One of North Sydney's best-known commercial buildings could become hundreds of new homes, with insurance giant Zurich Australia lodging a State Significant Development Application (SSDA) to transform 5 Blue Street into a mixed-use residential development above North Sydney Station.

Rather than demolishing the existing building and starting again, Zurich is proposing an adaptive reuse project that would convert the landmark office building into a 15-level residential development delivering 62 apartments, 86 affordable co-living dwellings, activated retail and significant upgrades to the Blue Street Plaza.

The proposal reflects a growing trend of commercial property owners repositioning ageing office assets into residential housing as Sydney grapples with housing supply shortages and changing workplace demand.

<img alt="Zurich" data-entity-type="file" data-entity-uuid="0bba7d12-06dc-4375-aad7-238c94b21ac5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.42.05%E2%80%AFAM.png?VersionId=NJl5oLAEBDGuPmY3RnyliKODjMc8lvRh" />

Located directly above North Sydney Metro and train station, the 3,051 sqm site occupies one of the most strategically positioned parcels of land on Sydney's Lower North Shore.

Designed by fjcstudio, the proposal seeks to retain and adapt much of the existing structure while creating a contemporary residential address that better connects with the public domain surrounding North Sydney Station.

The application proposes two basement levels, ground floor retail, affordable co-living accommodation across the podium levels, and apartments above, while preserving and enhancing the publicly accessible Blue Street Plaza.

Rather than pursuing maximum apartment numbers, Zurich has opted for a housing mix heavily weighted towards larger owner-occupier residences.

The proposal includes 62 build-to-sell apartments comprising 12 one-bedroom, 19 two-bedroom, 29 three-bedroom apartments and two premium penthouses. It also incorporates 86 affordable co-living dwellings, which would be managed in perpetuity by a Community Housing Provider.

That balance between traditional apartments and affordable housing reflects the NSW Government's push to increase housing diversity around major transport infrastructure.

The proposal has been lodged concurrently with a rezoning application, with Zurich arguing the site is ideally positioned to support additional housing given its immediate proximity to public transport, employment and services.

"The proposal aims to respond to the housing challenges facing Sydney through the delivery of diverse housing types in a highly accessible location," the design report by fjcstudio states. It also seeks to improve pedestrian amenity through upgrades to Blue Street Plaza while creating a high-performing residential building that responds to the surrounding context.

<img alt="Zurich" data-entity-type="file" data-entity-uuid="36082e15-c636-4481-bb68-5a5f6443fe39" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.41.36%E2%80%AFAM.png?VersionId=5P6VD.fvmqjQfIG3TWWMRXxQWiQBjeFB" />

Rather than replacing the commercial building, fjcstudio has developed a design that works with the existing structural framework above the rail corridor, an approach that significantly reduces demolition while allowing the site to be repositioned as a mixed-use residential precinct.

The existing structural constraints have informed much of the building's design, including its relationship with Blue Street and surrounding public spaces.

The building has been designed as a slender tower rising above a clearly defined podium, with vertically expressed façades intended to reduce the perceived bulk while reinforcing North Sydney's emerging skyline.

According to fjcstudio, the architectural language responds directly to the surrounding commercial towers while maintaining a finer grain expression more closely aligned with the neighbouring Lavender Bay streetscape.

The tower incorporates articulated façade elements, landscaped podium edges and recessed upper levels to soften its appearance and improve pedestrian amenity below.

A significant component of the proposal is the revitalisation of Blue Street Plaza.

The existing public space has long served as one of the primary pedestrian connections between North Sydney Station, Greenwood Plaza and Blue Street, yet its role is expected to become even more important following the opening of Sydney Metro.

Zurich's proposal seeks to strengthen that role by improving landscaping, introducing new retail frontages, enhancing pedestrian permeability and creating more active edges throughout the day and evening.

Ground floor retail would wrap the plaza, while separate residential and co-living entries have been designed to improve wayfinding without reducing street activation.

Landscape design has been integrated throughout the podium and public realm, softening what is currently one of the most heavily urbanised parts of North Sydney.

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fjcstudio has carefully oriented apartments towards Sydney Harbour and the CBD while using privacy blades and articulated façades to minimise overlooking between neighbouring buildings.

Large framed openings along the western elevation maximise harbour outlooks, while the eastern apartments have been angled towards the south-east to improve privacy from neighbouring development.

The project forms part of the continuing transformation of North Sydney from a predominantly commercial CBD into a genuine mixed-use city centre.

Since the completion of Victoria Cross Metro Station, developers have increasingly shifted their attention towards residential projects capable of leveraging the area's unparalleled transport connectivity.

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FiveX recently lodged plans for a 61-storey, 490-apartment tower that would become one of the tallest residential buildings in North Sydney if approved.

Aqualand continues to expand its Lower North Shore presence following the completion of AURA on Walker Street and its recent St Leonards and Roseville proposals.

Developers are also progressing projects throughout Walker Street, Miller Street and the Victoria Cross precinct as demand for well-located owner-occupier apartments continues to strengthen.

Joel Robinson

First look: Zurich targets North Sydney office conversion with 148-unit proposal above Metro station

Busy developer Aqualand Prestige has formally taken the next step in its expansion across Sydney's Lower North Shore, lodging a State Significant Development Application (SSDA) for its long-held Archer Street site in Chatswood.

The application covers <a href="https://www.apartments.com.au/new-apartments/51-55-archer-street-chatswood-nsw-2067">51-55 Archer Street</a>, a 1,767 sqm amalgamated site on the eastern edge of the Chatswood CBD, where the developer is seeking approval for a 45-level mixed-use tower delivering 114 apartments, including a significant affordable housing component, alongside retail, commercial space and six basement levels of parking.

The SSDA marks the latest milestone for a project Aqualand has been quietly progressing over the past two years. The developer first secured the site for its Aqualand Prestige platform before undertaking an alternative design excellence process with PTW Architects, ultimately avoiding a formal design competition through the Housing Delivery Authority pathway.

The proposal has evolved considerably from Aqualand's original concept. The revised scheme has been designed around larger owner-occupier product, with an unusually high proportion of three and four-bedroom apartments, targeting the more affluent buyer profile, and downsizer, emerging across the North Shore.

