2023 Federal Budget
Whilst the 2023 budget was marketed as the budget to reduce the cost of living pressures, it is clear that it was also about reducing government expenditure with the first surplus in 15 years targeted. This is being driven by lower unemployment rates than forecast and higher returns from royalties out of the mining companies.
So are the Reserve Bank and the Federal Government finally on the same page to reduce inflationary pressures, and what effect will the budget have on the construction industry, which is buoyed under the pressure of supply shortages and labour shortages leading to a number of builders experiencing losses and a number of contractors across the country going into receivership.
“Relief, repair, restraint.” All three are at the heart of May’s Federal Budget, according to Treasurer Jim Chalmers. This equates to cost-of-living relief, repair of supply chains and (perhaps above all) spending restraint.
It appears that the Federal budget is walking the tightrope of addressing many of the cost-of-living pressures whilst also not spending big and fuelling escalation.
The key aspects affecting the construction, depreciation and renewables sectors are summarised below:
There are a number of ways the government is trying to increase housing supplies that, include:
BUILD TO RENT
- Increasing the capital works depreciation rate from 2.5% to 4% for eligible new BTR projects where construction commences after 9 May 2023
- Reducing the withholding tax rate from 30% to 15% for eligible fund payments made from 1 July 2024 by management investment trusts (MITs) to foreign residents on income from newly constructed residential build-to[1]rent (BTR) properties.
- These concessional measures are proposed to apply to BTR projects that: Consist of 50 or more apartments or dwellings made available for rent to the general public, are held under single ownership for at least ten years before being sold, and Offer a lease term of at least three years for each dwelling.
AFFORDABLE HOUSING
- Increasing the government-guaranteed liability cap of the National Housing and Finance Investment Corporation (NHFIC) to enable the NHFIC to increase its support for social and affordable housing through loans from the Affordable Housing Bond Aggregator
- Requiring the NHFIC to allocate a minimum of 1,200 homes to be delivered to each state and territory within five years of the Housing Australia Future Fund commencing operation
- Expanding the eligibility of the Home Guarantee Scheme to allow individuals who are not spouses or de-facto partners to access the scheme. These individuals include any two eligible people as joint applicants, non-first home buyers who have not owned a property in Australia for at least ten years to access the guarantee, the single legal guardian of children, and Australian permanent residents X Redirecting interest earnings on unallocated NHFIC funds to support social and affordable housing.
HOUSING -CHANGES TO THE HOME GUARANTEE SCHEME
- Starting July 2023, joint applications for friends, siblings, and other family members will be allowed under the First Home Guarantee and the Regional First Home Buyer Guarantee.
- Meanwhile, non-first-home buyers who have not owned a property in Australia in the last 10 years will be eligible to apply for First Home Guarantee and the Regional First Home Buyer Guarantee. This will provide support to those who are planning to re-enter the property market.
- The Family Home Guarantee will also be extended to include single legal guardians of children such as aunts, uncles, and grandparents.
FOR SMALL BUSINESSES SUPPORT IS PROVIDED THROUGH:
- Continuation of the instant Asset write off at the higher level of $20,000 for the 2023/2024 financial year for businesses with an aggregated turnover of less than $10M per year
- Small business Energy incentives Under this program, businesses with an annual turnover less than $50 million will be able to access an additional 20% deduction on spending that supports electrification and more efficient use of energy. Total expenditures up to $100,000 will be eligible for this incentive, with the maximum additional tax deduction being $20,000 per business. Eligible assets or upgrades must be first used or installed and ready for use between 1 July 2023 and 30 June 2024.
RENEWABLES SPENDING
“This budget allocates $4 billion to realising our future as a renewable energy superpower — bringing the government’s total investment to more than $40 billion,” Jim Chalmers said.
- This includes part of our $15 billion National Reconstruction Fund to support the development of green industries, manufacturing and more.
- A new Capacity Investment Scheme will unlock over $10 billion of investment in firmed-up renewable energy projects up and down our east coast.
However, much of the investment is off-balance sheet and does not show up in the budget papers.
- For example, the only new spending in this budget for that $15 billion National Reconstruction Fund was $61.4 million to “support the establishment and operation” of it.
- The budget includes for an investment of $2 billion in a new Hydrogen Headstart program, so Australia can be a world leader in producing and exporting hydrogen power.
- Although Budget Paper 2 notes that funding for this program will be held in the Contingency Reserve, effectively, the government’s spare cash is set aside for a rainy day.
INFRASTRUCTURE SPENDING
- Infrastructure spending will be subject to further review, and the federal government has committed to a $120Billion 10 year rolling pipeline. The 90-day independent review will allow the government time to consider the projects’ actual priorities and assess their cost and deliverability in the current environment.
- An additional $200M has been committed to replenish the Major Business Case Fund
- $200M has been committed over two years for merit-based locally driven grants that address community infrastructure
- $150M in Urban Precincts and Partnership Programs
- $2.5B for the Brisbane Arena Development
- $935M in contributions for a further 16 venues to be jointly funded with the Queensland Government for the 2032 Games
- $65M in funding for upgrades to the UTAS Stadium in Launceston
- No new funding is provided in the budget for any significant investment in rail projects for the next three years
It appears that little has been done to address the issues in the construction industry with the changes to the First home owners grants, providing additional access to first home buyers grants and placing further pressure on the construction supply chain shortages. There is no specific expenditure to address the future skills shortages in the construction industry and reduced productivity in the industry. In addition, the government has proposed an increase for heavy vehicle road users leading to increased transport costs for materials and goods. It appears that the Federal Government is finally on the same page as the Reserve Bank and has produced a budget to reduce inflation. Whilst a surplus is proposed, the forecast is that it will be short-lived, with substantial additional expenditure required for the government to service its debt requirements, large Defence spending and the NDIS program, which continues to grow.
