"It's not too much to ask in Australia that a couple on modest incomes can afford a home" - RN Drive Transcript

E&OE TRANSCRIPT
RADIO INTERVIEW
ABC RN DRIVE
TUESDAY, 11 APRIL 2017

SUBJECTS: Census data; Adani mine; native title changes; housing affordability

PATRICIA KARVELAS: Andrew Leigh is the Shadow Assistant Treasurer. He joins me now to talk about these issues, and no doubt a couple of others, including housing affordability. Welcome back to RN Drive.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Great to be with you, Patricia.

KARVELAS: You continue to have doubts about the quality of the census data. The ABS does assess the quality of its own data post the Census. What will you be looking for in that assessment to give you confidence that this is good data that can be used?

LEIGH: Patricia, there's two things that are absolutely known for sure. One is that on Census Night last year, millions of Australians lost hours of their time trying to fill out the Census. And we also wasted millions of dollars in having to fix up the botched Census. As a result, rather than filling in the Census on Census Night, as has been the norm, many Australians ended up filling in the Census well afterwards. That creates the potential for duplication, which wouldn't necessarily always be picked up by the Bureau of Statistics. 

KARVELAS: The ABS says that they had a very, very strong number of people who participated – what, I think it was 98 per cent? An incredibly high participation rate. Doesn't that show that despite the bungle, and no one's contesting that there was a pretty extraordinary bungle, that Australians did participate even though they were clearly grumpy about the process?

LEIGH: They've done their best to fix this bungle, but let Australians be in no doubt as to how we got to this situation. The position of Chief Statistician was left unfilled for nearly a year. There were three ministers responsible for the Census just in the year beforehand. None of them willing to take responsibility. Basic due diligence around making sure that Australians were protected against the inevitable denial of service attacks wasn't done. The government dropped the ball, and then – immediately – looked around for someone else to blame. 

KARVELAS: Alright, now on Adani – the Adani mine project – Bill Shorten says he's very keen to see jobs in mining. Mining is very important for Australia's future, but he has doubts about the Northern Australian Infrastructure Fund lending Adani taxpayers' money to build a railway link. Why not encourage this investment if you think that jobs will flow and it's important for the economy? 

LEIGH: The Adani mine needs to stack up environmentally and economically. The Northern Australia Infrastructure Facility actually has a very clear mandate. It's meant to invest in projects which have a public benefit, not merely a private benefit to a single company. And it's not clear why a rail line that just serves one coal mine would have a strong public benefit. And it's also supposed to diversify the economic base of the North. And taking a fifth of their money and investing it in one project that benefits one company doesn't strike me as diversifying the economic base of the north. So, we do have significant concerns about the Federal Government using taxpayer dollars to prop up a coal mine. 

KARVELAS: Applying to the Northern Australia Infrastructure Fund is an independent process. If Adani get approval for the loan, will you challenge it? Because it's not a political process.

LEIGH: It's a process which gives veto right to the Minister, so it's not as arms-length as, say the Clean Energy Finance Corporation, which really is a professional board making decisions just on the economics. There's a little more meddling that can go on in the Northern Australia Infrastructure Facility, and frankly this is a fund which has been operating for a number of years and has still made no loans whatsoever. So it's a fund whose structure, I believe, could be improved.

KARVELAS: The proposed changes to the Native Title Act will go before the Senate when Parliament resumes. This is a key part of the Adani project, I believe it was raised even with the Prime Minister. Will Labor support the change to the Act?

LEIGH: Well, there's two parts this Patricia. We're looking at native title laws as a result of the McGlade decision that came down earlier this year, which was a Federal Court decision that found that indigenous land use agreements weren't valid unless they were signed by all of the registered claimants. And that even included claimants who had died in the course of the case taking place. So, Bill Shorten's written to Malcolm Turnbull saying that it's appropriate to take legislative action to provide certainty in the wake of the McGlade decision. But we don't think that at the same time the Prime Minister should be making further changes to the Native Title Act. 

KARVELAS: So where does it leave you? When Parliament resumes you're saying the Prime Minister can't rely on your support or you're going to demand more changes to what's before the Parliament?