<img alt="Archer St" data-entity-type="file" data-entity-uuid="0171204c-5811-41b5-9b09-2335d1b7c3d0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%208.52.48%E2%80%AFAM.png?VersionId=6YTuxfq.puZo7k2wbfgemcO5K3QfXYGQ" />

The 114-apartment mix comprises six studios, 27 one-bedroom apartments, 18 two-bedroom apartments, 50 three-bedroom residences and 13 four-bedroom homes. A quarter of the building will be dedicated to affordable housing, well above the mandated 15 per cent&nbsp;

PTW has structured the building vertically, with affordable housing across levels one to six, premium apartments through levels seven to 31, duplex skyhomes on klevels 32 to 43, a penthouse on level 44, and a rooftop plant level above. Six basement levels will provide resident parking and servicing.

The tower is proposed to reach approximately 154 metres, placing it among a growing collection of residential high-rises transforming Chatswood's skyline.

Rather than competing purely on height, PTW says the design has been driven by creating a slimmer tower capable of delivering significantly larger apartments.

"The primary objective of this project was to create a distinctive building that stands out from the recently approved or built structures in the Chatswood area," the design report states, noting the structural efficiency allows greater investment into apartment quality and resident amenity.

Residents would have access to more than 450 sqm of communal open space including landscaped gardens, swimming pool, rooftop entertaining areas, fitness spaces, community gardens, children's play areas and barbecue facilities.

A major focus of the design has been the public domain.

The ground plane has been opened up through landscaped terraces inspired by Willoughby's sandstone ridges, with native planting, public seating, artwork, retail activation and a series of gathering spaces intended to soften what has traditionally been a hard commercial streetscape.

The landscape strategy references Blue Gum forests once common throughout the area, while incorporating Indigenous storytelling, public art and lighting installations to strengthen the connection to Country.

Chatswood has been one of Sydney's busiest apartment markets over the past 12 months, with a steady pipeline of both new project launches and fresh development applications.

Hyecorp recently launched Celine, a 122-apartment development just along Archer Street, while Changfa and Huirong Group are progressing The Anderson, an 84-apartment project on Anderson Street.

Develotek recently secured approval for a 101-apartment tower on Pacific Highway, while Tian An LFD received the green light for Hammond Greens, its apartment development on the edge of the Chatswood Bowling Club.

Commercial property developer FiveX is also making its move into the residential market. Last month it lodged plans for a 61-storey tower with 490 apartments, which, if approved, would become one of the tallest residential buildings in Chatswood.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-fivex-targets-chatswood-skyline-with-61-storey-tower-after-north-sydney-plans">First look: FiveX targets Chatswood skyline with 61-storey tower after North Sydney plans</a>

Aqualand is also expanding its development pipeline following the launch of its luxury residential brand, Aqualand Prestige. The developer has delivered a string of high-end apartment projects across Sydney's affluent suburbs over the past decade, most recently AURA by Aqualand on Walker Street in North Sydney.

[smartcode_project:default project_id=30959 project_image_fid=292863]

It has since quietly assembled its next wave of projects.

Earlier this year Aqualand launched Boronia in Roseville, a boutique 111-apartment development on Larkin Street. The project is one of the first significant apartment developments to launch in the suburb ahead of what is expected to become one of Sydney's most active new housing precincts under the NSW Government's Low and Mid-Rise Housing reforms, which allow greater density around train stations.

[smartcode_project:default project_id=152095 project_image_fid=373685]

The developer has also lodged plans for a two-tower, 413-apartment development on Herbert Street in nearby St Leonards, further strengthening its presence across the Lower North Shore.

Beyond that, Aqualand remains behind the final stage of Barangaroo, where plans will deliver a five-hectare mixed-use precinct comprising new homes, retail, hospitality and community facilities, alongside a new Metro entrance and more than two hectares of public open space, completing the Barangaroo precinct.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/central-barangaroo-development-takes-big-step-with-concept-proposal-approval">Central Barangaroo development takes big step with concept proposal approval</a>

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-aqualand-joins-st-leonards-apartment-party">First look: Aqualand joins St Leonards apartment party</a> 
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First look: Aqualand pushes ahead with Chatswood apartment tower as SSDA lodged for Archer Street

Mass timber is becoming an increasingly popular construction material in apartment developments, but Adelaide developer <a href="https://www.apartments.com.au/developers/otello">Otello</a> is taking the approach a step further.

At its new <a href="https://www.apartments.com.au/new-apartments/flowe-bowden-18-gibson-street-bowden-sa-5007">Flowe Bowden</a> development, the exposed cross-laminated timber (CLT) structure isn't just about reducing the building's environmental footprint. It also forms the foundation of a broader wellness strategy, influencing everything from indoor air quality and natural materials to the way residents move through and experience the building.

The 115-apartment mixed-use development, designed by Melbourne-based architecture practice Fieldwork, will occupy a prominent island site opposite Bowden Village Reserve, combining one, two and three-bedroom apartments with retail and a dedicated wellness destination.

[smartcode_project:default project_id=152022 project_image_fid=375528]

Wellness isn't confined to a gym or shared resident facility at Flowe. Instead, Fieldwork embedded the concept into the building itself.

The development has been split into two residential wings connected by a naturally ventilated central breezeway, replacing traditional enclosed corridors with open-air walkways that improve natural light, encourage cross ventilation and create more opportunities for neighbourly interaction.

"Rather than treating wellness as something that only happens on the ground floor, our response integrates it throughout the building, which led us to ask what it really means to design a healthy building," Fieldwork Director Quino Holland said.

[smartcode_project:default project_id=152022 project_image_fid=375531]

The building's architecture also reflects Bowden's industrial heritage. The lower podium references the area's historic brick and sandstone buildings, while the upper levels transition to exposed CLT, allowing the timber structure to become a defining feature throughout the apartments and shared spaces.

The use of mass timber sits alongside a range of sustainability initiatives, including a fully electric, gas-free design, rooftop solar and a targeted 5 Star Green Star rating.

[smartcode_project:default project_id=152022 project_image_fid=375524]

Inside the residences, the focus remains on natural, durable materials. Blackbutt engineered timber flooring, exposed CLT ceilings, porcelain surfaces and warm timber joinery create a calming interior palette, while low-VOC finishes and responsibly sourced materials have been selected to improve indoor air quality.

Kitchens have been designed as the centrepiece of each apartment, featuring porcelain island benchtops, timber-look cabinetry and brushed steel tapware, with layouts that maximise natural light and ventilation.

[smartcode_project:default project_id=152022 project_image_fid=375530]

The more traditional interpretation of wellness comes in the form of Level Eleven, a two-storey wellness club spanning the ground floor, mezzanine and first floor.

