Treasurer Dominic Perrottet will hand down the 2021-22 NSW Budget on Tuesday, 22 June 2021. Read BDO’s thoughts on the ‘measures that will matter’ for NSW, ahead of the Budget.
NSW Budget - A focus on the measures that will matter
A note from BDO Sydney Managing Partner, Grant Saxon
Despite the Pandemic, the NSW Government has continued its infrastructure and reform agenda, which has helped drive both the local economy and contribute substantially
to national growth. The earlier forecast deficit of $13 billion, first announced by the NSW Treasurer in late 2020, has not come to fruition. Instead, the state’s GDP has been propped up by significant consumer spending - driving up GST, domestic and regional travel, home renovations and high property prices which have boosted stamp duty revenue. This has created an unexpected windfall for the government, who are expected to receive $20.3 billion in GST payments this year, increasing to $23.9 billion in 2024-25.
This puts the government in a good position to spend on the measures that matter - both large ones which flow through to the overall NSW economy, as well as in smaller, focused areas where support is needed right now to drive economic activity and business confidence.
Continued big-ticket spending on large projects will boost NSW, supporting not only direct employment but a large number of small businesses working to support it.
To keep our small businesses running and ensure overall confidence in our state, BDO will welcome continued reform to state taxes to support small business and property owners - including first-home buyers’ entry into the tight housing market.
Property tax - Reforming the future of NSW property
The NSW State Government recently released their Property Tax Proposal Progress Paper which outlines plans for reforming property tax in the state. Whilst the proposals most likely won’t make an impact on this year’s NSW Budget, it sets the scene for what’s to come.
The Government is proposing to replace stamp duty in NSW with a small annual tax this would lower the up-front cost for all home buyers, not just first home buyers.
Stamp Duty was introduced to NSW in 1865 and it’s showing its age as an outdated tax, which has stifled the property market in the last few decades. While we welcome stamp duty reform, it is important to ensure that such reform achieves the desired outcomes.
Removing stamp duty could be a catalyst for movement in the market, resulting in increased supply levels, which would help with momentum.
However, there are concerns as to whether the proposed measures will result in increased affordability, particularly in the short to medium term. There is a risk that the reforms could well result in an increase in house prices thereby reducing affordability.
The challenge for any government is to balance the reform measures with the impact on housing affordability and government revenue in the short term.
Payroll tax - increase thresholds in the longer term
We don’t expect to see much on payroll tax in this year’s NSW Budget, as the government has already tinkered with it to support businesses through COVID.
Last year, the NSW Government moved to provide tax relief for small and medium businesses to support economic recovery by increasing the payroll tax threshold to $1.2 million from 1 July 2020. Confidence in this sector has increased in the last few months, and we would welcome a further increase to the threshold in this budget to help capitalise on this momentum.
NSW has already supported employers during COVID through a range of payroll tax relief measures, including a reduction in the payroll tax rate from 5.45% to 4.85% for the 2020/21 and 2021/22 financial years.
There are significant economic benefits from supporting employment, as demonstrated by the Federal JobKeeper stimulus program, and NSW could support longer-term economic recovery by making permanent the reduced payroll tax rate of 4.85%.
Support for entrepreneurs to ride the wave of change
Government stimulus has been critical in supporting Australian businesses through recent tough times. Ahead of the NSW State Budget, we expect to see a continuation of incentives and relief that puts small business owners and entrepreneurs back into focus.
Australia’s entrepreneurial spirit is well and truly alive - we’ve personally seen an uplift in activity in recent months, with people requesting advice on how to set up a business, or register new companies and structure operations. We are seeing a number of start-up organisations enter the market, operating in a range of fields from technology and fintech to conservational and eco-friendly projects. This points to other drivers and trends such as an increased focus on going green and being healthy. Therefore, it would be great to see the government support initiatives that encourage small business who adopt environmentally friendly business models through grants.
The pandemic has been a wake-up call for some and provided the backdrop for new entrepreneurs with passionate ideas. On the downside, commentators are reporting that across the nation a large percentage of employees are considering an employment change, coupled with a lack of migration this may lead to staff shortages in certain sectors and increased competition. This is negatively affecting those small businesses that cannot support some of the demands. Employees are now demanding permanent flexibility, which puts those smaller businesses that can’t offer the ‘work-life balance’ under pressure.
The NSW Government could support employment in the small business space through further extending payroll tax relief or offering employment incentives or grants to support small business operations in certain sectors. We may see cashback schemes for increasing staff full-time equivalents to encourage employment. This has been a successful scheme in the past - however, the question is, is there a critical need for it at this current point in time as NSW is currently enjoying a low unemployment rate. Time will tell how small businesses are impacted and we are certainly not through this global event by any stretch.
The NSW Government has continuously developed its support to manage evolving events and I believe we will continue to see this over the next 12 months, particularly when we begin to open our international borders. It has also been great to see communities supporting their local businesses, which has played an important part in the positive position the state is in today.
With the State Government heading towards surplus, it would be great to see a roadmap to support rural NSW, where there is a genuine need. In particular, a boost to hospital and medical facilities, programs and an environment where healthcare workers can set up their lives permanently in rural areas while enjoying a lifestyle they deserve. As we grow as a nation, we need to place focus on correctly bringing those rural areas on par with the rest of NSW.
Infrastructure - ‘Shovel ready’ projects pave a way for NSW’s economic prosperity
Grant Morris, Partner, Infrastructure Projects
The NSW Government has announced $1.15 billion to begin construction on Sydney’s newest city centre, ‘Bradfield’. Bradfield is located at the centre of the Western Sydney Aerotropolis, adjoining the new Western Sydney International Airport, and will become the hub for advanced manufacturing, research, science and education.
The funding will enable site remediation and the delivery of enabling road and utilities infrastructure across the 114-hectare site to commence prior to the end of the year.
The rezoned Aerotropolis is already beginning to attract attention. As an example, the CSIRO has announced that their purpose-built facility to deliver cutting-edge research will be located in the precinct - with work to begin in 2023 and to be completed by 2026.
This is an important time, not only for NSW but for Australia’s infrastructure development. “These types of ‘shovel ready’ projects identified by the NSW Government are what will allow our State to continue to grow and support economic recovery from COVID-19. They will also support the future of existing and emerging communities who live in Western Sydney by providing jobs across a broad range of sectors and attracting major local and international firms.”
If you have any questions about the NSW State Budget, or how incoming measures will affect your business, please contact your local BDO adviser.