The budget 2017/18 was delivered in Canberra yesterday (9 May) on the second reading of the Appropriation Bill (No. 1) 2017-18 by the Hon. Scott Morrison MP, Treasurer of the Commonwealth of Australia.
As well as a range of measures on housing, the federal government also outlined that the Australian Competition and Consumer Commission (ACCC) will undertake a residential mortgage pricing inquiry until 30 June 2018.
As part of this inquiry, the ACCC will be able to require relevant banks to explain changes or proposed changes to residential mortgage pricing, including changes to fees, charges, or interest rates by those ADIs.
The big banks will also be put under larger scrutiny, with the government announcing that it will legislate a new Banking Executive Accountability Regime that will make senior bank executives more accountable and subject to additional oversight by the Australian Prudential Regulation Authority (APRA).
Banks will have to advise APRA prior to making a senior appointment and APRA will be given stronger powers to remove and to disqualify senior executives and directors.
If banks breach misconduct rules, they will also face bigger fines starting at $50 million for small banks and $200 million for large banks.
First home buyers
Treasurer Scott Morrison announced on Tuesday evening (9 May) that the government will assist first home buyers to build a deposit inside superannuation.
The First Home Super Saver Scheme will be administered by the ATO and will enable first home buyers (FHBs) to make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home.
Under the First Home Super Savers Scheme, voluntary contributions and earnings will be taxed at 15 per cent, rather than marginal rates, and withdrawals will be taxed at their marginal rate, less 30 percentage points. Withdrawals will be allowed from 1 July 2018.
Savers will be able to use their existing super account and decide how much of their income they want to put aside to save for their first home deposit.
Individuals who are self-employed or whose employers do not offer salary sacrifice can claim a tax deduction on personal contributions, meaning savings effectively come out of pre-tax income.
The total concessional contributions an individual can make, from both compulsory employer contributions and voluntary contributions, including those made under the scheme cannot exceed $25,000 in 2017-18.
According to the federal government, the First Home Super Saver Scheme could boost the savings FHBs can put towards a deposit by at least 30 per cent (compared with saving through a standard deposit account).
This measure is estimated to have a cost to revenue of $250 million over the forward estimates
The federal government is also “encouraging older Australians to free up housing stock” by enabling older Australians to contribute downsizing proceeds into superannuation.
From 1 July 2018, individuals aged 65 and over will be able to make a non-concessional contribution of up to $300,000 in proceeds from the sale of a principal residence, held for at least 10 years, into their superannuation.
These new contributions will be in addition to any other voluntary contributions that people are able to make under the existing contribution rules and concessional and non-concessional caps.
For example, if a retired couple aged 76 and 69 sell their home for $1.2 million to move into more appropriate accommodation, they can both make a non-concessional contribution into superannuation of $300,000 ($600,000 in total), even though Jane no longer satisfies the standard contribution work test and George is over 75. They can make these special contributions regardless of how much they already have in their accounts.
This measure is estimated to have a cost to revenue of $30 million over the forward estimates.
“Mum and dad investors” will continue to be able to use negative gearing, supporting the supply of rental housing and placing downward pressure on rents.
In a bid to help Australians get on the property ladder, the budget includes measures that tighten up on foreign property investment.
Mr Morrison said that the government will “strengthen” the capital gains tax (CGT) rules to reduce the risk that foreign investors avoid paying CGT in Australia, including by no longer allowing foreign or temporary tax residents to claim the main residence CGT exemption, and by expanding the scope of the CGT withholding system for foreign residents.
There will be a new 50 per cent cap on pre-approved foreign ownership in new developments in a bid to “safeguard the opportunity for Australian buyers to purchase in new developments”.
This will be applied through conditions imposed on New Dwelling Exemption Certificates that are granted to property developers and act as pre-approval allowing the sale of new dwellings in a specified development to foreign persons.
