TREASURER:
Well, Cabinet today approved the establishment of the First Home Saver Account. And this, of course, was a key election promise. This is a modest long-term measure to assist more young Australians achieve their dream of home ownership. And of course we'll have a lot more to say about housing affordability in the months ahead, and of course I'll get Tanya to say a few words about that. Of course, Tanya is the first Housing Minister that this country's had in a long period of time and I guess that is yet another demonstration of our government's concern about housing issues more generally.
Now, today we've put in place the administrative arrangements to have the accounts up and running from the second half of the year. Young Australians saving for their first home will attract a government contribution equivalent to a 15 per cent discount on their marginal tax rate. For example, from the 1st July 2008, a couple each earning average incomes and saving for their first home, putting aside 10 per cent of their incomes will be able to save a deposit of more than $85,000, after 5 years of disciplined savings. Now, that is up to $14,000 more than they would have saved otherwise depending on returns.
Now, the First Home Saver Accounts signed off by Federal Cabinet today, have been strengthened since their first announcement during the election campaign. Improvements include boosting assistance for low income earners through the provision of a minimum 15 per cent government contribution on after-tax contributions of up to $5000, and delivering a streamlined upfront government contribution directly into accounts rather than through a more complex system of salary sacrificing.
Now, First Home Saver Accounts are part of the Rudd Government's five-point plan to win the war on inflation and to encourage private savings and also to put downward pressure on inflation and interest rates. This initiative will help boost national savings with the accounts anticipated to hold around $4 billion in savings after 4 years. With those few words I will ask Tanya to say a few words.
PLIBERSEK:
Thanks very much, Wayne. We've seen a marked decline in housing affordability in recent years. Indeed, in 1996 the average home cost about 4 years worth of the average wage. And more recently it's around 7 years worth of the average annual wage. What that means is that fewer young people than ever are buying their own home, with the proportion of 18 to 34 year olds who are buying their home, falling by 11 per cent between 1994 and 2004.
This problem has emerged over many years and we know there is no overnight solution to the housing affordability problem, but we do believe with a suite of measures we can improve housing affordability overtime.
This First Home Saver Account is designed to help that one group of people, first home savers, get into the market in the first place. The low income measures that Wayne has described to you, which are a change to what we proposed in the election campaign, are particularly useful and will make a big impact on people who are just starting out in the workforce and hoping to save a little bit of money, not to buy a home in the next few years, but perhaps in 10 years time or even longer.
Wayne also mentioned that we have a number of other housing affordability measures. This First Home Saver Account is one of them. Our Housing Affordability Fund which is a $½ billion fund that we will use with State Governments and Local Governments to improve the affordability of new homes for purchase. We've also got our National Rental Affordability Scheme that will see up to 50,000 new rental properties built over coming years. We have spoken about the release of excess Commonwealth land and a Housing Supply Council. All of these measures are designed over time to begin to address the very serious issue of housing affordability.
JOURNALIST:
Mr Swan, the Treasury seems to have some concerns about this scheme in the Red book [inaudible]. There are some details which still need to be worked out. Is [inaudible] led to the change in the upfront contributions?
TREASURER:
There's no doubt there have been refinements to this scheme which have improved it, particularly, for lower income earners, but also in terms of simplicity, because what we wanted to do was to have a scheme that was simple, that was easily understood. And given the benefit of all of their [Treasury] experience in administration, I think the scheme is now simpler. It puts a lesser burden on employers and delivers the money to those people who deserve it, and it does it promptly. And I think the scheme has been enhanced by the participation of the Treasury.
It is one of those things that you find when you come to government that the quality of the information that's available in all of those people that advise us is much greater than is normally available from those organisations through, say, Estimates Committees and whatever, as you know. To put our policies together we relied extensively on use of Estimates and sometimes that was less than a perfect mechanism.
So I think the policy is simpler, it's fairer and it is more beneficial as a result of some of the improvements that Treasury has suggested.
JOURNALIST:
And has its costing change…?
TREASURER:
In terms of fiscal costings, its cost is up somewhat because of the benefits, additional benefits to lower income earners. In terms of the cash balance, it costs somewhat less because this policy will now be delivered into the accounts of Australians who have that dream to own a home from 1st July '09.
