Federal Budget

EXPERT INSIGHT

Despite overwhelmingly endorsing the general stance of the 2021 budget, only a few of the 56 leading economists surveyed by the Economic Society of Australia and The Conversation are prepared to give it top marks.

Asked to grade the budget on a scale of A to F given Treasurer Josh Frydenberg&rsquo;s objective of <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/speeches/budget-speech-2021-22">securing Australia&rsquo;s economic recovery and building for the future</a>, only three of the 56 economists surveyed gave it an &lsquo;A&rsquo;.

But a very large 41% awarded it either an A or a B, up from <a href="https://theconversation.com/could-do-better-top-australian-economists-award-the-budget-a-cautious-pass-148624">37%</a> in last year&rsquo;s October COVID budget.

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The economists chosen to take part in the Economic Society of Australia survey have been recognised by their peers as Australia&rsquo;s leaders in fields including macroeconomics, economic modelling, housing and budget policy.

Among them are a former head of Australia&rsquo;s prime minister&rsquo;s department, a former member of the Reserve Bank board, a former OECD director and two former frontbenchers, one from Labor and one from the Coalition.

Of the panel members who commented on the historic stance of the budget &mdash; expanding the size of the deficit <a href="https://theconversation.com/frydenberg-spends-the-bounty-to-drive-unemployment-to-new-lows-159229">beyond what it would have been</a> in order to drive down unemployment &mdash; all but three offered enthusiastic endorsement.

Emeritus Professor Sue Richardson of the University of Adelaide commended the government for at last turning its back on a &ldquo;debt and deficit&rdquo; mantra, that was &ldquo;never justified&rdquo;.

Professor Richard Holden praised the &ldquo;watershed&rdquo;. In due course there should be increased attention paid to the structure and quality of spending, but for now we should applaud the &ldquo;Frydenberg Pivot&rdquo;.

Saul Eslake said the strategy of providing further stimulus to push unemployment down to levels <a href="https://theconversation.com/josh-frydenberg-has-the-opportunity-to-transform-australia-permanently-lowering-unemployment-156175">not seen consistently since the first half of the 1970s</a> was the right one. It meant the Reserve Bank and the treasury would no longer be working at &ldquo;cross purposes&rdquo; as they had been for most of the past two decades.

But Eslake said the budget fell short in the A$20 billion it devoted to tax concessions for small business in the mistaken and unfounded belief it is &ldquo;the engine room of the economy&rdquo; and in housing measures that failed to heed warnings from history about the risks of ultra-high loan-to-valuation ratios.

Rebecca Cassells of the Bankwest Curtin Economics Centre said the claim that 60,000 jobs would flow from extending the temporary loss carry back and full expensing tax concessions was &ldquo;a stretch,&rdquo; with the connection quite tenuous.

Bucks, but not the biggest bang

Consultant Nicki Hutley said a bigger boost to the JobSeeker unemployment payment would have achieved much more than the $7.8 billion one-year extension of the &ldquo;<a href="https://theconversation.com/the-low-and-middle-income-tax-offset-has-been-extended-yet-again-it-delivers-help-neither-when-nor-where-its-needed-160772">lamington</a>&rdquo; low and middle income tax offset.

Economic modeller Janine Dixon said while spending more to get more people into work was the &ldquo;right setting for the times,&rdquo; Australia had to ensure its workforce was ready to supply the extra aged care and child care and disability services it had funded by delivering the right training, especially in the absence of migration, which has traditionally been used to address workforce shortages.

Labour market specialist Elisabetta Magnani said measures to boost wages in the caring occupations could have achieved the double bonus of drawing more workers into those occupations and shrinking the gender pay gap, given that more than 80% of the workers in residential aged care are female.

Little for net-zero

Michael Keating, a former head of the prime minister&rsquo;s department, said restoring high wage growth would require big investments in education and training, which sits oddly with the cuts in funding for universities. The extra funding for apprentices and trainees only makes up for past cuts.

Professor Gigi Foster said the $1.7 billion spent on childcare subsidies was only &ldquo;surface-level fiddling with the sticker price&rdquo;.

&ldquo;Where is the supply-side intervention required to make childcare services sustainably accessible and of high quality?&rdquo; she asked. &ldquo;Childcare should be viewed as social infrastructure. Instead, when we heard infrastructure, it was mainly code for transportation.&rdquo;

Margaret Nowak of Curtin University said a budget that really &ldquo;built for the future&rdquo; would not have focused on the &ldquo;infrastructure of the past&rdquo;. Professor Richardson lamented that most of the infrastructure spending was on traditional &ldquo;roads and ports&rdquo; when the future was net-zero emissions.

&ldquo;There is little in the budget that supports this transformation,&rdquo; she said. &ldquo;It is an extraordinary lost opportunity.

Nicki Hutley said retooling the economy for zero emissions would have brought forth &quot;more jobs, higher wages, more growth and private sector co-investment&rdquo;.

Some concern about debt

Former OECD director Adrian Blundell-Wignall said a much-greater investment in vaccinations would have helped &ldquo;get the economy back to work and the borders opened sooner which, in turn, would have saved unemployment benefits, tourism, aviation support and the need for the extension of temporary measures&rdquo;.

And he was concerned that a jump in US inflation might cause international interest rates to rise faster than expected, forcing Australia to cut its projected budget deficits in order to stabilise net debt.

Former International Monetary Fund economist Tony Makin, a <a href="https://research.treasury.gov.au/external-paper/the-effectiveness-of-federal-fiscal-policy-a-review">critic</a> of government spending during the global financial crisis, described the budget spending as a &ldquo;knee-jerk primitive Keynesian reaction&rdquo; to the COVID recession.

