What do we need to see from the federal budget? The experts have their say

With the Abbott-led Coalition government set to hand down its first federal budget in May, organisations have already begun releasing their pre-budget submissions, calling for the 2014/15 budget to help boost certain sectors of the economy.

Earlier this week, the Urban Development Institute of Australia (UDIA) released a statement calling on the federal government to use the budget to help boost investment in housing and improve housing affordability. The UDIA has called for the reduction of excessive regulation, including removing barriers to land supply and lowering housing taxes and charges. Of the UDIA’s submission, UDIA national president Cameron Shepard said:

“Despite record low interest rates, the dream of homeownership is still out of reach for far too many households. We’re calling on the federal government to work with state and territory governments to address the problems holding up investment in new housing, such as constraints on land supply, poor investment in urban infrastructure, excessive red tape, and hefty taxes and charges.

“In addition to improving housing affordability, increased investment in housing will create new jobs, improve business activity, and add to government revenue.  This boost to the economy and Budget bottom line will be particularly crucial over the coming years as the mining investment boom winds down.”

The organisation also called for the government to commit additional funding to the National Rent Affordability Scheme (NRAS) and the Housing Affordability Fund (HAF).

Property Observer took the question to a team of experts: “What do we need to see from the 2014/15 federal budget?”

Andrew Wilson - chief economist for Australian Property Monitors 

It’s a fine balance between the need for the government to improve the budget position, with the significant deficit, and helping local economies. With growth below trend for the last couple of years, prospects for increased income are still problematic.

But we are starting to see more positive signs from the economy that may start to help improve income. The lower dollar has improved exports, certainly, with businesses starting to show positive results.

And there have been significant early initiatives from this government in cost cutting – there’s been talk of privatising Medibank, and other measures to deal with the expense side.

Keeping the deficit in line  will involve more fiscal consolidation and more cost cutting. But that may lead to issues such as public sector job losses, and there needs to be a balance, particularly given that there are some dark clouds on the horizon for parts of the economy. We’re seeing unemployment at a 12 year high in Victoria – the resource states like Queensland and Western Australia will have a brighter future, with the lower dollar.

The jury’s still out on New South Wales – it’s still a fluid situation. Low interest rates have certainly boosted housing, but there hasn’t been as much construction coming through as we might have expected.

So overall, we’re looking for some balance – there needs to be a level of cost cutting, but we need to be mindful of the local economies, and not throw out the baby with the bathwater.

Robert Simeon - director of Richardson & Wrench Mosman and Neutral Bay

The upcoming federal budget will come under greater scrutiny, given its arguably the most important for decades, given what’s happening presently in the Australian economy. There are three things I would love to see.

1. The appointment of a Federal Housing Minister given it's ludicrous to suggest that such a key portfolio does not warrant a Minister.
2. The Treasurer Joe Hockey to start referring to the Australian economy as an asset not a liability. For six years the LNP proclaimed to all and sundry that they could run the economy better – so now it’s time to stand - up and deliver a budget with economic vision.
3. Tony Abbott is on record when he said that he wants to be remembered as “the infrastructure prime minister”. It will be a fascinating budget to see how they marinate fiscal consolidation with a massive infrastructure spend which is what is needed now more than ever before.

One can only hope that like so many before this budget is not built on a wing and a prayer.

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Shane Oliver - chief economist at AMP Capital

What we need to see at a high level is a plan to reduce the size of the budget deficit in the years ahead. But it needs to be done in way that doesn’t threaten economic growth the short term – the government should be focussed on long term measures to reduce the deficit, rather than tax hikes or “slash and burn” measures.

I certainly don’t think there should be any change to the taxation environment around property. There’s a lot of talk about the need to abolish negative gearing – but that would only further hamper our efforts to improve housing supply.

When it comes to supply, it’s really a state issue. It would be good to see the federal government working with the states, but I worry that could turn into a “motherhood” issue, because really, it’s up to the states to deal with issues to do with slow land release, stamp duty and excessive red tape.

So really, the best position the federal government could take would be “do no harm”; anything they can do to bring the states together to embark on more concrete measures to improve supply would be a good thing.

At a federal level, it’s really about the government coming up with policies that help support the economy. Obviously, they can’t go on a spending spree – they have to cut back. But any spending should focus on reinvigorating the economy; focussing government spending on infrastructure and making suburban fringes more economical to live in.

For example, Sydney’s so-called second airport. There would obviously have to be transport links to that, which could possibly open up land release, and could improve property development in those areas.

We also need to to boost productivity and keep a low interest rate environment. Part of that is ensuring more competition in the economy. We’re still sort of a protected economy, and if the government signals another round of reforms to cut down excessive regulation, that would be a good thing.

Keeping a lid on inflation in the longer term would ensure that we have a favourable environment for interest rates, which is vital for property.

Louis Christopher - managing research director with SQM Research 

It’s a difficult one. It all depends on what you’re trying to achieve. I generally agree that we need to cut expenditure in certain parts of the economy – but we need to support other sectors of the economy as well.

With regard to housing, a first home owners' grant is not warranted, and we do not need that. The problem with housing is that a lot of the policies that are required are at the state level. One thing that is practical is to keep the NRAS going, with some tweaks being made to it, so dodgy developers aren’t getting involved, and so it’s organised and executed in a transparent way. The NRAS is a good idea, and we’re supporters of it.

The Liberals were the ones who first brought in the 50% discount on capital gains tax. With the view of cutting expenditures, they may wish to look at that. I also think long term they should also consider cutting company tax, and it’s going to be very difficult to do that in the current environment.

We’re being quite internationally inefficient – there are several first world countries with better tax environments that are competing for the business of big companies, while company tax here is a flat 30%. Sadly, the tax take on the productive side, which is small businesses and companies, needs to be looked at. Something along the lines of pay as you go, a proportional tax; we should see that for companies as well. The higher the amount, the higher the tax; the lower the amount, the lower the tax. That would be far fairer.

We do need to get back to a balanced budget, so some tough decisions need to be made, and we need those decisions to not be hypocritical.

jrichardson@propertyobserver.com.au