LJ Hooker Group Federal Budget

Federal Budget

2024 / 25

Balancing Cost-of-Living Relief Without Stoking Inflation

The Australian Federal Government’s 2024-25 Budget marks a significant milestone, achieving back-to-back surpluses for the first time in almost two decades. This budget aims to address the pressing needs of households facing cost-of-living pressures and businesses grappling with rising costs. To achieve these objectives, the budget implements the previously announced Stage 3 tax cuts, granting all taxpayers a tax cut starting July 1, 2024. Additionally, it provides energy bill relief for households and businesses, boosts Commonwealth Rent Assistance, extends the instant-asset write-off for small businesses, and offers debt relief for students.

However, it remains unclear whether the government has effectively aligned its fiscal policy with monetary policy to prevent further fuelling inflation and potentially triggering more interest rate rises by the Reserve Bank of Australia (RBA). The RBA has increased the official cash rate 13 times since May 2022, bringing it to 4.35%, the highest level since 2011.

Regarding the budget’s impact on interest rates, while the energy rebate and increased rent assistance will reduce headline inflation, other budgetary spending measures are likely to stimulate the economy. Therefore, the overall inflation outlook and the cash rate forecast remain largely unchanged. The cash rate is expected to stay steady through the end of 2024, with a potential cut at the end of 2024 or the start of 2025.

The outlook for property markets remains largely unchanged. Although the budget includes welcome housing support measures that will help build much-needed social, affordable, and crisis housing over the medium term, the short-term demand and supply imbalance is expected to persist.

Budget At A Glance

• A budget surplus of $9.3b in 2023-24 and deficit of -$28.3b in 2024-25

• Inflation forecast to fall to 2.75% in 2024-25

• Net overseas migration of 395,000 in 2023-24 falling to 255,000 in 2025-26

• Stage 3 tax cuts to benefit all tax payers

• $300 energy bill relief for all households

• $22.7 billion Future Made in Australia package

• $16.5 billion additional infrastructure spending

Property Related Budget Measures

• $11.3 billion housing package

– $9.3 billion for social housing and homelessness

– $1 billion for crisis and transitional accommodation

– $1 billion for local housing infrastructure

• $1.9 billion in concessional loans to community housing providers

• $90.6 million construction workforce package

• Increase to Commonwealth Rent Assistance

Economic Forecasts

Federal Budget Position

Budget Economic Forecasts

Source: The Commonwealth of Australia. (Budget.com.au/2024-25)

The RBA has increased the official cash rate 13 times since May 2022, bringing it to 4.35%, the highest level since 2011.

Residential Property Market Impacts

Over the past year, property markets have been highly active, with prices rising steadily for 15 consecutive months. This has been driven by high population growth, low unemployment, rising wages, and a persistent shortage of newly constructed homes. However, this price growth has varied significantly across different regions, property types, and price brackets.

Sydney and Melbourne have experienced relatively steady growth, with prices rising by 8.7% and 2.8%, respectively, over the past 12 months. In contrast, Perth, Brisbane, and Adelaide have shown more pronounced increases in property values, rising by 21.1%, 16.1%, and 14.0%, respectively, over the past year.

Despite regional differences, one common challenge persists: the ongoing undersupply of newly built homes to meet the demands of a growing population and increasingly tight rental markets. The shortage of newly constructed homes can be attributed to several pressures on the construction industry, including higher material costs, a shortage of skilled tradespeople, reduced profit margins and increased holding expenses.

Forecasts in the budget indicate that dwelling investment is expected to contract this year, remain flat next year and rise by 6.5% in 2025-26. Additionally, net overseas migration is projected to be 395,000 in 2023-24, falling to 260,000 in 2024-25 and stabilising at 255,000 in 2025-26.

To address these supply constraints, the government has introduced initiatives such as the $11.3 billion Homes for Australians package and a $90.6 million investment to grow the construction workforce. However, it is unlikely that any measures in this year’s budget will have a major short-term impact on property markets. The long-term success of these initiatives will depend on effective implementation and broader economic conditions.

Commercial Property Market Impacts

The performance of commercial real estate sectors has been diverse over the past year. The industrial sector has been the standout performer, with demand from transport and logistics operators, as well as online retail businesses, far exceeding the supply of suitable assets available for sale or lease.

The office and retail sectors have also shown signs of recovery. Office occupancy rates are gradually rising, with increased tenant demand for high-quality office spaces leading to tighter vacancy rates at the premium end of the market. In the retail sector, there has been an uptick in demand, particularly in holiday hotspots, as tourism rebounds.

The 2024-25 Federal Budget includes several measures that will indirectly support commercial real estate markets in the coming years:

• Infrastructure Spending: The budget allocates an additional $16.5 billion to infrastructure projects, including significant investments in transport and logistics infrastructure. Once completed, these projects will help alleviate supply-chain bottlenecks and reduce transportation costs, supporting demand for industrial assets.

• Manufacturing Capacity: Initiatives to boost the manufacturing capacity of businesses, particularly in renewable energy industries, will benefit commercial landlords. The budget includes funding to grow clean energy supply chains, supporting the growth of industrial and manufacturing properties.

