Wednesday, May 14, 2014

Federal Budget 2014

The Abbott Government has delivered its first Budget. Usually, a Federal Budget doesn't deliver a whole lot for us to talk about here on the Brown Couch - but this one is an exception.

Here's a quick rundown of the things that matter:

Axing of the National Rental Affordability Scheme
The final round of the National Rental Affordability Scheme (NRAS) will not proceed. That's the scheme where private investors are given tax credits, over a ten year period, if they build and supply housing to people on low incomes at below market rents.

According to the Minister for Social Services, Kevin Andrews, "the scheme will be reviewed to address ongoing issues and ensure remaining incentives meet the scheme's original aim". We look forward to hearing more about that.

Essentially, this means a reduction in the supply of affordable housing. But more than that, it is the loss of a key mechanism by which the private market could be inclined towards affordability.

National Shelter said in its media release this morning: "Over the past five years the housing and homelessness sectors, including NGOs, business, and governments, have made significant reforms that are making a difference to supply and affordability, and reducing homelessness. We now risk losing that momentum. For modest government outlays NRAS was delivering significant boosts to affordable rental housing supply. It could have been adjusted to a new government's standards. It is the large reform we have now lost".

As far as we are concerned, NRAS has not been without its flaws. But as we said when NRAS hit the headlines a couple of months ago: NRAS delivers new supply of affordable housing, which is a lot more than can be said of the tax subsidy for negative gearing, or for capital gains tax.

Continued funding for Homelessness Services
We'll leave it to our colleagues in the Homelessness Services sector to provide the detail on this, but it appears funding under the National Partnership on Homelessness will continue - at least for now.

This is - er... 'good' news, because with the loss affordability drivers in combination with some other things, demand within the Homelessness Services sector might well start to rise.

Limits on Access to Justice
The decision to cut funds from Community Legal Services, and withhold promised enhancements to Legal Aid funding, will impact upon tenants as well.

For one thing, it will have a negative effect on some of the services in which the (state funded) Tenants' Advice & Advocacy Services operate - Community Legal Centres.

But a recent report from the Law & Justice Foundation of NSW suggests it might go further than that. The report - Are renters worse off: the legal needs of public and private tenants - concludes that "survey respondents living in rented accommodation were more likely to experience legal problems than were others. Renters also reported a higher rate of adverse consequences resulting from their legal problems. While renters reported the highest rates of handling their legal problems with formal advice from legal advisers, they also reported the highest rates of experiencing barriers when they tried to obtain advice. Private renters had the highest rate of reporting that their advisers were too expensive."

Changes to income support
Again, we'll leave the details of this to our colleagues in the sector but the long and the short of it is that income support will be harder to get, and there will be less of it. Given that 70% of people with an income of $400 per week or less live in rented accommodation of some kind, it's fair to say that this will affect tenants more than homeowners or mortgagors.

There are two things to take note of here.

The first is that the rental market is already a worrying place to be. Tenants are concerned about covering the rent and hanging onto their tenancies. Reducing the rate at which income support increases - or worse, taking money directly out of recipients' pockets - will not only add to their worries, it will make it significantly harder for them to meet their commitments. How will your landlord react to the news that you've lost your job, and can't get on the dole for another 26 weeks? Expect more rental-stress, more evictions, and more worry.

The second thing is that the social housing sector derives a considerable amount of revenue from rents that are based on tenants' incomes. Slowing the growth of income support and/or reducing tenants' incomes will affect the bottom lines for social housing landlords, too. And as we saw from the Auditor-General's report last year, they're already struggling to keep in touch with the demand on their services.

No change to housing and taxation
The tax treatment of negative gearing and capital gains, which encourages inflationary speculation in housing, reduces access to home ownership, and distorts the rental market to the disadvantage of low-income tenants, remains unchanged. For more of our thoughts on tax and housing, see our previous posts on negative gearing and the real housing supply problem, and our review of the Henry Review of taxation.

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