Treasurer Josh Frydenberg took to the dispatch box on Tuesday night to deliver his fourth budget as the 2022 federal election looms.

The 2022-23 budget hit two key themes – easing cost of living pressures with one-off assistance measures as policymakers grapple with the highest inflation in almost a decade and new defence spending amid rising geopolitical tensions. Other measures included help for self-funded retirees, billions in infrastructure spending and money for lithium projects.

There were fewer policies directly impacting investors compared to previous years when sweeping changes to superannuation or battles over tax rates and franking credits dominated the debate. But some experts warn the billions in new spending announcements could add to price pressures and force the Reserve Bank to raise rates faster and further than anticipated.

Below we’ve collected some of the most important budget announcements and impacts for investors.

Cash payments and tax cuts

Investors will be among the millions of Australians receiving an $8.6 billion package of cash payments and tax relief designed to offset rising living costs:

  • Fuel excise holiday: A 50% cut in fuel excise for six months, taking it from 44.2 cents per litre to 22.1 cents. The measure came into effect at midnight on Tuesday.
  • Tax relief: A one-off $420 extra in tax relief for Australians earning up to $126,000. The government is expanding the Low-and Middle-income tax offset, which currently gives eligible taxpayers an offset worth $255 to $1,080. It will be bumped up to between $675 and $1,500 and available when taxes are filed from 1 July.
  • Cash for the vulnerable: A one-off $250 payment for up to 6 million pensioners, veterans and welfare recipients. It will be paid in April.

Booming commodity prices and more tax revenue from a recovering economy means the budget deficit is expected to shrink despite the extra spending. It is forecast to fall to $78 billion in 2022-2023, down from the $98.9 billion projected in last December’s mid-year outlook.

Winners from more infrastructure spending

Tens of billions in infrastructure spending for submarine bases, roads and rail could benefit companies linked to infrastructure services and construction, according to Morningstar senior equity analyst Mark Taylor.

Cautioning that it remains unclear which companies will participate, Taylor says infrastructure service providers Ventia (ASX: VNT) and Downer (ASX: DOW) could benefit from defence infrastructure spending. The budget contained $4.3 billion for a naval shipyard in Western Australia, in addition to $10 billion for a submarine base on the East coast announced in March.

Downer, CIMIC (ASX: CIM) and possibly Seven Group (ASX: SVW) are exposed to transport infrastructure, notes Taylor. The budget contained an extra $17.9 billion for major rail and road projects.

Ventia is a key delivery partner for the National Broadband Network, which received an extra $480 million in funding to help improve infrastructure in regional, rural and remote areas.

Changes to superannuation drawdown requirements

The budget saw minor changes to the superannuation system. Self-funded retirees on account-based pensions and similar products will continue to be able to draw down less from their accounts while still qualifying for tax concessions.

The government is extending the 50% reduction in superannuation minimum drawdown requirements through to 30 June 2023.

SMSF Association chief executive John Maroney says the temporary reduction in the minimum drawdown will “help retirees manage the impact of volatility in financial markets”.

“The reduction is designed to reduce instances where retirees may have to sell some superannuation investments in a volatile or depressed investment market simply to satisfy the Government’s minimum pension drawdown requirements,” he says.

The extension comes as a series of already-legislated changes roll out from 1 July, including changes to:

  • The work test: Abolishing the work test for those aged 67 to 75 looking to make salary-sacrifice or personal after-tax contributions.
  • Bring-forward rules: Increasing the age of those eligible to make non-concessional contributions under the bring-forward rules. It rises from 67 to include all those under-75.
  • Downsizer requirements: Lowering the eligible age from 65 to 60 for ‘downsizer contributions’– topping up superannuation with the proceeds from the sale of the home.

Moderate recovery in real wages forecast

Treasury updated its forecasts to include some of the fastest wage growth in almost a decade on the basis that record low unemployment will lead employers to pay workers more.

Wages are projected to grow 2.75% this financial year and another 3.25% the year after as unemployment is tipped to fall below 4% for the first time in decades.

Workers won’t see all the benefit immediately, with inflation set to outpace wage this financial year. Treasury expects this to reverse from fiscal 2023 as slowing inflation and rising wages deliver workers modest post-inflation gains.

More interest rate pressure

Continued deficit spending at a time when the economy is likely near full capacity could add to the growing pressure on the Reserve Bank to raise rates, says Stephen Miller, an investment strategist at GSFM Funds management.

“There’s no sense in this document that the government has turned their mind to the task of approaching budget balance when the economy is at capacity,” says Miller. “Failing on that score means interest rate pressures are a little bit more intense.”

Miller says the budget “reinforces the risk the RBA goes earlier and ultimately goes farther than it might otherwise have done.” He expects an interest rate increase in May, potentially during the election campaign.

Economists at UBS and AMP expect the cash rate to reach 0.75% this year, with a first hike in June to 0.25%.

Budget odds and ends: Afterpay, clean hydrogen and lithium

  • More Afterpays?: Start-up employers and employees can now more easily participate in employee share schemes. The Government has relaxed certain regulatory requirements and lowered or removed caps surrounding the share grants popular with start ups.
  • Money for minerals: $250.5 million over five years to encourage production and processing of critical minerals like lithium and cobalt.
  • Money for clean hydrogen: $247.1 million to support more private sector investor in low emissions technologies including hydrogen.
  • Foreign takeovers: Australia Foreign Investment Framework will be amended to streamline the requirement for certain investors notify the government when they buy stakes in local companies. It will commence on 1 April 2022.