NSW State Budget delivers on middle market opportunities

By admin - June 20, 2018

The high-spending New South Wales Budget is set to provide opportunities for middle market businesses to capitalise on significant spending in key social services and infrastructure. Pitcher Partners Sydney Managing Partner Rob Southwell and Newcastle Managing Partner Michael Minter look at the key takeaways for the State.

Read: NSW Budget at a glance

With an avowed focus on “making lives better”, the Berejiklian Government has delivered a State Budget with plenty of cash to go around – much of it channelled into education, health, infrastructure and families, in what is clearly a re-election pitch to voters.

For businesses involved in related programs or services, such as air-conditioning in schools, electrical contracting, property-related construction, child care and transport, that’s very good news. They stand to benefit from a broad range of spending initiatives announced by the Government, and the more robust conditions set to go along with them.

Overall the State’s economy is in a strong position. Growth is currently at 3.75% and predicted to exceed the national average for the coming three years, it enjoys the lowest unemployment rate in the country and is set to enjoy predicted surpluses until 2021, coupled with the largest infrastructure program in recent memory.

Sydney Managing Partner Rob Southwell said the NSW Government was well positioned to increase spending, with the State coffers full as a result of the asset recycling program and the associated sale of ports and electricity grids.

“They are putting a lot of that back into the major areas of families, education, health and infrastructure, with total spending over the next four years of more than $87 billion – so it will be good for businesses that are actually engaged in working in those projects,” he said.

“From a macro perspective, the standout is the spending on education. The $6 billion pledged to build more schools is very exciting. We’re seeing huge population growth in NSW and infrastructure, education and hospitals are needed to support that. Spending to support that growth has been behind where it needed to be, so that is a very positive step forward.

“In addition, the amount of money going into health is a great outcome. That’s not only investment in hospitals, and building more infrastructure, but also around families and related services with the likes of nurses, ambulance officers and doctors, which is an important initiative.”

Mr Southwell said small businesses would benefit from the fee-free apprenticeship scheme, which would encourage more people to take on a trade to support the growth of those businesses.

The Future Generations Fund, which will set aside for future spending some of the funds generated by recent asset sales and revenue growth, is another positive and progressive move, albeit light on detail.

However, it’s not all positives. While infrastructure and service expenditure will deliver healthy operating conditions for businesses, incentives for business growth aren’t as well represented – and while generous with its spending, the Budget delivers little in the way of tax reform.

“The progressive increase to the payroll tax threshold over the next three years will provide some relief to small businesses, but an alternative approach of widening the base and lowering the payroll tax rate might have provided more sustainable benefits in the long term,” said Mr Southwell.

“Broader tax reform will become important over the coming years as traditional revenue flows from property-related taxes begin to soften.”

According to Newcastle Managing Partner Michael Minter, the payroll tax changes represent a boon for businesses in the region.

“We can see this will take a number of growing small to medium businesses in our area out of the payroll tax net. The plan to increase the threshold to $1 million over four years will ensure NSW is a more competitive place to employ staff and give business confidence,” said Mr Minter.

“In good news for the Hunter Valley, this move will particularly benefit regional areas as they have a greater proportion of small to medium-sized businesses.”

However, while the budget will offer a boost to Hunter Valley businesses, infrastructure spending for the region is light on.

“This Budget is being delivered on the back of the strong NSW economy, and the role of Newcastle in providing royalties to underpin this is clear. In spite of falling stamp duty revenues with the cooling property market, the NSW Government is flush with cash and reporting continued strong growth,” Mr Minter said.

“Apart from the money to continue the Newcastle light rail construction, most of the other funding for infrastructure in the Hunter Region is for planning, not significant construction. 

“It would have been good to see some of the long talked about infrastructure projects in the Hunter accelerated, so that local companies can share in that spend and boost local employment.”

NSW Budget at a glance

Overall

  • 2018 Surplus of $3.9B, forecast surplus of $1.5B per annum 2019-2021
  • Economic growth currently 3.75%
  • Unemployment rate at 4.9%, predicted to fall to 4.75%
  • $87B in infrastructure spending over next four years

Taxes:

  • Increase in Payroll Tax threshold from $750,000 to $850,000 in 2019, rising to $1M in 2021
  • Stamp duty revenues down on forecast but expected to rise by 2021
  • Foreign investor transfer duty surcharge predicted to increase from $210M in 2018 to $570M by 2022, with no further rate increases
  • No changes to land tax, revenue forecast to grow at a rate at 6% per annum

Health:

  • $8B in health Infrastructure over four years
  •  $700M state-wide mental health infrastructure program
  • $197.8M over four years to extend the Start Strong program, extending it to three-year olds attending preschool

Education:

  • $6B over four years for 20 new and 110 upgraded schools
  • $15B in 2018/19 on school funding and to employ about 900 full-time science and maths teachers in public schools

NSW Generations Fund:

  • $3B funds to be put aside to start a NSW Generation Funds, 50% of earnings to be put aside for community projects via community dividends

Infrastructure:

  • $87B to be spent on infrastructure projects over next four years, $51B on 3,500 road and rail projects
  • $648M to improve technology on the Sydney Trains network and increase the number of trains which can run during peak times

Southwest Sydney:

  • $3.6B Western Sydney Infrastructure Plan
  • $3B Restart NSW reservation for Sydney Metro West, providing fast rail between the Sydney CBD and Parramatta
  • $2.4B in 2018-19 towards the delivery of Sydney Metro Northwest
  • $780M to new roads and road upgrades, including $130M on M4 Smart Motorway technology

Services:

  • $3.9B to boost the NSW Police Force in 2018/19, including $118.5M to build six new police stations and $12M for facial matching services
  • More than $1B over four years to boost the number of paramedics and ambulance services

Regional:

  • Hunter Region: over $300M on infrastructure including Newcastle Light Rail extension, Hunter Road Projects and Hunter Infrastructure and Investment Fund
  • Illawarra: major road infrastructure including Princes Highway upgrades and continued bypasses, health and community projects
  • Farmers: $250M in loans for the Farm Innovation Fund (FIF)
  • $100M for the Regional Sport Infrastructure Fund to increase the number and quality of regional sporting facilities
  • $33.1M over four years on the Aboriginal Social Housing Strategy

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Rob Southwell

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Sydney

Managing Partner and Partner – Private Business and Family Advisory


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Michael Minter

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Newcastle

Managing Partner


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Leon Mok

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Perth

Managing Director


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Brendan Britten

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Melbourne

Managing Partner and Executive Director/Partner- Business Advisory and Assurance


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Nigel Fischer

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Brisbane

Managing Partner - Private Business and Family Advisory


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Tom Verco

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Adelaide

Managing Principal - Private Business and Family Advisory


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