Unease about going into debt to keep and create jobs aside (and very few of the economists surveyed shared Makin&rsquo;s unease) the criticisms of the economists surveyed relate to execution and details. If Frydenberg had been judged on his approach, most would have given him an A.

<a href="https://theconversation.com/profiles/peter-martin-682709">Peter Martin</a>, Visiting Fellow, <a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a>

This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/great-approach-weak-execution-economists-decline-to-give-budget-top-marks-161347">original article</a>.

Asked to grade the budget on a scale of A to F given Treasurer Josh Frydenberg’s objective of securing Australia’s economic recovery and building for the future, only three of the 56 economists surveyed gave it an A

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Economists decline to give budget top marks

There was one surprise for the housing sector in tonight's federal budget, and three foreshadowed housing measures were made official.

The federal treasurer Josh Frydenberg advised the parliament in his budget speech that new house starts were now at the highest level in 20 years. 

"New loans to first home buyers reached their highest level in nearly 12 years.

"HomeBuilder has been a huge success and our $2 billion investment in affordable housing is bringing on more supply," he said.

"Our housing measures go even further," he added.

"Helping another 10,000 first home buyers build a new home with a 5 per cent deposit.

"Supporting 10,000 single parents to purchase a home with a 2 per cent deposit. 

"Increasing the amount that can be released under the First Home Super Saver Scheme from $30,000 to $50,000.

"Under the Coalition, home ownership will always be supported," he noted.

The budget effectively continued the First Home Low Deposit Scheme for new homes and off the plan acquistions, and tweaked the First Home Super Saver Scheme, and introduced a new scheme for single parents.

The 10,000 Family Home Guarantees will be made available for single parents over the next four financial years.

The Family Home Guarantee will be available regardless of whether that single parent is a first home buyer or previous owner-occupier. 

Applicants have an annual taxable income of no more than $125,000. 

A fact sheet with further information on eligibility criteria will be available on the NHFIC’s website next week.

The surprise announcement was the government will lower the minimum age for the downsizer super contribution from 65 to 60.

“This will allow Australians nearing retirement to make a one-off post-tax contribution of up to $300,000 per person (or $600,000 per couple) when they sell their family home,” the budget documents advised.

“This improves the flexibility for Australians to contribute to their superannuation savings, and may encourage people to downsize sooner and increase the supply of family homes.”

The budgetary measure will be argued as positive for first home buyers and next home buyers by freeing up established housing stock for younger property buyers.

There was a warning after the budget announcement from the Property Council on the long-term economic consequences of idling population growth.
 
"Budget assumptions anticipate that Australia’s population growth will be limited to only 0.2 per cent over in the next financial year. Net overseas migration is forecast at -77,000 in 2021/22, with a return to normal levels of migration not expected until 2024/25," the PCA noted.
 
“The Budget has revealed that our restricted border is the biggest constraint on our economy.
 
“Our lack of growth is going to catch up with us with economic and employment growth expectations slowing over the forward estimates.
 
“Population growth is not an optional extra for Australia’s economy," the PCA said.

The budget also made $15 billion in additional infrastructure commitments including for:

a) the North‑South Corridor in South Australia
b) the Great Western Highway and Newcastle airport in New South Wales
c) the new Melbourne Intermodal Terminal in Victoria 
d) the Bruce Highway in Queensland
e) METRONET in Western Australia
f) highway upgrades in the Northern Territory
g) Light Rail Stage 2A in the Australian Capital Territory and
h) Midland Highway upgrades in Tasmania.

Josh Frydenberg noted that "when construction work began to dry up, HomeBuilder came to the rescue."



jchancellor

Federal Budget formalises three mooted housing measures

EXPERT INSIGHT

Treasurer Josh Frydenberg calls this a &ldquo;pandemic budget&rdquo; &ndash; one to sustain the economy in times that are still uncertain &ndash; but it also has a substantial element of an election budget.

That&rsquo;s not to suggest Prime Minister Scott Morrison will rush to the polls this year. But given the election has to be held by May 21, 2022, this is likely to be the last budget of the cycle. Another could be squeezed in, as in 2019, but it would have to be brought forward from the normal time.

Last year the treasurer said budget repair and debt repayment &ndash; otherwise known as the hard and unpleasant decisions &ndash; wouldn&rsquo;t be undertaken before unemployment was &ldquo;comfortably&rdquo; below 6%.

Now unemployment is 5.6% (the March figure) but Frydenberg has shifted the goal posts, so the emphasis remains on recovery, with more difficult reckonings a way off &ndash; beyond the election.

Given a grim COVID picture internationally and a long way to go with the vaccine program locally, that is sound &ndash; and also politically convenient.

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In this budget, the government&rsquo;s policy approach is firmly aligned with that of the Reserve Bank, with Frydenberg embracing the bank&rsquo;s objective of pushing unemployment well below pre-pandemic levels, which means to a rate with a 4 in front of it.

Two central spending areas in the budget have been, in effect, imposed on the government.

It had to respond to the damning findings of the aged care royal commission. The fact most Australian COVID deaths occurred in aged care underlined how unfit for purpose the system is. Frydenberg told the ABC there will be more than $10 billion spending on aged care over the forward estimates.

The budget&rsquo;s &ldquo;women&rsquo;s&rdquo; focus &mdash; a sharp contrast to last year &mdash; has drivers that go beyond the urgent need to do more to combat violence against women, and other imperatives.

Morrison&rsquo;s &ldquo;women problem&rdquo;, which exploded with the demonstrations following the high-profile allegations of rape, most obviously increased the attention on women in this budget, which will include a women&rsquo;s statement with initiatives on health, safety, and economic security.