The facility will include a gym, yoga and reformer Pilates studios, Finnish and infrared saunas, magnesium hot and cold plunge pools, and dedicated recovery spaces. Unlike many residential wellness facilities, Level Eleven will also operate commercially, allowing the broader Bowden community to access the venue while giving residents exclusive membership benefits.

The ground floor has also been designed around everyday living. A café overlooking Bowden Village Reserve will activate the street frontage, while a bike workshop with tool storage, co-working space and dog wash has been incorporated to support daily routines and encourage interaction between residents.

"Flowe brings together my two biggest passions, creating places and creating healthier lives," Otello founder Daniel Harris said.

"We wanted to create something Adelaide hasn't seen before, a genuinely healthy building, where the way you live is lifted without even trying."

Flowe is positioned directly opposite Bowden Village Reserve and within walking distance of Bowden Railway Station and the Adelaide Entertainment Centre, placing future residents just minutes from the Adelaide CBD while remaining connected to one of the city's most established urban renewal precincts.

[smartcode_project_cta:default project_id=152022]

Otello launches wellness-focused Flowe Bowden with Adelaide-first mass timber apartment design

Not all apartment amenities are immediately visible.

Swimming pools, gyms, rooftop terraces and residents' lounges have long featured on buyers' wishlists, but as the way Australians live has changed, so too have the features that make apartment living more convenient.

Increasingly, buyers are placing value on the practical aspects of day-to-day life. Fast internet, EV charging, secure bike storage, flexible workspaces and parcel management are becoming just as relevant as lifestyle amenities, reflecting changing habits and expectations.

Online shopping has been one of the biggest drivers of that shift.

Australians spent a record $82.6 billion shopping online in 2025, with almost one in every four retail dollars now spent digitally, making parcel deliveries a routine part of everyday life rather than an occasional convenience.

For apartment residents, however, receiving those deliveries isn't always straightforward.

Without someone home to accept a parcel, deliveries can be redirected to a nearby Post Office, left in building foyers or common areas, or require building management to temporarily store packages. As apartment living continues to grow across Australia's cities, parcel management has become an increasingly important consideration for both residents and developers.

Australia Post's Parcel Locker network is one response to that shift.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/KPZ9j5FRdsQ?si=Qztc1dNP3ZvEIUhb" title="YouTube video player" width="560"></iframe>

Rather than relying on home delivery, eligible parcels can be directed to a nominated Parcel Locker, where they're securely stored until collected. Once a parcel arrives, residents receive a notification through the AusPost app or SMS and can retrieve it using a one-time code or QR code at a time that suits them.

The network has expanded to more than 1,500 locations nationwide, with Parcel Lockers positioned at Post Offices, shopping centres, supermarkets, transport hubs and, increasingly, within or alongside residential developments.

That growing presence reflects a broader change in how apartment buildings are being planned.

Developers are increasingly considering the operational side of apartment living alongside traditional lifestyle amenities. Just as secure mailrooms, bicycle storage and EV charging have become more common inclusions, parcel management is emerging as another feature that supports everyday convenience.

It also helps preserve the arrival experience within a building. Carefully designed lobbies and communal spaces can quickly become cluttered when deliveries accumulate, while secure parcel solutions reduce the likelihood of missed deliveries or parcels being left unattended.

For buyers comparing apartments, these everyday details are becoming part of the decision-making process.

Location, floorplans and finishes remain fundamental, but the features that simplify daily life are carrying greater weight than they once did. As online shopping continues to shape consumer behaviour, secure parcel delivery is increasingly becoming another amenity worth looking for.

Parcel delivery is joining the apartment amenity checklist

Inca Property Group has lodged a State Significant Development Application (SSDA) for Dawn, a 53-apartment oceanfront development overlooking Mona Vale Beach.

The proposal, at 35-39 Darley Street East, would replace an existing 18-apartment strata building with a new owner-occupier-focused development comprising 53 two and three-bedroom apartments, including nine affordable built-to-rent residences delivered under the State's infill affordable housing scheme.

Positioned on a 2,679 sqm elevated site around 280 metres from Mona Vale Beach, the development has been designed to maximise panoramic ocean views while responding to the site's sloping topography.

<a href="https://www.apartments.com.au/developers/inca-property-group">Inca Property Group</a> Managing Director Josh Thompson said the State Significant pathway provided greater certainty for projects of this scale.

"This State Significant pathway gives the team real certainty to progress <a href="https://www.apartments.com.au/new-apartments/dawn-35-39-darley-street-east-mona-vale-nsw-2103">Dawn</a> through to completion," Thompson said.

"It allows us to acquire a one-off site, design it carefully and deliver the right offering for the suburb, assessed by the NSW Government's planning department."

The project is one of the first developments in the area to be assessed under the NSW Government's Low and Mid-Rise Housing policy, with the site sitting on the edge of the policy's designated inner area.

The proposal includes three basement levels providing 124 car spaces, alongside a range of resident amenities including a swimming pool, gym, sauna, wellness facilities and private plunge pools for selected ground-floor and penthouse apartments.

<img alt="Dawn" data-entity-type="file" data-entity-uuid="fc1a1daf-0ce4-4f12-9076-b1fa553c7a91" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-21%20at%208.42.11%E2%80%AFAM.png?VersionId=4GZ9h.gpNkTljbxyAET8Jfhv51XUamDm" />

Thompson said Dawn had been designed specifically for owner-occupiers and downsizers, a buyer profile that has driven demand across Inca's recent Upper North Shore developments.

"The majority of buyers in our recent North Shore projects have been downsizers, and we are learning exactly what this market is looking for. Beyond the location itself, we have included resort-style amenities to deliver a genuine lifestyle offering," Thompson said.

Located within walking distance of Mona Vale Beach, the town centre, Mona Vale Golf Club and the Royal Motor Yacht Club, Dawn represents Inca's first Northern Beaches project following the sell-out of Tara on Park in Waitara and Ellis Residences, currently under construction in St Ives.

Construction will be undertaken by Inca's in-house construction arm, GOP Constructions.

Dawn is the latest major apartment proposal for Mona Vale, with the suburb emerging as one of the key beneficiaries of the NSW Government's new Low and Mid-Rise Housing policy.

New developer One Living, led by industry veteran Joseph Scuderi, recently secured a site on Mona Vale Road, on the border of Mona Vale and Pymble, where it is planning around 140 apartments.

