Just weeks out from the forthcoming Federal election, Treasurer Josh Frydenberg has unveiled a budget plan that could see the nation rise out of its 10-year consecutive deficit, with a goal of welcoming a $7.1bn surplus in the 2019-20 period.
However, falling sentiment around the Australian housing market remain, and it may pose the biggest threat to coming out of the black.
“This is a budget set for growth, but behind every number in the budget is the unknown effect of the housing downturn,” says Property Council of Australia Chief Executive Ken Morrison.
“The headlines of surplus, infrastructure and tax relief are welcome, but falling house prices are clearly Treasury’s economic wildcard. The Government and the Parliament must have a laser-like focus on the housing sector and be ready with a contingency plan if these forecasts aren’t met.”
Accordingly, the housing market needs to steady up – especially crucial when considering that the Australian housing sector’s worth stacks up to $7 trillion, which Morrison flags as being more than twice the size of the share market. “So Treasury are right to flag the risks for the economy,” he says.
Although the Government’s 2019-20 budget plan doesn’t bring forth any direct incentives and changes to the Australian housing market, funding will be funnelled into large-scale transport and infrastructure projects country-wide, which are expected to create a knock-on effect.
“No doubt the strong infrastructure spend and investment in improving the key areas of Australia’s cities will be stimulatory for housing markets that benefit from the improvements,” Tim Lawless from Core Logic says.
“Tackling congestion and improving access to essential amenities should indirectly support housing affordability by making the most affordable regions of the cities more accessible and liveable.”
Likewise, Chief Executive of PCA Ken Morrison also turns attention towards the $100bn that will be put towards infrastructure spending across the cities and regions that have shown substantial growth, mentioning how related projects are expected to break urban congestion and improve connections to regional areas.
In addition, $2bn will see a new fast rail line up and running between Geelong and Melbourne.
Income tax cuts are also on the agenda; the low and middle-income tax offset will be more than doubled, and middle to high-income earners will have their tax rate pulled from 32.5% down to 30%. The remedy this brings for households is expected to play a part in helping stabilise the housing market slump.
“The personal income tax cuts targeted at low to middle-income earners should provide some relief from cost of living increases,” Ken Morrison says.
“The measures targeted at small to medium size businesses will also provide some much-needed confidence.”
According to Tim Lawless from Core Logic, the Government’s lack of direct support for the housing and household sector is debatable when the performances of these sectors have been considered to be critical to the success of the forecast surplus.
“The Treasurer reiterated that housing affordability was a key priority for the Government, but it looks like the Government is content to see housing affordability improve ‘organically’ via lower housing prices that could act as a contagion to weaker household consumption and a sharper than expected fall in residential construction,” he says.
“While this may seem a bit passive, it’s clear that housing affordability has improved substantially since the last budget due to lower housing values in the most expensive cities as well as the lowest mortgage rates since the 1960’s and a subtle rise in incomes.”