JON FAINE:
Mr Morrison, good morning to you.
TREASURER:
Good morning Jon, good to be here in Melbourne.
FAINE:
Do you agree that we have a housing affordability crisis. Is that a word you use?
TREASURER:
I don’t know if crisis is the word I use but I do know that there are many Australians, a large numbers of Australians, who are really finding it hard if they are looking to buy a home to get into the market – particularly in Sydney and Melbourne. In Melbourne, in fact, if you look back over the last 15 years the prices have actually grown more here than they have in Sydney.
FAINE:
Nobody listening to you will be surprised. If it is a crisis now it was a crisis before – for the last couple of years nothing has been regarded as needing to be urgently addressed. Why suddenly now?
TREASURER:
Well, I have believed that we have needed to address this for some time. I had similar views when I had responsibilities as Social Services Minister. I have been around these issues for many years, even going back to before the time I was in politics. The second point I was going to make, Jon, is this isn’t just about first home owners. It is also about the 30 per cent of Australians who rent – the 5, 6 per cent of people who are actually in social housing in this country. We have got a quarter of a million people in this country who are accessing homelessness services. So, when you talk about housing it is about the roof that goes over everybody’s head and that is a key focus of my speech today.
FAINE:
On your watch we have seen inequality in Australia grow to unprecedented proportions: 40 per cent of Australians are living pretty much pay cheque to pay cheque and inequality, wages growth is absolutely stagnant, cost of living is much higher for many families than they can possibility manage to keep up with. Under your watch inequality has reached unmanageable proportions in Australia.
TREASURER:
I’m not sure what figures you are basing that on Jon because the key measures – which is called the Gini coefficient – which looks at the comparison between those who have income and wealth in the top bracket versus the lowest bracket has remained relatively stable. Secondly when compared to the OECD when you look at the top 10 per cent and the lowest 10 per cent, we’re actually below the OECD average. These issues are actually greater in the United States and the United Kingdom. That said, wages growth in Australia has been incredibly modest. That is not unique to Australia.
FAINE:
We now have the working poor – a concept that was quite alien to us only a generation ago.
TREASURER:
I want to see Australians earn more because only by earning more can they actually deal with the cost of living pressures that are coming down upon them. Now, I am very conscious of that – extremely conscious of that. People can’t have better wages, more hours, so they are bringing more income home, unless the economy continues to strive towards growth and so businesses can actually make a dollar. You don’t get a wage increase in a business that is going backwards and you don’t get more hours in a business that has closed. So, the way to actually boost people’s wages is to focus on the things that grow our economy. That is why all of our plans focus on growing the economy.
FAINE:
So, why contract government expenditure when government is a major driver of the economy?
TREASURER:
Growth in government expenditure is just under 2 per cent. When we came to Government is was over 3.5 per cent. The rate of growth in debt when we came to office was around 34 per cent. We have reduced that by two-thirds. So, we are getting expenditure under control but the size of the government has not contracted. We have managed to get the government expenditure, I think, much more under control than it was previously. A big part of that is targeting how we spend our money better. One of the frustrations I have when I look at what is happening in social policy is it seems the only benchmark as to delivery is how much are they spending. You take the National Affordable Housing Agreement. We spend $1.3 billion of federal taxpayer’s money on that every year yet we have seen on what is supposed to be assisting we haven’t seen any improvement – in fact the reverse [inaudible] low income households under rental stress. We haven’t seen Indigenous Australians actually increasing their rate of home ownership which is what it is supposed to deliver. We have actually seen the number of public housing dwellings go down by 16,000 since that agreement was started and we have spent $9 billion.
FAINE:
Over a very long period of time.
TREASURER:
Since 2008. So, $9 billion and we’ve got less.
FAINE:
And it is 2017, I remind you Treasurer.
TREASURER:
Sure, but we have spent all that money…
FAINE:
It’s a billion dollars a year.
TREASURER:
…and there is less support. So, what that says to me is just shovelling money out the door, Jon, doesn’t solve problems. It might make people who issue press releases feel better or those who have advocated for the higher spending but what I am interested in is making sure that you spend that money well and you get results.
