Last night, the 2017 Federal Budget was announced by the Treasurer Scott Morrison. Since then, a chain of discussions have started all around Australia and below is a summary of the proposed changes which have the potential to affect the property industry:
The “Ghost Tax”
In an effort to keep housing costs low and affordable for renters, Foreign investors who purchase an investment in Australia and leave their property unoccupied could face a “Ghost Tax” under new reforms recommended by the government. This could include charging up to $5,000 for properties less than $1,000,000, and $10,000 for properties over $1,000,000, in a perceived crackdown by the Liberal Party.
Estimates vary on how many properties have been left vacant across the country, but some predictions put the number as high as 30,000. This new tax will apply to properties vacant for more than 6 months each year.
This will be administered by the Australian Taxation Office.
Record levels of spending on infrastructure
Up to $75 billion in infrastructure spending over the next 10 years will begin to deliver results as early as 2017-18, the governments says, when non-mining business investment will grow 4.5 per cent, up from 1.5 per cent this financial year.
This spending on infrastructure is expected to replace a forecasted slowdown in dwelling construction, set to begin in 2018-19, when the budget predicts it will fall 4 per cent.
“The pace and timing of a pickup in non-mining business investment remains a key source of uncertainty for the outlook,” Treasury says in the budget papers.
But if the expected effects take place, the spending surge will see gross domestic product growth accelerate from 1.75 per cent in 2016-17 to 2.75 per cent in 2017-18, and 3 per cent from 2018-19 onwards.
The acceleration will push the jobless rate down towards 5 per cent for the first time in more than a decade, and even more optimistically push up wages 3 per cent a year by 2018-19 from a record low of under 2 per cent now.
Breaks for first homes buyers
“If a family or an individual has a roof over their head that they can rely on, then all of life’s other challenges become more manageable,” Treasurer Morrison said.
In an effort to make saving for a first home easier, the government has introduced the First Home Super Saver Scheme. From 1st July 2017, people will be able pay extra contributions to their existing super fund. These contributions, which are taxed at the Super rate of 15%, can later be withdrawn for a deposit on a property.
Employees will be able to take advantage of salary sacrifice arrangements to make pre-tax contribution to their super of up to $15,000 per year and up to a total of $30,000.
For young people looking to enter the housing market this scheme could increase their savings by 30% or more due to the favorable tax treatment the extra contributions will receive once withdrawn.
Negative Gearing
“Mum and dad investors will continue to be able to use negative gearing, supporting the supply of rental housing and placing downward pressure on rents,” Treasurer Scott Morrison said.
Negative Gearing will remain, however rules around what can be claimed have changed.
From 1 July 2017, depreciation deductions for plant and equipment items such as stoves, ceiling fans, washing machines will only be allowed if the investor purchased them.
Furthermore, the government has moved to address the concern that many taxpayers have been claiming travel expenses relating to their investment property when in fact they were for private travel purposes. Investors will no longer be able to claim travel expenses “related to inspecting, maintaining or collecting rent for a residential rental property” from July 1 2017.
Housing and housing affordability measures
Not only did the budget place an emphasis on benefits for first home buyers, but also an incentive for retirees (aged 65 or more) to downsize. This has been done in the form of allowing sale proceeds to be made as a contribution into their superannuation fund (up to $300,000). This applies for the proceeds of the sale for a primary place of residence. The motivation behind this is to encourage downsizing, and increase available supply of housing for younger families.
Banking industry measures
A primary feature of the budget last night was also a tax on the biggest 5 banks over the next 4 years which would contribute $6 billion to government revenue – this tax is limited to banks with greater than $100b of liabilities. In terms of the impact on the banks effected by this tax, the combined annual profits of these banks is above $30b which means the total impact would be less than 5% of their earnings.
One argument has been raised is that it is probable that we will see an increase in the mortgage and lending interest rates to maintain profitability. This of course may promote more competition from those lenders who aren’t effected by the tax.
As a whole, we think these changes are positive for the industry. Some measures will only have a minor impact on the affordability crisis we are experiencing, although we definitely believe this is a step in the right direction and there are strong signs the government is looking at alternative levers to control the market.
If you have any questions on how this might affect you, please give us a call or send us an email.