Also, Labor&rsquo;s decision to make childcare one of its main policy pitches, promising a big spend, reinforced economic considerations pushing the government to produce its own childcare policy (which doesn&rsquo;t start until July 2022).

Even in the middle of the pandemic last year, few would have thought that by now we&rsquo;d still have no firm idea when our international borders will re-open.

Morrison is cautious about it, and judges that&rsquo;s in line with the thinking of the Australians public at the moment. He can read those state electoral results as well as anyone &mdash; he knows people put health safety above all else.

&ldquo;International borders will only open when it is safe to do so&rdquo;, he said on Facebook at the weekend. &ldquo;Australians are living like in few countries around the world today.&rdquo;

On the other hand, the pressure for students to come, migration to resume and people to be allowed to travel must build sooner or later.

The budget&rsquo;s assumptions will put the reopening in 2022, Frydenberg told the ABC at the weekend

Economist Saul Eslake says while keeping the country closed to the outside world is obviously not sustainable in the long run, it has, in a perverse way, some short run plusses for the government&rsquo;s economic objectives.

&ldquo;It&rsquo;s very easy to get unemployment down when the border is closed. You only need to create 5000 new jobs a month to prevent unemployment rising.

&quot;Previously [with migrants coming] you needed 16,000 new jobs a month. Currently we&rsquo;re creating 60,000 a month,&rdquo; Eslake says.

Migrants stimulate growth. But so does having Australians unable to travel overseas, Eslake says. They can only spend domestically &ndash; or save &ndash; the $55 billion they would normally be spending abroad. They appear to be spending quite a deal of it on things like home equipment, furnishings, renovations, cars, and even clothing.

While fiscal repair is formally delayed, the budget will show it is gradually, to a degree, repairing itself.

The quicker-than-expected bounce back of the labour market, which reduces welfare costs and boosts tax revenue, and the similar rebound in corporate profits, help the bottom line. Frydenberg says that, despite JobKeeper coming to an end, 105,000 people came off income support in April. High iron ore prices are also a godsend to revenue.

Chris Richardson, from Deloitte Access Economics, has forecast a deficit for this financial year of about $167 billion, compared with the December budget update figure of $198 billion. For 2021-22 , the Deloitte forecast is a deficit of about $87 billion compared with the update&rsquo;s forecast of $108 billion.

Still, a balanced budget will be some years off, Richardson says.

He gives four reasons: substantial structural spending on aged care, mental health, childcare, disability and the like; low wage and price inflation (inflation helps budgets); missing migrants; and interest payments on debt (helped by low interest rates but still significant).

On what we know, the budget will be safe rather than adventurous. And while budgets can always unexpectedly trip over their own feet, and inevitably have plenty of critics, this will be the sort of benign one that doesn&rsquo;t go out of its way to hurt or offend voters.<img alt="The Conversation" height="1" hub="" o3us6t2oy="" src="https://counter.theconversation.com/content/160594/count.gif?distributor=republish-lightbox-basic" width="1" />

<a href="https://theconversation.com/profiles/michelle-grattan-20316">Michelle Grattan</a>, Professorial Fellow, <a href="https://theconversation.com/institutions/university-of-canberra-865">University of Canberra</a>

This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/view-from-the-hill-a-budget-for-a-pandemic-with-next-years-election-in-mind-160594">original article</a>.

Treasurer Josh Frydenberg calls this a “pandemic budget” – one to sustain the economy in times that are still uncertain – but it also has a substantial element of an election budget

A budget for a pandemic, with next year's election in mind

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If the 2014-15 Federal Budget was considered ‘aggressive’, this year’s Federal Budget could be considered ‘boring’ by comparison.
According to Treasurer Joe Hockey, this year’s Federal Budget engaged integrity measures in the name of fairness.
Small business owners were the big winners to come out of the Federal Budget, winning tax breaks and other incentives, while homeowners and the housing sector remained relatively unscathed.
Small business owners to receive tax breaks to allow for future investment
From 1 July this year, small companies with annual turnover of less than $2 million will have their tax rate lowered, from 30% to 28.5%. In addition, small businesses will be able to claim up to a $20,000 tax deduction for every item they purchase. Further, employees in start-ups will get access to tax breaks on shares they receive as part of their pay. This stream of tax breaks and incentives will help small businesses to grow and flourish. It will give small business owners the opportunity to reinvest in their businesses and take their companies to the next level. And considering small businesses are the engine room of Australia, these tax breaks should spell good news for the broader economy and employment. Foreign investment framework to see o/s investors pay fees to buy property
As part of the 2015-16 Federal Budget, Treasurer Joe Hockey said changes would be made to strengthen Australia’s foreign investment framework. Under the proposed changes, a new fee regime will be introduced which will require foreign investors to pay an application fee of up to $5,000 to purchase residential properties valued under $1 million. Those purchasing a property equal to or greater than $1 million would be subject to a fee of up to $10,000. This would then increase in increments of up to $10,000 for each additional $1 million in property value.                                                       While this application fee may be high enough to deter some foreign investors, we do not believe it is high enough to significantly impact the current level of foreign investment activity within Australia. Childcare rebates introduced to encourage mothers back into the workforce
The Federal Government has committed to providing $327.7 million extra over the next four years to help vulnerable and disadvantaged families access childcare. According to the Treasurer, investing this money in childcare should help approximately 165,000 parents who are currently unable to work due to high cost of childcare re-enter the workforce. But while some parents will be given extra help to pay for childcare, new mothers who are given Paid Parental Leave by their employer will no longer be able to access the government’s Paid Parental Leave scheme. This move will more than likely encourage new mothers to re-enter the workforce sooner than they may have planned. Mr Hockey said mothers who access the government’s Paid Parental Leave scheme and are paid parental leave by their employer are ‘double dipping’ and stopping them from doing this was ‘only fair’. Superannuation to avoid further tax
The Federal government has revealed that there will be no new taxes on superannuation under their watch. Furthermore, the Age Pension will continue to increase, twice a year, this year, and every year — at the highest available indexation rate. The Age Pension is the budget’s biggest expenditure item, costing $44 billion a year. This equates to more than 10% of all government spending. Moving forward, Treasurer Joe Hockey said the pension would be increased so that it remains sustainable and affordable. But while many pensioners will benefit from the announcement, wealthy pensioners with more assets outside of the family home will miss out on any increases to the Age pension as the Government plans to tighten eligibility for those pensioners with higher levels of assets from 1 January 2017. Conclusion
While it is too early to tell how consumers will react to this year’s budget, it is widely expected that initial reaction will be more positive than it was last year. In the month following the 2014-15 Federal Budget, consumer sentiment plummeted 6.8% and failed to recover for the rest of the year. This year’s Budget would suggest the Government is looking to avoid such a strong negative reaction. Many financial commentators believe this year’s budget acts as an apology for last year’s aggressive Budget. In fact, many believe this could be an election Budget. While the theme of last year’s budget was to pay down debt, it would seem the Government is now trying to encourage Australians to spend. It is still too early to tell what impact this year’s Budget will have on buyer and seller activity in the immediate future. Auction attendance and clearance rates will come into sharp focus over the coming months to demonstrate stronger indications of consumer confidence. However, with interest rates set to remain at historically low levels throughout 2015, the housing sector remains positive for both current mortgage holders and those looking to enter the property market.
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jchancellor-FAypfDUnLy

