This years Budget has good news, but not for those who are expecting a handout. The good news is the government’s books are on track to return to surplus. That’s a remarkable achievement given the dire state of many of our trading partners, and the billions of dollars the government has contributed towards the rebuild of Christchurch.
Only two days earlier the Australian budget foreshadowed tougher times for the lucky country. Their tougher measures include: cutting the baby bonus, putting tax cuts on hold, cutting back on the family tax benefits, and cuts to healthcare. Those cuts are in response to declining tax revenues, including a 90% drop in tax revenues from mining companies. It’s election year in Australia and if the polls are anything to go on they will have a new Prime Minister before year’s end. Given the tougher times across the ditch, and the upswing happening here, we may well see migration numbers flow back our way, which will add to the pressure on housing in Auckland.
Bill English’s Budget had a lot to do with housing, and the Auckland shortage in particular. Here are some key points of relevance to property investors:
- State housing tenants will be reassessed for need, with some 3,000 tenants expected to be moved on and find digs in the private sector over the next few years. That’s not so good for those who were expecting cheap accommodation for life, but good for private landlords.
- New legislation will be introduced to fast-track the housing accord with Auckland Council, and similar agreements with other councils. And if council’s don’t move fast enough central government will establish "special housing areas" and issue consents itself! This is a clear indication that the government wants to deal with the petty minded obstacles created by Councils and the negative effects of the Resource Management Act which is stifling progress.
- A memorandum of understanding is to be signed giving the Reserve Bank four new measures to curb accelerating house prices (as was detailed in last week’s Property Plus).
- The IRD has been given an additional $6.65 million a year to target property investment tax compliance. The specific area of compliance has not been stated. According to Revenue Minister, Peter Dunne, that spending is expected to generate an additional $45 million a year in tax. It is of course, part of their “pay your fair share” strategy. No doubt what it will generate is a lot of sleepless nights for property investors and more work for accountants and lawyers.
- Housing Minister Nick Smith released details that would see 500 new state houses built and 3,000 bedrooms added to existing housing stock, at a cost of $377m. Most of this activity would be in Auckland.
- The government is to trial a Warrant of Fitness program for state houses.
- There are already smoke signals coming from Housing Minister Nick Smith that this scheme will be extended to private sector landlords – I expect that will be within the next couple of years. In my view the scheme is likely to impose cost upon landlords, with very little benefit to tenants.
The bottom line is there is going to be a lot of rebuilding in Christchurch, and a lot of new building in Auckland. While this may not translate into a boom economy, it does reduce the risk of the economy stalling.
Other interesting points from the Budget include:
- Individual income tax accounts for 41% of the total tax take, 24% from GST, 15% from company tax, 12% from other direct and indirect taxes, and 8% from other revenue sources.
- The top 6% of income earners pay 37% of the income tax. The bottom 40% of income earners pay only 6% of the income tax. The Labour and the Greens want to top income earners to pay more.
- The partial sale of Meridian will be the next state owned asset to be sold.
- Economic growth to average 2 to 3% over next four years.
- Unemployment is forecast to fall from 6.7% to 5.2% over the next few years.
- Interest rates are forecast to rise slowly.
- Wages are expected to grow by 2 to 3% a year.
- The welfare reform program has been boosted by $188 m to help people move from welfare to work.
What is clear is the economy is on a recovery path and announcements contained in the Budget reinforce that direction.