Jobs growth is the clearest indicator of a healthy economy, and jobs growth is what the Federal Government is striving for in the FY2020-21 Federal Budget handed down on October 6. Through a variety of fiscal stimulus, the government is aiming to create roughly one million jobs over the next four years.
Stimulus targeting jobs growth includes wage subsidies, business tax credits, infrastructure spending and investment into the energy sector, manufacturing and research & development. The cost will contribute to a record budget deficit for this financial year - $214 billion, or 11% of GDP. Australian Government debt is expected to peak at $966 billion in 2024, equating to 44% of GDP, fairly moderate compared to pre-COVID-19 levels for Japan (237% of GDP), the U.S. (107%) and the Euro Area (84.1%).
Pervasive fiscal support to households predominantly comes through previously earmarked ‘stage 2’ income tax cuts that have been brought forward by two years (from July 2022 to July 2020). These cuts will be delivered by lifting the thresholds for the 19% and 32.5% tax brackets. There is also the one-off tax relief scheme that will provide up to $2,745 tax relief for incomes up to $126,000. Both measures will put more disposable income into the hands of low and medium income households; it is anticipated that most of the windfall will be spent by households rather than saved. Retailers and shopping centre owners will be grateful.
Most of the Budget’s benefits to the real estate sector come indirectly through support to the broader economy - boosting jobs, stimulating business investment and providing households with more money to spend in the economy. The residential sector is the main beneficiary of direct fiscal measures:
- First Home Owners Grant (FHOG) will apply to an extra 10,000 recipients, adding to the 20,000 already allocated this year. The purchase cap will be lifted from $750,000 to $950,000.
- An extra $1 billion of cheap finance will be offered to registered community housing providers. This extends on the $2 billion in the 2017-18 federal budget under the National Housing Finance and Investment Corporation (NHFIC).
The FHOG has proven popular this year and has contributed to first home buyers returning to the market. Lower interest rates have also assisted. Further support on both fronts will help stabilise dwelling prices – particularly in Sydney and Melbourne – and avert sharp price falls.
The $1 billion in finance for community housing will add to housing stock but unfortunately won’t stretch far. Provision of social housing largely sits with state governments so expecting the federal government to intervene in a big way is optimistic.
Budgets are set with assumptions around the growth trajectory of the economy, which are open to conjecture. A key assumption in the 2020-21 budget is that by late 2021, a COVID-19 vaccination program will be widespread and fully in place in Australia. Additionally, prior to that program occurring, further localised outbreaks will occur but will be contained. Given what has occurred in Melbourne over the past few months, we should hope that the government’s predictions around COVID-19 are spot on.