MONDAY, 6 MARCH 2017
SUBJECT/S: Housing affordability; Zombies in the 2017 Budget; Penalty rates.
KIERAN GILBERT: This is AM Agenda, with me this morning is the Shadow Assistant Treasurer, Andrew Leigh. Andrew first of all, Scott Morrison's pitch to middle Australia. He's focusing on home ownership, the support for Medicare and essential services. That sort of message you'd welcome given it was such a big part of Labor's warnings in the lead up to the last election and he says they'll be reaffirming their support for the health system as it stands?
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Well Kieran I feel this is Scott Morrison version 10.0. Scott Morrison has almost had more versions than iTunes. He keeps on rebooting himself, desperately hoping that he can come up with something that will provide traction. Today he's talking about home ownership but yet this is a guy that has ruled out changes to negative gearing and the capital gains tax discount which most economists say are helping blow up the housing market by tilting the market towards investors and away from first home owners. I only wish that Scott Morrison was as ambitious for the country as he is for himself. He's very good at getting a headline but he's absolutely hopeless at running a consistent economic narrative of the kind that sets out clearly where Australia needs to go.
GILBERT: In relation to home ownership though, we've seen some moves at the state level, the Victorian Government scrapping stamp duty for first home buyers under the $600 mark, further discounts up to about $750,000 for properties. These are moves that can be done at the state level but how much more could be done federally?
LEIGH: Changes to stamp duty are obviously welcome, I did some work as an academic with Ian Davidoff showing the impact of stamp duty on mobility. Bt you do need to look also at the changes Labor has proposed, especially in a market where the OECD said last week could potentially create a housing bubble. Between sluggish wages growth and record house price growth, many Australians are getting overstretched on their mortgages. A small rate rise would throw a large number of Australians into financial stress. The way to deal with that is to start taking some of the heat out of the housing market, and other sensible tax changes.
GILBERT: Isn't that the reality of the market, the way it works and with monetary policy that this is now the time for the RBA to look to that and that's that the way the market works? If people have overstretched that will automatically bring the market back a bit in terms of the housing bubble that you talk about?
LEIGH: You're completely right, Kieran. The RBA can only take house prices as one consideration in setting monetary policy but the Reserve Bank along with the Financial Systems Inquiry of the Government, along with Saul Eslake, Chris Richardson, a host of organisations across the political spectrum have said you've got to look at negative gearing and the capital gains tax discount now in order to get sensible housing policy
GILBERT: Could you do both? Because the RBA for example has said you do one and not necessarily the other, you're suggesting you do both would that be too much?
LEIGH: It's the confluence of the two that acted to blow up the housing market from 1999 onwards. We got negative gearing in the 1930s as a way of dealing with the depression, we got the capital gains tax in 1999 in the hope of the Ralph Review that it would cause investment in high tech stocks. No one really anticipated that when you put these two policies together they would so massively tilt the hand of the market towards investors and away from first home buyers.
GILBERT: Now the Treasurer says they're going to shelve those zombie cuts that have been in place since 2014, Labor hasn't supported them. Either they're upwards of $13 billion in terms of their value to the budget. If they are shelved and we lose our triple A credit rating does Labor have to take some of the blame?
LEIGH: Shelving these measures shouldn't affect our credit rating because they're never going to get through the Parliament. This is effectively just putting a silver bullet through the heart of a couple of zombies. Obviously Labor would welcome that. Scott Morrison has also benefited in this budget from very high rises in commodity prices, well in excess of what anyone anticipated last year. So he's hardly somebody who should be crying poor as he puts together a budget. Instead he should be thinking about a budget that benefits families.
GILBERT: Who was is last week, John Fraser, the Treasury Secretary who said we wouldn't be banking on those higher commodity prices they should be going to repair the budget?
LEIGH: Well they are going to repair the budget and that's my point, Scott Morrison has benefited -
GILBERT: You're saying that we should be looking to support families more?
LEIGH: I'm simply saying that Scott Morrison has benefited from those and when he talks about supporting families what's extraordinary is that the Treasurer is very relaxed about the fact that wage growth is the slowest it has been in 30 years but delighted by the fact that corporate profits are going through the roof. I'm all in favour of foreign investment, but let's not forget that nearly half of our share market is foreign owned. So that profits growth to a large extent is going offshore. Sluggish wage growth – soon to be made worse by a penalty rates cut – is hurting low and middle income households who spend all of their money here in Australia.
GILBERT: But surely you would support the view of not spending this windfall from the commodity prices to support families. This is a structural problem we're talking about given how much we're taking in revenue?
LEIGH: Like any household with a mortgage, Kieran, we need to both be paying down debt as a nation but also making productive investments in our future. The challenge is to make sure that we're carefully calibrating those investments, I worry particularity with investment that there is too much pork-barrelling, too little investment in projects with a really high cost benefit pay off. We can be smarter about how we do some of this spending but the Government has also got to get away from this ridiculous notion that Australia can purely tackle this deficit problem off the backs of the very poorest.
GILBERT: The Chinese Premier forecast for this year 6 and a half per cent growth for China, the actual growth may be even closer to 7 per cent is what the analysts are suggesting. If that's the case, is the outlook okay for commodities or would you expect them to come back?
LEIGH: Seven per cent growth off an economy of China's size now is more benefit to Australia than double digit growth off an economy of China's size a decade ago. China is going through a sensible economic re-balancing, although the challenges of state owned enterprises and stratospheric house prices are going to provide tensions as indeed are the internal leadership challenges. China needs to move down the path towards democratisation because we know that very few countries go through middle income status without a demand for democratisation at the same time. All of those are challenges which will impact first on the Chinese people but then obviously ricochet through to the Australian budget.
GILBERT: The Prime Minister toughened his language further over the weekend in relation to the penalty rates decision by the Fair Work Commission. Are you worried that if you sought to legislate overriding that then you would undermine the industrial umpire, the independent umpire that has been a key part of the equity in our system for over a century?
LEIGH: Clearly you're right, you only override the independent umpire in very special circumstances. But here I think we've got those circumstances. This isn't an instance where workers are seeing a higher base rate of pay in exchange for penalty rates, the kinds of agreements which unions strike on a routine basis. This is simply a cut to penalty rates, which means a cut to take home pay for some of the poorest workers in Australia. People working Saturdays and Sundays earn 80 per cent of those who only work Monday to Friday so penalty rates are going to low paid Australians. They are going to have an impact on flowing through to consumer spending, those at the bottom spend their entire pay packet every week. So take away penalty rates and you take away consumer demand from the economy as well as worsening wages.
GILBERT: What about small business that might open on a Sunday if the penalty rates where a little less onerous?
LEIGH: There's precious little evidence that that's likely to happen, Kieran. We see in the Fair Work decision itself, not much academic evidence being pointed to for the impact of penalty rates on employment but a huge amount on the impact on wages, consumer spending and household demand. Not to mention social capital. We're a country where the strength of civic life has been waning over recent decades. If you make it harder for people to get together on the weekend you're going to make it harder for groups like Scouts and the local sporting clubs to have that community life on the weekend that we all love.
GILBERT: Andrew Leigh, appreciate your time but we're out of time. Thanks.
LEIGH: Thanks, Kieran.