IPM is also planning its third project in Mona Vale, significantly increasing the scale of its previous developments with an 82-apartment proposal at <a href="https://www.apartments.com.au/new-apartments/159-167-darley-street-west-mona-vale-nsw-2103">159-167 Darley Street West</a>, opposite Bayview Golf Course and less than 800 metres from Mona Vale town centre.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/one-living-enters-sydneys-new-apartment-market-with-northern-beaches-site-acquisition">One Living enters Sydney's new apartment market with Northern Beaches site acquisition</a>

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-ipm-plans-third-mona-vale-project">First look: IPM plans third Mona Vale project</a>

First look: Inca eyes Mona Vale with State Significant DA for Dawn apartments

Budget

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The Tax Office has illustrated why the budget clamped down on property investors on depreciation.
They have cited landlords having inflated deductions as much as 1000 percent.
The budget included a measure restricting depreciation deductions which will raise $260 million in the next four years.
"The ATO has actively monitored this area over many years," an ATO spokesman told The Australian Financial Review.
"During this time we have identified a number of issues relating to inflated valuations of depreciable assets in rental properties."
The spokesman said that one of the ATOs concerns was the use of the "new for old" method, which effectively values assets at new prices even if they are years old.
The ATO gave one example of a landlord who had valued the equipment in their property by 600 percent to 1000 percent.
"We have seen one depreciation schedule for a 40-year old property where a reasonable market valuation would have been in the range of $3,000 to $5,000 but the depreciating assets were valued at $32,753," the spokesman said.
Under the new measures from July 1, 2017, the government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential properties.
They will not be able to depreciate equipment that was already installed when they acquired the property.
Plant and equipment items are usually deemed as mechanical fixtures such as dishwashers, door closers and ceiling fans.
Negative geared landlords have no obligation to work out whether an item had already been written off in whole or part by the previous owner.
It was difficult for the ATO to check up.
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ATO says overclaiming triggered costly depreciation budget changes

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GUEST OBSERVER
As expected, a range of housing policy measures were introduced in the Budget, including but not limited to:
-National Affordable Housing Agreement providing $1.3 billion of funding per annum to the States to help meet supply targets;
-A $1 billion National Housing Infrastructure Facility;
-A new suburb for Melbourne, with 6,000 homes to be unlocked 10km from the CBD at Maribyrnong (which is not an easy thing to say late at night);
-Managed Investment Trusts to invest in affordable housing, with a 60 per cent capital gains tax discount to invest in this sector;
-Extension of homelessness funding to the States;
-Encouraging downsizing by allowing a non-concessional contribution to made into superannuation for the over 65s up to $300,000;
-First home buyers will be allowed to save for a deposit by salary sacrificing into their superannuation account, though contributions will be capped at just $30,000 per person, and $15,000 per year;
-A Foreign Investment Levy of at least $5,000 on all future foreign investors who fail to either occupy or lease their property for at least six months each year; and
-A reinstated requirement that prevents developers from selling more than 50 per cent of new developments to foreign investors.
There were other measures too, including increasing APRA's powers to control the non-ADI sector, zoning reform, and land release.
Each of these points deserves detailed market analysis in its own right, but today I'll just take a look at the least well understood new policy, which I believe will be significant. 
Negative gearing sideswiped
Instead of quarantining negative gearing deductions to new dwellings as proposed by the Australian Labor Party (ALP), the Treasurer has targeted the following areas of deductions prospectively:
Travel expenses will now be disallowed for investment properties, which is mildly annoying for landlords with plans for investment properties at Port Douglas - there is no longer an incentive for politicians to buy an investment home in their favourite holiday destinations! - but broadly a sensible move which improves the integrity of negative gearing legislation. 
More pertinently, for investment properties bought after 7.30pm yesterday, the Government will also limit previously generous plant and equipment depreciation deductions to only those expenses directly incurred by investors.
<a href="https://www.propertyobserver.com.au/images/2017/05/14/NG.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/05/14/NG.jpg" alt="">
What this means
Firstly this is a cruel impact for the Quantity Surveyor industry, hundreds or perhaps thousands of whom will wake up today only to discover they have very little to do. These businesses will need to pivot immediately towards new and commercial properties, though competition here will be fierce.
As for investors, going forward landlords purchasing established property will only be able to claim plant and equipment depreciation deductions on assets they have purchased themselves, while buyers of newly constructed dwellings will still be able to make a depreciation claim on plant and equipment. 
Landlords will still be able to claim deductions on the construction component (Division 43, for the building's structure) of the dwelling over 40 years for properties built after September 1987.
The ruling is evidently designed to restrict 'double-dipping' whereby multiple claimants received deductions on the residual value of the existing assets, such as air conditioning, heaters, carpets, televisions, dishwashers, alarm systems, hot water systems, and so on. 
In practical terms, about half of deductions would typically have been claimed for plant and equipment items on established property in the first year of claim, though this really depends upon the age and type of dwelling in question.  
Copied below are just a few examples of Sydney properties bought about a decade ago. As you can see with plant depreciation disallowed on established properties the difference to deductions in the early years of ownership would have been quite substantial, though there is no impact of landlords already in the market.
<a href="https://www.propertyobserver.com.au/images/2017/05/14/DEDUCT2.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/05/14/DEDUCT2.jpg" alt="">
Data compiled by MCG Quantity Surveyors showed that their average claim for depreciation deductions was $9,138, up to half of which was typically for plant and equipment deductions. 
For new individual Mum-and Dad investors - which is most of the landlord market - this is a fairly significant change to tax legislation. 
Market impacts
As always investors will try to find a way around the rules, such as by purchasing chattels off-contract, though presumably the tax office would scope out such a move through an ATO Interpretative Decision (ID) if the practice became widespread.
Overall, it may become more tax-efficient to purchase older style properties in order to renovate them, though for properties built before 1987 the building works component would already be fully depreciated over 40 years. 
Somewhat ironically these changes will may create a divide between the perceived value of new and established properties in the eyes of investors, effectively creating a 'second-hand market' (which is what the Treasurer previously accused the ALP of doing with its own negative gearing proposals). 
Some domestic investors may be inclined to steer clear of new properties for this reason, in turn hurting building approvals and dwelling starts, at least while the dust settles.  
Ultimately what these changes will mean is that rental returns on established property in the lowest-yielding cities of Sydney and Melbourne will have to increase in aggregate, either through higher rents or through lower prices (or, most likely, a combination of the two).
I'll take a look at the wider impact of the Budget next up. 
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/">blogger</a>.
His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx">Four Green Houses and a Red Hotel</a>.
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Budget takes sideswipe at negative gearing: Pete Wargent

