The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Peter Costello

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Transcript of 04/07/07

Interview with David Speers
Sky News

Wednesday, 4 July 2007
11.10 am

SUBJECTS: Interest rates, housing affordability, Wesfarmers’ bid for Coles

TREASURER:

Well of course interest rates are unchanged.  That is because when we set interest rates in Australia we are looking at inflation down the track; what it is likely to do.  And the good news has been that inflation has been decelerating.  It has actually been coming off a bit in recent quarters.  And the prospects on inflation are good. The inflation that we see is within our band over future quarters but we have to be vigilant.  We have to make sure that in particular, we don’t have a situation where low unemployment leads to generalised wage claims that could set off inflation.  If that were to happen, that would be the worst thing for the Australian economy.

SPEERS:

A lot of economists are saying that they do see rates going up particularly after the election.  Do you share that concern?

TREASURER:

Our monetary policy, our interest rates are set to an inflation target which I have agreed with the Reserve Bank.  It is a target of 2 to 3 per cent underlying and at the moment our forecasts are within that band.  Now, it is going to be hard to manage that band – harder I should say – on an unemployment rate which is the lowest in 33 years.  I acknowledge that.  One of the downsides, if there is a downside of fantastic employment results, this can put pressure on wages and through that on inflation.  We have to manage that very carefully. 

SPEERS:

Labor would argue that housing affordability though is still a very big problem, that those trying to buy their first home in particular are really battling.  Kevin Rudd has called a summit on this.  Is that a good idea?

TREASURER:

Well, I will make this point, I would rather be buying a home today under 8 per cent interest rates than under Labor’s 17 per cent interest rates.  So the first thing to bear in mind is if you get a Labor Government and higher interest rates, you will go backwards.  Now having said that, at the moment of course with strong employment, more people are trying to buy homes, you have seen the house prices go up – for most Australians, by the way, that is what they want to see.  Most Australians who are buying…

SPEERS:

Except those trying, except those trying to buy.

TREASURER:

Yes, I will come to that in a moment.  And most Australians are buying or have bought their home, they don’t want to see their house prices fall, by the way.  But for young Australians to get into the market, they do need assistance.  We have got our First Home Owners Scheme which has now gone to 995,000 Australians.

SPEERS:

But that hasn’t changed for many years, I think what, for six years, I suppose, it has been at $7,000 and house prices have kept going up.  So it is getting tougher, isn’t it, for the young first home buyers?

TREASURER:

Well, we introduced the First Home Owners Scheme and I think it was a good move, and it has gone to 995,000 Australians. 

SPEERS:

Is more needed though?

TREASURER:

Well, you have to be careful in this area that if all you do is give everybody an increased capacity to buy, you can actually drive prices up further.  I don’t think the problem in the housing market is demand, I don’t think we have to give new measures to strengthen demand.  I think the problem with the housing market at the moment is demand is strong, people are in work, but supply hasn’t risen to meet that demand and it is on the supply side in particular that we have to put in place measures.

SPEERS:

The one thing Kevin Rudd is talking about is similar to a superannuation account where you can put some pre-tax money into a special account at a lower tax rate, it will build the pool of money and then you can go and buy your first home.  Good idea?

TREASURER:

Well it won’t do anything to boost supply, you see.  It would give people more money but if people with more money were just chasing the same number of houses, the price of those houses will go up.  What you have got to do in Australia today, we have got a growing population, people are living in smaller units.  The average number of people in a dwelling is smaller and getting smaller all the time.  What that means is that our housing stock has to grow, and grow faster in fact, than the population increase.  And this is why I keep coming back to things like land release.  We need more land released.  It is not really a housing affordability problem, it is a land affordability problem in Australia. 

SPEERS:

So there is nothing the Commonwealth can do? 

TREASURER:

Well, we are taking measures to encourage more land release. 

SPEERS:

But it is a State responsibility.

TREASURER:

I know, I know, and I would say to the States, why stop land release?  What is wrong with releasing more land?  By the way, first home buyers are the kind of people that are prepared to go into new estates long distances from the city.  This is classic first home buyer  territory.  And that is where you have got to boost supply. 

SPEERS:

Is the Commonwealth saying, we won’t do anything on this?  Will you offer anything…

TREASURER:

The Commonwealth is saying that in order to actually deal with the problem – as opposed to make a rhetorical statement, deal with the problem – we have to encourage greater supply of the market.  And that has to be done through a whole range of areas.

SPEERS:

And just finally Treasurer, the Wesfarmers-Coles takeover, do you have any problems with that?

TREASURER:

The bid will have to be cleared from a competition angle.  I don’t believe it will involve any foreign investment considerations because Wesfarmers is an Australian company.  But subject to any competition…

SPEERS:

Can you see any issues there?

TREASURER:

Well there might be in some selected areas, small areas, not overall, but small areas, there might be some competition issues, but that will go to the ACCC.

SPEERS:

Treasurer, thanks for your time.

TREASURER:

Thanks very much.