Budget Targets Battlers
Smokin’ Joe Hockey delivered his first Federal budget last night, and he followed through on his promise of pain before gain.
It should be remembered that some of the welfare clawbacks are Howard handouts from a decade ago (pre GFC) when the economy was in completely different shape. That said, there are some extra hits that are going to hurt the poor and middle class disproportionately compared to high income earners and corporates.
But what about property investors? How might we be impacted?
1. Interest Rates
Inflation is forecast to hold steady at 2.5% for the next few years, and if so, it’s hard to see where the pressure for significant interest rate increases is going to come from.
As such, real estate investors have good cause to believe that home loan interest rates will be stable at current historical lows for some time yet.
2. Economic Activity
The budget is claimed to be neutral in its impact to the economy, and economic growth is forecast to be below trend until 2016. It’s certainly not a stimulus budget, and is more likely to result in economic contraction as people become uncertain about their financial futures. I expect this will lead to lower consumer confidence and less spending in the short term, and as such will put something of a wet blanket on the property market until at least Spring.
3. Jobs
Look out if you are a public servant! Departments are going to be merged and funding cut back. Many staff losses are anticipated over the next four years. The biggest impact is going to be in Canberra, and as I wrote in my last blog, ACT homeowners and investors need to consider their property positions and take corrective action now.
4. Structural Tax Reforms
Negative gearing was left alone, as was the GST, although the States were given a reason to approach Canberra to ask for the GST rate to increase to fund Health & Education. The new debt deficit on high income earners won’t have much impact to revenue and was more symbolic than anything.
Overall
I would have thought if you were going to take a hit to your political credibility by breaking an election promise not to increase tax, you would want to do it more spectacularly and profoundly in the first year and then offer sweeteners in the form of concessions closer to the next election.
This is a budget that has focussed on curtailing and capping welfare expenditure rather than being bold in revenue restructuring, and to that extent an opportunity for a ‘root and branch’ review of the taxation system has been missed.
Given the property market is already starting to cool, there is nothing of note to reignite it, nor, with the exception of ACT real estate, is there anything to cause it to drop suddenly.
That’s what I think, but what about you? Please contribute your thoughts by leaving a comment.
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Hi Steve. This simplification and your clarity is very welcome. Sometimes there is just too much published and widely varying opinion to wade through and frankly I’m not an economist. Your help, focussed on property investment, is much appreciated.
Cheers
thecrest
Tony Neale – Statewide Motel Brokers – http://www.statewidemotelbrokers.com.au
As far as I understand there was no cuts/amendments to NRAS, right?
I note in one commentary I’ve seen that NRAS is ‘under review’.
Not sure what that means, but I will keep my eyes on it.
I wouldn’t be surprised if it was modified in some significant way.
– Steve
If there needs to be cutbacks schemes like paid parental leave should go altogether http://www.sbs.com.au/news/article/2014/05/13/no-budget-details-parental-leave
We can’t continue to afford these gold plated welfare systems. All previous generations have lived with having time off work to raise children. Does any other country even have such a scheme?
Companies can barely afford the generous public and paid holidays let alone the loading for taking time off. Companies also have to pay for super contributions, which are set to rise increasing labour costs further. No wonder 90% of small businesses go out of business, often with the owners personal savings going down with them. The uncompetitive, welfarised and unionised labour market we have is destroying industries like car manufacturing, and with the jobs losses will go the property market.
All the talk of this being a ‘painful’ budget is just spin.
Government spending will increase next year NOT decrease. Just a little tinkering around the edges but otherwise it’s just the same old same old, may as well been Wayne Swan giving the speech.
Certainly clear now that voting for the LNP will not deliver smaller government.
From what we’re seeing in Central Queensland, there are going to be thousands more job losses in the mining sector. This is due to mining companies having to now meet the spot market price of their commodities,resulting in more cost cutting and 2nd and 3rd tier mining operations shutting down. This isn’t directly related to the 2014 budget, but it’s another consideration in the state of QLD’s economic status directly resulting from the mining downturn, in particular for QLD coal mining regions.
For Central and Central Coast QLD, the property market outlook doesn’t look pretty in the short-term. Vacancy rate are at an all time high (11% in comparison to 1.5 yrs ago when it got as low as .5%), in addition the blue chip companies are enforcing a fly in – fly out workforce to combat the union hold on operations. This leads to considerably less jobs for local towns and hence an increased supply of housing.
Coking coal price is at a historical low and now the CSG industry is headed toward a downturn also. They are shutting down operations through-out the Bowen and Surat Basin’s as current construction projects are completed.
Bit of doom and gloom, but it’s a reality as we are “right at the coal face” watching it unfold – have been for the last 18mths.
We thought things were due to turn around, but external global factors are impacting the big companies decisions and it’s not over yet.
Brent and Tamara
I think you should go for politics and be our country’s leader. You have insight and intelligence, much better than our politicians in Australia.
The smart one does not want anything to do with politics, the dumb one takes advantage of that.
I think the opportunity for property investors who are educated and knowledgable, is great if you have understanding on how to buy property and add value in an uncertain market.
While the market may have a ‘wet blanket’ thrown over it in the aftermath of the budget and during a cold Autumn and Winter, there will be property deals out there for investors who are ready to buy.
Sellers still need to sell, and some will be negotiable on price if they are more motivated to move a property than they are on getting the top dollar for the sale.
The Canberra market has been contracting since Sept 2012, and as you know Steve, I have predicted a 5-7% decline in the Canberra for 2014. I think this may be conservative, but time will tell. Great for me as I am looking to buy in Canberra towards the end of this year and I should be able to drive a bargain.
NRAS has been abolished from Jul 2014. Stage 5 will no longer go ahead.
I realise it is splitting hairs, but the election promise was no new taxes. Increasing a tax (or debt levy) to in existing tax (ie from 45% – 47%) is not a new tax. the high income tax was already in place, just a temporary increase. Funny though because it is based on taxable income. My thought would be if you are earning $200,000 you would be able to pay an accountant and be structured so that you could reduce your taxable income from $200k below $180k. So this new levy will only really target $250k plus and even then, most of them will be set up for less taxable income. If the Government was smart that would attach a 1% levy based on ‘earned’ income. That would bring in some better revenue.
Great to hear the company tax rate has been reduced to 28.5 %
Mark Kelman – I completely agree your comments. Next 12 – 18 months is a fantastic time to get educated and finance ready. Great thing about the Australian property market is its diversity and mutli trends. Sydney is booming and yet 2 hours down the road in Canberra, it is falling. Be educated, smart and research and find properties that give you the most money in the shortest time for the smallest risk and the least aggravation.
HI Steve, love your book ‘Millionaire’. Our market will be fine. I’ve got a mate working for a bank which specialises in finance for non-residents to buy Australian property. His bank is increasing the area significantly. Add to this the amount of cashed up Chinese people who want to retire here in the next 10 years. Could be another boom but agree with above comments about being educated and knowledgeable. Best way to reduce risk if the market doesn’t go the way you think it will.