Why Labor needs these investors to make key policy measures work

Time moves quickly in the world of finance—and politics, for that matter. The Federal Budget announcement may seem like an age ago, but the fact remains that a number of those policy elements will be critical to the Australian economy, and it pays for investors to take note.

The Hon Dr Jim Chalmers MP, Federal Treasurer, joined the Morgan Stanley Australia Summit to discuss the budget's key focus areas and what he is seeing in global markets. He also shared why private capital is critical to the success of the 'Future Made in Australia' and 'Net Zero' plans.

A quick look at the market environment

Dr Chalmers points to the lingering global inflation impacting the global economy, along with “higher interest rates, fragmenting supply chains and conflicts in Europe and the Middle East creating significant additional uncertainty.”

Additionally, while the US is doing well, it's a different picture in other major economies.

“Around ¾ of the OECD has recorded a negative quarter over the past year and global factors were playing out in our own national accounts, which were released last week for March,” says Dr Chalmers.

He sees the biggest part of the story within national accounts to relate to consumption growth – and it’s fair to say his expectations for improving consumption aren’t high, tipping 0.5% growth this year compared to the usual 2.5% growth rate.

“Not only has consumption growth slowed considerably, but it is now dominated by essential spending since the end of 2022. Discretionary consumption has gone backwards, meaning any remaining consumption has been driven by essentials,” he says.

It’s a concern that dominated the direction of the budget, with Chalmers and the Coalition focusing on measures to manage inflation, offer cost-of-living relief and build on economic strengths, such as low unemployment, real wage growth and record-high participation.

Dr Chalmers cautions that the impact of the latest budget is unlikely to be felt until the second half of the year. He has “cautious confidence in a soft landing for Australia”.

The 5 key goal areas for the Federal Budget

1. Fight inflation
2. Repair the budget, pay down debt and make room for the long-term agenda
3. Near and longer-term objectives including renewable energy, human capital and support industry to power the Future Made in Australia.
4. A more productive, competitive and dynamic economy
5. Make Australian people and businesses the primary beneficiaries of the changes in the global economy.

Some of the measures this translates to include the upcoming Stage 3 tax cuts, energy bill relief and rental assistance. You can read more details about key measures in this recent wire.

While these will support conditions for Australians – and Dr Chalmers is hopeful these will translate to higher consumption figures - where things get more interesting is the ambitious growth pipeline outlined in the Budget.

Infrastructure, housing and a Future Made in Australia

“We’re seeking to build 1.2 million new homes by 2029. We’ve backed this with $6 billion in new investment, taking it to $32 billion in new money under our government to build more homes, slash red tape and train more construction workers. We’re delivering a $120 billion infrastructure pipeline in a more coordinated way that gets us value for money and does not add to inflation,” says Dr Chalmers.

He’s also aiming to reduce migration levels to more ‘normal’ levels.

A critical part of this future-focused pipeline is investment in renewable energy and the transition to NetZero – an area he’s particularly excited about, seeing it as the opportunity to position Australia as a leader in renewable energy.

What does this mean for markets?

• The construction and infrastructure sectors are about to get very busy.
• A focus on NetZero is a boon to Australia’s Resources sector.
• If you haven’t seen enough about private markets lately, your wishes will be answered in the coming years. Enhancing competition and reducing barriers to loans should support more entrants to the market.

There’s also something else investors should take from this, and it has to do with private capital.

“Australia needs an additional $225 billion in investment by 2050 to transition our energy system and realise our NetZero ambitions in heavy industries,” says Dr Chalmers, noting that the way private capital is attracted and deployed is central.

To encourage private investment, he is looking at measures like reforms to the mergers regime, removing a range of tariffs from 1 July and renewing the competition policy.

“By the end of the year, we're boosting competition in the financial system by modernising payments and supporting more participants to offer clearing and settlement services and through our financial sector regulatory initiatives grid to make it simpler for smaller players in the banking system to comply and compete,” Dr Chalmers says.

Technological dominance?

A side note in this big pipeline is the plan to build the world’s first commercial-grade quantum computer. While it’s easy for investors to ignore this particular policy, consider it a big chance for Australia to become dominant in this emerging and exciting area of technology. You can find out more about the potential of quantum computing in this wire.

Final things to note about the economy and the Budget

Dr Chalmers describes himself as being “confident but not complacent” when it comes to the Australian economy and the path ahead. And if there’s one thing investors should also be taking note of, it’s the fact that “private capital is necessary to make us an indispensable part of the global Net Zero transformation”. 

Expect to see more change on this front as the Federal Government seeks to attract private investment into Australia with easier and faster administration and approvals. 

Livewire was a guest at the Morgan Stanley Australia Summit.

Information is everywhere; true insight is rare.

Morgan Stanley brings knowledge and experience from across the globe to make sense of the issues that matter. For all their latest insights, please visit the Morgan Stanley website