Today's economic note comes to you after the final week of parliamentary sittings in this Autumn session of Parliament. I had some really constructive discussions with business and community representatives throughout the week, including meetings with the Australian Chamber of Commerce and Industry (ACCI), the Ballarat Leadership Group, Jim Turnour, the federal member for Leichhardt, and Catherine King, federal MP for Ballarat. I also chatted with locals in my own electorate at mobile offices yesterday, including a small business owner who was telling me how difficult it was to hold on to all of their staff throughout the crisis, but that they knew it was the right thing to do by their community as well as their own business. It's because of the actions of businesses like that all over the country, and the way they got behind our economic stimulus, that Australia is now positioned as one of the best-performing economies in the developed world. It's this success that allows us to move forward with confidence, to tackle the big challenges like health reform and sustainable economic growth that brings real gains for working families.
One of the most important components of the family budget is the mortgage repayment. That's why I was so pleased, in my economic note of 21 February 2010, to be able to report the good news that the Government's investment in the Australian residential mortgage-backed securities (RMBS) market had enabled AMP to cut its basic variable home loan interest rate for new loans by 10 basis points. We have received more good news with AMP announcing that it will further reduce its introductory variable mortgage rate by 45 basis points and its basic variable mortgage rate by 22 basis points. You can read more about AMP's decision in this article by Simon Kearney.
AMP CEO Craig Dunn wrote to me to tell me that AMP "have been able to achieve these reductions in a large part due to the Government's recent initiative through the Australian Office of Financial Management (AOFM) in the Australian securitisation market. This, coupled with the AOFM's stated ongoing program of support, gives AMP the capacity to implement these reductions." AMP's decision provides more evidence that our investment in RMBS is enabling smaller lenders to lend at competitive mortgage rates. This is helping to put more competitive pressure on the big banks and downward pressure on mortgage rates over time – a really important objective.
The global financial crisis hit some parts of the banking sector harder than others, and that has created some big challenges in the home-lending market. Clearly these challenges can't be solved overnight, but I'll keep working hard to support banking competition because I understand just how much mortgage payments impact on the family budget.
The Government also delivered tough new protections for Australian consumers – including mortgage holders – on Wednesday with the passing of provisions of the new Australian Consumer Law. When fully enacted, this will be the biggest reform of consumer protection laws since the passage of the Trade Practices Act in 1974.
The new Australian Consumer Law will provide fines of up to $1.1 million for companies that engage in unconscionable conduct or make false or misleading representations and will ban unfair contracts between businesses and consumers. Consumer Affairs Minister Craig Emerson explained "the unfair contracts provisions will prevent businesses from imposing, through standard-form contracts, onerous terms on consumers – terms often tucked away in the fine print." These tough new consumer protection laws – due to come into force next year – will be able to target excessive exit fees in mortgage contracts for the first time ever.
Wednesday brought more evidence of the success of our First Home Owners Boost and social housing initiative in providing much-needed support for residential construction activity. Dwelling unit commencement figures showed that the number of dwelling units commenced in the December quarter of 2009 has nearly recovered to the level recorded in the June quarter of 2008, before the onset of the global financial crisis. Dwelling unit commencements rose by 15.1 per cent in the last quarter of 2009, and are now 26.0 per cent higher than their level of a year ago. Public sector dwelling commencements rose by more than 20 per cent in the December quarter and are almost three times their level of December 2008.
This led Housing Industry Association's chief economist, Dr Harley Dale to say "the strong recovery in housing starts to date highlights the success of targeting policy towards new home building, which is what happened with the tripling of the First Home Owner Grant for new dwellings. Furthermore, the social housing initiative is clearly supporting growth in 'other residential building', which is recovering from an awfully low base."
Numbers like these show just how different the outlook for the Australian economy is to that being confronted by many other advanced countries. Vanguard Investments Chief Economist Joe Davis told a business function in Sydney that Australia is the economic envy of the world. The RBA also released the minutes of its last monetary policy meeting, which said it appeared "the peak unemployment rate in the recent downturn had been equal to around the low point in the previous three cycles."
Over the course of the past 18 months, ACCI has been an important representative of business and a big backer of the Government's stimulus program. During our roundtable on Wednesday, we discussed how crucial stimulus has been and how important it was that groups like ACCI and the entire community more broadly got behind stimulus and made it work. We also talked about how important the pipeline of activity that has been put in place by our stimulus is to certainty and employment into the future. The day after our roundtable, Greg Evans, ACCI's director of economics and industry policy, restated ACCI's firm view that they "don't think it would be a good idea to terminate the stimulus."
It is no accident that Australia has the strongest economy in the advanced world and an unemployment rate around half that in the US and Europe. When times got tough, we pulled together, and employers did the right thing by their workforces and their communities and kept people on where they could through the darkest days of the GFC.
This week I'll be meeting with my State colleagues to discuss the Australian Government's historic reforms to our health and hospitals system. For Australia to take advantage of the opportunities that will come our way in years to come, it's essential that we have a healthy workforce. By taking on a greater share of responsibility for hospital funding, we'll ensure our health system has a secure source of funding for the future and that the level of government with the most efficient tax base is the majority funder of the fastest growing area of public expenditure. With so much riding on the long-term sustainability of the Australian health system, Tuesday's debate at the National Press Club shouldn't be missed.
Treasurer of Australia
Sunday 21 March 2010