2015-16 Federal Budget member brief

Overview

This morning you’ll be reading headlines about child care, small business and tax fairness.

But the biggest story from this budget is Treasury’s strong outlook on the economy.

Economic growth is expected to pick up steam, with real GDP forecast to grow from 2.5 per cent this financial year to 2.75 next year, before climbing to 3.25 and then 3.5 per cent.

This is despite an eye-watering 25 per cent plunge in mining investment next year and another 30 per cent drop forecast for 2016/17.

All the other key numbers are good. A turn around in non-mining investment from last year’s negative growth to 2 per cent this year, with this doubling next year. Household consumption building, with growth hitting 3 per cent next year. And employment growth to remain stable at 1.5 per cent before climbing to 2 per cent in 2016/17.

These numbers bode well for the property industry. Of course, we are making an increasingly important contribution to this outcome too.

There are many positive announcements in this budget (read on for details) and no big nasties for the industry.

But the growth targets in this budget will need a serious and ongoing reform effort to be achieved. To unlock further growth in our industry, the Government must see through its tax, infrastructure and federation reform agenda.

 

Budget snapshot

	F2015	F2016 Forecast	F2017 Forecast
Economic growth (real GDP)	2.5	2.75	3.25
Inflation (headline CPI)	1.75	2.5	2.5
Unemployment	6.25	6.5	6.25
Surplus / deficit (fiscal balance)	-$39.4 bn	-$33.0 bn	-$23.4 bn

 

Tax

Total tax revenues are expected to grow by 5.3 per cent next financial year to reach $313 billion (not including the GST).

Tax hike adverted

• The Government has decided to scrap the GST reverse charge for going concern sales, which would have inadvertently hiked up stamp duty on transactions.
• Currently, most commercial investments are sold as going concerns and are GST-free. Under the Government’s original proposal, these transactions would attract GST but with a reverse charge arrangement that allows vendors and purchasers to agree a tax offset and achieve the same GST outcome as the current rules.
• There was a significant risk that state revenue authorities would view the reverse charge arrangements as part of the purchase price, and charge stamp duty on the notional GST amount. This could have meant additional stamp duty on the sale of a $100 million tenanted commercial property of around $5,000 in NSW for example.
• This announcement is a sensible and pragmatic decision, which we have been discussing with Government for some time and has restored certainty for investors.

 

Small business tax cut

• Small businesses with a turnover under $2 million will receive a 1.5 per cent corporate tax cut. Effective from 1 July 2015 and unincorporated entities will receive a 5 per cent tax discount on income.
• The previously announced tax cut for all companies, as well as the paid parental leave levy, have been scrapped.
• The moves enshrine a two tier corporate tax rate in Australia.
• The Treasurer also announced an expanded accelerated depreciation regime, effective immediately, to allow small business to immediately deduct investments of under $20,000.

 

Multinational Anti-Avoidance Law

• A new targeted anti-avoidance law will be introduced in Part IVA of the tax act designed to look through contrived arrangements and ensure multinationals pay a fairer share of tax.
• The law targets around 30 companies and will commence from 1 January 2016.
• The Property Council will look to ensure the new law does not bleed into the property industry, which is not the target of this measure. Consultation closes on 9 June.
• In addition, new transfer pricing documentation standards for multinationals will be introduced requiring disclosure of income and tax paid in every country of operation.
• The Government will also commence consultation on the design of a “voluntary code” for greater public disclosure of tax information by large corporates. 

GST and online sales

• Online sales of digital products purchased in Australia will now be subject to the GST.
• This will increase Government revenue by $3 million over four years.

 

Infrastructure

The Government has sought to reinforce its infrastructure credentials, continuing funding for projects announced in last year’s Budget as part of the Infrastructure Growth Package, as well as making a couple of new funding announcements.

• The 2015-16 Budget builds on the Government’s $ billion infrastructure investment from the 2014-15 Budget, with the continuation of the Infrastructure Growth Package and the Asset Recycling initiative.
• The Commonwealth has provided an additional $499.1 million for road infrastructure in Western Australia as a result of a GST revenue shortfall in 2015-16.
• The Treasurer has announced a new $5 billion Northern Australia Infrastructure Facility as the first step in the Government’s plan for transforming Northern Australia. The new facility will be a partnership between the Commonwealth, private sector, NT, WA and QLD governments to provide large concessional loans for the construction of ports, pipelines, electricity and water infrastructure. The measure forms part of the Government’s White Paper on Developing Northern Australia.
• The Commonwealth Government is maintaining its commitment to the East West Link project, despite the Andrews Government in Victoria recently formalising an end to the project’s contract. The Commonwealth Government has included $1.5 billion in the forward estimates that it expects to be returned by the Victorian Government but goes on to state that “[t]he Commonwealth Government will provide $3 billion to the first Victorian Government willing to build the East West Link and is formalising this commitment as a Contingent Liability in Statement 8 of the 2015-16 Budget Papers.”
• The Government is providing $ million over three years from 2015-16 to extend the Community Development Grants Programme, first announced in December.
• The Government is also introducing a new Stronger Communities Programme, backed by $45 million in funding over two years for small capital projects (up to $1,000) in local communities.

 

Jobs, skills and productivity

The $5.5 billion Growing Jobs and Small Business package was the centrepiece of the 2015-16 Budget. The jobs part of this package is squarely focused on workforce participation, extending incentives to employers to give jobs to both younger and older work as well as parents returning to work and the long-term unemployed.

