Budget big on infrastructure, tax looms

parliamentFederal Treasurer Scott Morrison has delivered his second budget, unveiling extensive infrastructure spending and measures designed to boost housing supply in Sydney and Melbourne.

In a departure from the fiscally conservative 2014 budget, the government has stepped up spending on transport and infrastructure to the tune of over $70 billion in prior commitments and new projects through to 2020-21.

To fund its plans the government is adopting a three pronged revenue plan that includes a 0.5 per cent increase to the Medicate levy and a grab on businesses employing skilled labour from overseas.

Pursuant to previously announced changes to working visas, including the dumping of 457 visas, businesses which employ foreign workers on “certain skilled visas” will be putting an expected $1.2 billion into government coffers over the forward estimates.

Businesses with a turnover of less than $10 million per year will be required to pay $1,200 up front per visa per year for each employee on a Temporary Skill Shortage visa, while also making a one- off payment of $3,000 for each employee being sponsored under the permanent Employer Nomination Scheme. Those turning over $10 million or more will be required to pay $1,800 per visa each year and make similar one off payments valued at $5000.

Australian Retailers Association executive director Russell Zimmerman said the ARA have serious concerns about the visa changes, particularly for their potential impact on the ability of retailers to recruit overseas talent in specialised roles currently under represented in Australia.

“There are a number of occupations involving consumer skills and marketing that will be affected, so it is a concern and we’ll be taking that issue up with the government.”

The government will also generate an additional $6.2 billion over the forward estimates with a major bank levy, which Bankers Association chief Anna Bligh has warned will be paid for, in part, by consumers.

“The Medicare levy increase of 0.5 percent to fund the NDIS is just a tax hike in another form that will hit consumer pockets hard,” Zimmerman said. ““Without adequate safeguards to protect customers from these forwarded costs, we are cautious that [the bank] levy could prove counter-productive for retail growth.”

The second half of the governments 2016-17 measures to implement a company tax cut for businesses turning over more than $50 million has also moved to the back burner, Zimmerman told Inside Retail. 

The government undertook a deal with the Senate cross bench in April to pass the first stage of its company tax cut plan for businesses turning over under $50 million, but has struggled to get the second phase passed.

Low value GST imports are also now likely off the table until 2018, as Inside Retail has previously reported, political capital for a June implementation has been eroding. A Senate Committee moved yesterday to officially recommended a twelve month delay.

Mixed bag for retailers

Despite the revenue measures Zimmerman said that infrastructure spending and action on housing supply would generate opportunities for retailers.

$8.4 billion will be invested over the next seven years to fund the delivery of a 1700 kilometer inland rail project from Melbourne to Brisbane, creating 16,000 construction jobs, while a further $5.3 billion will be injected over 10 years into the building of Western Sydney Airport.

The future of the Badgery Creek development was put into doubt after Sydney Airport turned down a chance to build the long anticipated project earlier this year, but with earth moving works scheduled to start in 2H18 the project is now looking towards completion in 2026, creating an estimated 60,000 jobs in the long term.

Western Sydney will also be subject to an incentive program for state and local governments, encouraging them to support planning and zoning reform to accelerate housing supply. This will be coupled with the planned release of military land in Melbourne’s north-east to establish residential opportunities in Mernda.

“To support growth we choose to invest in building Australia, rail by rail, runway by runway and road by road,” Morrison said.

Housing affordability was a key focus for the government, with dwelling starts set to benefit from a new “first home super saver scheme” that will essentially allow first home buyers to withdraw voluntary superannuation contributions of up to $30,000 per person to fund a home loan.

The government will also commit $1.5 billion over four years to establish a Skilling Australians Fund (funded by the Skilling Australians Levy), which will support the up-skill of Australian workers in occupations of high demand.

Australian Retailers Association executive director Russell Zimmerman said the infrastructure and housing affordability investments would foster growth, particularly for regional areas.

“It’s a fairly balanced budget, infrastructure spending is good on both airport rail as well as addressing land lock on housing,” Zimmerman told said. “We’re very pleased to see $1.5 billion in skills funding, but we would like to see more detail.”

Treasury predicts uplift in consumer spend

The government expects infrastructure and housing affordability to have a positive effect on consumer fundamentals in the coming years, predicting household consumption to outpace wage growth over the forward estimates, despite historically high levels of household debt.

Household consumption is expected to increase by 2.75 per cent in 2017-18 and 3 per cent in 2018-19, while dwelling investment is expected to slow to 1.5 per cent in 2017-18 and fall by 4 per cent in 2018-19.

“It is expected that consumption will continue to grow by more than household income, resulting in a further decline in the household saving rate,” Treasury wrote.

The predictions come less than a day after March ABS figures outlined a 0.1 per cent decline in seasonally adjusted retail turnover, reflecting a 0.3 per cent fall in clothing, footwear and personal accessories as well as household goods.

Other measures

The Budget contained several other measures that stand to affect retailers, including:

  • Tougher penalties for breaching Australian consumer law, increasing maximum penalties to three times the benefit received from the relevant act, or 10 per cent of annual turnover.
  • The prohibition of point-of-sale technology that suppresses sales figures for tax gain.
  • The government will recover $112.6 million from companies regulated by ASIC for costs associated with the promotion of financial literacy and the administration of unclaimed money, among other things.
  • $20.4 million in spending over the forward estimates on clarifying and simplifying Australia’s foreign investment network, including refining foreign investment in commercial property.
  • A tax avoidance crack down that negates foreign trusts and partnerships in corporate structures, which “circumvent multi-national tax avoidance law”.

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