HINCH:
On the line the Federal Treasurer, Mr Peter Costello. Good afternoon.
TREASURER:
Good afternoon Derryn.
HINCH:
What can this Productivity Commission actually achieve? The Prime Minister has already said that he doesn't think the price of housing will come down, won't slash the cost, what are you hoping to achieve?
TREASURER:
We want to have a look at some of the factors that are putting up prices against first home owners. And I think it's important to be very clear about this. If you do have a house and the price is rising, you don't worry too much because you are tending to benefit from the price rises. The people that worry the most, are people who don't have houses. So, we want to look at the factors that are making those prices high for first home owners, and it will look at things like, is there enough land being released, are the taxes and charges making prices higher than they need to be, are there any other factors that are within the ability of government to influence, so that the first home owner can get a start in the market?
HINCH:
The thing though, I mean GST doesn't apply on existing houses, only on new houses, right...
TREASURER:
Yes.
HINCH:
...on building supplies and labour etc, and on the other hand though you've got the State Governments reaping billions of dollars, hundreds of millions of dollars in stamp duty.
TREASURER:
Yes. It's an interesting point this one about GST because, as you said there is no GST on established real estate. GST applies to the construction of new houses. We think that as small a number as 15 per cent of first home buyers are buying newly constructed houses. Let me turn that around the other way, 85 per cent of first home buyers aren't paying GST. So I see that a lot of the States have been out saying, oh this is a problem of GST, well for 85 per cent they are not paying GST.
HINCH:
But who says that a 22 year old couple have to have a home, have to have a new home, why can't they rent? You know and I know, people in my age group waited until they were 35 before they bought a house.
TREASURER:
Well, the majority of them of course don't buy a new home. The majority of first home buyers, we know from the information I just gave you, up to 85 per cent don't buy a new home. What they might buy is they might buy a unit or a flat, they might buy a house which is in need of renovation and of course there is no GST on that; it gives them a toe-hold in the market, those prices are going up, and as they become established in the market, they are able to improve over the course of their life their standard of housing and in fact that's what most people do. Most people don't buy a new house as their first house. And this...
HINCH:
Yeah but who says a 22 year old couple have to own a home in the first place?
TREASURER:
Well, they don't; many 22 year old couples decide not to. And if they decide not to, that is fair enough, nobody's saying that they have to own one. But, what we're looking at is that group of people who do want to buy one who are outside the market and are finding it hard to get in. Now, as I said before, if you are already in the market Derryn, the fact that the prices are going up is probably something that's making you pleased rather than unhappy, and I want to say to all of the people who do own a house, this is not some plot to reduce the value of your house, but it is the chance to look at that group to see if there are any barriers that the Government should be addressing.
HINCH:
Did you think when GST came in that State Governments would back off a bit on some of the things like stamp duty?
TREASURER:
Well, what I wasn't...
HINCH:
That's what I thought was going to happen.
TREASURER:
...yes, yes, no, what has surprised us is that the principal reason why house prices went up was that interest rates came down. As interest rates came down, we are now at 30 year lows, and you know, we have been running our economic policy to get low interest rates. As interest rates came down, because they were lower, people could afford to buy more expensive properties. And what that did is that it kicked a whole lot of houses that were previously being taxed at moderate stamp duty rates, $6,000 into higher brackets and they are now being taxed at $16,000 or $17,000 for the average house under stamp duty. We weren't expecting that the States would take this enormous windfall out of stamp duty, but they did. In fact, we introduced, we the Commonwealth Government introduced the First Home Owners' Scheme, to give a grant of $7,000 to people who are buying their first home. We pointed out to the States that this would bring new people into the market, there would be more house purchases, that the States as a consequence would get more stamp duty and would they please look at that to try and relieve some stamp duty for those first home buyers. But none of them did.
HINCH:
Yeah, and are not expected to?
TREASURER:
Well, you know, so we have a situation now, this is the frustrating thing, we have a First Home Owners' Scheme whereby you're given $7,000 to buy your first home and the stamp duty is $16,000. So what do they do with their First Home Owners' Grant? Go and try and pay off some of their state stamp duty. It is a pretty frustrating merry-go-round out there.
HINCH:
But as the Prime Minister has said though in the past couple of days that this Inquiry, this Productivity Commission Inquiry, is not likely to slash the cost of homes is it? Because of supply and demand.
TREASURER:
Well, if you agree with the principle that I have just put, that one of the reasons why prices are high is interest rates are low, and we have no plans to put up interest rates, then of course that will still be one of the main driving factors. But you can look at the supply side of the equation. It is said, and I don't know what the answer to this is, Derryn, which is why I think we should have an Inquiry. It is said that not enough new land is being released for urban development. They just aren't releasing enough and as a consequence, it is hard for the builders to get land to build new houses. Now, undoubtedly if you increase the supply of housing prices would come down to some extent. But this is why we need a Productivity Commission Inquiry to look at that point.
HINCH:
Well, I know you have got a plane to catch, I thank you for your time.
TREASURER:
It's great to be with you Derryn. Thanks.
HINCH:
Thank you. Good bye.
TREASURER:
Good bye.