The federal budget is set for growth, but behind every number is the unknown effect of the housing downturn, says the Property Council.
Treasurer Josh Frydenberg delivered his first budget last night, promising income tax cuts, major road upgrades and a budget surplus of $7.1 billion next financial year.
But the Property Council’s chief executive Ken Morrison warns that the federal budget and its growth projections are heavily reliant on Australia’s falling housing markets holding up.
“The headlines of surplus, infrastructure and tax relief are welcome, but falling house prices are clearly Treasury’s economic wildcard,” Morrison says.
“The Morrison Government and the Parliament must have a laser-like focus on the housing sector and be ready with a contingency plan if these forecasts aren’t met.”
The Budget papers highlight the downside risk of a further deterioration in housing prices on dwelling investment and household consumption, noting that if consumption dropped one per cent as a result, this would shave a quarter of a per cent from GDP growth.
Treasury says new dwelling investment will only grow 0.5 per cent this year, before dropping by seven per cent in 2019-20 and a further four per cent in 2020-21 as existing projects are completed.
During this budget address, the Treasurer identified several risks on the horizon, notably a cooling residential housing market.“Australia’s housing sector is worth $7 trillion – more than twice the size of the share market – so Treasury is right to flag the risks for the economy,” Morrison explains.
“This also reinforces our warnings about the impact of changes to negative gearing and capital gains tax, particularly at this uncertain time in the property cycle.”
The $100 billion infrastructure investment earmarked for the next decade is welcome, Morrison says, particularly “projects to break urban congestion and improve regional connections.
“The personal income tax cuts targeted at low to middle income earners should provide some relief from cost of living increases.
“The measures targeted at small to medium size businesses will also provide some much-needed confidence,” Morrison adds.
The budget papers highlight the large contribution made by the property industry to non-mining business investment, which grew by 9.7 per cent in 2017-18, compared to average annual growth of 1.5 per cent over the previous decade.