With the Federal Budget less than a week away, many will be wondering how the measures and policies due to be announced will affect their lives and livelihoods. If you have plans in the works to purchase a caravan in the close, near or medium future, you could be keeping a close eye on interest rates. Not surprising as interest rates change and fluctuations are a must-watch for many Australians. What is less watched is the Annual Federal Budget. The speech delivered by the Treasurer to Parliament in bringing down the annual budget is full of economic jargon, massive dollar amounts and, yes, is not really a good Tuesday night TV watch.
But the outcomes of the budget are very important and we’re providing a preview and overview of what effect any measures announced in the 2021/22 budget might have on specifically caravan loans.
Overview: Federal Budget
You are excused if you feel like we just had a Federal Budget a little while ago. Yes, you are correct. The budget is scheduled for May each year but think back to May 2020 and how COVID-19 was already causing issues across the economy. Both the Federal and many state governments made the decision to push back the annual budget to later in the year when measures could better address the fallout from the pandemic.
So the 2020/21 budget was announced in October 2020 but for 2021/22 the schedule is back on track with Treasurer to deliver it on 11 May. Many of the policies announced in October are still relevant and part of the income tax cuts introduced will be realised further at EOFY. The key for individual taxpayers was that tax cuts for some income brackets were brought forward and backdated to 1 July. So when these taxpayers submit their income tax return for 20/21, they are due to receive a refund for any tax overpaid during July-October prior to their employer implementing the new schedules.
So what’s in this coming budget? In his pre-budget speech, the Treasurer outlines the strategy and approach of the 2021/22 budget and the phases that the Government would be following rather than exact and specific detail. More information here.
But as is traditional, a number of policies have been unveiled in the lead-up. Of interest to low to middle-income earners will be the extension of the low middle-income tax offset for another year. For some families, cuts to the cost of child care have been flagged, but not due until 2022.
Lending Impacts
So what is the connection between the budget and government policies, the financial services lending sector and those all-important interest rates?
First the interest rate situation. The government does not set interest rates. The Reserve Bank of Australia is the body tasked with setting what is referred to as monetary policy and interest rates. The RBA sets the official cash rate which is the rate that the banks and lenders base their individual rates on. In establishing the official cash rate, the RBA takes into account the state of the economy, the outlook and pays particular attention to key indicators. Currently, interest rates are at historic low levels and the RBA is looking to the unemployment figures and inflation rates before considering raising the rate.
Driving down unemployment through creating jobs via economic measures is the responsibility of the Government and has been stated as the major focus of this year’s Federal Budget. So the connection between fiscal (budget) policy and interest rates does exist but Government’s don’t set the rates.
Budget policy as announced by the Government will also flow on to impacting inflation and this is a key consideration for the RBA’s decisions re interest rates. The latest inflation figures are in the low to mid 1% range. The RBA has stated it is looking to a 2-3% target before increasing rates.
Wages and wage growth is another shared concern of both the RBA (and interest rates) and government policy. Wage growth has been very slow in Australia in recent years and is predicted by the RBA to be sluggish for some time. The Government will be looking to boost jobs through the budget and that may affect wages.
But a red herring has also entered the conversation. Many sectors of the economy are reporting difficulties in filling job vacancies. The closed border situation is restricted to the usual international students, skilled migration and other workers entering Australia. In a situation of low supply and high demand, a price increase often follows. Will an increase in wages be the result of employers competing for the limited number of people to fill their jobs? Will this be sufficient to drive wage growth to levels that trigger a rate rise? Definitely worth watching how all these factors interact.
Lenders set their own interest rates based on a range of factors and they will no doubt be looking to the budget closely. There has been some commentary around interest rates being increased earlier than the current RBA’s recent pronouncements of 2024. So caravan buyers may be wise to be forewarned and prepared.
While Jade Caravan Finance focuses on achieving the cheapest caravan finance interest rates available, our actual rates are of course depending on the lending market. Our team will be closely analysing the detail of the budget and posting articles on the outcomes for our customers.
To discuss finance for caravans contact 1300 000 003 today.
DISCLAIMER: THE DETAILS AND INFORMATION IN THIS CONTENT ARE PREPARED AND PRESENTED PURELY FOR INFORMATION AND NOT INTENDED IN ANY WAY AS THE SOLE SOURCE OF FINANCIAL ADVICE FOR CARAVAN PURCHASING. IF ADDITIONAL FINANCIAL ADVICE IS REQUIRED, READERS SHOULD REFER TO A FINANCIAL ADVISOR. NO LIABILITY IS ACCEPTED FOR ANY ERRORS, PRODUCT DESCRIPTION VARIATIONS, OR OTHER MISREPRESENTATIONS OF INFORMATION AS PRESENTED.
