On Tuesday the Treasurer released a historic Federal Budget designed to lift the economy out of the doldrums.
A number of job creation and wage subsidy measures in the budget should help rapidly reduce our unemployment rate especially amongst our youngest workers who have been hit hardest during the pandemic.
After coming within a whisker of balancing the budget at the end of 2019, the Treasurer revealed the budget deficit is now projected to blow out to $213.7 billion this financial year, or 11 percent of GDP, the biggest deficit in 75 years. The figures are eye-watering, but the Government is determined to do what it takes to keep Australians in jobs and grow our way out of recession.
While the net debt position of $1 trillion is a bit of a shock, there is no question that the government had to do something fiscally significant to kickstart our economy.
This is a real restart of the economy. Yes, it will take 10+ years to pay it back, but with the Government borrowing at interest rates less than 1% for 10 years, if there was ever a time to borrow to not just stimulate the economy, but create valuable assets, then now is the time.
Touted as one of the most significant Federal Budgets since the Great Depression, and the first since the economic devastation sparked by the COVID-19 pandemic, Treasurer Josh Frydenberg said the next phase of the journey is to secure Australia’s future.
The 2020 Federal Budget includes hundreds of billions of dollars of economic stimulus measures, the likes of which we’ve never seen before.
Key highlights at a glance
- More than 11 million Australians will receive tax cuts with a permanent cut of $47 a week for high-income earners.
- Middle-income earners will also receive a one-off $21 with extension of the low and middle-income tax offset into 2020-21.
- From 2020-21, the upper limit of the 19% personal income tax bracket will rise to $45,000 and the 32.5% marginal tax rate upper threshold will lift from $90,000 to $120,000.
- The Morrison government will pay businesses up to $200 per week to hire young Australians as part of a $4bn budget measure that aims to reverse an increase in youth unemployment during the recession.
- The new incentive will target firms that employ young workers who had previously been receiving Jobseeker.
- It follows Sunday’s announcement of expanded training subsidies, with the government pledging to cover half the wages of 100,000 new apprenticeships and traineeships.
- The government has announced two additional economic support payments of $250 to pensioners and other eligible recipients, worth $2.6bn.
- Extension of the Jobkeeper payment support for a further six months until 28 March 2021.
- Extension of the coronavirus supplement until 31 December 2020 at a rate of $250 per fortnight from 25 September 2020.
- The budget doesn’t provide any clarity about the future of Jobseeker payment rates after Christmas.
- $1bn will be injected into Australia’s university research sector.
- Funding for 50,000 online short courses to upskill workers and unemployed Australians in teaching, health, science, information technology and agriculture.
- $299m to provide an additional 12,000 undergraduate university places in 2021.
- Businesses with a turnover of less than $5bn – all but the top 1% – will be able to deduct the full cost of capital assets purchased after budget night and first used or installed by 30 June 2022.
- Small and medium businesses will also be able to apply “full expensing” to second-hand assets; businesses earning $50m to $500m will be able to do so for assets of less than $150,000.
- Companies with turnover up to $5bn will be able to offset losses against previous profits on which tax has been paid, to generate a refund.
- Exempting from the 47% fringe benefits tax employer-provided retraining activities to employees who are redeployed to a different role in the business.
- $4.5bn investment in NBN Co and $29.2m to accelerate the rollout of the 5G network.
- 23,000 new packages for older Australians waiting to receive at home care, at a cost of $1.6bn.
- $2.3bn in announced funding for investment in Covid-19 treatments and vaccines and funding for the listing of new drugs on the pharmaceutical benefits scheme, including Lynparza for women diagnosed with ovarian cancer.
- $750m in funding for Covid-19 testing and $171m for the extended operation of up to 150 dedicated respiratory clinics to manage and diagnose Covid-19 cases.
- $798.8m for the National Disability Insurance Agency and NDIS Quality and Safeguards Commission.
- A targeted capital gains tax exemption for granny flat arrangements where there is a formal written agreement, applying to arrangements with older Australians or those with a disability.
- The Morrison government’s environment and energy budgets consist largely of pre-announced items, including funding for its technology roadmap for reducing Australia’s emissions and $52m for the expansion of Australia’s gas industry.
- Tuesday’s budget reiterated the government’s plan to fund the Australian Renewable Energy Agency (Arena) for a further 10 years from 2022 to a total of $1.4bn. Over the next four years, the agency will receive $223.9m.
- The government is spending $50m on carbon capture and storage to fund pilot projects it claims will “dramatically cut” emissions from industrial facilities and there is $70.4m over five years for a regional hydrogen export hub.
- The environment minister, Sussan Ley, said the government would spend $67.4m on oceans and marine ecosystems.
- Earlier this year the government announced $25m to reduce the timeframes for approvals for major projects. Tuesday night’s budget adds an extra $12m in funding over the next two years.
- There is $52.9m for investments in gas – announced in September – including $10.9m for planning of gas infrastructure.
- The government will spend $249.6m over four years on waste and recycling policies, including $190m for a recycling modernisation fund for new infrastructure to sort plastic, paper, tyres and glass waste and $233.4m to upgrade facilities at national parks.
- $14bn in new and accelerated infrastructure projects over the next four years in every state and territory, including Melbourne to Brisbane inland rail and Western Sydney international (Nancy-Bird Walton) airport
- $3bn towards shovel-ready projects to support further job creation and economic recovery, including for small scale road safety projects.
- An additional 10,000 places in first home loan deposit scheme in 2020-21 to support the purchase of a new home or a newly built home.
- Australians will automatically keep their superannuation fund when they change employers, stopping the creation of unintended multiple accounts.
- A new online YourSuper comparison tool will help people compare the performance of funds which will be required to meet an annual performance test.
Source: The Guardian
I believe the budget will be metaphorical rocket fuel for property prices across Australia. The pandemic has upended the rule book when it comes to economic management and this budget was destined to be an outlier compared to any other in living memory.
What’s happening in the market right now?
Prior to the announcement, property markets were holding up much better than a lot of property experts thought they would, predicting a 30-50% drop, whereas the majority of markets didn’t get to double digits (apart from VIC and WA).
Dwelling values were steady in numerous locations, apart from Melbourne, with the low volume of stock creating strong competition amongst buyers.
In the markets we certainly aren’t seeing any bargain prices – and that state of affairs will not change in the months ahead. That’s because one of the early indicators of future property price growth is when there is an undersupply of rental properties, which starts to force rents upwards.
I am encouraging my members to buy now before the upcoming property boom.
In the parts of the country that we’re buying in for our members, we’re competing with homebuyers and savvy investors for the best opportunities. Our members have been steadily growing their wealth, thanks to our tried and tested Markoski Method™.
These are uncertain times and with the budget ‘rocket fuel’ now underway, it’s hard to determine how long the opportunity to take advantage of the upcoming boom will last.
How will the budget impact property prices?
This budget indicates that the Government wants our economy to rebound as quickly as possible and is obviously prepared to spend whatever is necessary to make that happen.
When it comes to the impact on property prices, I believe the budget measures will supercharge the next round of growth. Although property prices never really contracted by much, I’m confident that we’re going to see a sharp recovery.
If you want to hear more on my thoughts about the impact of the budget listen to my podcast series The Positive Property Show
At the end of the day as long as you have a sound investment strategy, thinking of the long term, you’re going to be safe no matter what the markets are doing. I haven’t got a crystal ball, neither does anyone else, and there may be a short little dip, however the prospects of long term property investing looks awesome regardless.
Educate yourself so you can take advantage of the upcoming boom. Join like minded investors who are wanting to live life on their own terms in our free Positive Property Group