Turnbull Triggers Australia Election

20 April 2016

The Australian political landscape could change significantly in the next three months, with the Turnbull government heading full-throttle towards an unusual double dissolution election on 2 July. Scott Hagerman, Investment Manager, takes us through the key milestones, decisions and events property investors should be aware of.

A double dissolution election nearly inevitable 

Both houses of the Australian parliament were recalled on 18 April to allow the upper house (Senate) to consider legislation to reintroduce the Australian Building and Construction Commission and the Registered Organisations Commission. 

These two commissions are targeted at increasing productivity and transparency in the construction sector. These two bills were defeated by the Senate, creating a trigger for a double-dissolution election which is expected to be called following the passing of the government’s budget on 3 May. 

Australian budget on 3 May 

To allow for the double-dissolution election, the Turnbull government moved the date of the Federal budget forward to 3 May. This decision breaks with nearly 20 years of tradition of the budget being delivered on the second Tuesday of May. 

The centrepiece of the budget is likely to be reform of superannuation tax breaks. Progressive changes to company tax rates are also mooted. Despite pressure from the Labour opposition, changes to negative gearing, which allows property investors to offset loan and maintenance costs against rental income to reduce their taxable income, have been ruled out by the government. 

Although negative gearings changes were never going to directly impact overseas property investors, there were concerns that property values could slump by up to 6% if negative gearing concessions were reduced. 

The Australian election – IP Global’s view

  • A long-term plan to progressively reduce the company tax rate will provide investor certainty. Real incomes will rise, further downward pressure will be placed on the Australian dollar and shareholder wealth will increase. The exchange rate decline will create opportunities for real estate investors seeking access to the high-yield Australian property market, and increases in real income will ensure domestic demand remains strong.
  • The macroeconomic factors that have underpinned the investment case in Australia’s major cities remain more or less unchanged; a weakened AUD, low interest rates and strong domestic demand are expected to continue to drive the market forward. Additionally, while many worried that volatility in Asian equities and slowing growth in China would have a negative impact on the amount of off-shore investment into Australia, the opposite appears to be the case as Asian money has continued to flow into the country seeking a safe haven. 
  • The Australian property market withstood some of its toughest challenges in the previous state and federal budget cycles, where changes to FIRB and stamp duty for foreigners in Victoria were expected to have a negative impact on the market. Those fears proved to be unfounded however as the major metros continued to see growth. The lack of any major policy changes aimed at the property market in this cycle bode well for the continued health of the market.
Scott Hagerman

Written by Scott Hagerman

Scott has over ten years experience in investment advisory and financial planning services for individuals and businesses. His career began advising wealthy individuals and small to medium sized enterprises on risk management in the UK and the US, and has focused on wealth management and real estate investing since moving to Hong Kong in 2010. He has six years experience evaluating real estate investment opportunities in the US, Canada, UK, Malaysia and Australia.

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