FAINE:
And to get results you have to actually get rooves over people’s heads.
TREASURER:
Yes.
FAINE:
Population growth is booming. The cost of building housing is booming and running ahead in fact of many other areas in the economy. You have got a major speech today, different newspapers have been given on the drip different little angles and perspectives on it. Let’s go through a few of them.
TREASURER:
Sure.
FAINE:
First of all you say; absolutely, I am drawing a line in the sand, we are not doing anything about negative gearing. Can we just get that clear from the start?
TREASURER:
Those big changes to negative gearing ignore one key point and that is 28 per cent of Australia’s housing stock is owned by mums and dads. Now, who is going to replace them if you take them out of the market?
FAINE:
Of rental housing stock?
TREASURER:
28 per cent of Australia’s entire housing stock. So, if you are living in a rented house there is likely one of two owners – majority, it is a mum and dad investor using negative gearing. Or you are in public housing or community housing which is only about 5 to 6 per cent of the entire housing market. So, negative gearing has been around for a century. It is an established structural component of Australia’s housing market.
FAINE:
But is it one you want to tinker with?
TREASURER:
If people want to go and pull the rug out on that, who do they think is going to put a roof over people who are renting’s heads and what do they think the impact of withdrawing that is going to be on rents? You have got people in the rental market…
FAINE:
You can adjust it, you can tinker with it, you don’t have to pull the rug out.
TREASURER:
That is not what the Labor Party is proposing. They are proposing abolishing it.
FAINE:
I’m not talking about what they are talking about. I am asking about what you want to do.
TREASURER:
I am saying scalpels not sledgehammers. Scalpels not chainsaws.
FAINE:
Do you want to change it at all?
TREASURER:
What I have made really clear is the best way to deal with the investor side of this debate is what the regulators have been doing. Just the other week, APRA, the banking regulator put in new controls on interest only lending. Now, interest only lending is around 40 per cent of the book of flow coming onto new mortgages.
FAINE:
And we both know why it has boomed and become so popular because you can maximise your tax deduction and never pay off any of the principal.
TREASURER:
And that is not a good thing in terms of managing overall household debt and that is why the regulator, with strong support from the Government, has acted on the interest only loans. Now, I think we should see how that works. Now, that is the scalpel. That is the thing that you can act in this area without running the risk of causing a housing shock. If you have a housing shock in our economy then that does threaten jobs, that does threaten wages.
FAINE:
That is the only change to negative gearing you want to see at the moment?
TREASURER:
The regulators are the preferred way of dealing with this issue. We work closely with them and it is an acknowledgement that there are demand side factors at play but the principal factor whether it is the Reserve Bank Governor or anyone else, we all agree that the principal issue is supply and demand and there needs to be more housing – and I am saying not just for first home buyers, but for renters and everyone else.
FAINE:
So, politics is about perceptions as much as realities. The perception is that there are people with massive empires of negatively geared houses. Multiple, dozens of homes – you’re not interested in capping the number of homes or the amount that you can claim?
TREASURER:
Let’s go through the figures: 2 million people who own investment properties in this country, around 1.3 million of them negatively gear, 90 per cent of them have two properties or less.
FAINE:
One or two properties.
TREASURER:
Yes, one or two properties.
FAINE:
Most people can’t even afford that. I understand your point you are saying that there is only a small number of people who have these big negatively geared empires.
TREASURER:
No, my point is mum and dad investors aren’t the people you are talking about.
FAINE:
It might be a small number of people.
TREASURER:
Two-third of those who negatively gear have a taxable income of $80,000 or less. That is who owns our rental stock – mums and dads.
FAINE:
Do you have a problem with people who have 10, 15 houses all negatively geared and they just keep building an empire.
TREASURER:
I have no problem with people putting a roof over people’s heads because that is the structural nature of our housing market and if you take away, right now, particularly in this economy and the sensitivities that are there. If you take away the ability to put rooves over people’ heads in the rental market you are playing with fire and you have to be very careful.
