How the Federal Budget will impact share investments

You would have been bombarded with information about this week’s Federal Budget, but I liked what CommSec has done and linked each major budget initiative to the listed companies which will benefit most.

Household spending and population growth

Due to higher inflation, the government will allocate an additional $33 billion over the next four years to pensions and social security payments. New spending of $935 million has been announced over four years by increasing permanent migration levels. Net overseas migration is assumed to return to pre-pandemic trend levels of 235,000 people from 2022/23 with population growth of 1.4 per cent.

Consumer discretionary and consumer staples stocks, which includes supermarkets and electronics retailers, such as JB Hi-Fi, Harvey Norman, Premier Investments, Metcash, Coles, Wesfarmers and Woolworths, could be beneficiaries of increased consumer spending. 

Infrastructure

The Albanese government has announced $8.1 billion worth of infrastructure spending, including the Suburban Rail Loop East in Melbourne, the Bruce Highway and other important freight highways such as the Tanami Road and Dukes Highway. Around $2.4 billion to extend full-fibre access to 1.5 million additional premises, including to over 660,000 in regional Australia. Another $250 million will be provided to expand the Local Roads and Community Infrastructure Program. A further $150 million to upgrade regional airports and their precincts. Another $1.9 billion Powering the Regions Fund to support transition of regional industries to net zero. And $1.2 billion to advance regional telecommunications.

Building materials, residential and commercial property developers, such as Transurban, Adbri, BlueScope Steel, Boral, Brickworks, CIMIC, James Hardie, Mirvac and Stockland could be in focus for investors.  

Housing

The federal government has pledged $10 billion to its Housing Australia Future Fund, which it says will deliver 30,000 social and affordable homes in the next five years. And in this week’s budget, the government announced plans to build one million new homes, boosting investment in affordable housing, through a $350 million investment over five years.

As detailed above, building materials, residential and commercial property developers could be in focus, alongside property-listing firms REA Group and Domain. Housing policies should see a continued investor focus on the big four banks – ANZ Bank, Commonwealth Bank, National Australia Bank and Westpac Bank – alongside Macquarie Group and regional banks, such as Bendigo and Adelaide Bank and the Bank of Queensland. 

Childcare, paid parental leave and families

One of the new government’s key pre-election commitments was to increase access to childcare subsidies for an estimated 1.26 million Aussie families, costing around $4.6 billion. The government will also extend its fully-funded paid parental leave from 18 to 26 weeks from 2026, costing $531.6 million. And $1.7 billion to support implementation of the new National Plan to End Violence Against Women and Children.

Childcare service providers such as G8 Education and educational services firm 3P Learning could be potential beneficiaries of increased spending.

Education

The government has announced 480,000 fee-free TAFE and community-based vocational education places with 180,000 of the places available at a cost of $1 billion. And around 20,000 new subsidised university places has been announced, costing $485.5 million for priority and disadvantaged groups. The focus will be on extra degrees in information technology, nursing, teaching, health and engineering.

ASX-listed IDP Education provides student placement services to enrol in universities, schools and colleges. 

Jobs

The government has allocated $500.2 million for an additional 1,080 staff over the next four years to deliver government services, including 200 new Services Australia employees, 500 at Veteran’s Affairs and 380 at the National Disability Insurance Agency.

Online ASX-listed job search engine SEEK could benefit from increased job vacancies.  

Aged care

$845.1 million this year has been allocated to support the aged care sector after COVID. This includes $810 million to cover the costs associated with outbreaks that occur by the end of the year and an additional $759.9 million to continue supporting the states in their COVID response.

Estia, Regis and Japara health care shares could lift on increased spending on aged care.

Health care

The government has announced $1.4 billion for new and amended listings, including treatments for various types of cancer and growth hormone deficiency in children. The maximum co-payment under the Pharmaceutical Benefits Scheme (PBS) will decrease from $42.50 to $30 per script from 1 January 2023. And $235 million has been committed to commence the rollout of Urgent Care Clinics. There is also $2.6 billion in funding for COVID vaccines and treatments for people who are at risk. And spending on the National Disability Insurance Scheme will lift by $8.8 billion over four years.

Shares of health care providers Healius, Monash IVF, Sonic Healthcare and Virtus Health will be in focus for investors, with biotechnology companies CSL, Imugene and Telix Pharmaceuticals. 

Telecommunications

The government will expand full-fibre access to 1.5 million premises by 2025 with a $2.4 billion equity investment in the National Broadband Network (NBN) over four years.

Heavyweight telcos Telstra and TPG Telecom could be among the biggest beneficiaries of the government spending, alongside broadband providers Uniti Group and Aussie Broadband.  

Climate and renewable resources

There’s almost $25 billion in climate change-related spending through until 2030. That includes $20 billion for the election promise to upgrade the electricity grid so more renewable energy can be fed into the system. The budget will also include $50.5 million over four years to establish a critical minerals research and development hub. Around $1 billion will be allocated to support value-adding resources projects and $50 million will go to grants for early-and mid-stage critical minerals projects, including the National Battery Strategy and Electric Vehicle Strategy. And $345 million to exempt eligible electric cars from fringe benefits tax and the 5 per cent import tariff.

The policies could benefit ASX-listed lithium, rare earths and battery-focused companies, such as Pilbara Minerals, Lynas Rare Earths and Iluka Resources. But changes to the electricity grid could affect energy retailers AGL Energy, Origin Energy and APA Group.

Defence/foreign aid

Funding for defence lifts 8 per cent in 2022/23 and rises to more than 2 per cent of GDP over the next four years. And $1.4 billion in additional Official Development Assistance over four years, including $900 million to increase support to the Pacific region and $470 million to increase support to Southeast Asia.

ASX-listed companies Austal and Codan are key defence-orientated companies.

Disaster support

The government has announced the provision of $3 billion in the contingency reserve to meet disaster recovery costs from this year’s floods. It will invest up to $200 million per year on disaster prevention and resilience through the Disaster Ready Fund. And $22.6 million will be spent to address insurance affordability and availability issues driven by natural disaster risk.

ASX-listed company insurers, include Suncorp, QBE Insurance and Insurance Australia Group.

Taxation

The budget contains an extra $200-million-a-year funding boost to the Australian Taxation Office for the next four years to extend its Tax Avoidance Taskforce. A tax loophole will be shut down for off-market share buybacks to stop the “streaming” of franked dividends to shareholders under a measure estimated to raise $550 million.

The crackdown on share buybacks will impact some of Australia’s largest listed companies, including the supermarkets, miners and banks.