JOURNALIST:
Mr Swan, you're here today about 24 hours before we expect a statement from the
Reserve Bank. What would you say to people who'd say this is cynical timing to try to deflect criticism of a decision that's probably going to make housing affordability worse, and what is your message to Australians as they hear from economists that interest rates are about to rise?
TREASURER:
Well, my message is a simple one. We understand the challenge of housing affordability, which is why we took three policies to the people during the last election campaign. So this is part and parcel of the response that commenced from the Rudd Government on day one. We have only been Ministers, I think now for eight or nine weeks, and we are here talking about putting in place this long-term measure which will for some Australians greatly improve their chance of home ownership. Now, this is a scheme that's not for everybody. If someone's a high income earner or has got quite a few assets this isn't going to work for them. But this is a scheme for people out there who battle to put away a modest deposit to get a toehold in what is a very difficult housing market. That's the first point.
The second point is the Reserve Bank is entirely independent. I don't know what decision it will take tomorrow. But what I do know is that Australia has a very substantial inflation problem.
A few weeks ago our official advisers, the Australian Bureau of Statistics, produced some figures for the months of October, November and December. And what those figures showed was that we have inflation at a 16-year high, well outside the Reserve Bank's target band. And the pledge and the commitment that Kevin Rudd and our government has made is to do everything we possibly can, using every lever of policy to put downward pressure on inflation, because the inflation we're experiencing now has been on the march for at least two years, and evident in figures right throughout that period. And of course right throughout that period the Reserve Bank had been warning the previous government about the inflationary challenge and the need to take action. We've taken action from day one.
Those of you that have seen the Red Book will understand that on day one the Treasury advised us of a great inflationary challenge that lay before us. Now, I tell you what, we're up to that task. We're up to that task short-term, medium-term and long-term. Today's a long-term measure but it's a very important one. And in fact in some ways it's historic because what we are doing for the first time is putting in place a savings measure that gives superannuation-style tax concessions for people who are not retiring.
JOURNALIST:
Mr Rudd has spoken a couple of times of the need to encourage more private savings. Are you looking to measures in the coming Budget on that or is that a longer-term thing, and can you give us any idea of…
TREASURER:
Well, Michelle, I'd love to tell you all the detail of the forthcoming Budget but we've got a couple of months to go. But the Prime Minister's five-point plan is a serious plan, a serious plan which says the Federal Government must lead from the front, which is why we are looking for further savings and we want the Federal Government to lead by showing restraint in terms of its own spending.
And secondly, it does point to the need for there to be improved public and private savings, and of course this is one way that we're announcing today admittedly in the long-term to improve private savings. It then points to the need for us to expand the capacity of the economy by attending to the skills crisis, infrastructure bottlenecks, then lastly, talks about the need to improve labour force participation and to lift labour force participation with appropriate incentives in the tax system.
We're very serious about that plan. This is a key part of it. But as for all of the detail that's going to be in the Budget, you'll have to wait for the Budget.
JOURNALIST:
Mr Swan, you mentioned that there were quite a number of warnings about inflation, the inflation progression I guess last year all the way through the campaign, before the campaign, you can't claim that this is a surprise now, can you?
TREASURER:
I don't. I mean, we were warning about the inflation problem last year. If you would like to go back and … well, I don't think you deserve to be punished, but if you go through three years of my statements as Shadow Treasurer, I mean you will find that they are replete with warnings about inflation. You see, it comes as no surprise to anyone but Malcolm Turnbull and Peter Costello.
JOURNALIST:
So as a government, you would've been ready to [inaudible]?
TREASURER:
Well, of course we were, which is why we took forward the platform we did, the huge commitments for skills and education more generally, the whole commitment in the area of infrastructure, in the whole commitment that we had in Opposition for a three-year period to enhancing labour force participation.
JOURNALIST:
Mr Swan, have you had any direct discussions with the ACTU about the need for wage restraint?