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The federal budget has taken positive steps toward infrastructure commitment by the government, but it still is a missed opportunity to capitalise on low bond rates and a triple-A credit rating, according to a senior industry executive.
Megan Motto, chief executive of built-environment body Consult Australia, welcomed the direction of the 2017/2018 Federal Budget but declared it a missed opportunity to capitalise on historic low borrowing rates.
Consult Australia represents 49,000 consulting firms in the built environment.
The government plans to spend $75 billion on development and upgrade of infrastructure, which includes a potential buy-out of the Snowy Hydro scheme from the states. Also included is a $20 billion rail line upgrade.
Major projects like Snowy Hydro, Inland Rail, a National Rail Program, and Western Sydney Airport, all point to a government that understands the long-term nature of infrastructure projects. But real spend on infrastructure delivery would fall as share of GDP from 25.5% to 25.2% in 2020-21, Motto said. 
Yet, “historically low bond rates and a triple-A credit rating means it has never been a better time to borrow, to take on more good debt,” Motto said.
 “This is an Infrastructure Budget 1.0 that begs for an Infrastructure Budget 2.0 to better connect the strong sense of direction to implementation and the opportunity for Australia to maintain future economic growth,” said Motto.
“This was a budget big on planning for longer-term infrastructure dividends.” 
“It recognised infrastructure as a tool to increase productivity, the importance of business case development to get the right projects off the ground, and the role of government in being able to drive economic growth.
“Over $14 billion of direct government equity in major infrastructure delivery and financing agencies,” she said.
But Motto added that “in the short term there is a sense of missed opportunity”.
Motto also lamented the foreign worker levy for businesses that will make it harder for them to bring in skills needed to deliver Australia’s infrastructure agenda.
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Budget fails to capitalise on historic low borrowing rates

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Developers who aim projects at foreign investors are facing bleak times under the Budget package.
New developments will be subject to a 50 percent cap on foreign investment off the plan sale approvals to “safeguard the opportunity for Australian buyers to purchase”.
The new regulation applies only to developments with at least 50 units. 
The current level is 100 percent after the Rudd government lifted it from 50 percent during the global financial crisis.
"We will restore the requirement that prevents developers from selling more than 50 percent of new developments to foreign investor," the Treasurer said. 
Meanwhile, foreign investors in residential real estate will be slapped with a “ghost tax” if they leave their properties empty or not available for rent for at least six months of the year.
The annual charge will be equivalent to the foreign investment application fee which was paid at the time of application and will work out to at $5000 plus annually.
The measure is expected to net $20 million in revenue over the next four years.
Earlier in February Property Observer published an article by Robert Simeon where the agent suggested the need to reverse the off-the-plan ratio back to 50 percent from 100 percent to overseas buyers. 
"We are now going into the ninth year of 100 percent and the only clear impact we are seeing is that foreign investors have become a most dominant player," he wrote.
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Reins tightened for developers aiming projects at foreign investors in 2017 Budget

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GUEST OBSERVER
The Federal Government has achieved a good balance between encouraging more housing supply as well as policies that make housing more affordable.
Federal Treasurer, Scott Morrison, has carefully balanced the need to boost housing supply with policy levers that make housing more affordable in this year’s budget.
To unlock housing supply the budget allocates $1 billion for critical infrastructure along with $70 billion for transport infrastructure while working with the states to reform planning systems to speed up development.
To encourage more affordable housing the budget has lifted the Capital Gains tax discount to 60 percent where private investment is made in affordable housing.
This will be a real incentive for the development industry to invest in this area particularly if the bond aggregator through the National Housing Finance and Investment Corporation is available to the private sector.
The proposal to have Managed Investment Trusts to develop affordable housing to hold for rent for more than ten years is another positive move.
The proposal to encourage older people to downsize from large houses through allowing up to $300,000 from the sale of a house to be invested in a superannuation fund is a good way to facilitate this process.
By not overacting in the areas of negative gearing and the potential to reduce capital gains tax reductions on property, the Government has clearly understood the sensitivities in the role of investors in maintaining a viable rental housing market.
To pull policy levers in an aggressive manor could lead to a devaluation in the main asset that many families rely on in their own home.
The establishment of the Western Sydney Airport Corporation with funding of $5.3 billion to drive this important game changer project for Sydney is important in maintaining the momentum for this giant project.
The allocation of $1.7 billion through the Asset Recycling Fund to the Sydney Metro project will help progress this important infrastructure that will underpin where new urban development can be located in metropolitan Sydney.”
We are impressed with the careful balance the federal budget has achieved between stimulating much needed housing supply while developing policies that help with housing affordability.
As indicated in the budget papers the state governments will now need to reform their planning systems to ensure more homes are built more quickly for Australian families.
The Federal Government in working with the states on planning reform must question why New South Wales standards for apartments are so much higher than those in other states.
The well-meaning but expensive standards in the NSW Apartment Design Guide are adding around $100,000 to the cost of an average apartment above that of other states.
The Urban Taskforce is keen to work with the federal and state governments to achieve reforms to planning systems that can speed up development.
Chris Johnson is chief executive officer of property development industry group Urban Taskforce and can be contacted <a href="https://www.urbantaskforce.com.au/index.php?option=com_content&amp;view=article&amp;id=97&amp;Itemid=126#.Vdaart55dFI">here</a>.
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2017 Budget a good balance for housing supply and affordability: Chris Johnson

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Young first home buyers willing to save are the big Budget winners thanks to a simple superannuation top-up scheme that offers generous tax breaks.
The Budget also offers the elderly an incentive to down-size homes with tax breaks too.
Treasurer Scott Morrison has shown no restraint on taxing foreigners either – which is a big revenue earner.
And Aussie investors will lose travel expense claims when they inspect their investment property interstate. This measure will save about $200 million annually.
The headline housing measure kicks in from July 1 when the first-home buyer can salary sacrifice into their super account above their already hefty compulsory contribution.
For Sydney buyers, there’s an issue with the low cap as The First Home Super Savers Scheme limits total contribution to $30,000 per person or $60,000 a couple, so the bank of mum and dad will still be needed to get anything close to Sydney’s median $990,000 house or $740,000 unit.
Regular super contributions remain off limits. But certainly it’s better than money in the bank, as Treasurer Scott Morrison calculates most will accelerate savings by 30 percent.
The measure will cost the government about $65 million annually. The downsizing incentive is calculated to cost about $10 million annually, with a delayed 2018 start.
Unfortunately, this mean it would be premature to expect a flood of five bedroom houses hitting the market any time soon.
Taxing foreigners in many ways is the revenue treat in the Budget, which could turn them away.
Capturing the $5000 plus annual tax on vacant properties owned by foreigners – the so-called ghost home tax – will be tricky. Though they could start by looking at the lights off in Haymarket.
This article was first published in the Daily Telegraph.
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Super idea in 2017 Budget for first home buyers

