The Federal Government has kept its election promises and rewarded the working families that largely delivered them out of the wilderness and into government. The centrepiece of the budget, tax cuts, was set last year as part of the election. Wheres it can be said that the budget overall is an “honest effort” on the part of Swan, it probably misses a huge opportunity to be tougher however Swan has delivered a real “crowd pleaser” and used the surplus politically strategically. Some of the income testing add-backs in FBT, negative gearing and salary sacrifices which come into effect in 2009 and will have little impact on the investment property market.  The budget commits $2.2 billion to help home buyers and property investors in some way.

Promises to tackle the housing affordability crisis have been partly addressed. The effective increase in income to a family on a combined family of $70,000, with children, will be around 4%.  This will improve one component of the affordability index for this market segment.

The new National Rental Affordability Scheme will receive $623 million, which the government estimates will create up to 50,000 new rental properties. This is an ambitious statement which will see the accountants and investment advisors looking at the detail and working their excel spreadsheets until late in the night to come up with a financial model for investors that may assist to attract some back into the market.

In an attempt to lower the cost of building new homes, $512 million has been allocated over five years for the Housing Affordability Fund. Depending on how, when and where this is directed it may help to reduce housing costs which are increasing with inflation and impacted on by the labour shortage. 

A “First Home Saver Accounts” will be established with an allocation of $1.2 billion over four years to assist first home buyers. This is a real winner as it will assist with a culture change particularly amongst the young who will be educated to save rather than spend.

There will also be funding of $100 million over the next four years for the construction of 600 new homes for homeless people across the nation.

On a personal note with Real Estate professionals, the increase in luxury vehicle tax will certainly boost the second hand luxury car market and question carefully which new car to buy next.

It is difficult to see how the budget is going to control inflation over the medium term.  The world is paying Australia a windfall for our coal and iron ore, largely by China, which will see an estimated additional $60 billion received. This has also been recognised with Queensland gaining an increase in export infrastructure funding. The receipt of this  will impact on spending and the labour market.  Comments that unemployment will increase are also hard to understand as everything points to the opposite and indeed inflation generating pressure on the labour market may result in further increases in wages. 

Overall the budget has exceeded expectations with a balance of benefits and spending cuts that will have a short-term impact on inflation which should keep interest rate rises at bay for a period.  Assistance for home buyers has been minimal however at least recognised and when combined with tax cuts should assist part of the community to enter the housing market. The main issue is that the budget will produce some optimism and in these uncertain times a positive outlook along with good fiscal and monetary policy management is what is needed. 

The four budget papers include an enormous amount of detail. I will provide further comment after it is assessed further.

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