TREASURER:
Well, this morning, the Reserve Bank cut interest rates by another twenty-five basis points, taking Australias official cash rate to 4.5 per cent. The major trading banks have all indicated that they will be following suit, bringing the standard mortgage variable interest rates down to 6.3 per cent. The standard mortgage rate at 6.3 per cent is the lowest rate in Australia for more than 30 years. The lowest rate since men walked on the moon in the late sixties. And that is good news for home buyers. What it means is another $20 a month cut on a mortgage of $100,000. And since the Government has been elected, when mortgage interest rates were at 10.5 per cent, means that on a standard mortgage of $100,000 people are now saving $350 a month of after-tax money. So, this is good news for home buyers, who will get a saving of another $20 a month, it is good news for business, because it will reduce their interest rates, and give business the opportunity to increase confidence, and it is going to be good news for consumption.
Now, in relation to the economic outlook, we have got an interesting thing happening at the moment. The world economy is looking very fragile, particularly in the United States. The United States economy is looking quite fragile.
It had stopped growing before the terrorist attacks in New York. It is probably now heading into negative territory. Japan is back in recession and Europe is very sluggish. But, the goods news from Australias point of view, is that our domestic economy is showing some strength. We are yet to have the housing cycle kick into the National Accounts figures, and the National Accounts figures for the first half of this year were growing above 3 per cent. So, I dont want to underestimate the international situation, it is serious, and it will make times quite difficult. But, from Australias point of view, we head into this international down-turn as well placed as we could be, with growth in the domestic economy still quite strong, and, with the housing and construction cycle ready to kick back in over the next two quarters. This interest rate cut, another $20 a month off the mortgage, adding to the $350 per month saving since the Government was elected, together with the First Home Owners Scheme, that will be good for the construction cycle, and that will start working its way into jobs in the last quarter of this year. And that will keep domestic demand solid in the face of a very severe international down-turn.
JOURNALIST:
Treasurer, what happens next year when the Home Owners Scheme cuts out, and all the forward buildings, all the buildings (inaudible)
TREASURER:
The First Home Owners Scheme is a grant of $7000 which lasts for all buyers of their first home, and that is $7000 continuing. For people who apply to construct a home, or buy a newly constructed home, there is an additional $7000, if you make that application before the end of this year. And the house has to be constructed over a twelve month period. So, the grant is a lead, a long time before the construction. That construction will be going all the way through next year, and it will be only reflecting, I believe, in jobs in the home building industry towards the last quarter of this year and probably, more so, in the early quarters of next year. So, there is a considerable run left in the house building and construction cycle. The figures that we have sought, that we have seen for the first two quarters of the year, didnt even factor this in. So there is, as I said earlier, a bit of strength coming in those quarters. Just at the time when you want it to counteract an international down-turn.
JOURNALIST:
House prices have risen by much more than the cut in interest rates. Is the affordability sliding away?
TREASURER:
No, I think if you look at the housing affordability indexes, that they are as good as they have been for a very long period of time. That is because interest rates are so low. If you wanted to find an interest rate at 6.3 per cent, you would have to go back to the sixties, more than 30 years ago. Some of you werent even born then. And, we just havent seen interest rates at 6.3 per cent in the recent past, in the 30-year-past, and that means that people can really afford to buy houses in a way that they have not been able to for three decades. So housing affordability indexes are quite good, and, even in the five years since this Government has been elected, if you are on a standard $100,000 loan, you are now saving $350 a month. That is after-tax money, thats, for most people, $700 a month of salary, you would have to get $700 a month extra in salary, five years ago, to be in the same position as you are today.
JOURNALIST:
Treasurer, with the (world inaudible) economy (so fragile as you said inaudible) will the Government have to review its economic forecast?
TREASURER:
The Government forecast in the Budget was for three and a quarter per cent growth. And in the first half of this year we were growing around that, probably a bit more. You have got two counter-acting factors occurring at the moment. One is, the United States economy is looking significantly weaker than most people expected. And you are seeing the US bubble burst. Really youre seeing US bubble burst in relation to its equity markets and in relation to its growth. But, conversely, the domestic conditions in Australia are a little bit stronger than people thought. We had a strong growth figure for the June Quarter. The construction cycle is yet to kick in, retail trade has been quite solid. So, you have got these two counter-acting affects. As the world turns down, Australia has begun to strengthen a bit, and that is precisely the way you would want it. And the best growth forecasts are still those that we put down in the Budget.
