Balancing Jobs, Bricks and Books. NSW Budget 2020

The NSW Budget 2020 was released by Treasurer Dominic Perrottet and the NSW Govt after arguably one of NSW’s toughest years, especially for regional NSW.

It must be quite extraordinary as a Treasurer, either at a Federal or State level, to release a budget in 2020. It must be like looking into a murky crystal ball while walking under a ladder with black cats sitting on every rung.

As with the Federal budget 2020, there is plenty of infrastructure on the books. Budding industrial precincts in Parkes, the Hunter and Wagga are a vote winner for the regional communities. Fair call too, as regional Australia needs to be littered with industrial and innovation hubs.

NSW Budget 2020 – The Headline Items

The headline grabbers from the budget have been dominated by the NSW property tax proposal and the Hamburger Handout.

The lure to get the NSW public to support the hospitality industry is the Govt’s $100 per family “Out and About” vouchers to spend at pubs, restaurants and cafes. This stimulus harks of the Rudd Government’s 2009 Baby/Plasma TV bonus – putting spending money into voters’ pockets in a bid to stimulate the economy. While this won’t stave off any recessions, it is a good, albeit quirky, route to get some cash flow into the economy and perhaps, comes with a feel-good factor too.

The proposed changes to NSW’s property tax calls for a wider and much more serious discussion. A change to stamp duty will remove a barrier for many first homeowners. This will be expected to have positive knock-on effects on the building and construction sector. In the long term, the State Govt would recoup its stamp duty loss via an annual property tax. The only negative comment is that it may well stall the new homeowner market until it comes into effect early next year.

Business Wins

Payroll tax thresholds for small businesses are amended to $1.2m, up from $1m.
All NSW businesses get the benefit of a reduction in payroll tax for the 2020-21 financial year and into the next financial year, down from 5.45% to 4.85%.
A program to help small businesses in tender processes ($5m).

Job Creation

The Government is clearly aiming to create plenty of jobs through construction and infrastructure spending initiatives. To the extent this sets us up for a prosperous future, at a very high level we think they are appropriate areas of spending. Highlights are:

An $812m spend on building/upgrading ‘social housing’
$3b set aside to build/upgrade hospitals
Fast-tracking major infrastructure projects worth $107.1b

Where does this leave us looking at 2021 and beyond?

Neil Parker from Bridgepoint Group says it is refreshing to see some innovative thinking in and around our tax system. Taxes are necessary. They provide the funding needed to pay for essential infrastructure and services where it’s neither sensible nor practical to rely on the private sector to do so. Just where those taxes fall influences behaviour and things like stamp duty and payroll tax are long overdue for reform.

So, the reforms to stamp duty will be an interesting one. I suspect the other States will be watching closely. If it works as intended, we may well see them follow the NSW example.

In relation to payroll tax, whilst the increased threshold and rate cuts are more than welcome, the whole notion of taxing employers according to how big their wage bill is just doesn’t make sense. That whole notion of making it more expensive to employ someone needs a re-think.

Meanwhile, on the infrastructure front, I am never concerned about the sort of ‘balance sheet’ spending the Government is proposing. Provided it is well managed and properly targeted. The execution phase is where I get concerned with the potential for delays, waste and cost blowouts.

BridgePoint Group’s Alan Baghdasarayan comments around the proposed changes to stamp duty. “The changes could be the greatest change to the NSW property market and affect Australia’s property market as a whole. Dominic Perrottet is the bravest Treasurer in the land by sacrificing short term budgetary cash inflows for long term sensibility.”

Stamp duty has been dubbed as the most inefficient tax. Many economists believing it’s largely responsible for Australia’s immobile labour market and decreasing productivity. Look out for an in-depth analysis of the new Property Tax shortly.

In Summary

So with a mix of bravado (Property tax), good feel (Out and About vouchers), job creation and infrastructure project rollouts, the NSW Govt’s 2020 budget is as good as it could be. Given the perils that 2020 has thrown at us.

Now if Treasurer Dominic Perrottet could apply some innovative thinking around payroll tax. Making it more expensive for companies to employ someone flies’s in the face of economic growth policies.