Patrick Secker (Barker, Liberal Party) Share this | Hansard source

We have now had 15 or 16 years of extraordinarily good growth, a healthy economy in this country, and that sort thing does not happen by chance. When you look at the Review of the Reserve Bank of Australia annual report 2005 by the House of Representatives Standing Committee on Economics, Finance and Public Administration, I think you will see we can learn many things from the Reserve Bank of Australia as to how they have helped our government—our government has certainly helped the Reserve Bank—to set the key areas to continue the healthy growth of this economy.

The then Governor of the Reserve Bank, Mr Macfarlane, did indicate a real concern—and I think it sticks out very clearly from this review—that the changes in housing affordability for Australians are a clear worry for many people. But, as Mr Macfarlane said, the real concern is the increase in the cost of housing and the cost of the land, as opposed to the increase in the interest rates. Certainly a lot of people—in particular, young people—are purchasing houses or putting themselves in a position to purchase a house. The problem is not the interest rates. If we had to buy houses under Labor’s interest rates, it would be impossible. Seventeen per cent on borrowing for an average home in Sydney would be beyond most people in average conditions.

The difference between now and five to 10 years ago is actually the cost of housing, not the interest rates, because interest rates of course are much lower. In fact, the interest rates on housing are lower now than they have ever been, compared with Labor’s 13 years in government. The two recent interest rate rises certainly have increased the cost of mortgage repayments—we cannot deny that—but purchasing a house now will cost a fair amount more than it would have done 10 years ago. When looking at housing affordability, we also need to look at the role of state governments in relation to land releases.

Mr Macfarlane looked at the supply and demand theory and suggested that price increases are due to excessive demand over supply. Because Australia has a good economy and returned to low inflation, and interest rates were halved, borrowing became a lot easier. People borrowed more and therefore drove up housing prices. But we also need to look at the supply-side issues in relation to land releases. I think state governments all around Australia have been at fault here. With the reluctance to release new land and buyers now having to pay up-front for services like sewerage, roads, footpaths and other services, this has enormously increased the price of new homes. These factors are very important to people when they decide whether to buy or to build. It is not the interest rates that are scaring people; it is the up-front cost of the housing loan that is scaring them. For some of these houses for sale these days, very little has changed on the house in the last 10 years except the price. These changes certainly have not been steady and across the board in each state. This issue determines where people will decide to live and invest their money.

When we look at the pace of economic expansion and domestic economic conditions in Australia, we see that it appears to have picked up over the first half of 2006, with business investments becoming particularly strong in Western Australia and Queensland, where the activity has continued to run faster than in the rest of the country. In the hearing the issue of the dual economy was raised with the Reserve Bank of Australia. Up to the June quarter, unemployment in Western Australia was averaging 3.6 per cent whilst in New South Wales unemployment was 5.4 per cent. That is quite a large difference—50 per cent in fact. Perth house prices, as a result, have increased by 28.8 per cent for the year to the March quarter, and house prices fell 3.1 per cent in New South Wales.

Mr Macfarlane indicated that there is a lot of flexibility in the economy now which, even with those sorts of problems, is making things a lot better than they would have been 30 years ago. When we look at the household sector, we see that the Reserve Bank of Australia reported that household demand strengthened in the first half of the year following a period of moderate growth in consumption spending and a corresponding increase in the household saving ratio in 2005. The volume of retail sales increased by 3.6 per cent over the year. Consumer sentiment rose in July and remains at above-average levels after having eased in recent months in line with higher petrol prices and the increase in the cash rate in early May.

One of the larger areas of responsibility for the Reserve Bank of Australia is inflation. Of course, one of the main levers that they use to control inflation is interest rates, to hopefully reduce the supply of money. We can all see from this information that the health of the economy is greatly admired all over the world. In fact, if you want to look at what is causing some of the pressure on interest rates apart from the amount of supply of money that we have, you can see that the demand for loans is not due to the federal government. In fact, over the 10½ years of this government, we have reduced debt by $96 billion—no mean feat when you consider that it took this country 90 years, since Federation, to accumulate in total $16 billion of debt.

In that time we actually built a new Australian capital, we had two world wars and quite a few other skirmishes and we had to build up a federal bureaucracy. It took us 90 years to accumulate $16 billion worth of debt. But, over the next five years of the Labor government, what we as a country took 90 years to do they did every year for the next five years. So we went from $16 billion to $96 billion in five years, from 1991 to 1996. We were elected on the basis that we needed to reduce that debt and reduce the demand on money. If you believe in the Friedman idea of the cause of inflation—and certainly I do—that is what had increased the interest rates. That is why interest rates went through the roof during the term of the Labor government.

We have reduced that demand on money and we have now taken the debt from $96 billion down to zero. In fact, now we actually have money in credit, which serves us well. But isn’t it funny that what we saw Labor do federally we see them in the states—we have Labor governments all around the country—falling for the old problem. They have actually increased the demand on loans themselves. Their budgets have all gone into deficit, no matter how good the times are and no matter how much of a windfall they have had from things like land taxes and stamp duties, which we would all hope they would reduce. In fact, in my state of South Australia they actually increased the stamp duty on houses—yet another way of increasing the cost of housing.

Here we are, as a federal government, giving a $7,000 grant for new home building, and someone buying an average house in South Australia is charged about $15,000 in stamp duty by the state government. So we giveth and they taketh, which is the old Labor way. As a result of that, in South Australia, for example, each year they are getting about $200 million extra from GST receipts. They get all of the money from GST. They have been getting all the money from their windfall taxes in stamp duty and land tax. As a result, in South Australia alone, they are about $500 million better off than they would have been under the old system and without those windfall taxes. But what did they do? Did they reduce their deficit? No. They have actually increased it. They have increased their borrowings, which puts pressure on our interest rates.

This is happening all around Australia with state governments. So I think it is very clear that, if you want a government to actually manage the economy, you elect a coalition government. If you want disaster, you elect Labor. (Time expired)

Debate (on motion by Ms Hall) adjourned.

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