2016 federal budget round-up

by Julia Corderoy03 Jul 2016
When the treasurer, Scott Morrison, handed down the 2016 Federal Budget on 3 May, he hailed it as “not just another budget” but an “economic plan” in our post mining boom transition.

“Australians know that our future depends on how well we continue to grow and shape our economy as we transition from the unprecedented mining investment boom to a stronger, more diverse, new economy.

“Australians have clearly said we must have an economic plan to make this economic transition a success.”

The Federal Government’s “economic plan” centres around two key pillars: jobs and growth. To achieve this, the budget promises to boost new investment, create and support new jobs, and decrease the tax burden on Australian families. 

Australian Broker investigates how the budget plans to deliver on these promises, and how its delivery will affect mortgage brokers, their clients and the property market.

Boosting business investment 
Measures announced in the budget mean that from 1 July this year the small business tax rate will be lowered to 27.5 per cent, with Morrison also confirming the budget will keep the $20,000 asset write off incentive for SMEs announced in last year’s federal budget.

The annual turnover threshold for both of these incentives will be increased to $10 million.

These measures have received widespread praise by the industry. The head of debtor finance at Scottish Pacific, Greg Charlwood, said the budget will help SMEs across the country deliver broad economic growth.

“Having supported SMEs in working capital since 1988, we are pleased to see the benefits for companies with a turnover of $2 million being extended to a sensible level of $10 million turnover, where we see it will have greater impact in terms of business investment and boosting job growth and employment,” Charlwood said.

“We support the reduction in the company tax rate for SMEs … as it should energise SMEs, encourage business investment and drive growth and innovation.”

This boost in business investment will also have positive flow-on effects for brokers. As more small businesses go out and invest in their growth, brokers can expect a higher volume of small business clients requiring loans to fund their growth plans. 

However, it won’t just affect commercial brokers or commercial lending either, according to the FBAA. Peter White said these measures will ensure mortgages remain well within the grasp of working Australians.

“The tax cuts to small and medium-sized businesses will go a long way to creating more jobs while the overall tax package for individuals should help lift the burden on the household budget and relieve pressure on mortgage repayments.”

Boosting the housing market
As anticipated, Morrison announced the Federal Budget will not remove or limit negative gearing, claiming its removal would “increase the tax burden on Australians just trying to invest and provide a future for their families”. 

The Real Estate Institute of Australia (REIA) has welcomed this confirmation, saying it supports the role housing plays in a transitional economy.

“This recognises that the current arrangements increase the supply of housing for our growing population, keep rents affordable and eases the burden on social housing,” REIA president, Neville Sanders said.

Property research and investment firm, Aviate Group, disagrees with REIA’s view on housing supply, saying investors in established housing do not contribute to the flow-on economic effects that investors in new developments do. However, managing director Neil Smoli says leaving it unchanged still remains the safest option.

“Some of the negative gearing discussion leading up to the budget did not properly take a long term view of any potential policy changes, so it was perhaps the safest option to leave the current arrangements in place,” he said.

“At the end of the day, investors make a strong and undeniable contribution to housing options by way of rental stock. This provides direct housing options for those that do not have the means or have not yet sought the right advice that would allow them to enter the property market.”

But no boost to the bottom line
While the 2016 Federal Budget has been welcomed and praised by many in the mortgage and property industries, the CEO of Mortgage Choice, John Flavell has labelled it as “somewhat frightening”.

“At a time when we require a structural overhaul of our taxation system, we get the usual show bag of ‘fiddles at the fringe’ to ensure no-one (other than smokers and cashed up retirees) is offended in the lead up to the election,” he said. 

“At the end of the day, we need a structural overhaul of our taxation system to promote corporate investment on our shores. We need an environment that encourages Australians to invest in themselves and their future worth in the workplace.”

The budget fails to address Australia’s increasing levels of indebtedness, Flavell said.  

“Since we fell into the red in 2009, the shortfall between what the government earns and spends has risen to an amazing 21.5% of gross domestic product. This is an inordinately large sum of money – something the government doesn’t seem to care too much about.”

The Mortgage Choice head did, however, praise the budget for its incentives offered to small businesses, but ultimately labelled it as “benign” and a “clever PR stunt”.