that the insolvencies have not happened yet while another wave of infections was continuing to hit Europe and the US and demand has not recovered, even in largely virus-free countries. 

The Australian economy was heavily reliant on education, tourism and population growth and none of those would return quickly, so there would be two choices to make either to support the workers until those industries returned or help the workers get new jobs in other sectors. 

I'm not sure which policies are designed to do either. There are some token amounts. But I'm not expecting the average (former) waiter or airline stewardess to transition seamlessly into a robotics role as part of a modern manufacturing strategy,” Klassen said. 

“On one hand, the Australian budget takes away money from those on JobKeeper and JobSeeker who are most likely to spend the money. On the other, it gives tax cuts to higher-income earners who are likely to save it. 

“I'm not going to argue the social case for or against. But the economic case is that already weak demand is about to be dealt another blow.” 

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