The Federal Budget will deliver almost $100 billion in new spending to support Australia’s recovery from the impact of the COVID-19 global pandemic, but population growth is a key risk.
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Three key takeaways:
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Treasurer Josh Frydenberg says the Budget is focused on “creating jobs, rebuilding the economy and securing Australia’s future”.
The budget includes a sweeping range of measures, including business investment incentives, personal income tax cuts, and additional investments in infrastructure projects in response to the most severe global economic crisis since the Great Depression.
As ANZ senior economist Felicity Emmett told a Property Council post-budget event, the Budget strategy features a pivot from public to private spending, with $24 billion of personal income tax cuts and $16 billion in business tax rebates and job hiring incentives.
Budget fundamentals
Following a contraction in the economy of 3.75 per cent this year, the federal government is forecasting economic growth of 4.25 per cent next calendar year. The global economy will shrink by 4.75 per cent this year, but will expand by five per cent in 2021 due to the easing of containment measures and a gradual recovery in consumer and business confidence.
Unemployment will peak at eight per cent in the December 2020 quarter before falling to 6.5 per cent by the June quarter 2022.
The budget deficit will blow out to $213.7 billion this year before falling to $66.9 billion by 2023-24. Net debt will increase to $703 billion or 36 per cent of GDP this year before peaking at 44 per cent of GDP in June 2024.
Net overseas migration (NOM) will drop significantly over the next couple of years, falling from 154,000 in 2019-20 before going into reverse in 2020-21 to around -72,000, and then to -22,000 in 2021-22. This negative NOM will lead to a permanently lower level of population and working age population.
Ken Morrison says the delayed population restart assumed in the Budget papers “presents a key risk to Australia’s recovery”.
“Growing our population again will be essential to realising the Budget’s forecasts, and requires Australia to safely and methodically begin to reopen our borders to the rest of the world. We encourage the government to begin this important work to underpin Australia’s recovery.”
Key budget measures
The Budget sets out a range of personal tax cuts, investment incentives and job creation support programs.
Stage two of the previously legislated personal income tax cuts will be brought forward and backdated to 1 July 2020, benefitting more than 11 million taxpayers and delivering an immediate cash stimulus for the economy.
The federal government is also incentivising businesses to invest through temporary expensing incentives, loss carry back provisions and other taxation measures to encourage investment in new equipment and assets.
There is a strong focus on job creation, including new wage subsidies for apprentices or trainees and incentives to take on workers who had previously been on income support payments such as JobSeeker.
There is additional funding for infrastructure projects around the country with a clear message from the Treasurer that state governments must ‘use it or lose it’ to get their projects out of the ground and underway.
As anticipated, there were no changes to the HomeBuilder scheme announced in the Budget. The Budget papers note that the HomeBuilder scheme, in conjunction with other housing policies and low interest rates, is pulling forward demand and will provide notable support to activity in late 2020 and into 2021.
Property industry impacts
In the lead-up to the Budget, the government announced an extension of the First Home Loan Deposit Scheme with an additional 10,000 loan guarantees for first home buyers looking to build or buy a new dwelling, including off-the-plan purchases. The scheme’s price caps are also being raised to reflect the reality of Australia’s housing markets.
There were no changes for the HomeBuilder grant of $25,000 which will continue for new build contracts signed up until the end of December.
HomeBuilder remains a strong focus for the Property Council given the challenging population growth and employment numbers predicted for coming years.
“We believe a continuation of demand stimulus via a HomeBuilder extension will still be required to support jobs and economic activity into 2021,” the Property Council’s Morrison says.
The government has increased the capacity of the Affordable Housing Bond Aggregator by an additional $1 billion – this scheme, managed by the National Housing Finance and Investment Corporation (NHFIC), provides lower cost loans to community housing providers by issuing government guaranteed bonds to institutional investors.
The government is also proposing a capital gains tax (CGT) exemption, from 1 July 2021, for formal granny flats arrangements providing accommodation for older Australians and people with disabilities.
Other tax measures
The Morrison Government is expanding the list of jurisdictions eligible for the 15 per cent Managed Investment Trust (MIT) withholding tax rate, including Hong Kong.
The Government confirmed that significant Foreign Investor Board Review application fee increases would be imposed with the start of the new foreign investment framework on 1 January 2021. This is estimated to provide additional $40 million of revenue to the ATO each year.
The government will also amend the corporate residency test so companies incorporated offshore are treated as Australian tax residents if they have a ‘significant economic connection to Australia’. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.
Read more about the Federal Budget at www.budget.gov.au