FAINE:
You don’t have to take it away you can say, as of tonight’s Budget no more. We will only allow you to cap two or three or we’ll leave it at that or you can cap a proportion of your income or whatever it might be – you can grandfather it.
TREASURER:
Let’s just follow that logic through. So, you have got a market remember. Negative gearing applies all across Australia. Not just in Sydney and Melbourne. So, you have got markets in Perth where the prices have been going down, or markets like South Australia which are flat and Tasmanian which have been very soft.
FAINE:
Absolutely.
TREASURER:
So, in those markets you actually want investors to be going in and developing new stock. So, if you go and put an arbitrary cap at a national level then you actually run the risk of damaging markets further in Perth and South Australia and Tasmania and North Queensland and places like that. This is why I say the chainsaw approach of just hacking into negative gearing as some proposal and think it’s some silver bullet solution to housing affordability is reckless one, but frankly I think it is cruel Jon. It is saying to young people, who I know, in my own electorate in Sydney, you know people here in Melbourne, right across our two biggest cities, where 40 per cent of Australians live – in Sydney and Melbourne. They are desperate and they are feeling like they are losing hope.
FAINE:
Sure – that’s the two-speed economy.
TREASURER:
And to promise them something, you change a tax and therefore you can buy a house wherever you like at the price you want and all the rest of it as Labor are suggesting, I just think is cruel. This is a complex problem which requires comprehensive measures, right across the spectrum, and you can’t expect results over night. In the past, failure to address some of these issues has led to some of the problems we have today, particularly on supply. I commend whether it is the Victorian Government here on the work they have down on supply, the NSW Government what they are doing on supply. I think some of the initiatives that Tim Pallas has been looking at here are very interesting. That doesn’t mean I agree with them all. Tim is sometimes a hard guy to compliment from me. He never seems to take a compliment but I think what I have sensed among the treasurers around the country…
FAINE:
First time for everything.
TREASURER:
…is a willingness to try and work together to address this issue. This isn’t about the Commonwealth and states having fights. It is about solving real problems.
FAINE:
I don’t want to get stuck on negative gearing so moving to other things; incentives for older people to sell their homes without it affecting their pension entitlements for instance?
TREASURER:
That is speculation and I am not going to enter into speculation about Budget measures. What I do know is that there are a myriad of factors and the productivity commission did some very good work on this some years ago about when and why people decide to downsize. Most of the reason is just relating to the fact that people want to stay where they have lived most of their lives, where their friends are, where their church is and these sorts of things.
FAINE:
But given the prices in Sydney and Melbourne in particular, if you do sell, even a modest house now you might deliver a windfall and you move somewhere smaller you might still deliver a windfall which affects your future pension. No one wants to do that.
TREASURER:
The cost of making those sorts of changes is quite exorbitant and…
FAINE:
And a cost to the Budget.
TREASURER:
That is right and we have made changes in that area as you know and they were hard decisions to have to make but when you have an ageing population you need to make sure that your pension costs are sustainable. When it comes to people downsizing, often the kids don’t want the parents to sell the place either. There is a raft of issues that the Government can consider. There was a really good study done in NSW when Rob Stokes was the Planning Minister and he was looking at the number of empty bedrooms in houses right across Sydney. In many of the places they were, in parts of Sydney where there was a higher older population. So, it is a reasonable issue to address because downsizing actually frees up housing supply. The other area that frees up housing supply is foreign investors coming in, buying units basically as a form of passive investment, not tenanting them and taking stock out of the market. Now, I can tell you that is something that has got my attention as well.
FAINE:
And the Victorian Government are introducing an empty premises tax. Are you looking at something like that on a national scale?