TREASURER:
I haven't but I'm sure that a number of my colleagues have had informal discussions with them and I have personally called for restraint across the board. But I don't think restraint is something that should just apply to people who are on modest incomes. Restraint's something that applies to everybody in the community. The Federal Government has to provide the lead and I've had some critical things to say, for example, over the break about banks and their lack of restraint, and I'll call it as I see it.
JOURNALIST:
Just on that point about restraint though, do you think that working families should be prepared to [inaudible] inflation pay [inaudible] next time around to help keep inflation…
TREASURER:
Well, we actually have an industrial relations system when these things are done enterprise by enterprise and negotiated that way, and that's the way it ought to be. That's the way it ought to be. So that's how wages are sorted out and that's the basis of our whole system. But what I say to everybody in the community, I say it to the employers, I say it to the banks, I say it to everyone; we've got a difficult fight on our hands as a nation. The inflation genie is out of the bottle, it's been on the march for a couple of years. The last set of figures had it at a 16-year high for the months of October, November and December and we've got to deal with it because inflation puts upward pressure on interest rates, but inflation eats up living standards. So all these people out there, as they sit around the kitchen table and look at their grocery bills, know that inflation has been on the march for some period of time. So we've got an inflation problem to deal with and deal with it we will. There are no silver bullets, no short-term solutions, but we're using every arm of policy to put in place the policy that is needed in the long-term to deal with it.
JOURNALIST:
Mr Swan, your predecessor knocked back an overseas bid for Woodside on national interest grounds. Are you getting some work done on what the Chinalco purchase of a stake of Rio Tinto means for the national interest? Do you have a concern…?
TREASURER:
I've got no public comment to make about proposed takeovers. I'm the one who actually, under the legislation, has to take the decision and if the Foreign Acquisition and Takeovers Act is triggered then I will be taking that decision and taking it on national interest considerations. I have no further comment to make about those matters.
JOURNALIST:
What do you say to those Australians who risk losing their homes if there is another interest rate rise tomorrow and they can't meet their mortgage repayments?
TREASURER:
What I say to them is that we understand how difficult it is and we are doing everything we possibly can to deal with the inflation challenge that's out there.
JOURNALIST:
Are you comfortable with the settings for the Foreign Investment Review Board, because there were changes under the US FTA in terms of allowing US investors greater ceilings in terms in making investment decisions? Do you think there's a need to look at the FIRB settings themselves?
TREASURER:
I am in the middle of a debate about a particular takeover, I am not about to open up a discussion about that. I've got nothing to add.
JOURNALIST:
Broadly speaking, however, Treasurer, do you have any concerns about a company that is controlled by the Chinese Government taking over a substantial stake in Australia's resources?
TREASURER:
Well, I've got no further comment to make.
JOURNALIST:
Isn't it ALP policy to have a look at what the national interest is …?
TREASURER:
Well, I have already said that it is my policy to apply national interest considerations, and apply them I will if I am required to under the law.
JOURNALIST:
[inaudible] have to be defined any more clearly than it is under legislation?
TREASURER:
I'm not making any further comment on the definition of the national interest test today.
JOURNALIST:
Does it apply here, however?
TREASURER:
Well, there has been proposals submitted to the Foreign Investment Review Board. And I will receive advice from that Board in due course.
JOURNALIST:
Have you held any talks with Chinalco?
TREASURER:
No.
JOURNALIST:
Has anybody from the government?
TREASURER:
I doubt it, but I don't know.
JOURNALIST:
You used the word 'proposed takeover' before. Were you referring the Chinalco case?
TREASURER:
Well, there are a variety of takeovers at the moment, and we could run through the permutations and combinations of the ones that are foreshadowed. I just don't intend to make any comment about any of them.
JOURNALIST:
But my colleague from the Financial Review was asking about Chinalco and you used the words 'proposed takeover'. Is there something that you can't tell us?
TREASURER:
No, not at all. I haven't received any advice from the Foreign Investment Review Board which is why I am not commenting on it.
JOURNALIST:
But has Chinalco made a proposal to FIRB? Has it made a proposal …?
TREASURER:
Yes, it has and they've said that publicly. I think you will find that they said that in London a couple of nights ago. I haven't seen the reports from London, I've been told that. And they are going through that process. And I have yet to receive any advice from that process.