The current certificates do not limit the proportion of dwellings that may be sold to foreign investors, but the new conditions will see a 50 per cent cap on new, multi-storey developments that have at least 50 dwellings.
Foreign owners of residential real estate will also be “encouraged” to rent their properties out by applying an annual charge of at least $5,000 (reflecting the original application fee) to foreign owners who leave their properties unoccupied or not available for rent for six months or more each year.
The annual vacancy charge will apply to foreign persons who make a foreign investment application for residential property from 7.30pm yesterday (9 May).
This measure is estimated to have a gain to revenue of $20 million over the forward estimates.
In order to boost “affordable housing” for renters (defined as rent charged at below market rate and made available for eligible tenants on low to moderate incomes), individual investors will be entitled to an additional 10 per cent capital gains tax discount from 1 January 2018.
This mean that investors in qualifying affordable housing will be entitled to a 60 per cent discount on capital gains tax.
This measure is estimated to have a cost to revenue of $15.0 million over the forward estimates period.
As well as this, Mr Morrison announced that the Commonwealth will replace the National Affordable Housing Agreement that provides $1.3 billion every year to the states and territories.
The new set of agreements will have the same funding but require the states to deliver on housing supply targets and reform their planning systems.
Government will also establish a $1 billion National Housing Infrastructure Facility, based on a UK model, to fund ‘micro’ city deals that remove infrastructure impediments to developing new homes.
An online Commonwealth land registry will be established detailing sites that can be made available for residential development, and a new National Housing Finance and Investment Corporation will be established by 1 July 2018 to provide “long-term, low-cost finance to support more affordable rental housing”.
States and territories will also be encouraged to transfer stock to the community housing sector.
New levy on major banks
The major banks are being called the ‘biggest losers’ in the budget, with increased regulatory oversight on senior executives, a permanent team in the ACCC to investigate competition in the banking and financial sector, as well as a new levy being brought in for the five biggest banks, expecting to bring in $6.2 billion over the budget.
The levy will be calculated quarterly as 0.015 per cent of an ADI’s licensed entity liabilities.
However, the budget outlines that liabilities subject to the levy will include items such as corporate bonds, commercial paper, certificates of deposit, and Tier 2 capital instruments.
Announcing the levy, Mr Morrison said it “represents an additional and fair contribution from [Australia’s] major banks, is similar to measures imposed in other advanced countries, and will even up the playing field for smaller banks”.
He added: “The levy will only affect [the] five largest banks with assessed liabilities of $100 billion or more and does not apply to superannuation funds or insurance companies.
“Importantly, customer deposits of less than $250,000 and additional capital requirements imposed on the banks by regulatory authorities are excluded from their assessed liabilities.
“Unlike the previous bank deposit tax, this is specifically not a levy on pensioners’ and others’ ordinary deposit accounts, nor is it on home loans.
“This measure will secure $6.2 billion over the budget and forward estimates to support budget repair, including the reversal of significant budget savings measures.”
There are concerns that banks will pass this on to customers, and speculation that this levy would be coming yesterday saw almost $14 billion wiped off the banks’ stocks.
Commonwealth Bank fell 3.9 per cent on Tuesday to $82.02, Westpac fell 3.5 per cent to $32.88, ANZ fell 2.6 per cent to $29.16 and NAB fell 2.1 per cent to $32.42. All in all, this totalled around $13.8 billion.
‘No silver bullets to make housing more affordable’
In his budget speech, Mr Morrison said: “If a family or an individual has a roof over their head that they can rely on, then all of life’s other challenges become more manageable.
“Whether you are saving to buy a home, spending a high proportion of income on your rent, waiting for subsidised housing, or you’re homeless, this is an important issue to you.
“There are no silver bullets to make housing more affordable. But by adopting a comprehensive approach, by working together, by understanding the spectrum of housing needs, we can make a difference.”
He concluded: “[O]n demand management, we will continue to prefer the scalpel to the chainsaw, to avoid a housing shock.”
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.