In a massive day for Australia’s financial future, October 6 saw the federal government reveal its most critical budget since the Great Depression. Along with the “recovery budget” – which has seen $98 billion in COVID-19 support, along with tax cuts, tax breaks and wage subsidies – came the Reserve Bank of Australia (RBA)’s monthly cash rate announcement.
Cash rate continues to hold
Let’s start with the RBA and its statement that the record low cash rate of 0.25 per cent – first set in March – will continue. Revealed just a few hours before Budget 2020, the announcement was nonetheless welcomed by property owners and buyers, although the property industry as a whole has speculated the rate could drop even further this year amidst the push for economic recovery.
RBA governor Philip Lowe stated that while the Australian economy experienced a sharp contraction in the June quarter, with output falling by 7 per cent, the decline in output was smaller than in most other countries and smaller than was earlier expected. Australia was now experiencing a recovery although the second-wave outbreak in Victoria had resulted in a further contraction in output in that state.
As with Budget 2020, Mr Lowe’s focus was on employment, saying the cash rate wouldn’t increase further until progress was made towards full employment and the Board was confident that inflation would sit sustainably within the 2–3 per cent target band.
“Labour market conditions have improved somewhat over the past few months and the unemployment rate is likely to peak at a lower rate than earlier expected,” he said.
“Even so, unemployment and underemployment are likely to remain high for an extended period.”
Budget highs and lows
First home buyers and low-income earners have definitely been the winners in Budget 2020, with Treasurer Josh Frydenberg announcing the expansion and extension of the highly popular First Home Loan Deposit Scheme (FHLDS). Announced ahead of Tuesday’s budget, scheme changes include reserving places for extra 10,000 people to snap up a new house or apartment. These buyers will have until June 30, 20201, to do so with price caps also lifted. The FHDLS allows people to buy a property with just a 5 per cent deposit with no Lenders’ Mortgage Insurance (LMI) needed and the federal government acting as guarantor. It is hoped the scheme will also stimulate the construction industry.
As well, the federal government has committed an extra $1 billion to the National Housing Finance and Investment Corporation (NHFIC), which provides Australians with low-cost loans to registered community housing providers. Real Estate Institute of Australia (REIA) president, Adrian Kelly said the boost to affordable housing was good news for tenants requiring somewhere to live.
“COVID-19 has highlighted that the private sector is carrying most of the load to support our tenants and the government-led affordable housing commitment for NHFIC in the form of $1 billion dollars is most welcomed,” Mr Kelly said.
Mr Kelly said various small business initiatives, which would assist Australia’s property agents directly and indirectly through increased economic activity, was also welcome news, as was support for regional areas.
“Pragmatic business level support, such as the reintroduction of the loss carry-back tax provisions, expansion of the instant asset write-off program, and exemptions for Fringe Benefits Tax benefit small businesses including estate agencies,” he said.
“The investment in regional infrastructure is beneficial and will reinforce the growth currently being seen in Australia’s regions at the moment, as a result of changing demographics driven by the COVID-19 policy and economic response.”
The REIA is disappointed that the FHLDS hasn’t been extended to buyers of all homes, not just new builds, and confirmed this would be a priority for REIA moving into 2021. The REIA had also pushed the federal government to lower the limits of its $680 million HomeBuilder grant, available to low and middle-income buyers who begin a building contract by December 31; however, Budget 2020 didn’t bring about any such changes.
Yet overall, Mr Kelly said the budget contained some solid support for both real estate agencies and their customers, including the bringing forward and backdating of Stage 2 tax cuts, which he believes will improve borrowing capacity and housing affordability.
“This comes at a time when the outlook for interest rates will remain low until at least 2023,” he said.
Mr Kelly was also pleased with the government’s Budget focus on creating employment and generating re-employment.
“This is good news for tenants, investors, home owners and those wishing to sell,” he said.
“Economic activity is forecast to pick up strongly from late 2020 and into early 2021, driven by a further easing of COVID-19 containment measures and improving business and consumer confidence.
“That being said, we need to be realistic about the challenges of the global pandemic.
“The Budget’s forecast may prove to be optimistic, given the uncertainty of overcoming COVID and the re-opening of borders.”