LEIGH: We'll consider any further agreements. But what we've said that providing certainty in the wake of McGlade is what the government needs to do. And that's a position supported broadly by groups across the community. But – you'll remember well, Patricia – the very controversial native title debates in the early 1990s. There's no way, with that history, that Labor is going to be giving a blank cheque to conservatives in order to make changes to native title.

KARVELAS: If we can just turn to housing affordability, which really is the biggest issue I think in the country. The government's certainly saying it is going to focus on it in the May budget – just weeks away now. We know that negative gearing is Labor's policy. You took it to the last election, it remains your policy. Grandfathered in to ease house prices, but what about the places where house prices are going backwards – WA and the NT? Won't that make it harder in those areas?

LEIGH: There are a number of reasons why we believe we need to make changes to negative gearing and the Capital Gains Tax discount. One is that they're just unfair. With these policies about half of the benefits go to the top ten per cent, at a period in which Australian inequality is as high as it's been in the postwar period. We don't believe that's fair. We believe these are policies – and indeed we're backed in this by economists across the political spectrum – we believe that these are polices which will improve the accessibility of housing for first home buyers. It's about changing the composition of the market, skewing the auctions away from investors – who are grabbing the lion's share of houses at the moment – and allowing a couple who's a teacher and a firefighter to actually own their own home, in an environment in which the home ownership rate is now at a 60 year low. 

KARVELAS: On negative gearing, let's talk about the future. Because owning a house is obviously something you do over a long time. It's not a short-term proposition. If you are elected and you wind back negative gearing, what does your modelling tell you will happen to average house prices around the country? Do you have figures? Is there modelling to determine what will happen?

LEIGH: There certainly is modelling. The McKell Institute and the Grattan Institute have estimated the effect on price growth. But what we're talking about here Patricia is because you've got a policy which is grandfathered, which doesn't affect existing investors who've made investment decisions based on the current tax laws, then it takes effect steadily over time. We've got to get over this situation where we've had house prices growing nearly ten times as fast as wages in Melbourne and Sydney. That just means that young home owners go to auctions and find that they're outbid and then suddenly the house prices have gotten away from them. So it's about changing the mix as well as trying to take some of that heat out of the market. 

KARVELAS: So you mentioned the Grattan Institute, you know, some of these groups that have looked broadly at your policy, but you haven't modelled the effects today from now. You've pushed the government to provide modelling on the company tax cut rate, and I think a lot of people have pushed the government on this very issue. Don't you need to also explain exactly what the consequences would be on house prices if your policy was to be introduced?

LEIGH: The McKell Institute modelled our policy and found moderately slower price growth – in the order of-

KARVELAS: How much slower? Because we know what's happened around the country. I think Sydney was a 19 per cent increase wasn't it? In the last data. How would your policy have changed that?

LEIGH: The McKell Institute estimate is a little less than a percentage point per year. The Grattan Institute is modelling a policy which goes a little further than Labor's policy and found estimates of house growth up to two per cent lower. We're talking about modest estimates, as I've said Patricia; we've made a deliberate decision to grandfather the policy. It isn't a kind of 'shock and awe' policy which has a huge impact on house prices.

KARVELAS: Absolutely.

LEIGH: We don't believe that's fair. 

KARVELAS: We know that grandfathering is part of the policy. So you're saying in Sydney where there was this 19 per cent increase, that based on the groups that you're relying on to give you the figures, that it would be an 18 per cent increase or a 17 per cent increase?

LEIGH: You're missing the point that this isn't just about taking the heat out the housing market. This is also about changing the composition. 

KARVELAS: But specifically, if I could just take you back to that question, is that what you're saying? Instead of a 19 per cent increase, it would be something like an 18 or a 17 per cent increase?

LEIGH: My point to you is yes, I've given you those numbers on the house price growth-

KARVELAS: But am I right? Is that what you're saying?

