AMP’s chief economist has warned the federal budget is effectively adding fuel to inflation just as the RBA is trying to cool the economy, increasing the risk of another rate hike while a global energy shock threatens to keep commodity prices elevated for years.
The budget’s changes include major changes to negative gearing and capital gains tax concessions, with the government arguing the reforms will shift tax support towards new housing supply and improve first-home buyer access.
The Australian Federal Government expects to spend approximately $833.3 billion in 2026-27, as outlined in the latest 2026-27 Budget papers.
Treasurer Jim Chalmers said the budget was focused on “making the budget stronger, more sustainable, and helping to take the pressure off inflation by saving more than we spend.”
“There’s actually more stimulus being pumped into the economy, so that surprised me a little bit, that that would be the case. Obviously that doesn’t make life any easier for the Reserve Bank,” Shane Oliver told Investor Daily.
Oliver pointed to government spending remaining elevated at nearly 27 per cent of GDP.
“The norm used to be well below that. I was hoping that they would seek to try and wind that back in a little bit, but they haven’t really done that.
“Even the Treasurer has admitted that it’s been a contributor to demand and capacity constraints in the economy. But there wasn’t as much as I thought there would have been in the budget to cut government spending.”
As a result, AMP’s interest rate expectations remain unchanged.
“We were thinking there would be one more hike probably in August. I think the Reserve Bank will probably leave rates on hold in June. In August, they’ll probably hike again.”
“If we’d seen more efforts in the budget to cut spending in the here and now, in the near term, I think it would have taken pressure off the Reserve Bank and we could have removed that expectation for another hike.”
According to Oliver, winners from this week’s budget include wage earners, new and small businesses, first home buyers, venture capitalists, the defence industry and illegal tobacco users. Losers include new property investors in existing homes, older investors with limited income, high-growth investors, beneficiaries of discretionary trusts, NDIS rorters and some new electric vehicle users.
He added startups could also emerge as losers. “But they might be carved out of the capital gains tax changes. Even so, if those startups are then listed on the share market .. growth stocks on the share market might be relative losers.
“Shares are exempt from the negative gearing changes, but they are affected by the capital gains tax changes, which at the margin might make growth stocks on the share market, including newly listed companies, less attractive relative to high dividend-paying stocks.”
More broadly, Oliver said the share market, superannuation and commercial property could emerge as relative winners.
“The share market is less negatively affected than the property market. That also goes for investors in commercial property and super. Super is probably a winner,” he said.
“If you wind back the negative gearing arrangements for existing property then investors will think – ‘Where do I go? Maybe I go to commercial property, or industrial property, or shares, or super’ – those asset classes are winners.”
Oliver also warned the proposed capital gains tax (CGT) changes could undermine Australian enterprise.
“We don’t have a lot of venture capital in Australia .. the changes in the budget, if they stay the way they are, could act as a further disincentive, and so there is an issue there.”
However, he said the budget still contained positives for business, particularly small business.
“The instant asset write-off being extended .. But I think if you were a business person, you might be a little bit aghast. Often business people start a new business with a view to selling it at some later point in their life when it becomes successful, and they don’t take a lot of salary along the way. Now they face, potentially, a much bigger capital gains tax bill, unless there’s some carve-out there, and that could act as a big disincentive. We’ve already seen a sharp decline in business startups in Australia, and we’ve seen a sharp rise in business insolvencies, that’s been most notable in the property construction industry.”
As a result, Oliver said the CGT changes could push investors towards high-dividend stocks and away from companies offering stronger capital growth potential.
“The reason that’s significant is that it could mean that there might be less demand for new IPOs on the stock market coming from a business which was initially a startup. So the price at which the small business owner who developed a business and then tried to list it on the share market exits at, may be less attractive than it used to be,” he said.
“If there’s a carve-out for startups, they get the benefit of that, but they still may get a lower price, because there’s less interest in the share market in newly-formed companies. Those things I think do send the wrong signal – the government’s talking about wanting to boost productivity, there could be a risk there that it actually hampers productivity.”
