Budget the nail in ALP's coffin?

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The coalition’s proposed budget, delivered off the back of a forecast surplus of $7.1bn, has spurred thoughts of economic prosperity ahead. Infrastructure spending and tax cuts are expected to seep growth into house prices; a prospect that rides on more money being placed into consumer pockets, and projects that are to enhance the liveability of growing cities and improve ease of access to regional areas.

On the other end of the spectrum is the Labor party’s plan to remove negative gearing benefits, which experts have said could lead to house prices further plummeting. In an election that could come down to a tax crunch, will the Budget pave the way toward a Liberal party re-election?

Chief property economist at My Housing Market, Dr Andrew Wilson says the Budget’s projections should be taken with a grain of salt, considering the Government may have a change of hand.

“Of course, the tax cuts will be passed by the current Government in the Parliament, and it’s still really a leap of faith to some degree how our economy will pan out over the next couple of years. As usual the optimists outweigh the pessimists in terms of the Treasury forecasts. I do think they’re a little optimistic, but having said that, of course it’s better to be moving into a surplus,” Dr. Wilson shares in conversation with Michael Yardney, on his commentary site propertyupdate.com.au.

Dr. Wilson likens to the fact that the Government’s budget plan doesn’t implement any direct changes to housing market policies; referring back to how past instances have “acted to create this sharp decline in housing market activity that we are trying to get out of at the moment”.

On side with how the proposed budget plan will help to stabilise market confidence and create breathing space for constrained household budgets, Dr. Wilson says the removal of some external drivers will allow local factors to have more steering power over how house prices react. He considers this to be “more of a positive in terms of predictability for the housing market”.

“But other than a filler for confidence, the Budget I think re-enforces that we will have a low, and likely lower interest rates for longer now, given that the projections for incomes growth, for GDP, are certainly well down,” he says.

Whilst the chief economist believes the $100bn to be put towards infrastructure spending will be effective in making cities more efficient and creating a better living environment in suburban areas, he refers to it as a “non-issue”, when it comes to looking at the extent to which such projects will help the housing market.

“In terms of housing market dynamics, it really is a very long view of its influence, and we’ve had a good infrastructure spend for a number of years, but it hasn’t stopped the housing market and house prices sharply declining over the last 6 months. Short term dynamics is what fuels the housing market and house prices,” he says.

Discussing the Government’s proposed tax cuts, Dr. Wilson believes they will, to a certain degree, make up for the loss of income growth and help to improve current low levels of confidence in the market, but when the numbers are crunched, he says results will fall short.

“We’ve got to remember that what [the] latest stats are showing is that taxes are rising faster than incomes, so it is certainly a positive, but not enough I believe to stimulate consumption for the sorts of levels where we will see income growth getting back to what we saw in previous cycles,” he says.

In response to the Treasury predicting GDP to reach 2.75% growth next year, Dr. Wilson considers the figure to be optimistic given the 3 quarters of falling GDP growth, including just a 0.2% rise over the December quarter.

“I’m not sure we will be able to manage 2.75%, but even if we do I don’t think it’s anywhere near strong enough for us to generate the income growth that we need, to put money back into people’s pockets to get them spending again, and to get this economy back to looking like what it used to look like with rising inflation, rising prices and rising prosperity,” he says.

“This is now a very long grind of low incomes and low inflation, and that will mean low consumption continuing, low economic growth particularly as it’s generated from consumption, and that will mean certainly no prospect of higher interest rates in the outlook and certainly growing prospects of an interest rate cut, as the Reserve Bank did indicate yesterday.”

Despite economic outlooks, Dr. Wilson believes it’s “a good budget for the housing market” and says, “going forward we will move into a much better budgetary position”.

When asked by Yardney whether the Budget will be enough for a Morrison Government re-election, Dr. Wilson turned attention towards the previous budget surplus.

“It really was a bonanza for everybody that particular budget, but it wasn’t enough to save the Howard Government, and I’m not sure that what we’ve been offered in this budget, which is certainly well below the standards of John Howard in 2006 and 2007, will be enough to save this Government going forward,” he says.

Top Suburbs : alderley , coolbellup , collingwood , scarborough , mt colah

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