• Office and Retail Support: Increased spending on infrastructure and the return of international students and tourists will support the recovery of office and retail sectors. The budget’s focus on economic recovery and job creation is expected to bolster overall commercial real estate performance.

Office occupancy rates are gradually rising, with increased tenant demand for high-quality office spaces leading to tighter vacancy rates at the premium end of the market.

Budget Housing Measures

A $9.3 billion five-year National Agreement on Social Housing and Homelessness with the budget providing additional funding for;

• Social Housing and Homelessness: $423.1 million over five years to support the provision and repair of social housing and homelessness services by states and territories.

• Local Housing Infrastructure: $1.0 billion for states and territories to support enabling infrastructure for new housing. This will help build the necessary roads, sewers, energy, water, and community facilities to support new homes.

Crisis and Transitional Housing: $1.0 billion for social housing under the National Housing Infrastructure Facility. This will go towards crisis and transitional accommodation for women and children fleeing domestic violence, and youth, including redistributing the mix of concessional loans and grants to increase the proportion of grants to $700.0 million.

Community Housing Providers

• $1.9 billion in concessional finance to support community housing providers to deliver social and affordable housing under the Housing Australia Future Fund and the National Housing Accord.

• Support more community housing providers to access finance through the Affordable Housing Bond Aggregator by increasing the cap on the Government’s guarantee of Housing Australia’s liabilities by $2.5 billion.

• $2.0 million over three years to build the financial capability of community housing providers and Aboriginal and Torres Strait Islander communitycontrolled housing organisations.

Commonwealth Rent Assistance: $1.9 billion over five years from 2023–24 (and $0.5 billion per year ongoing from 2028–29) to increase all Commonwealth Rent Assistance maximum rates by 10% from 20 September 2024. This builds on the 15% increase in September 2023 and will take maximum rates over 40% higher than in May 2022.

Housing Research: $19.7 million over six years to support housing research, fast-track feasibility studies on the release of Commonwealth land to support social and affordable housing and maintain Treasury’s capability to develop, advise on and implement housing policy and programs.

Build-To-Rent Housing: Support to increase available rental housing by allowing foreign investors to purchase established Build to Rent properties with a lower foreign investment fee.

Northern Territory Housing: $839.4 million over five years (and $2.1 billion over ten years from 2024–25) to accelerate housing delivery in remote Northern Territory communities and increase investment in homelands.

More Student Housing: $2.1 million over four years (and an additional $3.7 million from 2028–29 to 2034–35) for the Department of Education to develop and implement regulation to require universities to establish new supply of purpose-built student accommodation to support any increase in international student enrolments over an initial international student allocation, to be set in consultation with the sector. The accommodation would be available to both domestic and international students.

Construction Industry Support

• Fee-Free Training: $88.8 million over three years for 20,000 new fee-free training places, including increased access to pre-apprenticeship programs, in courses relevant to the construction sector and delivered through TAFEs and industry registered training organisations. This includes:

– $62.4 million, working with states and territories, to deliver an additional 15,000 Fee-Free TAFE and VET places over two years from January 1, 2025.

– $26.4 million, working with states and territories, to deliver approximately 5,000 places in pre-apprenticeship programs over two years from 1 January 2025.

• Faster Skills Assessments: $1.8 million over two years to deliver streamlined skills assessments for migrants from comparable countries who wish to work in Australia’s housing construction industry.

• Building Industry Accreditation Support funding for;

– $7.0 million over three years to provide assistance to residential builders seeking to obtain accreditation under the Work Health and Safety Accreditation Scheme.

– $6.2 million over two years to support building industry peak employer associations to assist residential builders in obtaining accreditation under the Work Health and Safety Accreditation Scheme.

$1.8 million over two years to deliver streamlined skills assessments for migrants from comparable countries who wish to work in Australia’s housing construction industry.

Other Budget Measures

Stage 3 Tax Cuts

The Stage 3 tax cuts, initially announced in the 2018–19 Budget, are set to begin on July 1, 2024. These tax cuts are part of the government’s long-term plan to simplify the tax system and reduce the tax burden on individuals across all income brackets.

Key features of the Stage 3 tax cuts include:

• Reducing the 19% tax rate to 16% for income between $18,201 and $45,000

• Reducing the 32.5% tax rate to 30% for income between $45,001 and $135,000

• Increasing the threshold for the 37% tax rate from $120,000 to $135,000

• Increasing the threshold for the 45% tax rate from $180,000 to $190,000

Instant Asset Write-Off Extension

The Government will extend the $20,000 instant asset write-off by 12 months until June 30, 2025. Small businesses, with an aggregated annual turnover of less than $10 million, will continue to be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use by June 30, 2025. The asset threshold applies on a per asset basis so small businesses can instantly write off multiple assets.

Energy Bill Relief Fund

The Government will provide $3.5 billion over three years to extend and expand the Energy Bill Relief Fund to provide a $300 rebate to all Australian households and a $325 rebate to eligible small businesses on 2024–25 bills to provide cost of living relief.