JOURNALIST:
Treasurer, you've rightly pointed to the inflation problem, [inaudible] you inherit economy in very good shape. You are going to have a budget surplus. You have got employment at historic highs. In fact, all your problems are from an economy that is running very well and perhaps too well.
TREASURER:
Well, I wouldn't describe underlying inflation at a 16-year high as being good for the economy.
JOURNALIST:
The other measures of the economy, they're good, aren't they?
TREASURER:
Well, we have some measures that look good and we have some measures that look bad. Our approach has to be to deal with the inflation problem, and deal with it we are.
JOURNALIST:
How frustrating is it for you that there's only things that you can do are long-term measures, when in fact households are facing immediate pressures and they…?
TREASURER:
The only measures are not just long-term measures, we are working on short-term measures, we are working on medium-term measures, and we are working on long-term measures. This one is a long-term savings measure. But the sooner we get it up and running, the sooner it will kick in.
JOURNALIST:
What are the short-term measures?
TREASURER:
Well, first of all, labour force participation. Absolutely critical. The introduction of the 50 per cent child care rebate. Absolutely critical to labour force participation. The Deputy Prime Minister and the Prime Minister announced training initiatives only a couple of weeks ago. There are a whole range of things that we've been doing. We reinforced the independence of the Reserve Bank in a matter of weeks. We have only been there 8 weeks.
JOURNALIST:
But things aren't going to change the situation between now and Christmas for people who might lose their homes [inaudible]?
TREASURER:
Well, inflation as I have said before has been on the march for a couple of years and dealing with it is going to take sometime. The point I'm making is we began work on day one and have been working all the way through the break on a range of initiatives, and will continue to work to put in place the settings we need to do, part of which is getting a Budget together.
JOURNALIST:
Mr Swan, do you or the Housing Minister have any information or advice on how many people are at risk, or are likely to lose their houses? There's a lot of talk about it but how realistic is it?
TREASURER:
Well, there are various measures I am sure Tanya will say something. But we talked a lot about mortgage stress last year. The definition of that is those that are paying more than 30 per cent of their income in mortgage repayments. But there's also rental stress; those that are paying more than 30 per cent of the income in rent. There are a lot of people out there that are doing it very tough. And we understand that.
JOURNALIST:
[inaudible]
PLIBERSEK:
I think unfortunately the clearest indications we have [inaudible] that these people who are actually losing their homes, and those figures haven't been systematically collected. We have them state by state and for some jurisdictions and not others. What we have seen is a significant jump every state.
JOURNALIST:
Treasurer, do you believe some people have over-extended themselves in the housing market?
TREASURER:
I believe the great bulk of people that are in housing stress out there are in housing stress because of the affordability crisis in housing, not necessarily because of some personal fault of their own. And I, for one, know a lot of people in this situation. When you have had six interest rate rises in three years, and 10 interest rate rises in this cycle, there are a lot of people who are under mortgage stress. And that has been obvious to me as I move around the kitchen tables, in the lounge rooms and the workplaces of this country. And these are people who are just doing their best to keep their head above water. They are not in this position because somehow, you know, they over- extended themselves. What actually happened was inflation got out of control and interest rates went up.
JOURNALIST:
[inaudible] will the First Home Saver account now cost?
TREASURER:
I will circulate the figure later. It depends whether you are dealing with cash or accrual.
JOURNALIST:
Is it a significant [inaudible]?
TREASURER:
It's reasonably significant in terms of the measure, because we have done more for lower income earners. And I am proud of that.
JOURNALIST:
How much heed to you pay to advice that you should defer the tax cuts scheduled for June?
TREASURER:
Well, I made my point very clear about the tax cuts. It's the total spend that's relevant here, the total spend. And we are determined to build on $10 billion worth of savings that we took to the people at the last election. The Prime Minister made that very, very clear in his speech a couple of weeks ago when he announced the five-point plan. And that's what we are going to do. These tax cuts are really important in terms of labour force participation. They are really important in terms of sending a signal to the workforce that we value your hard work.
Thank you.