Federal Budget 2018 – How Will It Affect the Canberra Property Market?

The Federal Budget was handed down on Tuesday 8 May 2018. As always, it covered a wide range of topics from income tax offsets to spending on infrastructure. And as always, it contains a multitude of measures over almost a thousand pages that few people will ever read in their entirety. Won’t someone think of the forests?

So that you don’t have to wade through all 342 pages (and that’s just the first paper!), we’ve summarised the ways in which this budget will affect the property market.

There are very few direct announcements that affect housing, but several longer term measures that are worth knowing about. These are aimed at increasing individual income, freeing up vacant land and improving infrastructure, all of which could benefit the Canberra property market.

Whether you’re looking to buy, sell, invest or simply stay put, read on to find out the changes that will affect you.

Individuals

For downsizers, first home buyers and investors alike, your individual circumstances will affect your decisions. That’s why you might be interested in the centrepiece of the current Federal budget: a staggered series of changes to the individual tax system. In the first year, they may see you keep up to an extra $530 per year.

That may not sound like much, but it’s the equivalent of the weekly median rent in the ACT capital – giving households a much-needed breather and helping property investors bridge the gap between tenants.

In fact, if you’re in Canberra you’re more likely than most to receive the full benefit. The ACT boasts the highest average weekly earnings in the country, at $1,803.10 per week. That’s a gross wage of $93,761.20, putting you in the right position to receive the full offset and take advantage of the staged bracket changes.

And in future years, you’ll be benefiting even more. Maybe now really is the time to sign those mortgage documents.

Here’s what the proposed changes look like in more detail:

Phase One (2018-2021):

  • The 37% tax bracket will be raised so that it only applies to earnings over $90,000 rather than the current $87,000.
  • A Low and Middle Income Tax Offset will apply as a refund after you’ve lodged your tax return for the 18-19 financial year. Taxpayers with a taxable income of $37,000 or less will receive up to $200: taxpayers between $37,000 and $48,000 will receive up to $530. Taxpayers earning from $48,000 to $90,000 will receive the full $530, and taxpayers earning over that will receive an amount that tapers down to zero for taxable incomes of $125,333.

Phase Two (2022-2024):

  • The 32.5% tax bracket will be raised fro $37,001 to $41,000.
  • The 37% tax bracket will be raised from $90,001 to $120,000.

Phase Three (2024 onwards)

  • The 37% tax bracket will be eliminated, so that all taxpayers earning between $41,001 and $200,000 will pay $32.5%.

Whether the full seven year plan will be legislated, which relies on the current Coalition government winning the next two elections, remains to be seen. In the immediate term, though, middle Australia can rely on having a little extra in their pockets.

 

First Home Buyers

Given how regularly the topic of housing affordability comes up, it was unusual that the Budget made no mention of it. There are some longer term measures: the Budget commits $4.8 million to the Australian Bureau of Statistics to estimate the existing stock of affordable housing and identify future strategies to meet demand, and $5.5 million to the National Housing Research program to develop housing and urban development policies.

For now, though, those struggling to get into the market are stuck with the status quo. Comments by the Treasurer indicate that the Government feels that its recent superannuation changes, including the First Home Super Savers Scheme, represent a sufficient leg up.

We’ll have to wait and see whether millennials agree – especially given that their Baby Boomer counterparts may be even more reluctant to give up their homes after the following budget measure takes effect.

 

Senior Australians

Last year the Government introduced a superannuation change to try and encourage senior Australians to downsize. This year they’re incentivising them to stay in their homes. It’s nice to have options, we guess.

Specifically, the Budget has expanded the Pension Loans Scheme, which allows pensioners to borrow against the value of their home without selling up. Single homeowners can borrow up to $11,799 per year against their home equity, while couples can access $17,800. It’s not interest free, but at 5.25% it’s cheaper than commercially available reverse mortgage rates.

The Government has also introduced an extra 14,000 high-level home care packages, to help older Australians stay in their homes longer rather than shifting to assisted care facilities.

 

Property Investors

There are very few changes around property-related tax deductions this year – negative gearing is staying as-is, which is a relief to most investors.

This year, the only change affects people who hold vacant land. Under a measure aimed at discouraging ‘land banking’, property owners can no longer claim council rates and other maintenance costs for vacant land as tax deductions. That even applies to land where approvals for development are in process, which could be a disincentive for developers if they can’t speed up the process.

It’s a measure intended to discourage people who buy large lots of undeveloped land, sit on it and wait for zoning laws to change so that it can be sold to a developer for a huge profit. The practice takes land out of the common supply and prevents affordable housing from being made available to those who need it now.

If you own land which is used to carry out a business, including primary production, don’t worry: the  measure doesn’t apply to you and you can continue to claim deductions.

 

Canberra housing trends

More generally, if you’re thinking of buying or selling in Canberra, the Budget has some infrastructure spending that might affect your decision.

Canberra residents commuting via the Barton and Manaro highways will be pleased to hear that both have been scheduled for $100 million upgrades. The upgrades will reduce commuting time along the north and south corridors and make it easier for people to commute to Canberra from more affordable areas. It may also encourage more businesses into the region.

 

So there you have it. If you were hoping for radical measures to help housing affordability, this Budget may feel like a bit of a damp squib. But with sensible long term measures in place, especially those which improve Canberra’s highways, there may be relief – literally – down the road.

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