The first quarter of 2024 saw the Federal Government roll-out considerable changes to the stage three tax cuts, inflation continuing to slow but remaining stubbornly high across some areas, surging stock market highs and continuing pressures in the property sector.

Stage three tax cuts

In January, the Labor government unveiled changes to the proposed stage three tax cuts, aimed at providing bigger tax cuts to middle Australia. 

The new changes, which passed the Senate to become law in February, retain the tax bracket that would have been scrapped under the original proposal, and adjust tax rates to benefit both lower and higher-income earners. 

The changes will take effect from July 1 and are summarised as follows:

Inflation continues to ease

Inflation continues on a downward trend, with the Reserve Bank of Australia, RBA, expecting it to return to the target range of two to three percent in 2025, and reach the midpoint in 2026. 

Service price inflation remains high despite goods price inflation decreasing, supported by continued excess demand and strong domestic cost pressures.

The RBA expects the consumer price index, CPI, to come in at 3.3 percent by June, compared with 3.9 percent forecast three months ago. 

As a result, the board decided to leave the cash rate unchanged at 4.35 percent at the first official meeting for the year. 

Share market highs

Global share markets have been breaking records this quarter, with the ASX200, S&P500, Eurozone and Japanese markets reaching record highs, helped by US inflation data coming in as expected, leaving the Fed on track to cut rates from mid-year.

While economic growth, both locally and globally, is forecast to slow, there is optimism in the market as inflation has started easing and is likely to continue falling, and central banks across the US, Canada and Europe are expected to start cutting rates in the coming months. 

Recession still looms as a risk, but it appears the economy might be moving toward a soft landing.

Market continues to tighten

The national vacancy rate fell to a new low of 0.7 percent in February, highlighting the ongoing supply and demands challenges in rental properties across Australia, as a result of a construction sector under strain, rapid population growth from migration, and rising property prices.

While the government has put stricter measures on international students to try to ease demand pressures, supply continues to be an issue, with building approvals falling by one percent in January, though multi-unit dwelling approvals increased by 19.5 percent in the same period.

Property prices continued to rise despite higher interest rates, inflation and cost of living concerns. 

The Home Value Index was up 0.6 percent nationally in February, and showed an increase in all capital cities except Hobart.

Labour market cooling

Labour market conditions cooled over the December quarter 2023, with an ongoing shift away from full-time employment and growth in part-time jobs, and a decrease in recruitment activity. 

These trends are consistent with Treasury forecasts that growth will continue to ease and the unemployment rate will increase from 3.9 percent in January to 4.2 percent by June, and 4.3 percent by the end of the year.

Despite clear softening, labour market conditions remain tight, and many employers are experiencing challenges finding suitable workers to fill positions, while some shortage pressures remain evident.

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