According to the latest Economic Insight – Australia by ANZ, the 9 May Commonwealth budget is one that will “boost infrastructure spending, while also addressing ‘fairness’, including through housing affordability and university fee arrangements.
The bank noted that broad changes in the negative gearing and capital gains tax arrangements for housing investment have been ruled out by the government, however the budget may contain a measure that will allow first home buyers to direct some of their pre-tax income into a savings account to assist with purchasing a home.
“Other policies floated include encouraging downsizing by retirees by removing tax disincentives for the sale of their houses,” ANZ said.
Also floated is boosting funding to states for public housing and measures to restrict foreign demand for housing. The government may also boost greenfield land supply using Commonwealth or defence land (although this is partly already in place).”
Further, ANZ added that it is likely that the NSW government, like the Victorian government, will initiate its own housing affordability package in its 20 June budget.
“State and territory governments hold many of the levers that affect house prices,” it remarked.
When it comes to capital spending, ANZ said that government spending, especially on infrastructure, is likely to be higher.
“Commonwealth general government capital cash payments are dominated by defence capital projects,” ANZ noted. “In the current financial year, capital payments are projected to be $12.3 billion and to rise to $14.6 billion by 2019-20. That’s just under 3 per cent of total expenses or 0.7 per cent of GDP.
“It seems certain this figure will be higher in the budget as the government provides for additional spending that does not naturally fit into a public business context. As a working assumption, we have increased this spending by $3 billion per annum over the forward estimates to derive our budget forecasts.”
Based on its forecasts and previous estimates of the impact of economic and financial market variables on the budget, ANZ said its expectation is that the projected underlying cash deficits will be slightly larger than projected in the government’s Mid-Year Economic and Fiscal Outlook, but ultimately in a small surplus position by 2020-21.
“We would add that while these are our expectations of what will be projected in the budget, they will not necessarily be delivered in practice. The actual budget results have not been as optimistic as the budget papers have suggested in any year since the GFC,” the bank added.