CHRIS KENNY:
Thanks for joining us Treasurer.
JOSH FRYDENBERG:
Good evening, nice to be with you Chris.
CHRIS KENNY:
Just tell us about this message for the banking sector. Surely you can’t direct them to approve loans for housing? They’ve got to be diligent about any applications that come their way.
JOSH FRYDENBERG:
Well, they certainly do and at the end of the day they are publically listed companies but they also have an economic and social obligation to keep their books open to ensure, as you say, a timely and affordable line of credit to the public and what we have seen in recent numbers is that the growth in housing credit has been well below the 10 year average.
Business credit is still strong, but housing credit has come back and that’s for a number of reasons. So, what I’m calling on the banks is to maintain open loan books, to continue to ensure that households, families, investors get into the market, because in doing so, they’re helping make the Australian economy strong and keeping the juices of the economy, the financial juices of the economy flowing.
CHRIS KENNY:
So, you’re actually saying that one of the factors in the decline of house prices is that new home owners can’t actually get finance to buy their first home?
JOSH FRYDENBERG:
Well, actually we’ve seen an increase in the number of first home buyers getting loan approvals and the numbers coming into the market is also strong. So, over the last year we saw over 115,000 first home buyers get a loan approval which was the highest number since 2009.
And we’ve also seen the percentage of first home owners and buyers in the market jump quite significantly over the last couple of years. Let’s not forget that it actually fell when Labor was in office. So, these first home buyers, despite all of Labor’s rhetoric were getting squeezed out of the market when Rudd and Gillard were in control.
Now, we’re starting to see them get back into the market in greater numbers.
CHRIS KENNY:
So, where’s the tightening now? Is it a reduction in investment loans?
JOSH FRYDENBERG:
Well, we have seen a reduction in investment loans and as you know, APRA has put some restrictions in place which have now lifted. They were time constrained, they helped strengthen the economy; but they’ve lifted.
But we’ve also seen a bit of risk aversion from the banks at the time of the Royal Commission and, what I’m saying to the banks is be very mindful of their economic obligation and social obligation to ensure that there is a free flow of credit into the economy.
But as I was saying, Chris, first home buyers are now getting into the market in stronger numbers than they were under the Labor Party and one of the reasons for that is the strong jobs growth, particularly for young people. We saw more than 100,000 young people get a job over the last financial year, which was the highest number since records began.
And we’ve also put in place a number of policies including the First Home Super Saver scheme, which is allowing people to build a deposit in their super and we’re also enabling seniors to downsize and put additional money from the sale of their property into their super which is freeing up more of the housing market and we’re also ensuring there’s more land released particularly with Commonwealth Government owned land so we can build more houses and have more areas available for housing growth.
CHRIS KENNY:
Those actions sound like their doing their job. But it’s a bit dangerous isn’t it, to encourage the banks to open their books supposedly, not be too stringent on housing loans? You want to look at the genesis of the GFC back in 2008.
The Global Financial Crisis was actually sparked by the US Government agencies, the Fanny May Bank and Freddie Mac because they were writing too many housing loans to people who couldn’t afford to repay them?
JOSH FRYDENBERG:
Well, the history of the housing market in Australia has been very different to the United States. We haven’t had that experience of what they call in the US, low-dock loans, which the Fanny May and Freddie Mac were notorious for. That is not an experience that we’ve had in Australia…
CHRIS KENNY:
We don’t want it though do we?
JOSH FRYDENBERG:
We’re not asking for them to adopt the American approach. What I’m saying to them is be very conscious of the free flow of credit. Obviously it needs to be secured and obviously it needs to be assessed on a case by case basis, but at the same time, we have seen a reduction in the growth of housing credit significantly below the 10 year average, that’s something that the Government is watching closely.
CHRIS KENNY:
Now, you’ve obviously expressed a lot of concern about Labor’s negative gearing policy and their capital gains tax changes that go with it. Look, I’ve been very critical of this as well. I think the problem here is that Labor has a policy which was deliberately designed to put downward pressure on housing prices.
That was all the rhetoric from Labor when they announced their policy at the height of the real estate boom when prices were still running out of control. And they deliberately couched this policy as one to sort of get investment out of the existing home market and to try and get housing less attractive for investors so it would take some heat out of the market.