JOURNALIST:
(inaudible) here in Melbourne. So, do you deny then, that property (inaudible)out of reach (inaudible)?
TREASURER:
Well, people are still buying, arent they? And I see that real estate agents are still talking about demand growing. Whether theyre right or whether theyre wrong, I guess the next few weeks will prove to be the case. But, the fact that interest rates are now so low, has put housing within the reach of people who would not have had it before. You have only got to go back 10 years, and you were paying 17 per cent on your home mortgage interest rate, which, on a $100,000 loan was $17,000 a year. And now you are paying 6.3, which on a $100,000 loan is $6,300. So, if you want to go back 10 years ago, you would have to find $17,000 of after-tax money for your mortgage. Which, at a tax rate of 50 per cent, means that you would have to earn $34,000. Today, $6,300, which, on a 50 per cent tax rate, $13,000. So that is $30,000 of salary income, better off. When you add to that the First Home Owners, in particular, up to $14,000, which, for some first home owners, can constitute all of their deposit - this is putting home ownership back in the reach of many, many Australians. One of the reasons why prices are moving up, is many, many Australians are getting into the market. If housing gets out of the reach of people, prices would be falling, but it is because it is within the reach of so many people, so many people still wanting to buy, that demand is greater than supply, that you have seen movement in relation to house prices.
JOURNALIST:
Are there any (inaudible) to extend that $14,000 grant?
TREASURER:
Well, I have said to people before, there will always be a $7000 grant, for first home owners. And that applies whether the home is new, or whether you are buying an established dwelling. There is an additional $7000 if you want to buy a home to be constructed over the next twelve months.
And I have said to people, if you want to be sure of getting that additional $7000, make sure you enter into a contract before the end of the year. Then you can be sure you will be getting it, and if you dont there is no guarantee that you will get it at all.
JOURNALIST:
Treasurer, the past few weeks there have been quite a few job losses in Victoria. You paint a very rosy picture of the future for the economy, but isnt that indicating that business is concerned about its future?
TREASURER:
Well, in Victoria you have had the Ansett, particularly the Ansett issue. And I think the principal thing I would say about Ansett is, I think it is becoming pretty clear that that company was not managed properly. I think if you want to look to the real causes behind what happened to Ansett, I think the managers there, have a pretty heavy responsibility. Now, this is obviously going to be worked out in the courts. But, there is nothing that can save a company from bad management. That is the point. And where you have a situation where the directors, may well have not observed their liabilities, it is up to the courts to investigate. I have made it entirely clear, by the way, that as far as the Government was concerned, then all of the legal proceedings that can be brought by the corporate watchdog, ASIC, should be brought to bear. I am not going to prejudice the outcome of those matters, but, they should go to the court. And, as far as the Government is concerned that is the proper place for those matters. There has been some re-structurings in relation to some other companies, but, I think in relation to Ansett, we have got to acknowledge, and I think even the management would acknowledge, that there was a pretty severe failure of management in relation to that. Now, I think when the full facts are known, the courts will be able to tell us whether or not they observed all of the things that they should have been doing.
JOURNALIST:
Is Qantas acting in a predatory way by bringing (inaudible)?
TREASURER:
Look, I think that we have got to make sure that we have full capacity on Australian airways. Qantas is not bringing in foreign planes, as I understand it, for domestic routes. The Government has made it clear that it
JOURNALIST:
They could have been hiring Ansett planes.
TREASURER:
Well, the Government made it pretty clear that it didnt, wouldnt, allow Qantas to have foreign planes on domestic routes, and to my knowledge it is not. We made that very, very clear. Should Qantas have leased some of the Ansett planes? Well, as I understand it, it was looking at leasing some of the Ansett planes, I am not sure why that broke down. We actually thought it would have been a good idea if it did. From the Governments point of view, we wanted to see Ansett have a go at getting further flights in the air. That is why we have indemnified the administrators for any ticket sales. And I hope that proves to be a successful business.
But, in the medium, to longer term, unless the administrators can find a buyer that can actually come in and put some money into that airline, and run it, and make a profit, then you are not going to see those flights get back to anything like the extent that we expected from the previous Ansett. What Ansett needs, is, it needs a buyer, and it needs money, and unless you can find a buyer who is prepared to put money into it, then you are not going to have much of a future for the Ansett airline or for its employees.
Okay. Thanks very much.