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The Real Estate Institute of Australia has applauded announcements made in the 2017 Budget to address housing supply and affordability.
Malcolm Gunning, president, REIA said he is pleased that the Government reiterated that it will not remove or limit negative gearing or change the capital gains tax as this would increase the tax burden on Australians trying to provide a future for their families.
“The boost to infrastructure spending, measures to improve housing supply, the extension of small business concessions, and the retention of the current negative gearing as well as CGT arrangements for taxation of property investments will help ensure that the property sector remains an important contributor to economic growth,”  he said.
"This recognises that the current arrangements increase the supply of housing for our growing population, keep rents affordable and ease the burden on social housing.
“With home ownership in Australia declining and first homebuyers finding it increasingly difficult to enter the housing market, allowing first homebuyers to build deposits with superannuation through voluntary contributions is welcome.
“Whilst REIA has advocated for a more aggressive approach to bridging the deposit gap by allowing first homebuyers access to existing balances in superannuation accounts the Government’s initiative will reduce the time taken to save for a deposit by around 25 percent.
“The change in the threshold for foreign resident capital gains tax withholding to $750,000 from the current $2 million is not welcome and could be considered misguided as most foreign investors buy higher valued properties in Sydney and Melbourne and to a lesser extent in Brisbane.
“It is more red tape and not necessary. With the median house price of $743,776 across Australia this will mean most properties will be subject to this requirement and results in more work for sales agents and conveyancers and depending on the workload this presents for the ATO may even delay settlements.
“With forecasts of moderate growth, an improvement in the unemployment rate, inflation well within the RBA’s target zone, the Budget is welcome news for home owners, prospective buyers and renters."
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2017 Budget welcome news for home owners, prospective buyers and renters: REIA 

