Federal Australian Budget 2017-2018

So, everyone is focusing on the headlines for the 2017-2018 Australian budget just delivered. I get that, people like to read headlines that impact them. Therefore people are writing about things that will have the largest impact on people. Rather than just duplicating the Medicare, First home buyers, Uni students, and Drug tests, I wanted to have a look at a couple of the items that match my criteria for interesting and worth talking about:

1. positive news (people already focus on the negative enough)
2. smaller news (the things that others may miss)

Let’s start with one close to home…

Banking and Finance

The part of the budget I found most interesting here was #FinTech!

Details: http://budget.gov.au/2017-18/content/glossies/factsheets/download/FS_Innovation.pdf

I have always thought of Australia as a bit backwards when it comes to high-tech. Perhaps my negativity is unwanted, but ever since Atlassian decided to ditch Australia and head to the US for IPO, I thought the nail was in the coffin. Thankfully the government is at least trying to talk some of the right talk and try to limit that precedent.

1. Extending crowd-sourced equity funding

Looks like the government will be allowing for additional crowd funding of companies. From a potential investors point of view, I can only see this as being a good thing. It will (hopefully) allow more companies to get started, and allow more options when it comes to my investment options. I always try to keep a small percentage of my investments in the X-factor category (which could possibly be called educated speculation).

2. An enhanced regulatory sandbox

I wish I knew more about what this will actually look like. I don’t believe I will be involved anywhere near enough in this to need to read into it. Once again it should help to bring new financial technology to Australia, and, if we are lucky, the world by allowing new ideas to have a better chance of succeeding.

Infrastructure and Regional

A lot of talk before the budget was around good and bad debt. I like to think that I have a reasonable grasp of good debt and bad debt. I hope the government does too, because the devil can be in the details. Putting aside the good vs bad debt when it comes to infrastructure, regional areas and infrastructure got a bit of a boost in this budget in the following areas:

1. Inland Rail

Details: http://budget.gov.au/2017-18/content/glossies/jobs-growth/html/jobs-growth-05.htm#growth-51

Rail from Melbourne to Brisbane. I am a big fan of rail, and I am not just talking about passenger rail (although hopefully you guessed that). The logistics of moving things around is only going to grow as the world moves more of its shopping online. You can transport goods in one of four main ways:

• Aeroplane – over land or sea: this is by far the most expensive, but also the fastest when speed is important over longer distances.
• Ship – over sea: while slow, this is a fantastic way to move a lot of cargo over great distances (e.g. between countries).
• Rail – over land: good for medium to large sized quantities over land.
• Truck – over land: ideal for last mile, small quantities over shorter distances.

When moving items cost effectively on land there are two choices: train or truck. Given that trains can get to over 4km long (or almost 2km in Australia), you can move a lot more cargo in one go, and do it more efficiently. Moving that scale of cargo can remove 110 trucks from our roads.

Don’t get me wrong, I am not saying rail can replace trucks, however there are some places where it makes sense, and long distances over land in Australia is one of them.

I am just waiting until the day that teleportation of goods becomes possible. I am not a fan of large shipping costs at the best of times.

2. Backing regional communities

Details: http://budget.gov.au/2017-18/content/glossies/jobs-growth/html/jobs-growth-02.htm

Everything here sounded a bit “fluffy” to me. Half of it talks about infrastructure, and the other half about regional jobs, skills and investments. When looking into it a little further, it appears the government is putting some money towards plans that will:

• diversify regional economies
• stimulate long-term growth
• deliver sustainable employment
• enable applicants to enter new markets and sectors

I am a big fan of these goals (assuming the plans help to bring them about). Australia in general is far too concentrated. The Australian economy is concentrated around financials. Just look at the size of the ASX top 4 relative to the other sectors – if CBA was a sector in the ASSX200, it would be the third largest sector out of the 11! CBA and Westpac together would be the second largest sector after finance. Similarly the Australian population is too concentrated in key capital cities. If you don’t live in Sydney, Melbourne, Brisbane, or Perth then you are in the minority (41.7%)! Did you catch that, if you are not living in one of the four largest cities in Australia, you are in the minority!

Regional Population

Have a look at a graph of the USA (population 320 million) vs Canada (population 36 million) vs Australia (population 24 million) vs New Zealand (population 4.7 million) when it comes to the cumulative percentage of the population living in the largest 35 cities in each country.

Canada is more concentrated than the US, but not as concentrated as Australia. It takes 8 cities for Australia to hit 70%, whereas it takes more than 35 cities for Canada. Reaching half of the population takes 3 cities in Australia (technically 49.7%), whereas Canada takes 8 cities to reach that same mark.

New Zealand starts off faster than Australia, with Auckland having over 30% of the countries population. Once they hit the second city, New Zealand are on par with Australia, and after that their numbers smooth out. So ignoring the one behemoth in NZ, and you have quite a distributed population in a small country. Even with Auckland, they still have a more desired curve overall.

We defiantly need some more diversity in our city population mix. While the cities most likely to grow to alleviate this are probably larger towns and not regional, every method of reducing that curve will help.

You may be asking why I think this spreading of cities is a good thing, given I have previously said you should live in a large expensive city. It is for the same reason I buy multiple stocks, bonds, cash, and property (or property trusts currently): diversity. Diverse cities help for a diverse economy which helps to maintain a stable economy.

Well, there was less detail in here than I was intending, but I hope you enjoyed it anyway. What were your favourite positive parts of the budget? (Or at least, positive for you…)