2024-25 Federal Budget: Broad and Backloaded

Net overseas migration is forecast to nearly halve from 528,000 in 2022-23 to 260,000 in 2024-25. Population growth is now expected to be 2.0 per cent in 2023-24 and 1.4 per cent in 2024-25, a revision from 1.7 per cent and 1.5 per cent, respectively in the previous budget.

The Federal Budget has allocated $7.8 billion for cost-of living relief across multiple measures. Key measures include:

• $3.5 billion of this will fund energy bill relief, with households receiving a $300 rebate, and small businesses a $325 rebate from 1^st July 2024.
• $1.9 billion will be used to raise the rate of Commonwealth rent assistance by 10 per cent, on top of last year’s 15 per cent boost. 

The Federal Budget retains a continued investment in health, with focuses on affordable medication, the continuation of medical research, mental health, and supporting the older population. Such measures include:

• $3.4 billion over five years for adding new drugs to the PBS or amending existing listings.
• An additional $1.4 billion has been committed over the next 13 years to invest in life-saving medical research in Australia.
• $484 million to freeze the price of prescription medicines for the next five years.
• $588.5 million to create a national fee-free digital mental health service and $227 million over three years for 29 new Medicare urgent care clinics.
• $610.4 million over four years for states and territories to invest in initiatives that address long stay older patient challenges.

No major new measures announced in addressing gender-based violence. The Government continues its commitment in providing an additional $1.1 billion towards women’s safety within this budget and 2023-24 MYEFO. The Government also continues to invest in the Leaving Violence Program. Measures include:

• $4.3 million to commission Australia’s National Research Organisation for Women’s Safety.
• $3.9 million over four years in additional resourcing for the Office for Women, in the Department of Prime Minister and Cabinet.
• $56.1 million over four years to improve access to sexual and reproductive healthcare for women in Australia across the life course.

The Budget has allocated funding to deliver the commitments made in the Closing the Gap Implementation Plan. Measures include:

• $110 million over four years to accelerate action against the National Agreement on Closing the Gap Priority Reforms in the Education portfolio.
• $43.1 million over four years to improve justice outcomes for First Nations individuals and families.
• $53.8 million over four years to establish two new First Nations language centres, increasing funding for existing centres, and for community language learning.

Funding towards housing in this Budget stretches across various needs and groups. Newly announced measures include:

• $6.2 billion has been added to the Homes for Australia plan, bringing it to a total of $32 billion. Under the National Housing Accord, the government aims to build 1.2 million new homes in the five years from 1 July 2024.
• $1.9 billion for loans to Community Housing Providers (CHPs) to build social and affordable homes under the Housing Australia Future Fund and $1 billion promised for accommodation for women and children fleeing domestic and family violence (National Housing Infrastructure Facility).
• $3 billion in New Homes Bonus incentive payments to be distributed between the States.
• $423.1 million in additional funding for the National Agreement on Social Housing and Homelessness (social housing and homelessness services), bringing the five year funding agreement total to $9.3 billion.
• $1.5 billion to the States though the Housing Support Program to fund enabling infrastructure (water, sewage, roads, and footpaths) for housing delivery.
• $698.4 million over four years from 2024-25, totalling $2 billion over 10-years to fund housing delivery to combat residential overcrowding in remote Northern Territory communities.

Alternative Housing

The Budget has also sought to allocate funds to alternative housing types including build-to-rent and student accommodation. These include:

• Halving the managed investment trust withholding tax from 30-15 per cent and increasing the capital works tax deduction rate from 2.5 per cent to 4 per cent for new BTR properties.
• Reduced foreign investment application fees for BTR developments and allowing foreign developers to purchase existing BTR assets with lower fees, conditional on their continued operation as BTR.
• $2.1 million over four years to develop international student enrolment caps for each university based on their provision of student accommodation.

