Higher taxes and reduced spending, heavy job losses in the public sector, and no new stimulus measures. That’s what the Australian economy can expect from tonight’s budget.
The local economy is relying heavily on the influx of investment capital, from China in particular. The mining boom has tapered off and other important sectors such as Tourism and Higher Education have had a rough few years on the back of the higher AUD.
The danger in my eyes is that an overly harsh budget, at this stage, could severely impact already fragile business and consumer confidence. If that happens, then unemployment and retail sales data will be immediately affected and the AUD will be in for a rough ride.
I’ve never taken a position on the back of a budget and I’m not about to start now. But it will be interesting to watch market reactions across a number of financial markets tomorrow.