• The Government is investing $6.8 billion to establish jobactive – designed to improve the quality of services delivered to job seekers and employers.
• Providing a $1.2 billion pool for wage subsidies to incentivise employment. From 1 November 2015 eligible employers will receive up to $6,0 for hiring an eligible young job seeker under 30 years of age, an Indigenous job seeker, a parent returning to the workforce or a long-term unemployed job seeker and continuing the up to $10,000 under the Restart programme for older workers aged and over.
• The Budget includes further cuts to the public service of $122 million to 38 agencies to assist with redundancies. This is on top of the reduction of 17,300 public servants from 1 September 2013 to 28 February 2015 through natural attrition and redundancies (both voluntary and non-voluntary).
• In relation to skills, the Budget will continue to provide in 2016-17, $1 million in the National Collaborative Research Infrastructure Strategy.
• The Budget also includes changes to the training system, with the creation of the Australian Industry and Skills Council to replace seven vocational education and training governance bodies (Savings of $1.6 million over five years from ’14-15).

 

Capital Markets, Finance and Liquidity

Foreign investment fees

• The Budget confirms the new Foreign Investment Review Board (FIRB) fee regime, compliance measures, additional penalties and foreign land register announced earlier this month.
• The cost of these new integrity measures is revealed to be just $67.8 million, less than one third of the approximately $200 million in revenue the fees will raise annually, ($735 million over the forward estimates).
• The Property Council is engaging with the Government on further modernisation and simplification of FIRB processes.

Managed Investment Trust (MIT) reforms – deferred to 1 July 2016

• Following consultation with industry, the Federal Government will defer the start date of the proposed MIT reforms by 12 months to 1 July 2016. However MITs are able to choose to apply them from 1 July 2015 if they wish.
• The purpose of the MIT reforms is to establish a robust regime which provides greater certainty for both MITs and their investors, and the Property Council has been central to its development.
• The deferred start date will provide Government and industry additional time to consult on the measures and make the necessary administrative changes to implement the reforms

 

“Open for business” foreign investment package

• The Government has allocated $30m to promote foreign direct investment in key markets, including agribusiness and food, resources and energy, infrastructure, tourism, services, manufacturing and technology.

 

Crowd-sourced equity funding

• The Federal Government will provide $7.8m to ASIC over the forward estimates, to facilitate the use of crowd-sourced equity funding.
• This is an emerging method of raising funds through online platforms, which provides ordinary Australians with the opportunity to invest as little as $100 in business projects.

 

Housing Affordability

• The National Affordable Housing Agreement (NAHA) sees ongoing commitment of $1.3 billion to social and affordable housing and $534.1 million through National Partnerships.
• Extra funds for the National Disability Insurance Scheme includes provision for people to modify existing housing to meet accessibility standards.
• Net overseas migration figures will remain a strong demand driver for housing with the Budget showing an increase from 219,098 in 2014/5 to 237,7 in 2015/6.

National Broadband Network (NBN)

• $2.6 billion in equity payments for NBN Co have been brought forward to 2015-16 and 16-17 from 2017-18. This is to reflect the launch and scale of new mixed technology networks.

 

Retirement living

Age pension changes

• The Treasurer confirmed the changes that were announced in the days before the 2015 Budget to tighten eligibility for the age pension (to take effect on 1 January 2017 if the measures pass unamended).
• Part rate pensioners will now lose more if they exceed the ‘assets free area’ or threshold amount:
• Currently age pensioners lose $1. per fortnight in their pension for every $1000 in assets (this can be shares, super, cash, investments, property or any other income stream, deemed or actual – but excluding the principal place of residence) above the threshold.
• Those over the asset threshold will now lose $3 per fortnight of age pension for every $1,000 over. This ‘taper rate’ effectively doubles the amount of pension lost for every $1000 over the new threshold.
• While these are sensible reforms, the new taper rates will increase the barriers for seniors wishing to downsize their housing. This remains a focus for the Property Council.
• At the same time the Government has also increased the assets free area:
• The current threshold is $202 000 (for a single) and $286 0 (per couple)
• This will increase by $48 000 for singles (to $2 000), and by $88 0 for couples (to $375 000).
• The Government has also reduced the amount of assets that a person can have and still qualify for a part pension (from $1.15 million to $823 000 – excluding the value of the principal place of residence).

 

Sustainability

• The Government has increased funding for the Green Army by $179 million over four years. This builds on the $704 million announced in 2014-15 over four years to create the largest on the ground environment work force.
• The Government has extended the Climate Change Authority, providing $6.1 million over two years to give effect to the Emissions Reduction Fund. This is from existing resources in the Department of Environment.

 

Regulation

National security

• The Government will spend $21.7 million over four years combating terrorist propaganda.
• Other security measures include managing the new meta-data retention laws and big budget boosts to the Australian Secret Intelligence Service, the Office of National Assessments and the Inspector-General of Intelligence and Security.

Canberra office divestment program

• The Department of Finance will proceed with the divestment of four Canberra office buildings (East Block, West Block, ANZAC Park East and ANZAC Park West).
• Commonwealth leases will be reviewed to move smaller agencies into surplus vacant space.

ABS capacity

• An extra $234.7 million will be provided to the Australian Bureau of Statistics over four years to enhance its core capacity.
• The 2016 Census will continue as planned, followed speculation that it may be conducted on a less frequent basis.