So, I just find it astonishing that they pretend now, it won’t dampen the real estate market in a downturn. It’s specifically designed, isn’t it, to get investors or encourage investors away from housing?
JOSH FRYDENBERG:
Well, you’re absolutely right that when Labor designed this policy and announced it well before the last election, they did so at a time when prices were going up. Now that prices are going down, they’re standing their ground because they’re too embarrassed to do a backflip on it, just as they did on company tax for small and medium-sized enterprises and as they have with aspects on their retirees tax.
Chris Bowen is thumping his chest and saying that this is a perfectly designed policy and that there’s no better time to implement it, but it was designed for a different property market than we’re seeing today.
Their policy is problematic at a number of levels Chris. Their plan to abolish negative gearing as we know it, but also to increase the capital gains tax by 50 per cent will remove a number of the buyers out of the market and therefore not only will the 1.3 million people who currently negative gear be worse off, but in fact, every Australian who owns their own home will see it worth less under Labor’s policy and every person in Australia who rents will see their rents go up.
CHRIS KENNY:
Yeah, it’s just so obvious. I mean, this is what they said about the policy when they announced it. I think it would have been maybe a sensible and certainly a popular policy when they announced it back when the market was booming. I think they’re going to have a lot of trouble this year with it and there’s a possibility they might even drop it, you would think.
Just on interest rates and the global economy, what do you think of Donald Trump in open conflict with the Federal Reserve, effectively telling them that they’ve done too much to increase American interest rates, that they should be easing back on interest rates to fuel economic growth.
Is it a worry to have the President in open conflict with the Fed Reserve like that? Or do you think he’s got a point?
JOSH FRYDENBERG:
Look Chris, I’m not going to, even if you try tempt me, I’m not going to buy into another county’s domestic political debate. What I will say…
CHRIS KENNY:
It flows onto us though, doesn’t it? Those increased interest rates in America flow onto the cost of money for our banks and help to tighten the housing market that you’re talking about in this country.
JOSH FRYDENBERG:
The decisions for interest rates in the US are matters for their central agencies and the Federal Reserve, just as they are for the Reserve Bank of Australia here at home. But what we have seen in Australia is interest rates at historical low levels for more than two years and the Reserve Bank will continue to watch very closely what happens in the market.
But what I’m concerned about and I know a lot of independent economists and property analysts are worried about is the implementation of Labor’s new housing tax flowing through to the real economy and starting to impact on consumer spending.
That would be disastrous because we’ve had the independent credit rating agencies like Standard & Poor’s warn about Australia’s AAA credit rating in the event there’s a big drop in the housing market and Labor’s policy is designed exactly to create a reduction in prices, despite their front benchers not being able to get their lines straight.
They can’t even name a start date for their signature policy and Bill Shorten’s makes up this idea that everyone who negatively gears is a wealthy person, but as we know, the 41,000 nurses who negatively gear, 58,000 teachers, around 20,000 police and emergency services personnel…
CHRIS KENNY:
I had a caller from country New South Wales last night who told me his annual income was $80,000-90,000 with him and his wife, but it was negatively gearing a property, as their form of long-term investment. I mean, there’s no doubt negative gearing is a form of investment that average families access.
JOSH FRYDENBERG:
Chris, let me tell you, that two-thirds of the people who negatively gear have a taxable income under $80,000 and over 70 per cent of people who negatively gear only have one property and over 70 per cent of people who negatively gear have a tax deduction of less than $10,000 on an annual basis.
So, Labor makes it into a battle of class warfare. But the reality is, they’re going to be hitting the mums and dads, the school teachers and the nurses, and the emergency personnel because they’re desperate for cash to fund their reckless spending promises.
CHRIS KENNY:
Alright, Josh Frydenberg, thanks for joining us. You’ve got a busy year ahead. Have you already started to swat up for your first Budget?
JOSH FRYDENBERG:
Well, work is obviously already underway for that and I am pleased that the Mid-Year Economic and Fiscal Outlook that we released at the end of last year showed that the Australian economy is on track, that our economic plan is working, that we will be announcing a Budget surplus in 2019-2020 and that we’ve created more than 1.2 million new jobs.
That’s a good economic record and not one that can be risked by returning to Labor’s tax and spend approach.
CHRIS KENNY:
Thanks for joining us. I’d like to catch up with you again soon.
JOSH FRYDENBERG:
All the best.