The federal budget has raised the ire of the big four banks and Macquarie but it is likely to be endorsed by consumers in a week where wages data offers workers little cause for optimism.
Treasurer Scott Morrison's $6 billion bank tax and the increase in the Medicare levy linked to the National Disability Insurance Scheme are the main revenue raising elements in what is described as a deliberately populist budget.
That's just as well because the wage price index released on Wednesday is poised to show a 0.5 per cent increase quarter-on-quarter and 1.9 per cent increase year-on-year, according to the median economist surveyed by Bloomberg. The unemployment rate is expected to stay flat at 5.9 per cent for April in Thursday's labour force update.
The Westpac-MI consumer sentiment survey for May will capture reactions to Tuesday's budget. The same survey fell 0.7 per cent in April, a moderate fall in spite of interest rate hikes for some borrowers and concerns around overly hot house price activity.
"Most people would be happy with the budget, it's certainly a populist budget," said John O'Connell, chief investment officer at Macquarie Wealth Management. "Before the attitude was all about austerity, living within our means, tightening our belts. We've basically walked away from that," he said. "We're going to raise more tax."
Last year's budget introduced the most significant package of super reforms in a decade. It was greeted with an 8.5 per cent jump in the May 2016 consumer sentiment survey because it coincided with a rate cut from the Reserve Bank of Australia, even though most respondents felt they were worse off under the 2016-17 budget package.
"There's two large areas of tax over the forward years, one is the increase of the Medicare levy – it's across pretty well everyone – and that pulls in $8 billion, and the other one is the banks tax," Mr O'Connell said.
Bank tax 'underestimated'
He believes the magnitude of income raised by the banks tax has been hugely underestimated.
"The thing that people have missed is that it is a perpetuity. Everything you've read in the press everywhere talks about it as $6 billion; that is only for the first four years, it goes on a lot longer than that." He estimates that based on a weighted average cost of capital of 10 per cent and growth in liabilities of 5 per cent, its present value is closer to $32 billion.
Bank stocks have sold off by around $16 billion, he notes, indicating the market's reaction is entirely rational.
"If there is a risk in those forward projections it will be that we don't get this wage inflation," he says. The budget papers estimate wage growth will reach 3 per cent by 2018-19, and 2.5 per cent in 2017-18.
Wages rose 0.5 per cent in the fourth quarter of 2016 when the index was tracking at annual rate of 1.9 per cent and a record low 1.8 per cent in the private sector.
Unemployment remained steady at 5.9 per cent in the March jobs report, released last month, while the participation rate rose to 64.8 per cent from 64.6 per cent. The standout was full-time employment which increased by 74,500.
Pain in the retail sector could undermine the outlook for workers after retail sales last week heightened fears that the sector is heading for recessionary conditions.
National Australia Bank economists took a bullish view on the jobs data, estimating the economy added 10,000 jobs in April and the unemployment rate fell to 5.8 per cent as the impact of Cyclone Debbie appears better than feared.