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GUEST OBSERVER
For the first time in some years we expect better estimates of the coming year’s deficit, due to higher commodity prices.
Infrastructure investment plans, including a new Sydney airport and a major national rail project, SME tax cuts and education spending are expected to be the budget highlights.
Rates Strategy: After years of disappointment, the budget should be welcomed by bond investors as it is set to confirm 2016/17 as the peak of government debt issuance
Revenue gets a boost from higher commodity prices.
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It has finally arrived. After a run of budgets when the Treasurer of the day has had to announce that the underlying budget deficit was larger than expected, this year we expect a modest improvement. 
Rising commodity prices have been the main source of support, as the bounce is expected to have delivered additional tax revenue. However, this positive effect has been partly offset by weaker-than-expected wages growth, relative to the projections in the May 2016 budget, making the overall improvement only modest. 
The projected budget deficit is expected to be AUD25bn (1.4% of GDP) in 2017/18 (estimated at AUD28.7bn in December 2016 and AUD26.1bn in May 2016). However, much depends on the government’s assumptions about commodity prices, which we expect to be cautious. As a result, we expect the projected return to budget surplus still will not be forecast to arrive until 2020/21, as previously forecast.
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The key policy initiatives in the budget (due to be handed down on 9 May 2017) are expected to be plans for infrastructure investment, including a second airport in Sydney and a new inland rail from Brisbane to Melbourne, a corporate tax cut for small and medium-sized businesses and a boost to education spending. The Treasurer has also announced that, for the first time, the budget will separately report debt that is earmarked for infrastructure from that used for recurrent spending. 
With Standard &amp; Poor’s putting Australia on ‘negative outlook’ for its triple-A sovereign rating in July 2016, a key question is whether Australia will get downgraded. With the budget set to look a bit better, an improving nominal economy and signs of some budget reform, we doubt a downgrade will arrive next week. 
Our new onshore AUD/NZ rates/FX strategist, Tom Nash, expects the budget to be positive for long-dated government bonds (ACGBs). Even allowing for the infrastructure spend, 2016/17 should mark peak ACGB issuance. 
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A rare improvement in the budget outlook 
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Largely thanks to continued strength in commodity prices, we expect the forecast budget deficit for 2017/18 will look slightly better than previously estimated. This would be a marked contrast to Australia’s recent budget history, which since 2009 has featured consistent downward revisions to the budget balance and the predicted return to surplus being pushed ever farther into the future. 
There was some rare good news in the December 2016 mid-year fiscal update, when the forecast 2016/17 deficit was revised a touch lower from AUD37.1bn to AUD36.5bn, in response to the lift in commodity prices seen during late 2016. However, the commodity-related boost was expected to be temporary and the projected deficits beyond 2016/17 were expected to be larger than previously forecast (Chart 1). 
Since the mid-year update, the strength in commodity prices has proven to be more sustained, especially for iron ore. Although iron ore prices have dipped in recent weeks from over USD90/t to around USD66/t, the mid-year fiscal update assumed a decline from USD68/t at the time to USD55/t by Q3 2017. 
Although the assumptions underlying the new budget estimates are expected to once again assume that commodity prices will revert to a lower level, they will probably be a little more optimistic than those used in December. This should deliver a stronger nominal growth outlook and, in turn, better revenue projections (Charts 2, 3 and 4). 
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As a rule of thumb, a 1 percent increase in nominal GDP lifts government revenue by around AUD3bn. The mid-year update assumed nominal growth of 5.75 percent in 2016-17 and 3.75% in 2017-18. While the former is not much different from our own expectation of around 6 percent, we see scope for the 2017-18 forecast to be revised up to 5.25 percent or above thanks to the continued strength in commodity prices and a likely upward revision to the real GDP growth outlook (Table 5). 
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Key expected policy initiatives provide signs of fiscal reform 
For some time now, the clarion call in our research has been for fiscal policymakers to focus on tax reform and infrastructure investment. As we have pointed out previously, Australia’s new growth engine is exporting services to Asia, including education and tourism, and if Australia is to remain competitive in services exports, better urban infrastructure is needed (see Australia’s broadening economic links to China, 8 November 2016). At the same time, we have noted that Australia’s tax system has become more dependent on taxes that distort economic behaviour, such as corporate and personal income taxes, and that reform of the tax system is needed. 
This budget is expected to show some progress on these fronts, although more reform is needed over time. Key initiatives are expected to include:
The government is set to announce that a new government-funded company will be set up to build a second airport in Sydney at Badgery’s Creek at an expected cost of A$5-6 billion. A new inland rail line from Melbourne to Brisbane is also set to be announced, at a cost of A$10-12 billion. These projects are expected to be off the government’s balance sheet, much as the National Broadband Network was funded in earlier years.
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The Treasurer, Scott Morrison, has announced that the budget will also, for the first time, split its accounting of new government debt into that used for capital spending, such as infrastructure, and current spending, such as public sector wages. This is a positive development that should allow a clearer assessment of government spending that is investing in future growth prospects and that which is being used for current consumption.
The government is expected to announce a significant boost to spending on primary and secondary education, of around A$19 billion over the next decade (figures as report by the Australian Financial Review on 3 May 2017), adopting an adjusted version of the opposition Labor Party’s previous proposal for a ‘needs-based’ funding model.
Tax cuts for small and medium-sized businesses have already been passed by both houses of parliament, but will be part of the budget. Businesses with less than A$50 million in turnover will see the company tax rate cut from 30% to 25% by 2026/27, with the reductions phased in at different rates for businesses of different sizes. The budget is expected to contain a proposal to broaden this to every company by 2026/27.
A range of previously proposed budget measures that have not passed through parliament will also be scrapped. These include cuts to Medicare proposed in the lead-up to the 2016 election as well as cuts to education and welfare spending. These are set to reduce budget savings by around A$8 billion. 
Structural budget deficit remains a challenge
Although the stronger commodity price story, along with some fiscal consolidation measures, are expected to make the budget bottom line look a little better, Australia still faces many years of sizable budget deficits. This is because the deficit is structural, not cyclical. That is, the deficit is not the result of temporarily weak conditions in the economy – and so an improvement in economic conditions cannot be relied upon to return the budget to balance (Chart 6).
Interestingly, the Australian Treasury estimates that the structural deficit has been consistently larger than the actual underlying cash balance over the past decade, despite below-trend economic growth. This is mainly driven by the large, budget-positive impact of high commodity prices outweighing the smaller, budget-negative impact of weak GDP growth.
The precise estimates of the structural balance are highly uncertain, as they rely on assumptions about the size of the output gap and the long-run level of the terms of trade. For instance, the IMF’s estimates suggest that Australia’s structural deficit has not been as large as the actual deficit. Nonetheless, regardless of its size, it seems clear that Australia does have a significant structural deficit and that an improvement in cyclical factors alone will not be enough to restore a balanced budget over the long term. Changes to fiscal settings will be needed.
A rating downgrade is unlikely at this stage
Despite ongoing budget deficits (both actual and structural), we do not expect Australia to lose its AAA credit rating. In an international context, Australia’s fiscal position is still strong; in particular, net debt remains low, although it has risen significantly since 2008 (Charts 7 and 8).
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With the budget deficit currently around 2 percent of GDP, and expected to narrow further in 2017/18, the government’s debt-to-GDP ratio is also close to stabilising.
The key factors that have been of concern to the major rating agencies have been: a lack of fiscal reform, due to political constraints; Australia’s persistent current account deficit; and high household debt levels, making balance sheets more vulnerable.
The key catalyst for Standard &amp; Poor’s putting Australia on ‘negative outlook’ for its triple-A rating in July 2016, was the close Federal election result and the rating agency’s expectation that this reduced the likelihood of ‘forceful’ fiscal action need to get the budget back to surplus. Since then, commodity prices have lifted, supporting tax revenues, and there are some signs that fiscal reform may be moving the right direction, albeit slowly.
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The current account deficit has also narrowed significantly, due to the recent lift in commodity prices, the ongoing rise in commodity exports as new capacity comes on line and continued growth in services exports (Chart 9).
Household debt has continued to rise and is at high levels, which is expected to be a continued point of focus for the rating agencies. At the same time, the prudential regulator, in a coordinated approach with the central bank, has been tightening its prudential settings to reduce the risk entering the financial system.
Rates Strategy: A bullish budget for bonds
After years of disappointment, the 2017/18 Budget is set to be positive for Australian Commonwealth Government Bonds (ACGBs) as it will likely confirm that bond issuance has peaked and fiscal consolidation is back on track. We have previously highlighted fiscal policy as one of the structural factors underpinning our bullish stance on the long-end of the curve (see ‘AUD Rates: Cheap enough’, 30 March 2017).
The Treasury is likely to confirm FY16/17 as the peak for ACGB issuance, despite uncertainty over the funding of infrastructure projects. Mid-year Treasury projections imply a sizeable 24% decline in gross issuance in FY17/18 (to AUD78bn), and a larger 43% decline in net issuance (to AUD44bn) compared to the current fiscal year. We present an alternative scenario in Table 10 that assumes that all of the announced infrastructure spending is funded by debt as well as incorporating our economics team’s estimate of improved revenues. Total bond supply is c.AUD10bn higher over the projection period under this scenario but 2016/17 remains the peak. 
While the duration of new ACGB supply is likely to stay high (the weighted average maturity has been 10.6yrs this fiscal year compared to 7.6yrs five years prior) we expect it to be well absorbed. The recent uptick in bid-cover ratios (Chart 11) as well as a continued gradual rise in offshore bond holdings implies a steady demand for duration.
With fiscal consolidation on track, HSBC’s base case is that this budget will not prompt any of the major credit rating agencies to downgrade Australia’s AAA credit rating. Importantly, an improved revenue outlook should give rating agencies more confidence that the public debt-to- GDP ratio stabilises in the near term and declines over the medium term as net bond issuance drops below 2% of GDP (Chart 12).
Australia’s Triple-A rating is positive for bonds primarily because politicians’ commitment to maintaining it encourages strict fiscal discipline. Reflecting this, Australia has the largest underlying fiscal consolidation embedded over the medium term among developed economies, based on the IMF’s standardized methodology (Chart 13). The pricing of credit risk premium is a secondary consideration for ACGBs given there is no real mechanical flow impact associated with a rating downgrade from AAA to AA and arguably yields already reflect a lower rating/ higher degree of sovereign credit risk (e.g. Australian sovereign CDS spreads already trade above the AAA average). 
<a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team">PAUL BLOXHAM</a> IS CHIEF ECONOMIST (AUSTRALIA AND NEW ZEALAND) FOR HSBC. 
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Better budget should protect rating: HSBC's Paul Bloxham