Small business the big winners: Mortgage Choice's John Flavell

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<img src="https://counter.theconversation.edu.au/content/76791/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">GUEST OBSERVER
The budget acknowledges the crisis of affordability for first home buyers, but fails to do enough about demand pressures on prices to put home ownership back within their reach.
In its 2017 budget, the federal government repeatedly stated its preference for a “scalpel” rather than a “chainsaw” or “sledgehammer” approach to demand management in the housing market.
The number of housing measures in the budget are more wide-ranging than in previous budgets of recent times. Policy levers on both the supply and demand side have been incorporated within a raft of housing measures. The government claims this is a “comprehensive package that can make a difference”.
However, do the demand measures go far enough to make much-needed inroads into the housing affordability crisis now facing an entire generation of would-be first home buyers? Or is the so-called scalpel too blunt to make a meaningful difference for them?
<h2>First Home Super Savers Scheme</h2>
The budget’s key housing measure for helping young people gain a foothold on the home-ownership ladder is to allow first home buyers to use up to A$30,000 of voluntary superannuation contributions for a deposit on their first home.
Clearly, the scheme will attract the tax advantages of superannuation. Therefore, in principle, it will help first home savers accelerate their savings to buy a home, thus bridging the deposit gap, while protecting superannuation savings accumulated through compulsory employer contributions.
However, at least two key questions are pertinent.
The first relates to how many first home buyers will likely be well positioned to make voluntary contributions to their super saving account. There appears to be a general reluctance among Australians to make voluntary contributions.
Existing research has found household budget constraints are a major barrier that make it unaffordable for many to make voluntary superannuation contributions. Poor financial literacy and lack of knowledge of the superannuation system are other factors.
The second key question relates to the scheme’s impact on property prices. The scheme does not aim to ease demand pressures in the housing market. It is likely that high house prices will not be curbed, so the prospects of home ownership will continue to fade for many first home buyers.
Existing demand-side levers, including the First Home Owners Grant and stamp duty concessions for first home buyers, have not succeeded in improving the affordability of houses for most young people. Hence, it is difficult to see how an additional demand lever such as the First Home Super Savers scheme is going to have a substantial impact on affordability.
This is not to say that the budget has completely ignored the need to temper demand tensions in the property market.
Demand pressures can be eased via measures that target two other types of property owners – older home owners and property investors. The budget does contain measures that target both groups. Yet again, the question remains as to whether the levers are long enough to produce meaningful impacts.
<h2>Targeting older owners and property investors</h2>
Older downsizers aged over 65 years will be allowed to channel up to $300,000 from the sale proceeds of the family home into their super fund.
Many older home owners are living in larger dwellings than they need after their children leave home. Helping elderly home owners – sometimes coined “last home buyers” – to downsize into smaller dwellings can free up larger homes for first home buyers in earlier stages of life who are forming families.
However, the impediments to downsizing are many. These include financial barriers but also non-financial barriers. Importantly, most elderly home owners have strong emotional attachments to their family home and local community.
However, a lack of appropriate and affordable dwellings in neighbourhoods where older owners would like to stay also poses barriers to downsizing. For downsizing reforms to be effective, financial incentives will need to be accompanied by supply-side solutions that broaden the diversity of the housing stock so older home owners’ housing preferences and needs can be met.
The government has not made any significant changes to tighten negative gearing or capital gains tax concessions to reduce competition from property investors. Concern has focused on the potential contraction of private rental housing supply should investors withdraw en masse from the private rental market. However, a longer-term perspective would take into account second-round effects.
As investors sell off their rental properties, more properties will become available in the market to meet demand from first home buyers. This will not only have the impact of easing tensions in the rental market as more renters become home buyers, but it will also encourage subsequent second property investment as young career-builders seek to accumulate more wealth in their property portfolios after securing their first home.
Such second- and third-round effects need to be incorporated more into policy thinking so that policy design rests on not just short-term, but medium-to-long-term, considerations.
<h2>Is the scalpel sharp enough?</h2>
The budget contains myriad demand and supply levers that directly or indirectly aim to assist young people with their first home purchase. It represents an overdue but welcome acknowledgement on the government’s part that much needs to be done to improve home-ownership prospects for first home buyers.
A package of measures that seeks to influence both supply and demand simultaneously in the housing market is, in principle, a sensible approach to an entrenched policy concern such as housing affordability. However, in practice, policy design matters.
In the case of the 2017 budget, it would appear that the scalpel will need a whole lot more sharpening if it is to make an effective incision into the housing affordability crisis that’s plaguing an entire generation of aspiring home owners.
Rachel Ong is deputy director of the Bankwest Curtin Economics Centre, Curtin University and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/rachel-ong-113482" target="_blank">here</a>.
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Budget needs a sharper policy scalpel to help first home buyers: Rachel Ong

