9 May 2017

In an incredible turnaround from the “emergency” Budget delivered by Joe Hockey just two years’ ago, Treasurer Scott Morrison has tonight delivered a Budget that will likely please more than it angers – at least on first assessment (and as long as you’re not a big bank).

It is a cleverly-crafted statement that is far more about politics than economics, and yet it is still a decent Budget, with little to offend except by the error of omission. Although, perhaps as more detail comes to hand in the next few days, we may reassess.

With many initiatives announced prior to tonight, the Treasurer’s focus on housing affordability and infrastructure would be well-received, and rightly so. Although, as always, the devil is in the detail.

One of the most striking features of this Budget is the reliance on increases in taxation and other revenues to pay for recurrent spending. This is not traditional conservative fiscal policy. Measures such as the increase in the Medicare levy to fund the NDIS shortfall make sense, but we would expect them to come from Labor.

From a fiscal policy stance, a balanced Budget remains some way off but still in sight. However, it critically relies on no shocks to the Australian economy – let’s hope our luck holds out. But it leaves unanswered how we will forge a longer-term path to dealing with the higher costs of an aging population, and how we can successfully transition to a knowledge-based, services focussed economy with the requisite skills.

Budgets will inevitably have some winners and some losers – even the best of policies does – but, if this Budget was crafted to help their image in the next round of polling, it is likely to do so.

A number of initiatives were announced that will have implications for city-shaping

Housing affordability unlocked? 

The lack of housing affordability in many parts of Australia is currently at the forefront of most conversations. The Treasurer set up expectations ahead of the Budget that this issue would be front and centre, and a range of measures announced has certainly gone some way to addressing the issue. However, much of the heavy lifting will still need to be done by the states.

On the supply side, positive measures announced in the Budget include:

  • Provision of ongoing funding for a new National Housing and Homelessness Agreement (NHHA), which will include an additional $375.3 million to fund ongoing homelessness support services, with matched funding from the States and Territories.
  • Freeing up of Commonwealth land for housing development in Sydney and Melbourne, starting with 127 hectares of Defence land in the suburb of Maribyrnong to allow for 6000 new houses.
  • A $1 billion National Housing Infrastructure Facility (NHIF) that will provide financial assistance to local government from 2018-19 for infrastructure that supports new housing, particularly affordable housing
  • Encouraging investment into affordable housing by opening up investment to Managed Investment Trusts (MITs), so long as 80% of the property is set aside as affordable housing and available for rent for at least 10 years, in addition to providing a 10% capital gains tax discount for individuals who invest in affordable housing
  • Establishing the National Housing Finance and Investment Corporation – which will operate as a Bond Aggregator to provide cheaper and longer term finance for community housing providers
  • $10.2 million to trial the use of Social Impact Investments in partnership with States and Territories to fund new programs to improve housing and welfare outcomes for young people at risk of homelessness, and $20.2 million to help develop the Australian market for social impact investments

Time will tell if the following policies have the desired effect:

  • Tougher ownership conditions for foreign investors including the introduction of a “ghost house tax” on properties not occupied for at least half a year, increasing the capital gains tax withholding rate and reducing the withholding threshold, and limiting foreign ownership in new developments to 50%
  • To encourage “empty nesters” to downsize and free up larger homes for families, those aged 65 or over will be able to top-up their superannuation by up to $300,000 from the sale of their family home from 1 July 2018, with both members of a couple being able to take advantage. This measure is expected to cost $30 million over the forward estimates
  • To assist them save for their first home deposit, first home buyers will be able to make voluntary contributions to superannuation which can be withdrawn for a deposit, along with associated earnings. While both members of a couple can take advantage, with total contributions capped at $30,000 this initiative is unlikely to greatly assist first buyers in Sydney and Melbourne.

 

Will infrastructure investment deliver? 

The Budget has delivered a range of big ticket items promising economic growth and jobs, with a key theme being enhancing connectivity between our major cities and regional centres. But the proof will be in the pudding – many projects will need robust business cases supporting their implementation to ensure the promised benefits – both economic and social – are realised. The Western Sydney airport will certainly be a game-changer for the city.

Key infrastructure measures in the Budget include:

  • $5.3 billion has been provided to build the Western Sydney airport to provide much needed additional capacity in Australia’s largest market
  • $8.4 billion of additional funding to deliver the Inland Rail Project, linking Melbourne with Brisbane via regional Victoria, New South Wales and Queensland
  • $1 billion to fund priority regional and urban infrastructure in Victoria, including $500 million to upgrade regional rail infrastructure and enhance linkages with Melbourne
  • $1.6 billion for major road and freeway upgrades in Western Australia
  • $600 million over two years as part of a $10 billion National Rail Program to enhance the connectivity between major cities and regional centres
  • $472.2 million set aside to establish the Regional Growth Fund, which will provide grants of $10.0 million or more for major regional transformational projects
  • $30 million set aside to develop a business case for the Tullamarine Rail Link – however, with so many U-turns at the state level, only time will tell if Melburnians finally get their dedicated airport link.

While previously announced, of interest is the Coalition’s intention to buyback NSW’s and Victoria’s share of the Snowy Hydro scheme as part of Snowy Hydro 2.0. The condition of the buyback is that all funds received by the states from the sale would have to be reinvested in priority infrastructure projects.

 

Policies announced tonight – and released over the past week – that are aimed at helping lift communities, by addressing social issues, include….

Health and disability

  • Funding guaranteed for the National Disability Insurance Scheme through a 0.5% increase in the Medicare Levy – $9.1 billion cost over the forward estimates
  • Health spending increase of $10 billion, including gradual lifting of Medicare rebate indexation freeze, and increased health research funding and hospital funding.

Education

  • Schools to receive an extra $18.6 billion in funding over the next ten years, as part of the Gonski funding reforms, on needs-based assessment
  • University student fees to increase by 7.5% by 2021
  • Universities’ funding cut by 2.5% for the next two years as an ‘efficiency dividend’
  • Lowering of the income threshold for repayment of HECS debt from $55,000 to $42,000
  • Childcare package of $428 million to extend existing agreement on early childhood education by one year

Jobs

  • A levy on foreign workers will raise $1.2 billion, which will be put towards a number of programs, such as the Skilling Australians Fund to train workers and pre-employment training, employment assistance for Indigenous Australians

And then there were some policies that are less than optimal….

  • tighter welfare conditions including a demerit system for failing to take appointments or work, and a trial of drug testing on 5,000 welfare workers
  • foreign aid budget frozen for two years – equates to $303 million less in foreign aid spending
  • nothing on climate change

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Watch The Drum’s Budget Special, featuring Alice Workman, Nicki Hutley, Ming Long and Jacinta Price. The panel discusses the Government’s budget announcement, tackling questions such as: What segments of society will be most affected? What are the initial impressions? What is the political spin from the parties?

 

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