TREASURER:
I think it is a big issue about what is effectively latent stock sitting out there in the market not being available in the rental market. The point I was going to make about the rental market was this, Jon, when you have people who can’t get into the home buying market, they tend to be on a higher income than those who are in the rental market more generally. What you get is you get a domino effect and you get people remaining in the rental market longer which puts more pressure on those who are reliant on, and there are a lot of Australians who will always rent. There is nothing wrong with that. That is the set of choices they have available to them. But when you have more people remaining in the rental market for longer on higher incomes than that actually squeezes out people who are on lower incomes. And even though rents have risen quite modestly, just over 2 per cent here in Melbourne and less than that in Sydney that doesn’t mean there aren’t rental affordability challenges for people on lower incomes.
FAINE:
There clearly is. So, you are hinting at something – is it a foreign investment control? A tightening?
TREASURER:
I am just talking about the facts Jon and the Budget is in May.
FAINE:
Sure, but what powers, I’m wondering what powers you actually have? You have tinkered with people buying real estate, you have looked at agricultural investment and you have looked at other things.
TREASURER:
We have been quite tough on investment in residential real estate. We have ordered divestments of over $100 million worth of properties already. We have tightened up the rules, we have increased the fees and we are watching this much more closely. I think it is a big part of this issue particularly on the demand side and it is an area that has my very close attention.
FAINE:
Superannuation funds being offered the chance of what is being called a mutual obligation super plan for first home buyers. Now, you can only spend your super once. If I put some of my super into helping me buy a first home – it’s not there for my retirement.
TREASURER:
I have seen those sorts of models, they exist in other countries. Let me talk about what the issue is that I suppose we have a challenge of. We have got more and more people going into retirement who have larger mortgages or don’t own their homes and that means by the time they are going into retirement, now Saul Eslake pointed this out the other day…
FAINE:
So, your super comes in – first thing you do is pay off the mortgage?
TREASURER:
And that is one of the predominant reasons for people using their lump sums when they go into retirement. Now, that has an impact on their retirement income. I think when you look at people’s retirement incomes you can’t look at it in silos. You have got to look at the big picture. So, one of the reasons why home ownership is such a positive in a national context – it doesn’t matter whether you are in Perth or Sydney or Melbourne or wherever – is that when people go into their retirement, if they are in a position to be able to own their own home and hopefully be able to pay their mortgage well down, they are in a much stronger position. Actually, the pension assets test, which doesn’t obviously and wouldn’t include the family home, but if you do own your own home the test is a little higher. So, people owning their own home, it’s a good thing for the economy and we need to try and do things that put people in the best position to achieve that during the course of their working life.
FAINE:
Have you seen the Andrew Robb report into the election campaign?
TREASURER:
No, that has gone to the Federal Executive I have seen reports about it.
FAINE:
You haven’t seen the actual report?
TREASURER:
It’s not a report that has been provided to me and it wouldn’t I am not on the National Executive. I am the Treasurer. My focus is on what is going to go in the Budget.
FAINE:
But one of the things that has emerged from the reports of the report is that your Government needs to be on a perpetual campaign footing.
TREASURER:
Our Government needs to be on a perpetual governing footing. The best way to convince the Australian people to return us is to do a good job of government and that is what I am focused on, that is what the Prime Minister is focused on. It’s the Opposition; it is Bill Shorten who goes around with cynical politics every day. What we are focused on is making good decision, dealing with difficult issues, whether it is the issue of housing that we have been talking about today – including for those on low incomes – or it’s talking about energy affordability for families, about small businesses and how they can do better…
FAINE:
Is there a tension between governing and campaigning?
TREASURER:
I think there’s a natural tension. Governments that focus on their job first and foremost in the interests of Australian, I think put themselves in a far better position. When people sit back and they look at how Bill Shorten operates and shifts position on every issue, I mean, he was for the School Kids Bonus, he was against it, he was for the Pension Assets Test, then he was against it, then he was for it again. I mean, taking opportunistic political positions on all of these hard issues I don’t think commends you to being the Prime Minister of the country. Our Prime Minister is very much focused on those serious issues. He’s in India at the moment dealing with one of the biggest markets in the world which are a key part of our economic future and ensuring that the jobs and wages that will flow from that relationship will be there for generations.
FAINE:
Is the Federal Budget going to need to find additional money for defence expenditure? All the news on the weekend was very grim and the world is on edge.