The education and employment focus within this year’s Federal Budget appears to target improved access to higher education, the targeting of skills aligned to Government objectives, and the easing of cost pressures of students and those paying off loans. Significant measures in the Budget include:

• $1.1 billion over five years will fund the first stage of the Universities Accord, including payments to students doing professional placements and courses preparing people for university.
• $88.8 million is budgeted for 20,000 more fee-free TAFE and VET places for construction-related courses.
• $239.7 million to fund the capped indexation on university student loans as these will be indexed to match the lower of the Consumer Price Index or Wage Price Index.
• $265.1 million over four years to adjust previously scheduled Phase Two Incentive System payments to provide further support for apprentices, trainees and their employers in priority occupations, while the Government undertakes the Strategic Review of the Australian Apprenticeships Incentive System.
• $26.1 million over four years for the Skills and Training portfolio to contribute to an effective Vocational Education and Training system, continue structural reforms, maximise returns on previous investments.
• $111.8 million over four years to support the progression of the Government’s workplace relations agenda. This includes $60 million to increase the Productivity, Education and Training Fund.
• The Government will also progress a business case to develop a modern ICT solution for the assessment of trade skills for skilled migrants by Trades Recognition Australia. This will make skilled workers more rapidly available to employers and support the delivery of Government objectives.

Community-related spending within the Budget allocates funding to infrastructure improvements (both physical and systemic), providing additional services and support.

• $2.2 billion to fund the implementation of more recommendations from the Aged Care Royal Commission. $1.2 billion will be spend on digital systems upgrades.
• Wage increases for aged care and childcare workers have been budgeted for, but no details are given about the rise in wages and the cost.
• $531 million over five years will fund another 24,00 home care packages and $468.7 million over five years is set aside to continue cracking down on fraud and exploitation of the NDIS.
• $925 million that is already announced over five years will make the Leaving Violence Program permanent, providing financial support to victim-survivors of intimate partner violence.
• $1.1 billion over five years will fund superannuation payments to parents on government-funded parental leave.
• $259.7 million for the revitalisation and precinct master planning of the Australian Institute of Sport.
• $41 million over five years to fund changes to who is eligible for JobSeeker. Singles with capacity to work zero to 14 hours a week will be eligible to receive the payment from September this year.
• $216.6 million over four years to support Australia’s arts, entertainment and cultural sector.
• $1.5 million to the New South Wales Government to support upgrades to Qtopia Sydney.

The Federal Budget has allocated funding for various transport and infrastructure projects across the states and territories. This includes the operation of Western Sydney International Airport. Key measures include:

• $4.14 billion over seven years to fund 65 new infrastructure projects. This includes $1.9 billion for roads in Western Sydney.
• $10.1 billion over 11 years for existing projects, including $3.2 billion for Victoria’s North-East Link, $1.2 billion for a rail line between Brisbane and the Sunshine Coast, and $1.7 billion for Western Australia’s 72-kilometre passenger rail, Metronet.
• An additional $302.6 million over five years to enable operations at Western Sydney International Airport. The Government will also provide equity to WSA Co Limited to support completion of Stage One of Western Sydney International (undisclosed figure).
• $101.9 million over five years to extend the Remote Airstrip Upgrade Program and Regional Airports Program or two additional rounds and continue the Remote Aerodrome Inspection Program.
• $12.6 million over four years to support the delivery of the Government’s Urban Agenda, supporting a national approach to sustainable urban development, oversight of urban renewal projects and the continued delivery of city and regional deal projects.

The issue of climate has been addressed two-fold within the Federal Budget, both by budget for funds to continue the renewable energy transition and supporting victims of climate change and related disasters. These allocations include:

• $19.7 billion over ten years is budgeted to “support Australia to become a renewable energy superpower” as part of the Future Made in Australia plan. The funding will flow to industries dealing in renewable hydrogen, green metals, low-carbon liquid fuels, processing critical minerals and manufacturing clean energy supply chains, like solar panels.
• $1.7 billion over ten years for the Future Made in Australia Innovation Fund to develop some of these industries.
• $6.7 billion over ten years introducing the Hydrogen Production Tax Incentive targeting renewable hydrogen and processed critical minerals projects “so industries are rewarded for scale and success”.
• $1.5 billion committed to manufacturing clean energy technologies, notably, the Solar Sunshot and Battery Breakthrough Initiative.
• $519 million for the Future Drought Fund to help farmers and rural communities better prepare for climate change and drought.
• $150 million over four years in contributions to international climate financing funds. $100 million has been allocated to the Pacific Resilience Facility, and $50 million to the United Nations Framework Convention on Climate Change Green Climate Fund.
• An additional $144.5 million over five years to implement a New Vehicle Efficiency Standard, supporting greater choice of fuel-efficient vehicles that will reduce motoring costs and transport emissions.

