What will the budget hold for SMSFs?
With so many changes to the superannuation system announced at the 2016 Federal Budget, there’s an expectation that few further amendments to the system will be made this year.
This should allow for investors to properly digest last year’s round of changes.
But there will still be plenty in this year’s Federal Budget for investors to think about.
AMP Capital Chief Economist Shane Oliver says as part of its focus on housing affordability, it seems likely the government will make it easier empty nesters to sell the family home and downsize and top up their super.
“It may be that people who downsize will be able to put a certain amount from the sale of their property into superannuation,” he explains.
From July 1, there will be a $1.6 million dollar cap on the amount of money investors can put into a super fund at retirement. This was introduced at the time of the last budget.
This could discourage people from downsizing because it may mean after the sale of the house they will have more than $1.6 million to put into super.
So a change around this could mean people could put more into their super fund than $1.6 million to help free up underutilised housing .
The deficit question
Some of the budget cuts announced in the 2014 budget, for instance changes to supplements to family tax benefits, carbon tax compensation and around new welfare recipients, never passed through the senate and are likely to be abolished.
There’s no understanding yet as to what will replace these ‘zombie cuts”. So the government will still be under pressure to make savings somewhere.
“There hasn’t been any guidance as to where those savings might come from. So there will still be a hole in the budget, which will have to be met by some savings. But it doesn't sound likely that there will be major changes to superannuation affecting SMSF investors to fill the hole,” says Oliver.
“I think this budget is about the top line deficit and infrastructure,” he adds.
One of the main announcements the market is expecting from the budget is around an increase in the debt to pay for infrastructure.
“The government is talking about ramping up infrastructure spending and using public funding to do so, and this will probably provide opportunities for investors down the track,” Oliver explains.
“The government's plan with infrastructure is generally to privatise assets after they have been developed. For example, the proposed Badgerys Creek Airport is unlikely to be built privately and the public sector can get cheaper funding for projects such as this,” he adds.
Recently, the most successful model to build infrastructure in Australia has been for the public sector to develop big greenfield projects and then privatise them once they have been developed and proven as an asset,” he adds.
In the past, in public private partnerships, the private sector took all the risk and if the demand was not there for the asset the private sector partner would suffer a huge loss.
“The model that is more commonly used now is a win win for both sides. The community ends up with the asset, which is ultimately privatised down the track, providing investment opportunities,” Oliver says.
He says the model for building infrastructure that has been in place in more recent years, where the government takes on development and patronage risk initially, is far more favourable for investors.
Says Oliver: “this means private sector investments in transport infrastructure for example can now be in areas which have already proven themselves.”
So while there may be fewer opportunities for investors to take part in greenfield assets, there will be more opportunities for private investors once assets have been built.
This is good news for large superannuation funds, which will be able to take an interest in developed assets, and also for SMSF investors, who will be able to take positions in infrastructure funds that have invested substantial funds into projects that are already up and running and have proven they are able to generate an attractive return for investors.
So expect this year’s Federal Budget to contain some news about how greenfield infrastructure projects will be funded. This may increase the level of off budget public debt in the short-term, but should provide opportunities for investors down the track.