LEIGH: If you’re asking me to check your maths, then your maths is right. But then I'll take you to the more substantive point, which is to say that it's also about ensuring that we have the right mix in the housing market. The result of these two polices – negative gearing and the Capital Gains Tax discount – has been to skew the housing market away from first-home buyers towards investors. And that's creating a real risk. We're having the warnings from the International Monetary Fund. We've had Philip Lowe, in uncharacteristically blunt terms last week, warning that a risk to financial stability is the result of these policies. And yet, you've got Tony Abbott and now Malcolm Turnbull out there at sixes and sevens over whether they'll pursue this whacky idea of raiding superannuation to affect housing affordability. In that environment, every sensible economist in Australia believes you need to tackle negative gearing and the Capital Gains Tax discount. It's an idea that Malcolm Turnbull and Scott Morrison took to Cabinet last year and got rolled on.

KARVELAS: Sure. But people do want to know what the effect will be on their house prices. I mean, of course there's people who want to enter the market, but there are a lot of people who have thumping mortgages based on a certain house price, and they want to know what consequence the withdrawal of negative gearing would have on their houses, and you're saying it could slow it by a couple of percentage points in terms of how it's grown over the last year.

LEIGH: Patricia, I've given you that economic modelling. This is a policy that has been modelled to death. It's also a policy that has been recommended to death. This has been recommended not just by progressive economists, but also people such as Jeff Kennett, Mike Baird, and former Treasurer Joe Hockey. There are groups such as the Grattan Institute, the IMF, the Reserve Bank – the list is as long as your arm – of people who say we have to tackle negative gearing and the Capital Gains Tax discount. And yet you have got Scott Morrison standing up, ignoring the elephant in the room, and going through this laundry list of suggestions as to what to do in the housing market. Scott Morrison isn't willing to take on negative gearing and the Capital Gains Tax discount; Labor is. We took it to the last election, faced down the scare campaign then, and we'll face down the scare campaign again because good opposition is about formulating policy in consultation with experts – and every sensible expert in Australia suggests this.

KARVELAS: Sure, and we know Australians do want modelling. We know that the Treasurer raised the issue in the pub test, the famous pub test, which has now become infamous, but we know in the pubs people do care about the consequences – they equally care about the consequences of the withdrawal of negative gearing. Is that it in terms of the modelling? You've mentioned modelling – you've modelled it to death – given it's an ongoing policy in the next federal election, which doesn't come in for some time, does it require a re-look by the Labor Party to see just see what its consequences would be on the market?

LEIGH: Patricia, what requires a re-look is the federal government to actually look sensibly at what our tax policies have done to housing affordability in Australia. Over the course of the last decade, we've increasingly seen investors buy properties in order to make a loss that they can deduct against wage income. What negative gearing does is exactly at odds with what good investment advice tells you to do. Good investment advice tells you not to put your all your eggs in the one basket, but negative gearing says you should buy only property. Good investment advice tells you to buy things that are going to make a recurrent gain, but negative gearing tells you it’s okay to make a recurrent loss because you can just deduct it against your wage earnings. Britain doesn't have it, the United States doesn't have it, and Australia got it only through this oddity of economic history, which I'm happy to take you through. The important thing for Australia is that we tackle these policies in order to take some of the heat out of the housing market, and change the composition away from investors who are buying their tenth property, and towards first home buyers who want to get their first.

 

KARVELAS: Okay. Senator Derryn Hinch says there needs to be cultural change, that people owning a home is a dream not a right, that perhaps people are pretty fussy as well. Does he have a point?

 

LEIGH:  You've got house prices going up at $300 a day last year in places like Sydney and Melbourne. You've got to skimp on a lot of smashed avocado breakfasts in order to afford a house at that rate, and what you've got here is nothing more than Australians wanting to buy a place of their own. I love that movie The Castle, I think many Australians watched that and they think that when they heard those words, "It's not just a house, it's a home" they think well, that's how I feel. I'd like my own place. It's not too much to ask in Australia that a couple on modest incomes can afford a home. Yet that dream is increasingly being taken away from young Australians. The idea that young Australians should be forced to retire poor in order to buy a house now is absolutely abhorrent to me, but that's the idea that Malcolm Turnbull seems to be countenancing right now.

KARVELAS: Andrew Leigh, many thanks for your time this evening.

LEIGH: Thank you Patricia.

ENDS

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