Here's what Australia's big four banks think of the federal budget

Australia’s big four banks have released reports and commentary on the government’s federal budget, expressing a shared sentiment that the Treasury’s economic plan was temperate and didn’t contain too many policy surprises.

Although the government’s budgetary measures were found to be relatively moderate this time around, it may preempt a more exertive and transformative May budget for 2023/24.

Despite the troubled economic outlook for individuals and households, the Big Four banks posted record profits of more than $28 billion in 2022, up from $27 billion last year.

Let’s dive deeper into the summary reports delivered by Australia’s most prominent lenders:

Commonwealth Bank of Australia (CBA)

CBA’s Global Economic and Markets Research team released a report shortly after the federal budget was delivered, highlighting some of the major policy announcements.

The Commonwealth Bank suggests that the government’s fiscal decisions outlined in the budget were sensible and measured, abstaining from spending supplemental revenue that was mostly derived from income tax and the cessation of previously funded projects.

“In essence, the government has resisted the temptation to use higher-than-expected revenue flows ($144.6 billion over the four years to 2025/26) to inject substantially more money into the economy,” the report noted. “This outcome is welcome and should provide some support to monetary policy to help bring inflation back under control.”

Westpac

Australia’s oldest bank’s report acknowledged that the budget was framed against a looming economic slowdown, as central banks aggressively raise interest rates to rein in inflation.

“Higher commodity prices are boosting incomes and tax revenue, so too a stronger labour market,” according to the report. “However, higher inflation and higher interest rates are boosting payments, so too the specific costs of some key programs, such as the NDIS.”

“New policy had minimal net impact, adding just $9.8 billion to the deficit over four years - 0.1% of GDP. Hence, the government is not adding to the task of the RBA to tame inflation.”

National Australia Bank (NAB)

NAB’s coverage of the budget offers perspective on the fiscal policies’ overall economic impacts, as well as a review of specific outcomes for households and individuals.

“While this budget does little to address medium-term structural budget issues, it does lay the groundwork for the government to address these challenges more actively in the future,” according to NAB’s economic commentary.

Addressing high levels of inflation, NAB estimates the fiscal impact on growth to be neutral over the next two years. 

“In the absence of a significant structural tightening, monetary policy will likely remain the key tool in moderating demand and inflationary pressure in the near term, pointing to some upside risk on our rates profile,” NAB said.

In terms of how fiscal policy might affect the average Australian, NAB suggests that because the government has only been in power a few months, the budget is “relatively light on personal impact”, with no major reforms predicted to transpire before the May budget 2023.

“There are, however, quite significant benefits for older Australians and those with young children, some changes for investors to be aware of, and several initiatives in health, housing and education,” according to NAB’s report.

Australia and New Zealand Banking Group Limited (ANZ)

Budget deficits are forecast to grow in the coming years, but ANZ Research thinks the estimates are based on overly pessimistic economic forecasts - in part reflecting Treasury’s usual approach to commodity price forecasts.

“The federal budget has been labelled a ‘no-surprises’ budget in some quarters and it’s hard to disagree… Though the risks around the economic outlook are considerable, critically, there is nothing in this budget that will spook the inflation hawks,” ANZ Research reports.

“While the budget has kept most of the revenue improvements for budget repair rather than spending, the share of GDP to payments is still elevated compared with pre-COVID rates.”

ANZ’s unemployment rate forecast is 0.5 per cent lower than the budget’s in 2023 and 0.8 per cent lower in 2024, with slightly stronger employment growth expected. ANZ’s wage price index forecasts are slightly higher and its terms of trade forecasts are more optimistic, although a fall in commodity prices in 2023/24 is expected.

“ANZ Research expects some upside surprises to future budget balances due to stronger income tax revenue and better terms of trade in 2022/23 and 2023/24,” according to ANZ.

What does all this mean for everyday Australians?

Australia’s big four banks have been positioned to flourish amidst a flurry of accelerated interest rate hikes in recent months and continued competitive intensity in mortgages.

However, volumes and costs may come under pressure if the housing market begins to weaken.

Inflation has reached a record not seen since the 1990s, according to the latest figures released by the Australian Bureau of Statistics (ABS). The consumer price index rose by 1.8% in the three months to September 2022, lifting the annual inflation rate to 7.3%.

This substantial rise in inflation may encourage the Reserve Bank of Australia (RBA) to increase the cash rate again at its next meeting in November. For home loan customers, this means that mortgage repayments are likely to rise.

Home equity issues may also arise for existing borrowers, after documents released under Freedom of Information revealed national property prices could fall by as much as 20% by the end of 2024, owing to interest rate hikes.

The budget outlines the financial approach the government will take to secure Australia’s economic future. Despite fears of a looming global recession, there are seven significant and positive insights to be drawn from Labor’s first federal budget since 2013/14.

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