With the 2014 Federal Budget due to be released on Tuesday the 13th May, there has been continued media hype surrounding the proposed raise to the pension age, the introduction of Medicare co-payments and changes to paid parental leave as well as child care payments. Younger Australians also stand to face tougher restrictions around unemployment benefits and may be required to pay back their education debt sooner. Government owned organisations such as Australia Post and Defence Housing, among others, may also go down the path of privatisation.
All in all, it is shaping up to be a pretty grim budget.
The budget that is due to be delivered is going to be contractionary in nature. In other words, it is seeking to rein in government spending. This is because forward projections show significant budgetary gaps. Demand for services like welfare, health and education exceed the ability for the government to fund them in the coming years, and if something is not done to address the issue now, Australia will face ongoing and increased budget deficits.
Good news for the property market
In recent years, the property market—particularly in major cities such as Sydney, Brisbane and Melbourne—remains strong. Property prices continue to rise and new developments are ongoing.
From the information provided at this point, no major budgetary shifts or cuts have been proposed that are going to directly affect property owners or investors.
The impact of a change to interest rates
Despite this, interest rates have been at record lows for some time now. If rates were to move upwards, this would be a telling measure for property owners and investors as to whether they have invested wisely, or whether they have over-extended. As always, it is important property investors be selective when making an investment decision, and factor in the potential for any future rate rises.
Property a solid investment for ageing Australians
With the proposed rise to the pension age, as well as a suggested increase to the superannuation preservation age, retirement may become further from reach for many older Australians. Superannuation is still a necessary means of preparing for retirement; however, people who are able to do so now may find benefit from diversifying any additional savings and investments.
Australian property continues to be a solid investment. Suitable consideration should of course be given to the type and nature of a property to ensure it meets long-term goals and any future changes to the rates and the economy.
Time to plan for the future
The impact of the 2014 budget is as yet unknown. If the government is able to balance the necessary budget cuts while continuing to promote jobs and growth, the effect could be minimal to housing. Strong drivers of these effects consist of continued population growth, a shortage of supply in metro areas and availability of mortgage finance all help.
This budget may look grim, but perhaps it is also a timely reminder to individual Australians: we all need to plan for our future and property investment is a proven step in securing your future.