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GUEST OBSERVER
Under pressure to tackle deepening housing affordability problems, Treasurer Scott Morrison has included various housing policy measures in his budget, some relating to Australia’s small sector of social and affordable housing.
One headline-grabber is the creation of a new entity, the National Housing Finance and Investment Corporation (NHFIC). This will source private funds for on-lending to affordable housing providers to finance rental housing development. However, the bigger issue for the sector remains federal and state funding.
This public funding is the money that, along with tenants’ rents, co-funds state and territory housing and homelessness services. Here too Morrison is proposing reform, particularly to the primary federal-state funding arrangement for social and affordable housing, the National Affordable Housing Agreement (NAHA).
A couple of months ago we suggested the NAHA needed a reboot. Recognising the seriously run-down state of the system, we argued for an increase in funding from its present starvation level. Morrison now proposes a new federal-state funding agreement, the National Housing and Homelessness Agreement (NHHA).
The level of federal funding will be the same as under the old NAHA. But the Commonwealth will press states and territories for action in defined “priority areas”. In effect, this looks like a return to a Canberra-led reform agenda for social and affordable housing unseen since the early Rudd government.
Setting aggregate supply targets
In what appears a significant passage, the budget papers reveal the government’s “priority areas” for the NHHA. We’ll consider these in turn, and then the recurring issue of inadequate funding.
Lack of transparency on the costs incurred by state and territory housing authorities in operating their social housing portfolios has been a particular problem under the NAHA. This is an area where federal engagement is welcome.
All levels of government should be pressed to quantify the level and type of need for housing in the community. And they should be made to set clear “new supply” targets for meeting that need.
That said, the federal government should stop pretending to be shocked at the lack of new social housing delivered by those authorities under the NAHA. The shortfall in NAHA funding has been obvious for years. It simply is too low to bridge the gap between the rents low-income public housing tenants can afford to pay and the costs of properly maintaining the system, let alone growing it to keep pace with rising need.
Residential land development
The stress laid on this issue within the budget policy statement reflects the federal government’s stated concern about “the supply side” of the housing affordability problem. It has framed state government planning controls as an impediment to new housing development.
However, merely loosening requirements and offering existing land owners the prospect of greater development does not ensure it will actually happen.
To ensure land owners don’t just sit on development opportunities speculatively, the federal government should use its NHHA leverage. This could include pushing the states and territories to make greater use of land tax, which would spur development and bring under-utilised land and housing to market.
Inclusionary zoning
Inclusionary zoning is a specific type of planning mechanism. It requires housing developments (above a certain size) to include some proportion of dedicated affordable housing. Ideally, this should be rental housing preserved as “affordable” in perpetuity.
Inclusionary zoning is long established in other countries and has long been demanded by housing advocates in Australia. It is now the subject of increasing interest from planning authorities – for example, the Greater Sydney Commission.
The co-financing arrangements for the NHFIC could incorporate active use of land-use planning powers for inclusionary zoning. Development sites – or developer levy proceeds – could be part of state and territory contributions to funding affordable housing development.
A commitment to build into the NHHA incentives for stepped-up use of inclusionary zoning by state governments is, therefore, very welcome.
However, the budget papers indicate that state compliance with this NHHA expectation might involve not only housing dedicated to affordable rental housing, but also “dedicated first home buyer stock”. This seems to raise the prospect of developers meeting inclusionary zoning requirements simply by reserving some newly built units for first home buyers rather than investors.
The best way to enhance first home buyer prospects vis a vis investor landlords would be to level the playing field by winding back investor negative gearing and capital gains tax concessions, not through this kind of tinkering. And to cast such “FHB reservation” initiatives as in any way equivalent to inclusionary zoning for affordable rental housing would be a highly retrograde step.
Renewing affordable housing stock
An interesting inclusion in the proposed terms of the NHHA is a clause about renewing affordable housing stock.
First, it appears positive in acknowledging the need for a public housing overhaul and indicating a new level of federal government interest in making this happen.
At a minimum, states and territories should be required to undertake a comprehensive audit of their existing portfolios. The level of outstanding disrepair has to be costed. They also should identify where renewal can best take place, balancing need for expanded and upgraded housing with sensitive treatment of existing communities.
Second, it indicates federal backing for further transfers of public housing as a growth path for the affordable housing industry. However, as our recent research for AHURI shows, this is feasible only if the operating cost gap is funded.
Past community housing growth through transfers, particularly following the 2009 housing ministers’ commitment to expand community housing to 35% of all social housing, involved an understanding that Commonwealth Rent Assistance, paid through Centrelink to transferred tenants, would help cover that gap.
Without additional funding in the NHHA, a new phase of growth through transfers requires a recommitment by governments to use rent assistance as an effective operational subsidy to community housing providers. A new target and timeframe to replace the 35 percent benchmark also need to be considered.
Homelessness services
Previously the subject of a separate funding agreement (the National Partnership Agreement on Homelessness), homelessness services have struggled for years in the face of that agreement’s pending expiry and short-term extensions.
The NHHA will fund homelessness services on an ongoing basis, which the sector has welcomed.
Funding shortfall remains
As we’ve indicated throughout, the objectives of the NHHA – and of the social and affordable housing system generally – will continue to run up against the reality that decent housing of this kind costs more than low-income households can afford to pay.
This applies especially to people living on the miserable level of benefits such as Newstart. A subsidy is required, both to build up the stock and to keep it in good order.
Clearer targets, more transparent cost accounting, and innovations like NHFIC finance won’t bridge the gap. On the contrary, to successfully use those initiatives to build more stock, both state and territory housing authorities and non-government affordable housing providers need a larger subsidy than present funding provides.
The budget has indexed NHHA funding to wages. It would be nice to think that land and housing prices will increase only in line with wages.
In reality, properly funding the growth and maintenance of our social and affordable housing stock will require more than what the federal government is offering.
Chris Martin is research fellow, Housing Policy and Practice, UNSW and can be contacted <a href="https://theconversation.com/profiles/chris-martin-203935" target="_blank">here</a>.
Hal Pawson is associate director - City Futures - Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW and can be contacted <a href="https://theconversation.com/profiles/hal-pawson-147969" target="_blank">here</a>.
Both are authors for The Conversation.
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Budget 2017 charts new social and affordable housing agenda

