Mortgage Choice CEO John Flavell shares his thoughts on the 2015-16 Federal Budget

May 13, 2015

If the 2014-15 Federal Budget was considered ‘aggressive', this year's Federal Budget could be considered ‘boring' by comparison.

According to Treasurer Joe Hockey, this year's Federal Budget engaged integrity measures in the name of fairness.

Small business owners were the big winners to come out of the Federal Budget, winning tax breaks and other incentives, while homeowners and the housing sector remained relatively unscathed.

Small Business owners to receive tax breaks to allow for future investment

From 1 July this year, small companies with annual turnover of less than $2 million will have their tax rate lowered, from 30% to 28.5%. In addition, small businesses will be able to claim up to a $20,000 tax deduction for every item they purchase. Further, employees in start-ups will get access to tax breaks on shares they receive as part of their pay.

This stream of tax breaks and incentives will help small businesses to grow and flourish. It will give small business owners the opportunity to reinvest in their businesses and take their companies to the next level. And considering small businesses are the engine room of Australia, these tax breaks should spell good news for the broader economy and employment.

Foreign investment framework to see o/s investors pay fees to buy property

As part of the 2015-16 Federal Budget, Treasurer Joe Hockey said changes would be made to strengthen Australia's foreign investment framework. Under the proposed changes, a new fee regime will be introduced which will require foreign investors to pay an application fee of up to $5,000 to purchase residential properties valued under $1 million. Those purchasing a property equal to or greater than $1 million would be subject to a fee of up to $10,000. This would then increase in increments of up to $10,000 for each additional $1 million in property value.                 

While this application fee may be high enough to deter some foreign investors, we do not believe it is high enough to significantly impact the current level of foreign investment activity within Australia.

Childcare rebates introduced to encourage mothers back into the work force

The Federal Government has committed to providing $327.7 million extra over the next four years to help vulnerable and disadvantaged families access childcare. According to the Treasurer, investing this money in childcare should help approximately 165,000 parents who are currently unable to work due to high cost of childcare re-enter the workforce.

But while some parents will be given extra help to pay for childcare, new mothers who are given Paid Parental Leave by their employer will no longer be able to access the government's Paid Parental Leave scheme.

This move will more than likely encourage new mothers to re-enter the workforce sooner than they may have planned. Mr Hockey said mothers who access the government's Paid Parental Leave scheme and are paid parental leave by their employer are ‘double dipping' and stopping them from doing this was ‘only fair'.

Superannuation to avoid further tax

The Federal Government has revealed that there will be no new taxes on superannuation under their watch.

Furthermore, the Age Pension will continue to increase, twice a year, this year, and every year — at the highest available indexation rate. The Age Pension is the Budget's biggest expenditure item, costing $44 billion a year. This equates to more than 10% of all government spending. Moving forward, Treasurer Joe Hockey said the pension would be increased so that it remains sustainable and affordable. But while many pensioners will benefit from the announcement, wealthy pensioners with more assets outside of the family home will miss out on any increases to the Age pension as the Government plans to tighten eligibility for those pensioners with higher levels of assets from 1 January 2017.

Conclusion

While it is too early to tell how consumers will react to this year's Budget, it is widely expected that initial reaction will be more positive than it was last year.

In the month following the 2014-15 Federal Budget, consumer sentiment plummeted 6.8% and failed to recover for the rest of the year.

This year's Budget would suggest the Government is looking to avoid such a strong negative reaction. Many financial commentators believe this year's Budget acts as an apology for last year's aggressive Budget. In fact, many believe this could be an election Budget.

While the theme of last year's Budget was to pay down debt, it would seem the government is now trying to encourage Australians to spend. It is still too early to tell what impact this year's Budget will have on buyer and seller activity in the immediate future. Auction attendance and clearance rates will come into sharp focus over the coming months to demonstrate stronger indications of consumer confidence. However, with interest rates set to remain at historically low levels throughout 2015, the housing sector remains positive for both current mortgage holders and those looking to enter the property market.