-Article kindly provided by the REIA-
The Government describes this budget as a contribution by all Australians now that will be an investment in Australia’s future.
Across the four years of the forward estimates there will be a net reduction in the size of the deficit – directly attributable to policy decisions – of $36 billion. Of that, $27.7b comes by way of spending cuts. Another $8.3b is raised through taxes.
Real GDP growth for 2014-15 is forecast at 2.5% for the coming financial year and unemployment is forecast at 6.25%. The Government’s forecast for private investment growth in dwellings is considerable at 7.5%, compared to 3.5% for 2013-14. Medium term projections show surpluses building to well over 1% of GDP by 2024-25, taking into account future tax relief.
• No changes to negative gearing.
• The Government will not proceed with the final round of the National Rental Affordability Scheme. The scheme will be reviewed to address ongoing issues and ensure remaining incentives meet the scheme’s original aim. In consultation with states and territories, investors, developers and the housing sector, the Government will look at how best the scheme can meet its objectives, stamp out trading of incentives, target Australians who are most in need and reduce red tape and ambiguity. This is to save $235 million over 3 years.
The First Home Savers Accounts scheme will be abolished with no new accounts to be opened from Budget night. The Government co-contribution will end on 1 July 2014 and the income and asset test exemptions for government benefits associated with these accounts are to end from 1 July 2015. From July 2015 there’ll be no restrictions on withdrawing funds. The saving is $134 million over 5 years.
• The pilot scheme announced last budget for seniors wanting to down-size will not proceed, saving $173 million over 4 years. The scheme proposed down-sizing seniors could deposit up to $200,000 for 10 years without impacting on their pensions.
• Government has decided to modify integrity measures in relation to the foreign residents’ capital gains tax regime. This mainly affects new unit developments which currently attract foreign investors and is estimated to have no revenue impact.
Main budget points
• Infrastructure Growth Package to provide an extra $11.6 billion for major projects in all states and territories, bringing Government investment to $50 billion by 2019-20 and resulting in over $125 billion of additional national infrastructure investment.
• Temporary Budget Repair Levy for those earning over $180,000. This amounts to an increase of 2% in the marginal tax rate for 3 years from 2014-15.
• Gradual increase of the age of pension eligibility to 70 between now and 2035.
• The Australian public service will be reduced by 16,500 workers.
• Payment of up to $10,000 over 2 years to businesses that employ an Australian over the age of 50 who has been on unemployment benefits or the Disability Support Pension for 6 months.
• Re-introduction of fuel indexation with direct revenue from the increases going to roads building.
• Unemployment reforms with a return to Work for the Dole with job seekers job search obligations until qualifying for income support.
• Tightening of eligibility for Family Tax Benefits.
• From 1 July 2015, previously bulk-billed patients will pay $7 per visit for any standard GP consultation, out of hospital pathology and imaging.
• The $484 million Entrepreneurs Infrastructure Program, to improve the capabilities of small to medium enterprises and streamline business access to Government programs.
• Company tax rate to be cut by 1.5 percentage points from 1 July 2015, affecting up to 800,000 small and medium sized businesses.
• The Government is planning for the longer term with the White Paper on the Reform of the Federation and the White Paper on the Reform of Australia’s Tax System. The White Papers will be completed by the end of 2015.
• From July 1 2014, employers who hire an eligible mature-aged jobseeker on a full-time basis will be paid a subsidy of $10,000 over 24 months. If the worker is employed part-time, a pro-rated subsidy will be paid.
• From July 1 2015, the Government will introduce a Paid Parental Leave scheme with an income cap of $100,000 per annum.
Training and Education
• Government will introduce the Industry Skills Fund to streamline training and better position Australian industry. The Fund will commence on 1 January 2015 and will deliver close to 200,000 targeted training places and training support services over 4 years. The Fund, to cost $476 million over 4 years will be offset by the abolition of 10 training and skills program including the National Work Force Fund, saving $1 billion over 5 years from 2013-14 and provide direct financial assistance for all students studying diploma, advanced diploma and associate degree courses at approved institutions
REIA’s Pre-Budget Submission and responses as contained in the Budget statements:
• Ensure the availability of reliable data on housing demand and supply to formulate appropriate policies and to monitor their effectiveness. Unchanged
• All states and territories uphold the initial intent of the Intergovernmental Agreement in Federal Financial Relations Schedule A, that assistance to first home buyers will be “uniform” and that “an eligible home will be new or established”. Unchanged
• Review the amount of the First Home Owner Grant annually to maintain relativity with house price movements. Unchanged
• Allow first home buyers access to their superannuation for the purchase of a home. Unchanged
• Retention of current arrangements for negative gearing of property investments. Yes
• No increase in Capital Gains Tax on property investments. Yes
• Improve the supply of housing for social housing tenants transitioning to private rental by utilising private investment. Unchanged
• Monitor Housing Affordability Fund (HAF) and National Rental Affordability Scheme (NRAS) to observe its effects on housing supply and to conduct a
review which considers additional measures to bridge the demand/supply imbalance. Yes
• Ensure the Australian Skills Quality Authority (ASQA) funding is adequate to ensure nationally approved quality standards are met for vocational education and training. It is also imperative that outcomes be assessed by Government around how well he Authority has ensured the integrity of the VET sector. Unchanged
The Budget contains little in adverse spending cuts that have not been canvassed in the media over the last month or so. The size of the Budget deficit is 2.5 times larger than that anticipated at last year’s Budget. A return to surplus is not expected before 2018-19. Whilst it is dependent upon the accuracy of the projections, bringing an end to the Budget deficit overhang within this timeframe is ambitious.
With forecasts of moderate growth, in line with OECD forecasts, a slight increase in unemployment and inflation well within the RBA’s target zone, the budget should have a benign impact on interest rates.
The abolition of the First Home Saver Account scheme, whilst disappointing, is not likely to have a major impact on the market as the reason for its axing is the low uptake of the scheme – around 46,000 compared to the initial expectation of 750,000. Whilst the concessions available cease from 1 July 2015, after this date there will be no time restrictions in withdrawing funds.
Whilst the review of NRAS is something that REIA has called for, it has nevertheless added to the supply of rental housing and taken pressure off the level of rents. A revised scheme should continue to pursue the initial objectives but benefit from the lessons learned in the review.
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