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GUEST OBSERVER
The property market is currently in a state of limbo, particularly those involved in the selling of new property.
Why?
Because the budget statement in relation to helping “reduce pressure on housing affordability” has potentially changed the game and announced dramatic changes to the way depreciation is claimed on property.
Let’s start with the good news:
1. Any existing investment properties purchased (contract exchange date) prior to 7.30pm Tuesday, May 9th 2017 are not affected.
2. Commercial, industrial and other non-residential properties are not affected.
3. Capital works deductions have not been affected. This means you will still be able to claim depreciation on the structure of the building provided it was built after the 16th of September 1987. You will still need a Quantity Surveyor’s depreciation schedule to do so.
Now that we know what isn’t affected, let’s look at what has changed…
According to the budget statement
“From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.
Here’s the uncertainty….who actually acquired the plant of equipment?
Was it the builder/developer or was it the initial purchaser of the brand new residential property?
This is key.
Why is the government making these changes?
“This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value.
Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.”
The industry needs urgent clarification on this matter as many agents are currently advising potential buyers on the cashflow advantages of new property. This figures may prove to be inflated and put the developer or marketer at risk further down the line.
You see investors rely on these figures in assessing the merits of the investment.
Here is why I think this is dumb policy.
The proposed changes are being made to “reduce pressure on housing affordability.” In my opinion, it will have the opposite effect for 3 reasons:
<ol>
<li>Property investors may now feel that they need to hang on to their existing properties in order to continue claiming depreciation. With these new changes, if they sell this property, they won’t be able to get anywhere near as many deductions on the next one.</li>
<li>Developers rely on high depreciation figures in the early years to show investors how affordable an investment property can be. If the allowances are taken away, they will struggle to get the pre-sales which are required by banks to fund the deal.</li>
<li>These budget measures are forecast to save $260 million over a 3 year period. I suspect far more will be lost if developers can no longer get new projects off the ground.</li>
</ol>
Whilst I believe housing affordability is a major issue, this truly appears to be an example of policy on the run…
Here’s the solution:
Plant and Equipment in residential property needs to run it’s natural course.
The ability to re-value and re-assess the item after it’s initial effective life has run it’s course should be squashed.
Put simply, if you a buy a property that is say, 11 years old, and it has a dishwasher installed that had an initial effective life of say 10 years you can't claim it, revalue or re-assess it.
That would alleviate the government's concern that:
“....that some plant and equipment items are being depreciated by successive investors in excess of their actual value. “
This would make a lot more sense in my opinion.
I am looking forward to providing a further update once the legislation is finalised and more details regarding the specifics of these changes come to light.
Tyron Hyde is a director of Washington Brown and can be contacted <a href="https://www.washingtonbrown.com.au/staff/tyron-hyde/" target="_blank">here</a>.
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Budget approach to housing affordability changes the game: Tyron Hyde

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GUEST OBSERVER
As someone who’s been working with property clients across three market cycles now, I’ve certainly lived through the aftermath of many Federal Budget announcements, and the latest iteration is no different.
While for many their first response is to begin poring over the finer details of the budget with their advisors, looking for latent loopholes, the smart operators will have recognised that the 2017-18 Budget actually provides a number of new opportunities.
What is abundantly clear is that if you take the time, Treasurer Morrison’s budget already gives the property sector, and in particular developers, the “answers to the exam”, by highlighting market segments that could (and should) receive more attention.
For instance, the Budget incentivises empty nesters nearing retirement to leave their family home and downsize. For developers, this presents an opportunity to invest in more developments targeting the empty nester market, but rather than marketing these developments to "over 55s", an alternative approach may be to focus on a desirable standard of living for this generation of buyers.
Meanwhile, first home buyers are being enticed to save for a property deposit by topping up their super at the marginal tax rate. The jury's out on whether this change will actually help young buyers, but the intention is good. Again, developers may consider this as an opportunity to create more innovative first home buyer packages, helping them shift existing stock that may already be slower to sell anyway.
Another key point relates to foreign investment in new properties, with a Federal clampdown and rising State Government charges blunting the sales edge previously enjoyed by some offshore-owned development companies. On the other hand, you could take the view that it's an opportune time for these same companies to focus more of their creativity and marketing spend on Australian buyers.
So to anyone in property still trying to get to grips with this Federal Budget, I suggest they consider it an opportunity rather than an obstacle, and consider altering their approach to adapt to the changing environment. Developers who don't do so risk being left behind. 
<a href="https://www.capital.com.au/" target="_blank">John Quinn</a> is the founder of The Capital Group.
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Treasurer delivers property sector the ‘answers to the exam’ with latest budget: John Quinn

