Inflation, the Budget and what they mean for consumer loans and business finance

It’s been a busy time for important economic announcements and data releases with a horde of information to digest and analyse. Especially for those considering purchasing goods with loans and business considering taking on finance to acquire new equipment, vehicles and supportive loans.

On Tuesday 25 October Treasurer Jim Chalmers delivered his first Federal Budget and the day after, the Australian Bureau of Statistics (ABS) released details of the September quarter CPI, or inflation data. Both a week out from the next RBA Board decision on interest rates and at a time when thousands of Australians were impacted by the widespread floods and heavy rainfall.

In overview format, Jade Finance unpacks the latest inflation figures and key points of the Budget as to what they mean for consumer loans and business finance. A simplistic and brief recap designed to assist both individuals and business make decisions around finance plans.

Federal Budget Recap

When considering measures and policies announced in a government budget, make sure the timeline is noted. Some of the policies in the current Federal Budget are not due to come into effect for several years or at least until 2023 or 2024. For businesses considering potential work coming into the pipeline, some expenditure such as the plan to build new houses and infrastructure project is spread over multiple years and may not commence for a few years.

Another aspect to note is that a Budget is split into Bills which need to be passed by Parliament before being enacted. Labour does have the power balance in the lower house but not in the Senate. So some bills may be amended before being passed or even not passed.

As its first post-election budget, the Albanese Government included a number of promises made during the election in this budget. Specifically increases to child-care and parental leave. But the promise about reducing energy bills by a set amount does not appear to be addressed. Nor is there any direct assistance in regard to relieving cost-of-living pressures. This is a complex area as providing hand-outs may have the potential to interfere with efforts by the RBA to drive down inflation.

A plan to construct 1 million homes over a 5 year period was announced. But the plan is in initial stages and starts with an ‘accord’ with other stakeholders. Construction may not actually commence for several years. Spending has been earmarked for major infrastructure projects in every state and territory.

Climate change has received support funding to effect grid changes to allow for more renewable energy sources. SMEs receive grant support to upgrade to become more energy efficient. The cost of buying an electric vehicle may come down with import tax and FBT cuts. Truck owners are supported to reduce emissions with a plan for hydrogen highways.

Proposed changes to IR laws have been presented in a bid to grow wages. This has met with pushback in many areas of business.

Changes to stage 3 tax cuts were not included in the budget. But these are currently not slated to come into effect until 2024. So the Government has two more annual budgets – May 2023 and 2024, to announce if any changes will be made.

The Treasurer has said this budget is the first stage of the Albanese Government longer term view of the Budget process and some experts have analysed this budget has putting off harder decisions until later. All eyes will no doubt be on the May 2023 budget.

Latest Inflation Figures

On 26 October, the Australian Bureau of Statistics (ABS) published the CPI or latest inflation data for the quarter covering July through September. The data shows a 1.8% rise for the September quarter with inflation now sitting at 7.3%. The highest level since 1990.

The ABS reports that the main contributors to the increase were new dwellings, furniture and gas prices. The 1.8% rise was in line with June quarter figures and lower than the 2.1% recorded for the March quarter. But the these are still the highest quarterly increases going back as far as 2000 when GST was first introduced.

To see which particular sectors contributed what percentages to the latest inflation rises, details are available at the ABS website.

Significance for Loans and Finance

For those planning to take on loans and finance for new cars, boats, caravans, motorbikes, trucks and business equipment, the big issue will likely be – what will all this mean to those loans? For starters, the types of loans available and their format, eg say a Secured Car Loan do not change with budgets and inflation data. They remain the same.

Measures announced in a government budget do not essentially have a direct effect on interest rates and finance but may have an indirect impact through a change in outlook and forecasts by individual lenders.

The inflation figures however, do have a direct effect on lending interest rates across the board. The Reserve Bank Board makes its determinations around changes to the cash rate based on inflation and other economic data. Currently the central bank has been increasing rates to drive down inflation. This latest 1.8% increase for the quarter will likely be a trigger for another significant rate rise for November and December.

However, individual lenders make their own final decisions regarding rates on finance in their portfolios. Rates across all lending markets do vary and cheaper rates can be found, with the resources to find them. Jade Finance has those resources through our accreditation with multiple lenders.

For those planning new purchases, acting as soon as is feasible is strongly advised to stay head of further rises and secure current rates on motor vehicles, marine finance, recreational and leisure and across our business finance portfolio.

The next major announcement pertaining to lending is due 1 November with the next RBA Board meeting.

Contact Jade Finance 1300 000 008 for cheaper loans and finance before the next rate rise.