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GUEST OBSERVER
The government shouldn't cave to WA's calls for a change to the way GST is divvied out. The current system has served Australia well.
Treasurer Scott Morrison has acceded to pressure from his Western Australian colleagues in announcing another review of the way GST is divided up among the states and territories. But the current system shouldn’t be tossed aside just because the WA government was unable to control its spending.
Australia has long gone much further than other federations in seeking to “equalise” the way state and territory governments provide public services to their citizens. That’s one of the principal reasons why the disparity in living standards between Tasmania (Australia’s poorest state) and WA (our richest), is a lot less than that between, say, Mississippi and Massachusetts in the United States or even Mecklenburg-Vorpommern and Bavaria in Germany.
The Grants Commission was established in 1933, this is the body that decides how much GST revenue the states get in our current system. Since its establishment right up until the year 2000, WA has been the main beneficiary of “horizontal fiscal equalisation”(HFE).
That’s the principle that GST is assigned by. It assumes each state and territory should be making an equal effort to raise revenue from its own sources and by being equally efficient in its spending, to provide the same range and quality of public services as every other state or territory.
However, since the early 2000s, WA has become Australia’s richest state. This is the result not of any particular effort on the part of successive WA state governments, but rather of China’s almost insatiable appetite for the iron ore with which WA has been uncommonly endowed.
Over the five years to 2014-15, WA’s per capita gross product (what it produced) averaged almost 50 percent above that of Australia as a whole. This is a margin without precedent in Australia’s history.
This enabled WA to raise far more revenue per head of population than it, or any other part of Australia, had been able to in the past. This is also why in recent years WA’s share of the revenue from the GST has fallen to such a low level, relative to its share of Australia’s population.
Between 2005-06 and 2015-16, WA’s share of the revenue from the GST fell by about A$2 billion, from A$3.8 billion to A$1.8 billion. But its revenue from mineral royalties rose by almost A$3 billion over the same period, from A$1.2 billion to A$4.1 billion.
Despite the sharp decline in its share of GST revenues, the WA government’s total revenue per head of population in 2015-16 was just A$67 (or 0.7 percent) below the average for all states and territories. By contrast, by 2015-16 the WA government was spending over A$1,000 (or 10.5 percent) more per head of population on “operating expenses”, than the average of all states and territories.
WA’s present fiscal woes are the result not of a flawed system of distributing revenue from the GST among the states and territories, but rather of its inability to control its own spending.
Although an equal per capita distribution of GST revenues has become commonly used as a benchmark by government for assessing redistribution, it’s never been generally accepted that GST revenues should be distributed on an equal per capita basis.
Neither the federal government, nor the states and territories, allocate their spending programs on an equal per capita basis. Nor do they collect revenue in that way. There is no reason why an equal per capita distribution of GST revenues should be regarded as some kind of desirable norm.
As you can see in the chart below, if you did allocate GST in equal per capita, according to my calculations Queensland, the North Territory, South Australia and Tasmania would lose millions. But it would give Victoria, NSW and WA more of the GST revenue.
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It would be akin to reducing the top rate of personal income tax, paid by those earning more than $180,000 per annum and raising the bottom rate, paid by those earning less than $37,000 per annum, to the same figure.
Allocating GST per capita like this is not based on need or any policy and is quite abitrary.
The questions in the terms of reference, that the Treasurer has given to the Productivity Commission, were answered almost five years ago by a similar inquiry. This was conducted by former NSW Premier Nick Greiner and former Victorian Premier John Brumby, together with Adelaide businessman Bruce Carter.
Even though these state premiers had voiced the same concerns as the current government about the way GST is distributed, their inquiry recommended against any radical changes. They found many of concerns about the current system turned out to be overstated.
And, contrary to the Treasurer’s insinuation that “the current approach of horizontal fiscal equalisation creates disincentives for reform”, the previous inquiry concluded there was not enough evidence of efficiency losses in the economy.
I doubt that the Productivity Commission will find differently. There is room, to be sure, to make the Grants Commission’s procedures less complex and more transparent. But the principle which has underpinned the Grants Commission’s recommendations for more than 80 years has served Australia well, and shouldn’t be tossed aside merely to salve the self-inflicted wounds of Australia’s richest state.
 
Saul Eslake is vice-chancellor’s Fellow, University of Tasmania and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/saul-eslake-665" target="_blank">here</a>.
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WA’s economic mismanagement is not a reason to review how the GST is carved up: Saul Eslake

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Who'd have thought downsizing and the issue of empty bedrooms in suburbia will soon become a red hot 2017 Federal Budget issue.
Its because the government is looking at proposals to encourage ageing homeowners to downsize to free up more affordable stock for young families.
The likely May budget package was first floated two years ago by Scott Morrison when he was social services minister.
It is hoped breaking down a few barriers will encourage older Australians to down­size homes, thereby releasing more stock to the market and also unlocking billions in capital.
The government has advice from the Productivity Commission that estimates 15 per cent of older Australians want to move.
But seemingly not until the government addresses one of the big impediments on why they stay in large homes long after their children have left. 
After selling their home the elderly can lose some of their part-pensions under the asset test. 
The latest thinking is that some of the windfall sale proceeds pocketed after selling could be quarantined from the assets test.
There's also prospective exemptions coming to the $1.6 million cap on tax-free super retirement funds, and the $100,000 annual cap on non-concessional contributions.
Research from the Centre for Independent Studies (CIS), says some 80 per cent of retirees own their home with the overwhelming majority having no mortgage, so their prospect of surplus funds is real.
The CIS estimate the amazing value of pensioner home equity at $625bn - which is around a third of the countries' superannuation savings pool. 
Scott Morrison won't force older Australians to move house, given the emotional and ­financial investment in family homes, but incentives could free up an estimated 50,000 properties a year.
His focus will be on removing disincentives along with measures to boost the supply of enticing over-55s housing.
Obviously there's more than just these impediments as I recently noted stamp duty is a barrier, but that is a matter for the states since stamp duty didn't disappear after Canberra introduced the gst.
It will be interesting whether the package addresses the big difference in house prices - and prospect of easier surpluses - across Australia. CoreLogic puts Sydney's median house price at $895,000, compared with $680,000 in Melbourne, $635,000 in Canberra, $530,000 in Darwin, $520,000 in Brisbane, $500,000 in Perth, $455,000 in Adelaide and $383,000 in Hobart.
The Property Council of Australia calculates there are 530,000 seniors who receive the full-rate age pension, who are aged over 75 and own their homes exempt from the asset test. If they sell, these seniors lose $3 a fortnight for every $1000 of assets over the asset test threshold, which is $250,000 for singles and $375,000 for couples, and higher for non-home owners.
Exempting $100,000 of the house sale proceeds from the asset test would encourage about 17,000 house sales annually, the PCA suggested, rising to 50,000 houses if the exemption was $200,000.
 This article first appeared in the Daily Telegraph.
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