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 GUEST OBSERVER
As is custom, there were a number of official announcements and an abundance of rumours and unofficial ‘leaks’ in the lead up to the release of the 2016-17 federal budget.
As widely anticipated, there was very little in terms of budget measures specifically aimed at housing. However, the significance of the tax reform contained within this budget was arguably underestimated, particularly if you consider the changes projected for the out-years. In the near term, small businesses are the main beneficiaries of the announced reforms. 
The key areas addressed in the budget: 
The Government has held firm on their commitment not to make any changes to capital gains tax or negative gearing provisions. Furthermore, comments within the Treasurer’s budget speech suggest the coalition have solidified this position ahead of the upcoming election.
The plan to lower the company tax rate to 25 percent through a staged implementation over the next decade, with a number of changes for small businesses to take effect in this budget period.
A modest change to the personal income threshold for the second highest marginal income tax rate which was increased from $80,000 to $87,000 (slightly higher than expected) in order to ameliorate concern about bracket creep; Commitment to the Smart Cities Plan; A Youth Employment Package; significant reforms to the superannuation system; the ATO has been provided with additional resources to bolster enforcement activity, primarily aimed at addressing multi-national tax avoidance. 
In the sections below we discuss the overall economic and fiscal outlook presented in the 2016/17 Budget along with some of the key forecasts. This is followed by additional explanatory detail regarding the key announcements most relevant to the residential building industry. 
Economic Backdrop &amp; Fiscal Position 
The Budget presents a “steady as she goes” outlook for economic growth over its forecast horizon. The key economic assumptions on which the Budget was developed are summarised in the table below.
<a href="/images/2016/05/06/Screen%20Shot%202016-05-06%20at%2010.20.14%20AM.png" target="_blank">Click to enlarg</a>e
<img src="/images/2016/05/06/Screen%20Shot%202016-05-06%20at%2010.20.14%20AM.png" alt="">
In terms of the economic assumptions underlying the Budget projections, the Treasury foresees the rate of economic growth returning to 3.0 in 2017/18 and remaining at this level over the forecast horizon. The acceleration of economic growth will help drive a reduction in the unemployment rate to 5.5 per cent by the end of the forecast horizon, a little lower than the 5.75 average rate expected for 2015-16. Against this backdrop, inflation is expected to pick up a little but remain in the relatively comfortable 2 per cent to 3 per cent range. Stronger GDP growth, and the decline in the cash value of the budget deficit over time means that the relative size of the deficit is expected to fall from 2.4 per cent of GDP in 2015/16 to 1.4 per cent of GDP in 2017/18. 
Of note are the estimates of the contribution that dwelling investment will make to economic growth in the years ahead. HIA’s projections are for dwelling investment to fall by 5.4 per cent next financial year and by 6.7 per cent in 2017/18. The HIA’s forecasts are based on the assumption that new home commencements will decline from about 214,300 in 2014/15 to 160,100 in 2017/18, while renovations activity is projected to recover modestly over the same period. Realising the outcomes expected by Treasury will require a continuation of the current record levels of new housing activity and strong growth in the renovation market. 
While the changes to superannuation and the lowering of the Official Cash Rate will encourage more investment in other avenues like rental investment, it is unlikely that this will be sufficient to deliver the continued growth in residential investment that Treasury is anticipating. 
In terms of the projections contained in yesterday’s budget, the size of expected future deficits has increased since the forecasts in December 2015’s Mid-Year Economic &amp; Financial Outlook. In 2015/16, the underlying cash balance is expected to reach $39.9 billion followed by $37.1 billion in 2016/17. Thereafter, the deficit is projected to decline significantly, falling to just $6.0 billion by 2019/20, the latest year for which Treasury forecasts have been prepared.
<a href="/images/2016/05/06/Screen%20Shot%202016-05-06%20at%2010.21.31%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/05/06/Screen%20Shot%202016-05-06%20at%2010.21.31%20AM.png" alt="">
Extension of the provision enabling small businesses to immediately depreciate assets valued up to $20,000 to the end of June 2017, and making this provision accessible to businesses with revenue up to $10 million. 
A ‘Ten Year enterprise Tax Plan’ aims to incrementally lower the company tax rate to achieve a 25 per cent rate for all companies by 2026/27. Over time, the size of companies eligible for the 27.5 per cent tax rate will be lifted each year until all companies are taxed at this rate in 2023/24. The rate for all companies will then be incrementally lowered over the ensuing four years to reach 25 per cent by 2026/27. 
The government will extend the unincorporated small business tax discount. From 2016-17, the discount will be available to businesses with annual turnover of less than $5 million, up from the current threshold of $2 million, and will be increased to 8 per cent. The maximum discount available will remain at $1,000. Over the next decade, the discount will be further expanded in phases, to a final discount of 16 per cent. 
The Youth Employment Package 
This program, Youth Jobs PaTH (Prepare, Trial, Hire), has three components: the first provides pre-employment skills training for young job seekers; the second provides a $1,000 inducement to businesses to provide a 4-12 week internship for program participants along with an income supplement for the participant; and the third is $6,500 ‘Youth Bonus’ wage subsidy payment for employers who take on a young worker who has been in employment services for longer than six months. 
Reforms to superannuation 
The purpose of the superannuation system is to be enshrined in legislation in line with a recommendation of the Murray Review. This will define the purpose as: providing an income in retirement to substitute or supplement the Age Pension. This provides legislative basis the government of the day to target the superannuation tax concessions at those who would otherwise be likely to be remain dependent on the Age Pension, this is likely to come at the expense of tax concessions currently available to those likely to be self-funded in retirement. 
Those with combined incomes and superannuation contributions greater than $250,000 will pay 30 per cent tax on their concessional contributions, up from 15 per cent. This represents a lowering of the previous income threshold of $300,000. 
The superannuation concessional contributions (ie pre-tax contributions or contributions where a deduction is claimed) cap has been lowered to $25,000 per annum, down from $30,000 for those under 50 and $35,000 for those over 50. 
This has been partially balanced by enabling unused concessional contribution caps to be carried forward on a rolling basis for up to five years for those with account balances of $500,000 or less. 
The government have introduced a $500,000 lifetime cap for non-concessional contributions (ie contributions made from savings for which no deduction is claimed). 
The Government will introduce the Low Income Superannuation Tax Offset to replace the Low Income Superannuation Contribution when it expires on 30 June 2017. 
From 1 July 2017, the Government will lift current restrictions and allow individuals under the age of 75 to claim tax deductions for personal superannuation contributions to eligible superannuation funds. 
The current spouse tax offset has been broadened. The income threshold for the receiving spouse (whether married or de facto) will be lifted from $10,800 to $37,000 
2016-17 Federal Budget 
‘Tax Integrity Package’ – additional resources for the ATO 
The government have provided additional resources to the Australian Tax Office to establish the Tax Avoidance Taskforce. The key focus will be pursuing tax avoidance by multinationals and high wealth individuals. 
The government will introduce a new ‘Diverted Profits Tax’ targeting multi-nationals shifting profits earned in Australia to lower taxing jurisdictions 
Warwick Temby is executive director, HIA and Shane Garrett is senior economist. They can be contacted <a href="https://hia.com.au" target="_blank">here</a>.
<a href="https://hia.com.au" target="_blank"></a>
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HIA's Federal Budget Report Card

