Business groups yesterday welcomed a reduction in payroll tax included in the New South Wales budget, but the property industry was the clear winner of the day with stamp duty scrapped for off-the-plan homes worth up to $600,000.
The initiatives come alongside a forecast for a $101 million surplus during the current financial year, one year earlier than expected, with that figure set to grow to $773 million during 2010-11. Unemployment will rise to a lower than expected 5.5%.
Treasurer Eric Roozendaal said yesterday the early recovery is due to an increase in tax revenue. The Government expected a shortfall of $10 billion, but that figure has reduced by about 50%.
The abolition of stamp duty, the centrepiece of the budget, will apply to new homes worth up to $600,000 that are bought off-the-plan (that is before construction begins) and will be granted prior to construction. Roozendaal said buyers will save up to $22,490.
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“Project financing can be a hurdle to new home construction, especially for apartments,” he said in a statement yesterday. “So by helping people to buy off-the-plan and to buy early, we are giving builders a better chance of securing project finance.”
A further 25% discount will apply to homes already under construction or newly-completed homes worth up to $600,000. Stamp duty will also be abolished for over 65s who sell their home to move in to a new dwelling worth up to $600,000.
Councils will also be given funding to speed up development applications, with the programs altogether set to cost the Government about $184 million.
Real Estate Institute of Australia president David Airey says these initiatives will improve housing production.
“While the cap is a bit low given the median price of homes in Sydney, any initiative to reduce dependence on taxes is to be commended. I think it’ll give New South Wales a marginal competitive edge.”
“The initiative for under-65s is good, but the take-up will be quite small. However, these are all good benefits and they all favour the housing industry.”
ANZ senior economist Shane Lee welcomed the initiatives, saying they were “interesting… specifically direct measures to boost housing supply, which the State and nation badly needs”.
But while the Government is set to cut payroll tax to 5.5% from July 1 and to 5.45% from January 1, 2011, businesses still aren’t happy. Australian Retailers Association executive director Russell Zimmerman said in a statement the government needs to address rising wage bills and cut payroll tax completely.
“NSW retailers are trying their hardest to hold onto staff during these tough trading conditions but increasing wage bills are forcing many small businesses to reduce hours and shed staff.”
“The ARA is once again calling on the Federal Government to heed Henry Tax Review recommendations to work with state governments to abolish payroll tax for a direct relief on employment expenses and a positive impact on jobs and product prices.”
BDO tax director Paul Motta said the cut was “tokenistic at best”.
“It’s time for the government to prove it understands the plight of NSW businesses and divert some of the Budget surplus into other measures to improve competitiveness.”
“In 2011, NSW should also consider following Western Australia’s example and exempt small businesses for payrolls under $1.6 million,” he said, noting the 5.45% rate expected from January 1 next year is still “much higher than most states”.
Pitcher Partners partner John Ross also said in a statement the reduction was “not substantial”.
“This is a relatively small reduction in the payroll tax rate and fails to match rates in Queensland and Victoria.”
“As we can see from the Pitcher Partners Payroll Tax Review 2010, NSW continues to be the third highest tax state for payroll tax a factor that business considers when establishing new businesses and means we could lose businesses and skilled people to other States as a result.”
Meanwhile, the Government provide $12 billion for the merging of the Roads and Traffic Authority into a bigger department, while $55 million has been set aside for bringing forward construction on the Lilyfield to Dulwich Hill light rail extension.
Health spending is also set to increase by 8.6% to $16.4 billion, with $82 million set aside fot he redevelopment of the North Shore Hospital and $180 million flagged for the Orange Base Hospital.
The New South Wales Business Chamber praised the budget, citing the abolition of insurance protection tax, $40 million for an investment attraction scheme and a $75 million defence industry package.
Chief executive Stephen Cartwright said in a statement the budget was good for all businesses, even though more could have been added.
“This is more than an election budget – it is actually a good Budget. It seeks to create workable solutions to issues around business costs, expanding housing supply and investing in transportation and infrastructure”, said Stephen Cartwright, CEO of NSW Business Chamber.
“It is fair to say that NSW has come through the GFC better than expected. However, there are still some clouds on the horizon and we have to work hard to improve the economic position of NSW.”
Cartwright also said he welcomed the news of more traineeships and apprenticeships for young people, “and we are particularly encouraged by the announcement of new trade schools”.
Lee said in a statement the budget shores up the state’s AAA rating with a “mild improvement in underlying fiscal numbers and net debt projects in light of better economic outcomes”.
“The Budget looks reasonably restrained considering the government will face an election next March and is lagging in the polls.”
“However, the risks to the economic and fiscal assumptions would appear to lie to the downside, but the State at least has worked to build a buffer in case of unexpected economic challenges.”