TOM CONNELL:
Joining me now for more on this is Andrew Leigh, Assistant Minister for the Treasury. Thank you very much for your time here in the studio, of course.
ANDREW LEIGH:
Pleasure, Tom.
CONNELL:
Inflation, 0.8 per cent for the quarter is a big figure here, it's barely above the target band, if it's annualised. Is the case for another rate hike greatly diminished after that figure?
LEIGH:
Well, that'll be entirely up to the Reserve Bank and its board, Tom, but it’s certainly welcome news for households. Remember the peak of inflation was in the Coalition's last quarter in office. We had that quarterly figure of 2.1 per cent inflation. This figure of 0.8 per cent is less than half of that figure. So, warmly welcomed. Still annualised over the year, we're at 6 per cent, a little down from the 7.8 per cent we were at, but yet to come within the target band. As a government, we're focused on what we can do. Cheaper energy, cheaper childcare, ensuring we're providing that rental relief to households and cheaper medicines. Not only the reforms from January but also the reforms that will come into effect in September that will allow people to get two months supply in one go.
CONNELL:
Cheaper energy, one of your focuses. The IMF's, come out and said, "Enough of the rebates on energy, it's not a good way to manage things." Would you heed that message?
LEIGH:
We've been very targeted in this approach, Tom. We've certainly looked at the international evidence, but we recognise that in providing energy bill relief to 5 million households and one million small businesses, that we're ensuring that firms and households don't go to the wall because of wartime gas prices. What's going on in Ukraine is one of the main drivers of high energy prices. We need to make sure that vulnerable households and marginal businesses aren't sent to the wall because of that temporary shock.
CONNELL:
Is that a stopgap, though, because the concern within the energy market is that the short and medium term now is looking pretty expensive and it's a pretty rocky transition to renewables?
LEIGH:
Well, the transition to renewables is going to be a transition that in the long term will deliver lower prices.
CONNELL:
Long term, but that could be quite a few years away.
LEIGH:
Well, transition is always a challenge, but we know, as many of the households who put solar PV on their roofs know, that the sun doesn't send a bill and that moving to renewables also means we're less vulnerable to international fluctuations.
CONNELL:
There's a big up‑front bill for those rooftop panels, though.
LEIGH:
Well, you look here in the ACT where we're 100 per cent renewables. Last year, we were the only jurisdiction that saw electricity prices go down. And that story for one jurisdiction can be replicated across the nation as we move from a third of the electricity supply being renewables right now to four‑fifths, which is our target by 2030. There's big investments in offshore wind. There's a lot of enthusiasm for the international investment community, Tom, to be part of Australia's energy transition. The electrification of the grid is not only important for saving the planet, it's also really vital for ensuring that we don't pay more than we have to for energy.
CONNELL:
In that short and medium term, which a lot of household budgets can't afford to just look at the long term and go, things might be really great in 2032. What is the future to keep bills lower? Is it more rebates? Is that the only real option you'll have, because the actual cost, as you're building the grid and transforming it will increase.
LEIGH:
Well, in the short term, we've got the energy bill relief flowing to 5 million households. In the long term, it's that transition to renewables.
CONNELL:
What's the medium, though? Is it more rebates to get to the long term?
LEIGH:
Well, over the medium term, we're going to be making a steady transition to renewables. And all the experts make the point that as you increase the renewable share in the grid, you're putting downward pressure on power prices.
CONNELL:
Albeit you got to spend money to do that, to build that grid. And that costs money, and that costs money to get a return on that, too. So, it can increase bills again in that medium term?
LEIGH:
Absolutely. But you come back to the household calculus. It is now good economics for a household to pay the up‑front cost of putting solar panels on the roof in order to reduce energy bills. And what holds for a household, holds too for a nation, in this case, although we're looking at much larger scale investments.
CONNELL:
Yeah, and whether you can get that larger scale online in time. And anyway, there are other things to talk about. Rent rises. Pretty significant, Brisbane 8.9 per cent. What do you make of the state governments going down the path of rent caps? As an economist, someone that studies these sorts of things, is that a viable pathway?
LEIGH:
Well, long term, we need more supply into the system. I think all economists agree that it's important to improve the housing stock. As a government, we've been investing in social and affordable housing. We had that $2 billion investment in June. But the big action will come from the Housing Australia Future Fund and the ability of that fund to turbocharge investment.
CONNELL:
And what about short‑term? Because the short‑term approach from the Premiers is about rent caps. Is that a viable solution?
LEIGH:
We certainly need to have a conversation across the states and territories about renters' rights, and the Prime Minister has led that through National Cabinet. Recognising, that renters' rights in Australia aren't what they are in other countries. In many other countries, you don't have to ask the landlord to have a pet or to put a painting on the wall. In Australia, renters' rights are limited, so getting that balance right is going to be important.
CONNELL:
Still not caps, though. What do you think of caps as an economist?
LEIGH:
Look, some jurisdictions have limits on how frequently rents can be increased, but they tend not to have overall caps on the overall increase.
CONNELL:
Victoria is looking at both, though. Cap on the increase and only increasing every two years. Is that just going to actually hurt? And I should mention more taxes on people's investment properties. Is there a risk? Do governments need to be careful about going too hard on this because rental supply matters as well?
LEIGH:
Governments need to be looking to all of the economic evidence there. Ultimately, this is going to be a call for states and territories, Tom, and I think they're aware of that delicate balance and all working to get more supply on board. The only people who aren't supporting getting more supply on board are the Liberals, the Nationals and the Greens who are ganging up in order to stop the Housing Australia Future Fund. Everyone else in Australia ‑
CONNELL:
Is there evidence, though, that rent caps don't actually work?
LEIGH:
Well, certainly we need to make sure that there is economic evidence being brought to bear. It depends on the kind of model you're talking about. I don't think we can give a sort of blanket answer on these sorts of policies.
CONNELL:
What Victoria has on the table and is enacting, what's the evidence on whether that works?
LEIGH:
I'm not across the Victorian model, Tom. I'd urge them to make sure they've done the proper modelling there and they would be aware that the long‑term challenge is getting more housing supply. The Victorian Government, as with other jurisdictions, wants the Housing Australia Future Fund to pass.
CONNELL:
What do you think of the US policy where instead of having deductibility for investment property for the interest on a home loan, it's on the property you own?
LEIGH:
The mortgage interest deduction is not a beloved policy by most economists, Tom. I think there was support from Democratic and Republican economists for scaling that back. It tends to be regressive. There's not much evidence that that's the best way of spending scarce taxpayer dollars.
CONNELL:
Okay, so flipping that from investment to the home that you own, you wouldn't be a fan of that?
LEIGH:
I don't think that would do much to increase housing supply. So, if your question is, how do you encourage more supply in the system, really the sorts of targeted incentives that the federal government has been working on in conjunction with the states, the build‑to‑rent changes that came through the budget, that's the sort of thing we're looking at to boost housing supply.
CONNELL:
Andrew Leigh, thanks for your time.
LEIGH:
Thank you, Tom.