If this was the Nixon years in America, a major political move would be considered on the adage, “how will it play in Peoria?”. Peoria, Illinois is quintessential middle-America, a place where companies and politicians alike market tests idea.
Take the idea and apply it to Australia (as ScoMo and others do): how will an idea play with “quiet Australians”?
So, how will the newly revealed 2019-20 NSW budget play out not just for the quiet Aussie but for the country — and the economy — as a whole?
As we noted yesterday, the biggest error in the budget is the slashing of the wage cap from 2.5% to 1.5% for the state’s 396,000 public servants (full and part time).
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On the face of it, with inflation running at just over 1%, there’s a small real wage rise. But the move will damage consumer confidence in NSW and undermine the tentative recovery in consumer spending — not dramatically, but slowly, over time. It will make achieving the projected 2.5% growth rate in 2020-21 a little bit harder.
Then there is stamp duty. The mooted change in stamp duty on owner-occupied housing will see the NSW housing market come to a halt until the public consultation and decision from the government occur post-March 2021. Few people will want to pay huge stamp duty bills up front if there is a chance to make smaller payments over time.
This is a reform that should have happened nearly 20 years ago. Stamp duties were supposed to have been replaced or cut using income generated by the GST (Peter Costello’s so-called state tax, a misnomer if ever there is one). But states persisted with them while pocketing the GST distributions.
Some argued that the stamp duty wasn’t a tax, but a duty. Greed makes for stupid decisions and NSW homebuyers have paid ever since, keeping Labor and Coalition governments in power and fleecing their voters.
But the way NSW Treasurer Dominic Perrottet attacked the stamp duty issue is in stark contrast to the reticence of Scott Morrison and federal Treasurer Josh Frydenberg in tackling and reforming the GST.
A Sydney conveyancer told me this morning that his firm had 10 house/unit purchases pending. He reckoned half would be suspended or halted by the close of business today. Interest from buyers would dry up because of the mooted change. That would leave a lot of frustrated vendors.
Investors and owners of commercial buildings will whinge and whine about being left out of any relief, but they can afford stamp duty — new home buyers on stretched budgets can’t. And besides, investors get tax relief on their homes and most have some sort of imputed dividend income which is tax free.
Watch News Corp and the shills in its newspapers and on Sky News (plus some parts of Nine newspapers) whinge as well when house listings in NSW slow for News Corp’s REA and Nine’s Domain until the new structure for the tax is settled and introduced.
This mooted change has come an inconvenient time for both News/REA and Nine/Domain as the surge in home lending and bounce in metro prices has seen the share prices of all four companies rise sharply in the last month.
The $16 billion deficit in the budget shows us how far the damaging “debt and deficit” mantra of the Abbott/Turnbull/Morrison governments (up until March this year) has been forgotten by coalition parties.
Interest rates at 1% or lower for prime AAA state debt like NSW will mean the deficit can be easily financed, as will the $105 billion (by 2024) the NSW government will have on issue. If ratings groups such as S&P find concerns about that debt level and threaten a downgrade, then it will be threat from a toothless tiger. America’s fiscal and debt position is worse and will worsen as 2021 goes on.
The deficit spending by the NSW government will sit nicely with the $30 billion of extra spending from Canberra (especially the huge infrastructure spend), payroll tax relief and exemptions, and a one-off $500 million hit for the cafe and dining sector. It will also sit well with the big spend promised by the Victorian government in its budget next week, especially the $5.3 billion on social housing.
This enormous spending blitz will be needed. NSW Treasury estimates that the state economy will contract by 0.75% this financial year, before growing by 2.5% in 2021-22 with $25 billion in revenue lost over four years. And this growth will come without any significant contribution from population growth or from education (international students) and inbound foreign tourists.
The federal budget and the budgets of the country’s two biggest state governments (economically and politically) means Australia is better placed than most countries to ride out the continuing impact of the pandemic, especially with second and third waves threatening the US and Europe.
Those waves are predicted to drag the economies of both regions into recession either this quarter or the first three months of 2021 as lockdowns and other measures are re-introduced and tightened.