TREASURER:
Well, we have a two per cent marker on defence expenditure and we continue to keep that commitment. We’re the Government that actually made decisions on defence, whether it was on submarines, whether it was on the frigates, whether it was on the offshore patrol boats. All of this is creating a defence industry in this country again which not only serves our national security interests, but when you look at how the defence industry operates…
FAINE:
[inaudible] it’s like watching sausages being made isn’t it. A more inefficient instrument of government we’ve yet to see.
TREASURER:
The technology and the advanced manufacturing, and the innovation that goes into defence contracting is extraordinary.
FAINE:
C’mon, submarines that can’t go to see. Land transport tanks that can’t be used because people suffocate virtually…
TREASURER:
I’m talking about the thousands of jobs, whether it’s in South Australia, or Queensland, or Western Australia, across the supply chain that would be beneficiaries of this Government’s defence procurement plan; our defence industry plan which is supporting advanced manufacturing and technology and supporting research and supporting science, linking up with overseas partners. That’s what drives growth, Jon, that’s what supports people’s wages, that’s what actually gives people a future and we’re doing it.
FAINE:
A $2 billion missile defence system is going to be allocated for advanced defence of Australia in the threat of, is it who in particular, is it China we’re worried about now?
TREASURER:
Jon, all of these things are set out in our white papers as you know, the threats and the risks that we have to mitigate against call for sober and responsible defence planning and that’s exactly what we’re doing. The Labor Party did nothing on defence procurement for six years, they just put us into a valley and allowed the capacity of our defence industries to run down. We’ve reversed that, Christopher Pyne is driving those investments and driving the investment into the industries and skills development in those industries to ensure that those families have jobs for many years to come and beyond.
FAINE:
Since you’re in Victoria you’re in a good mood because your team beat the…
TREASURER:
Sharks beat Melbourne in Melbourne!
FAINE:
The Sharks beat the Melbourne Storm in Melbourne yesterday, I’m sure that’s put you in a good mood.
TREASURER:
Very good.
FAINE:
Do you have time to go and see the Treasurer who you had a kind word for before and talk to the State Government about their share of Commonwealth infrastructure and GST money which they say you continually dud Victoria on? We’ve got projects galore, we’ve got infrastructure needs galore, we’ve got rail, we’ve got road, we’ve got everything needing to be done and there’s just not enough money for it.
TREASURER:
I’m confident we’re going to be able to work through all of those issues, we resolved the issue around the $1.5 billion around the East West Link, that money is now being put towards projects like the Monash and so on. There were reports of a billion dollars or thereabouts, I read today in The Herald Sun, and they’re making the argument in The Herald Sun today about the need to work together with the Commonwealth…
FAINE:
There’s the proceeds of the sale of the Port that the Commonwealth’s supposed to match…
TREASURER:
There are reports of more than that. I mean, we’ll work through that. Let’s not forget, we still have $3 billion as a contingent liability on the books for the East West Link. So, when you include all of that, that puts us at well over 20 per cent of the land transport infrastructure spend. So, we’re keen to ensure that Victoria has the projects and has the support that’s needed. I mean you’ve seen the speculation about the Tulla Link, none of these projects happen though unless the Commonwealth and the State can actually come and work together. That was one of the great frustrations about the East West Link. We were very committed to that project – remain committed to that project – State Government wasn’t, they spent a billion dollars on building a road that was never built, that’s not a good use of taxpayer’s money. So Darren Chester, the minister responsible here, and Paul Fletcher and myself, we’re all just trying to be very constructive to work with the state to get projects done, but they’ve got to be the projects from the Federal Government’s point of view that lift national productivity. It’s just not dole the money out in equal portions, it’s what’s going to boost national productivity and let’s invest in those projects today.
FAINE:
Scott Morrison, I’m sorry about the weather, but enjoy your time in Melbourne today and thanks indeed for being so expansive on your housing affordability plans in particular.
TREASURER:
Thanks Jon, thanks for your time.