10 May 2012

The Australian financial markets have largely shrugged off the latest budget from the Commonwealth Government as events offshore overshadow its impact. There was a time when the federal budget was watched closely by domestic equity and bond market practitioners but this seems to be a thing of the past. There are a number of reasons for this. Firstly markets are more influenced by global events than they used to be, and with Australia’s stock market only comprising about 1.5% of the global index, any offshore turbulence can have significant effects in our market. Secondly the budget has become more of a political exercise in recent times with much of its content leaked well in advance – giving the markets the opportunity to react ahead of time.

Thirdly the accuracy of budget forecasting has failed to impress the market watchers with targets consistently being missed. Take for example the 2010-2011 budget where the original forecast was for a deficit of $22.6 billion. This was subsequently revised to a deficit of $44.4 billion – a blow out of $21.8 billion, real money in anyone’s figuring. The governments can largely dodge these otherwise extraordinary inaccuracies as the time lapse between the release of the budget and the final reconciliation is 16 months. So this year’s budget bought down in May 2012 won’t be reconciled until September 2013, and by that time there will have been another budget released and quite possibly a federal election.

Much of today’s commentary is necessarily partisan – as the budgets become more political so does the commentary. One interesting non-aligned commentary we have read is from Graeme Wines, professor in accounting at Deakin University – read his article here.