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<img src="https://counter.theconversation.edu.au/content/77316/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
It’s unsurprising that in the lead-up to this year’s federal budget there was a lot of discussion about housing affordability as its centrepiece.
Over the past 20 years price-to-income and price-to-rent ratios have doubled. Sydney’s price-to-income ratio is over 12, making it the second-least-affordable city in the world. Melbourne is in fourth place.
And in a budget tableau as bland as this one, it wouldn’t have taken much to really play up the housing affordability policies.
Yet the measures in this budget involve not much more than tinkering.
On the minus side, the biggest announcement was a “first home super saver scheme”, which would allow voluntary contributions of A$15,000 per annum and A$30,000 in total (per person if in a couple) to superannuation for prospective first home buyers from July 2017. These could be withdrawn and taxed at 30 percentage points below the normal marginal rate and used for a deposit.
This will cost the government A$250 million over four years and do absolutely nothing to help first home owners. We have seen this movie before, with 50 years of first home owner grants in one form or another. All that happens is that this subsidy goes into the price of existing housing. Sellers benefit, buyers get no joy.
It’s bad economics, somewhat costly, and a cruel hoax on prospective home buyers who are struggling with an out-of-control housing market.
But the biggest minus of all was the absence of any measure whatsoever to address negative gearing and CGT exemptions for rental properties. Sorry, there is one: you now won’t able to deduct an airfare to the Gold Coast to “inspect” your rental property. The government has boxed itself in on this, with Labor having taken a plan to the last election to tackle both of these issues (full disclosure, the Labor plan bears a good deal of resemblance to my McKell Institute plan).
Nonetheless, it is reflective of the state of our politics that the one thing that could really help the most (and which the PM has agreed with very publicly in the past) is off the table.
But the measures aren’t all bad. On the plus side, there were incentives for people over 65 to downsize by allowing A$300,000 of the proceeds of a sale of their main residence to go into their superannuation, above the controversial A$1.6 million cap announced in last year’s budget.
Will the budget encourage older Australians to downsize? Maybe. One measure of how powerful an incentive it will be is that it costs only A$30 million over the four-year forward estimates period. This is not a big government spend.
It’s also unclear whether it will be a large enough financial incentive to overcome the emotional and psychological barriers to moving from the family home after many years in it. There was also a conspicuous absence of reforms to stamp duty, which is a major impediment to downsizing.
There was also good news on affordable housing with the establishment of the National Housing Finance and Investment Corporation (NHFIC). It will provide A$63.1 million over four years to operate a so-called “bond aggregator” that aims to provide cheaper financing for community housing providers. This is a good idea that should have a positive effect, and help address the high cost of funds that often plagues financing of housing for low-income earners.
Consistent with the recent populist policy announcements by this government, foreign purchasers of Australian properties were targeted in this budget. There will no longer be a capital gains tax (CGT) exemption for primary residences of foreign and temporary tax residents, and the grandfathering will only last until June 30 2019. There will also be a lower threshold for CGT withholding (A$750,000, down from A$2 million) on foreign tax residents, and the rate will be increased from 10 percent to 12.5 percent.
There were some wishy-washy words about the crucial issue of housing supply. The government has definitely identified the key role that supply plays. They are proposing a variety of “city deals” to provide incentives for zoning reform — especially in western Sydney. That’s all good, but whether it is anything more than the budget-summary feel-good headline - “Working with the states to deliver planning and zoning reform” - remains to be seen.
There was also the announcement of a tax on foreign owners who leave their properties vacant. This is supposed to raise A$16.3 million over four years — which is a rounding error in the scheme of things.
We had a housing affordability crisis before this budget, and we will have one after it. If the first step to recovery is acknowledging that one has a problem, then the government is still on step one.
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a> is a Professor of Economics and PLuS Alliance Fellow at UNSW and author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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