Support for small businesses within this Budget includes:

• $290 million to fund the extension of the $20,000 instant asset write-off until 30 June 2025.
• One million small businesses to receive a $325 rebate on their electricity bill.
• $25.3 million to improve payment times and $23.3 million to adopt e-invoicing to improve productivity and reduce payment redirection scams.
• $8.5 billion in annual trade and the elimination of 457 nuisance tariffs, including goods such as fridges, dishwashers, and clothing.

The Government has sought to strengthen the foreign resident capital gains tax (CGT) regime to ensure foreign residents pay their fair share of tax in Australia. The amendments will apply to CGT events commencing on after 1^st July 2025 and are estimated to include revenue of $200 million per year. These amendments will:

• Clarify and broaden the types of assets that foreign residents are subject to CGT on.
• Amend the point-in-time principal asset test to a 365-day testing period.
• Require foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the ATO, prior to the transaction being executed.

This will ensure that Australia can tax foreign residents on direct and indirect sales of assets with a close economic connection to Australian land, in line with the tax treatment applied to Australian residents.

Defence funding has been allocated to support Australia’s capacity and capability. The measures include:

• $50.3 billion over ten years towards the 2024 National Defence Strategy as previously announced. This will include reforming Defence’s budget to increase funding efficiency, transparency, and assurance, streamlining procurement and tendering processes and accelerating the delivery of priority capabilities.
• The Government will also provide an equity injection (undisclosed figure) to Australian Naval Infrastructure Pty Ltd over four years to progress priority construction and design works in support of the nuclear-powered submarine construction yard in South Australia.

While we appreciate that the Government has allocated funding towards incentivising employment take-up within key industries, such as by providing free TAFE placements for construction-related courses, and wage increases to aged care and childcare workers, we question where these workers will come from. Given that the national labour currently remains tight with a critical skills shortage, and that Treasury forecasts the unemployment rate to grow to 4.5 per cent, there is a question as to where the outflow of labour will be felt the most.

Another key issue lies in the fact that, for the construction industry especially, the Government is funding competing interests concurrently. There are many overlaps in the skills requirements for residential construction, infrastructure construction, and renewable energy construction. While there is a need for funding in all categories, the limitation of this parameter likely means that the Government has not allocated enough investment to housing, which is the front-of-mind issue for many Australians.

The Budget also focuses heavily on the Future Made in Australia fund, which is tied to growing Australia’s renewable energy capability. While this certainly a key investment, we would have liked to see a larger focus on broader innovation nationwide. Innovation in Australia should not be siloed, but addressed in a more systemic manner that can support increased productivity and other pressing issues such as the housing crisis.

While the Government has been careful in considering the impact of inflation on its funding allocation measures, the reality of the situation is that most of Australia’s pressure remains on the supply side. Without adequately addressing the supply of goods and services and their inputs, it is difficult to address the demand side.

Additionally, it is becoming increasingly apparent that some of the core drivers of inflation are out of the realm of consumers’ control. The CommBank Household Spending Insights (April 2024) noted that the spending categories with the greatest annual change were education, utilities, insurance, and health. Inflation in these essential services is largely the result of environmental stress on reinsurance markets, geopolitical risk, and policy-driven indexation to CPI. Whilst the flagged $300 national energy rebate will materially reduce the CPI measure for energy in 2024-25, other funding measures including the Stage 3 Tax Cuts are unlikely to deliver a noticeable reduction in cost-of-living pressures for the average Australian.

What relief the Budget will deliver in housing is backloaded to avoid unnecessary stimulus, however it is unlikely that any major dent can be made in inflation until significant supply-side measures are put in place to soften the national housing crisis and cost of living pressures. Burdened with this Catch-22, the Federal Government is once again beholden to the Reserve Bank to demonstrate a material reduction in inflation to the target band or risk the continued high interest rates that weigh on Australian households and Federal Labor’s 2025 election prospects.