The Australian federal budget 2023 was released on Tuesday, May 9, by Treasurer Jim Chalmers. The budget aims to address the cost of living pressures faced by many Australians, especially in the wake of the COVID-19 pandemic and the economic downturn.

Some of the key measures announced in the budget include:

• One-off payment of $250 to pensioners, veterans, carers and low-income earners to help with their bills and expenses.
• $1.7 billion investment in childcare, which will increase the subsidy for families with more than one child under five and remove the annual cap for high-income earners.
• $17.7 billion boost to aged care, which will fund an additional 80,000 home care packages, improve the quality and safety of residential care, and increase the workforce and training opportunities in the sector.
• $15.2 billion infrastructure package, which will support major road and rail projects across the country, create jobs and stimulate economic activity.
• $1.2 billion digital economy strategy, which will support businesses and consumers to adopt new technologies, enhance cyber security and foster innovation and skills development.
• $2.3 billion mental health and suicide prevention plan, which will expand access to services and support for people experiencing mental health issues, especially young people and those in regional and remote areas.
• $1.9 billion vaccine rollout plan, which will ensure that every Australian who wants to be vaccinated against COVID-19 can do so by the end of the year.

The budget also forecasts a deficit of $106.6 billion for 2022-23, down from $161 billion in 2020-21. The government expects the economy to grow by 4.25 per cent in 2021-22 and 2.5 per cent in 2022-23. The unemployment rate is projected to fall to 5 per cent by June 2022 and 4.75 per cent by June 2023.

The Treasurer said that the budget was “a plan to secure Australia’s recovery” and “a plan that is guided by our values”. He said that the government was committed to “delivering more jobs, guaranteeing essential services and keeping Australians safe”.

Here are some of the key policies and incentives that you need to know as a property investor:

Tax breaks for build-to-rent projects

One of the major announcements in the budget is the introduction of tax breaks to encourage build-to-rent projects, which are residential developments that are designed for long-term rental rather than sale. The government hopes that this will boost the supply and affordability of rental housing, especially in urban areas where demand is high.

The tax breaks include:

• Increasing the depreciation rate from 2.5% to 4% per year for build-to-rent projects commenced after 9 May 2023. This means that property investors can claim a higher deduction for the decline in value of their assets over time.
• Reducing the withholding tax rate for eligible fund payments from managed investment trusts (MIT) attributable to residential build-to-rent projects from 30% to 15%. This means that foreign investors who invest in these projects through MITs will pay less tax on their income from Australia.

The tax breaks will apply to newly built build-to-rent projects that meet certain criteria, such as having at least 50 dwellings, offering tenancies of at least three years, and complying with environmental standards.

Support for social and affordable rental homes

Another key policy in the budget is the commitment to support more social and affordable rental homes, which are housing options for low-income earners, people with disabilities, and other vulnerable groups. The government recognises that there is a shortage of social and affordable rental homes in Australia, and that this contributes to homelessness and housing stress.

The support includes:

• Releasing an additional $2 billion in funding for the social rental housing segment over four years from 2023-24. This funding will be allocated through the National Housing Finance and Investment Corporation (NHFIC), which provides low-cost and long-term finance to community housing providers and other eligible applicants.
• Increasing NHFIC’s liability cap from $5.5 billion to $7.5 billion from 1 July 2023. This means that NHFIC will have more capacity to lend money to support social and affordable rental homes.

The support will help create more social and affordable rental homes across Australia, as well as improve the quality and sustainability of existing ones.

Other policies affecting property investors

Apart from the two main policies mentioned above, there are some other policies in the budget that may affect property investors, such as:

• Extending the HomeBuilder program until 31 December 2023. This program provides grants of up to $25,000 for eligible owner-occupiers who build or substantially renovate their homes. This may increase the demand and supply of new housing, as well as stimulate the construction industry.
  
• Extending the First Home Loan Deposit Scheme until 30 June 2024. This scheme allows eligible first home buyers to purchase a home with a deposit of as little as 5%, with the government guaranteeing up to 15% of the loan. This may increase the competition and prices for entry-level properties, as well as support home ownership.
  
• Extending the First Home Super Saver Scheme until 30 June 2024. This scheme allows eligible first home buyers to save money for their deposit within their superannuation fund, and withdraw up to $50,000 of their voluntary contributions for this purpose. This may help first home buyers save faster and access cheaper finance, as well as encourage voluntary superannuation contributions.

The budget has received mixed reactions from various stakeholders, including business groups, unions, welfare organisations and opposition parties. Some have praised the government for its spending on social services and infrastructure, while others have criticised it for its lack of action on climate change and tax reform.

The Federal Budget 2023 has introduced some significant changes for property investors in Australia, especially those who are interested in build-to-rent projects or social and affordable rental homes. These changes may have various impacts on the housing market, such as increasing the supply and affordability of rental housing, stimulating the construction industry, supporting home ownership, and attracting foreign investment. Property investors should be aware of these changes and how they may affect their investment strategies and outcomes.