New South Wales pre-election budget firmly focused on reform

On Tuesday, 21 June 2022, NSW Treasurer Matthew Kean handed down his first State Budget, with $27b of commitments focused on reinvigorating the economy through a record spend on infrastructure, and measures to support families, household budgets, sustainability, and the clean economy.

The state delivered a deficit of $16.6b down slightly on the half-year estimate. Projections of a return to surplus by 2024-25 remain, based primarily on increased mining royalties and a higher share of GST revenue, and in the face of projected lower amounts of stamp duty. Net debt of $78b is expected to rise to $115b by 2025-26.

The current unemployment rate is at a historic low of 4%, where it is expected to remain for 2022-23. Inflation has risen to 4.4%, its highest rate in NSW since 2008 but still lower than the overall national figure. Inflation growth is currently projected to peak in late 2022 before easing again through 2023.

Key highlights

• $76.7b four-year program to enhance transport infrastructure, including Sydney Metro West, Sydney Metro-Western Sydney Airport, Sydney Metro City and Southwest, Western Harbour Tunnel, and the Great Western Highway upgrade
• $520m over two years for a Toll Rebate Scheme to reduce transport costs for drivers
• $11.9b over four years for health infrastructure
• $5.8b over 10 years to support the introduction of pre-kindergarten available for all children in NSW by 2030
• $775m over four years for the creation of the Affordable and Accessible Childcare and Economic Participation Fund to increase the supply of affordable childcare
• $1.6b in new capital expenditure to deliver 23 new and upgraded schools across the State
• $780m for two-year trial of a shared equity-scheme
• $703.4m over four years for the establishment of the Future Economy Fund to drive growth in emerging high-value industries such as digital technology, medtech and the clean economy
• $1.2b to accelerate the delivery of the new transmission projects required for Renewable Energy Zones across regional New South Wales
• $250m over five years to support the emerging renewable manufacturing industry
• $38.3m to support the rollout of Electric Vehicle charging infrastructure
• $206.2m over 10 years for the Sustainable Farming Program to reward farmers who invest in best-practice regenerative farming to improve biodiversity, reduce carbon emissions and improve farm productivity.

Otherwise, the highlights of the budget are the introduction of a Property Tax option for first home buyers and a shared equity scheme for low-income earners on which we provide further comments below.

A new ‘Shared Equity Scheme’

Under the scheme, the NSW Government buys up to 40% of a new dwelling or up to 30% of an existing dwelling.  The scheme will commence in January 2023 and will accept applications during 2022-23 and 2023-24, with 3,000 places per financial year.

Eligibility on purchase

Applicants will need to be at least 18 years old, an Australian or New Zealand citizen, or permanent resident of Australia, and either:

• A single parent of a child or children under 18;
• A single person of at least 50 years old; or
• A first home buyer who is a nurse, teacher or police.

In addition, the participant cannot hold an interest in land globally at the time of purchase and must occupy the property as their principal place of residence.

Participants must have an income below $90,000 (singles) or $120,000 (couple) and have saved at least 2% of the house price for a deposit. However, the participant must not be able to service the mortgage for the property purchase without the Government equity contribution but be able to service the mortgage with a participating lender with the Government equity contribution. 

This would seem to be quite a narrow set of circumstances. It will also be interesting to see how the financial sector develops products (with potentially different credit criteria) to cater for these requirements.

The maximum property value eligible for the scheme will be $950,000 in Sydney and major regional centres (i.e. Newcastle, Illawarra, Central Coast and North Coast), and $600,000 elsewhere in NSW.

Continuing eligibility and repayments

Participants must continue to meet the eligibility requirements while the Government equity contribution is in place. While a participant can make voluntary payments, they will be required to make payments to the Government if they no longer meet the eligibility criteria (e.g. wages increase above the threshold or they no longer have a child under 18). It is not clear how such repayments will be calculated, however, in such a case, the participant is likely to need to prioritise repayment of the contribution (which attracts no interest) over accelerated repayment of any non-Government financing (which presumably would attract interest).

Onsale proceeds – share of capital gain (or loss)

It is unclear what happens upon the sale of the property. While the Government contribution does not attract interest or rent, it is unclear whether the Government intends on sharing in any capital gain (or loss) upon sale and whether it has any say in the timing or sale price of the property. 

Revenue outlook

General government sector revenue is projected to increase by 17.9% in 2021-22 to be $103.7b. This is $2.5b (2.5%) higher than forecast at the 2021-22 Half-Yearly Review. The revision is due to an increase of $1.2b in transfer duty, an increase of $810.1m in estimated royalties and a $436.8m increase in estimated payroll tax revenue.  Given the recent slowdown in the property market, we do not expect such growth to continue in the short term.

Revenue measures

Revenue measures, which largely comprise measures aimed at fiscal repair, include:

• increasing point of consumption (online betting) and betting tax rates from the current 10% to 15% from 1 July 2022
• introduction of the First Home Buyer Property Tax option
• reducing the land tax early payment discount from the current 1.5% to 0.5% from 1 January 2023
• increasing the foreign investor surcharge land tax from 2% to 4%
• introduction of payroll tax exemptions to encourage businesses of future industries to establish or expand in NSW
• wages paid on or after 1 February 2022 which are funded by Commonwealth Aged Care Workforce Bonus Grant Opportunity being exempt from payroll tax
• a new Toll Rebate Scheme to replace the existing Registration Relief Scheme to provide a more generous toll relief to a greater portion of NSW motorists
• from November 2022, requiring drivers using an overseas driver license to pass a NSW driver license test and pay for a NSW driver licence to be able to continue driving after 3 months.

As many taxpayers would know, compliance activity has been building in NSW. We expect that to continue given the budget estimate of such activity increasing land tax revenue by $368m and transfer duty revenue by $200m over the 4 years to 2025-26.

Source: https://www.grantthornton.com.au/insights/client-alerts/nsw-state-budget-2022-23/?utm_source=mkto&utm_medium=email&utm_campaign=220630_EDM_N_NO_MSB_Newsletter_35&mkt_tok=NTg0LU1GVi05MjAAAAGFVWMUFt0xgfc_81OojMp_Zm7ZYE9Z07f4SGZLxLKDSEIH1OFHQIQdISRif3Yn9wk_HWwVunSq-NYJgo0LJtW0QWVylVJq1cd_Ycpb_6uRx7aO