Future Made in Australia

• The Government will provide an estimated $19.7 billion over ten years from 2024–25 to accelerate investment in Future Made in Australia priority industries, including renewable hydrogen, green metals, low carbon liquid fuels, refining and processing of critical minerals and manufacturing of clean energy technologies including in solar and battery supply chains. Funding will catalyse clean energy supply chains and support Australia to become a renewable energy superpower.

• The Government will provide $1.7 billion funding over ten years from 2024–25 for investments in innovation, science and digital capabilities to support a Future Made in Australia. Including funding to map Australia’s national groundwater systems and resource and to support the construction and operation of quantum computing capabilities and associated investment in industry and research development in Brisbane.

Infrastructure

Carefully planned and delivered infrastructure is vital to ensure our cities work efficiently and that all Australians are provided with basic services. Strategic infrastructure projects can help reduce commute times, increase productivity, boosts local employment opportunities, and make outer-ring suburbs more accessible and attractive. It also plays an important economic role by creating jobs and supporting businesses

The 2024-25 Federal Budget allocates an additional $16.5 billion to the, previously announced $120 billion infrastructure plan. New funding includes:

• Infrastructure Investment Program (New Projects): $4.1 billion, over seven years, for 65 new priority infrastructure projects across Australia, including:

– $1.9 billion for projects in Western Sydney, including $500.0 million for the Mamre Road Stage 2 Upgrade and $400.0 million for Elizabeth Drive Upgrade

– $300.0 million for the METRONET High-Capacity Signalling Program in Western Australia

– $72.0 million for the Port Keats Road – Wadeye to Palumpa (Nganmarriyanga) in the Northern Territory

– $134.5 million for the Mt Crosby Road Interchange Upgrade and $42.5 million for Bremer River Bridge (Westbound) Strengthening on the Warrego Highway in Queensland

– $115.0 million for Zero Emission Buses Tranche 1 Infrastructure – Macquarie Park Depot in New South Wales

– $80.0 million for the Lyell Highway – Granton to New Norfolk in Tasmania

– $64.0 million for the Berrimah Road Duplication – Stuart Highway to Tiger Brennan Drive in the Northern Territory

– $120.0 million for the Mount Barker and Verdun Interchange Upgrades in South Australia

– $54.0 million for the Regional Road Safety Program – State Roads in Western Australia

– $53.6 million for the Great Northern Highway – Brooking Channel Bridge Replacement in Western Australia

– $50.0 million to plan for Stage 2B of the Canberra Light Rail in the Australian Capital Territory

– $17.6 million for projects in Victoria, including $12.0 million for the Bridgewater Road and Portland Ring Road intersection upgrade

• Infrastructure Investment Program (Existing Projects): $10.1 billion, over 11 years, for existing projects, including:

– $3.3 billion for North East Link in Victoria

– $1.2 billion for the Direct Sunshine Coast Rail Line in Queensland

– $1.4 billion for METRONET projects in Western Australia

– $578.6 million for projects in New South Wales, including $112.0 million for the M1 Pacific Motorway Extension to Raymond Terrace

– $431.7 million for the Coomera Connector Stage 1 (Coomera to Nerang) in Queensland

– $133.6 million for projects in South Australia, including $100.0 million for the South Eastern Freeway Upgrade

– $113.1 million for projects in Tasmania, including $50.0 million for the Mornington Roundabout Upgrade

– $35.9 million for projects in the Northern Territory, including $25.0 million for the Carpentaria Highway Upgrade

– $27.1 million for the William Hovell Drive Duplication in the Australian Capital Territory

Strategic infrastructure projects can help reduce commute times, increase productivity, boosts local employment opportunities, and make outer-ring suburbs more accessible and attractive.

• Road Maintenance and Safety: $1.7 billion to continue existing road maintenance and safety programs, including:

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$1.0 billion for the Roads to Recovery Program

– $200.0 million for the Safer Local Roads and Infrastructure Program

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$150.0 million for the Black Spot Program

$540.0 million for the Australian Rail Track Corporation to invest in the interstate rail network, including $150.0 million for the Maroona to Portland Line Upgrade

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$100.0 million over four years from 2025–26 for an Active Transport Fund to support the construction and upgrade of bicycle and walking paths across Australia

Infrastructure Pipeline: In addition to the above the Budget also notes that the Government will reprofile $2.1 billion to beyond the forward estimates to better align with construction market conditions and project delivery timeframes. This is an important step to ensure the effective allocation of skilled construction workers and trades people, particularly to ensure the delivery residential housing supply.

Other Infrastructure Funding

• Electric Vehicle Charging Stations: $60.0 million over four years to support the installation of electric vehicle charging infrastructure at automotive businesses to support the transition to selling and servicing electric vehicles.

• High Speed Rail: $60.0 million over four years to support the installation of electric vehicle charging infrastructure at automotive businesses to support the transition to selling and servicing electric vehicles.

• Parkes Intermodal Terminal: $60.0 million over four years to support the installation of electric vehicle charging infrastructure at automotive businesses to support the transition to selling and servicing electric vehicles.