The Federal Budget has been announced, and as economists, accountants and business owners across the country pour over as much of it as they can, we thought we would provide a summary, including how the budget affects us in Real Estate. Here are some key early take-aways, and some commentary on what this means for Australians and in Property.
Buzzwords from the Budget
The early buzzwords from the Budget include ‘JobMaker,’ ‘JobTrainer’ and ‘Eyewatering’, unfortunately the latter relates to either our deficit numbers or debt levels. In summary, the Government is spending big. The budget has overwhelmingly been reported as the most critical since the early 90’s and with the largest deficit since World War II, what does this all mean and should we be worried?
While there are plenty of alarming (dare I say eye-watering?) statistics, given the economic environment, high debt levels and large deficits are to be expected, if not embraced. It is important to put these debt levels in context, as global debt is also at record levels since WWII. It is important also to note that Australia is fairing far better than most countries on this front. Take a look at the ‘Spending Perspective’ below or reach out to your local Woodards office for information from our Roadmap to Recovery Webinar.
Importantly, Prime Minister Scott Morrison has announced that the ‘‘Policies announced will still go ahead” regardless of vaccine development. This instils confidence that regardless of the rough seas ahead, we should be able to rely on the budget as it stands. So who are the winners and losers and what does it mean for the Melbourne Property Market?
First Up: There is simply not enough in the Budget for Women
The pandemic has overwhelmingly and disproportionately affected women more than men. This is as true in Australia as it is in the rest of the world. The majority of women are frontline healthcare workers, women are disproportionately losing work and are within industries like hospitality and others that are most affected, and women are doing much more unpaid work from home.
With no immediate relief provided for women looking for work now or targeted funds to assist women for the near future, one early criticism of this Budget is that it may be too blunt an instrument to effectively combat the economic impacts of the Pandemic. We hope this changes, and that the Government takes steps towards a more targeted and strategic approach to fix this imbalance.
First Home Loan Deposit Scheme
This scheme will be expanded to help 10,000 more First Home Buyers, with Melbourne’s cap being increased to $850,000. This means more Buyers, and more Properties, will qualify for the scheme which provides First Home Buyers with a 5 percent deposit the opportunity to avoid Lenders Mortgage Insurance.
Capital Gains Tax Exemption for ‘Granny Flats’
The Government has announced it will remove CGT to the creation, variation or termination of a formal written granny flat arrangement providing accommodation for older Australians or people with disabilities. There are 3.9 million pensioners and around 4 million people with a disability that this may assist.
From JobSeeker & JobKeeper to JobMaker & JobTrainer
Yes, that’s right, the Government has announced and will perpetuate two more buzz words…
The JobMaker Hiring Credit, aimed at boosting employment for young Australians, is a $200 per week wage subsidy for new hires aged 16 to 29, and a $100 per week subsidy for those aged 30-35. New hires must work 20 hours per week and all business except the major banks are eligible.
The $1billion JobTrainer Fund is aimed at creating 340,000 free or low-cost training places for job seekers and school leavers. This fund will include:
- 50,000 new higher education short courses in agriculture, health, IT, science and teaching
- 12,000 new Commonwealth supported places for higher education in 2021
- 2000 Indigenous students to complete year 12 and pursue further education or find employment
An additional $1.2 billion will be provided to create 100,000 new apprenticeships and traineeships, with a 50 percent wage subsidy for the businesses that employ them.
Small Business Asset Write-Offs
Businesses with turnover of up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the year they are installed. The cost of improvements to existing eligible depreciable assets made during this period can also be fully deducted. This significantly expands the Asset Write-Offs available and includes measures to make it easier to claim them.
"Building on the successful expansion of the Instant Asset Write Off during the COVID crisis, tonight we go further, announcing the largest set of investment incentives any Australian Government has ever provided. From tonight, over 99 per cent of businesses will be able to write off the full value of any eligible asset they purchase for their business.” Josh Frydenberg, Treasurer
This will be available for small, medium and larger businesses with a turnover of up to $5 billion until June 2022.
Without going into all the detail, a summary of how much you may save is here:
- If you are earning $37,000 you will be $510 better off
- If you are earning between $37,001 and $48,000 you will be between $510 and $2,160 better off
- If you are earning between $48,001 and $90,000 you will be between $2,160 and $2,295 better off
- If you are earning between $90,001 and $126,000 you will be $2,295 and $2,745 better off
Fringe Benefit Tax Exemption
Retraining new staff and placing them in different roles could provide businesses with the opportunity to take advantage of a Fringe Benefit Tax Exemption.
Some Spending Perspective
So, as Josh Frydenberg and the Government ‘throw the kitchen sink’ at their recovery plan, how does this compare to others around the world? Well, Central Bank Activity globally is three times that of the Global Financial Crisis and Government Fiscal Support around the world is double what it was during the GFC. Australia’s Net Debt to GDP is expected by the Government to peak at 43.8 per cent at the end of the forward estimates. To put that in perspective, the projections of the same for the US are 108 per cent.
Spotlight on HomeBuilder
While the HomeBuilder scheme was introduced in June, it is a good opportunity to review how this has affected the market, to put other budget measures in context. HomeBuilder provides eligible owner-occupiers (including First Home Buyers) with a grant of $25,000 to build a new home or substantially renovate an existing home.
The HomeBuilder Scheme has been credited with propping up transaction volumes, but only in some segments of the property market. For example, vacant land sales over the first 39 weeks of this year are up 50.5% (source REA Group) when compared with the same time last year. This is a great example of how stimulus can work to generate activity, but also how highly segmented the Property Market is.
So, what does this all mean for the Melbourne Property Market?
Essentially, the rebound is happening in property, it just might not be fuelled or accelerated as much as we had hoped by the Federal Budget. Most will welcome the expansion of the First Home Buyers Deposit Scheme and the introduction of a CGT exemption for Granny Flats, but there is little to be excited about if you are in the established property market, either as a seller or investor, from the Budget. Still, there is a lot to like about the Government’s approach, including the sheer weight of numbers in stimulus and potential benefits. Low rates and the huge amount of liquidity in the economy may also precede a return of investors looking for growth assets like high-demand residential property.
The road to recovery is of course complicated, but we are optimistic about the strength of the rebound in Melbourne’s Property Market. Search volumes are already back to previous levels both for sale and for rent, and we are now re-open to be able to provide Private Inspection and Marketing Services for leasing and sales. The early signs are positive for a swift recovery and the next three months are going to be busy. What is uncertain is the medium-term effects of the large increases in unemployment and underemployment.
At Woodards we hope the State and Federal Governments can work together towards meaningful changes to the Property Market in Victoria that can fuel activity and ultimately, the economy. Only with both the Federal and State Governments working in concert will we be able to reach the crescendo required to get out of this recession unscathed.