Scott Morrison (Cook, Liberal Party, Shadow Minister for Housing and Local Government) Share this | Hansard source

I listened to you, Member for Kennedy, and I am sure you can extend the same courtesies. I am sure some may think that may have been the case in other places and I know it is the case in other countries. But one thing I do know is that in this country for the last 10 or so years we have had outstanding financial management. That financial management built up surpluses and it has enabled this country to face the storm that we are now facing. This country is not in the situation faced by many of those countries described as developing and also countries that are developed. Our country is in a position where it can actually face this crisis with a sense of confidence. One of the things that have disturbed me outside of this place and inside of this place is a sense of defeatism that says that somehow this crisis will defeat us, that somehow this crisis is not something that can be weathered. It was the former Prime Minister who made the point that it is dangerous to compare our current situation to the very tragic times of the Depression. It is very dangerous to make those comparisons because the situation is very different.

Tonight I wanted to make two points, firstly about deficits and then about housing matters in my capacity as shadow minister for housing. A youth worker in my electorate once told me that the single most dominant factor in determining how your children will turn out is who they hang around with. That is why it is important for the Prime Minister and the Treasurer to be a little bit careful about how much time they spend hanging around with many of the nations they meet at the G20. At the next meeting, I suggest they seek a spot sitting next to the Canadians. Notwithstanding the Germans’ reputation for Oktoberfest, binge drinking is not the culture the Prime Minister and Treasurer must be careful to avoid at these gatherings. Rather it is the binge culture of deficits and debt that many G20 nations are famous for.

It is no surprise that the majority of the G20 think it is time to go into deficit. They are already there and have been there for years. In fact, deficits are the norm for these countries. If the Prime Minister and the Treasurer are taking their definition of a temporary deficit from their friends at the G20, then there is one thing we can be certain of: it will not be temporary. According to the IMF, the French and Italians have not had a budget surplus for over 25 years, the Japanese had their one and only surplus during this time in 1992 and the Germans have had only two surplus budgets since 1980, one in 2000 and the other in 1989. In the UK, the last surplus purple patch was from 1999 to 2001, when they achieved a trifecta, showing just how rare such an achievement in budget management can be in the G20. Across the Atlantic, Bill Clinton is the only US President to have presided over a budget surplus in almost 30 years, from 1998 to 2000. Yet in question time last week the Prime Minister held out Germany, the United States, the United Kingdom and Japan as his reference points for conservative fiscal management.

By contrast, Australia has been in surplus for more than 10 years, including the current financial year. Only Canada and South Korea come close to this record, based on the available IMF statistics, despite a few more deficits during this time. So when it comes to picking our friends on responsible economic management, it is worth peeking over the shoulder of the Canadians to see how they are answering the question. Last week, the Canadian Finance Minister made a statement to the Canadian parliament on Canada’s fiscal outlook. He said the government is planning on balanced budgets for the current and next five years. Of significance is the fact that the Canadian economy is forecast to grow at a lower rate than Australia, at just 0.6 per cent this year and 0.3 per cent next year.

You also pick up from Finance Minister Flaherty’s comments on the prospect of a deficit a much stronger resolve than that shown by our Prime Minister in terms of going into a deficit. He correctly says that ‘no government can guarantee the future’—and, to be fair to the Australian Prime Minister, he has said the same thing—and that tough choices are ahead for the next budget. However, after drawing attention to the Canadian government’s decisions to reduce federal debt by $37 billion, reduce taxes and engage in reducing the tax rate on new business investment to the lowest level in the G7 by 2010, he makes this comment:

We do not take the potential of a deficit lightly. The thought of a long-term structural deficit would be even more serious—one that the Government is unable to climb out of, even when the economy improves.

The days (and years, and decades) of those chronic deficits are behind us. No matter what 2009 brings, they must never return.

This is wise advice. The Canadian finance minister is not advocating a deficit as the first policy of his government in terms of how to address the global financial crisis, which is the concern the coalition has about the government. Australia is even better placed than Canada to avoid a deficit, thanks to the economic legacy left to the Rudd-Swan government by John Howard and Peter Costello. Rather than lazily allowing ourselves to fall into such a trap, as so many of the G20 have done for more than 20 years, we should be strengthening our resolve, as the Leader of the Opposition and the coalition are arguing. Labor just simply cannot be trusted on deficits.

I now want to turn to the issue of housing, which featured in the government’s stimulus package, particularly in relation to first home owners grants. My comment is that we really need to be thinking a lot more outside the square than the first home owners grants in terms of the issues we will be confronting in the 12 months ahead at the very least.

In 2003, long before the global financial crisis, the former Prime Minister’s home ownership task force introduced the concept of shared equity mortgages. The leader of that task force was the now opposition leader, Malcolm Turnbull. Rather than paying off interest on an 80 per cent mortgage, a shared equity loan allows, say, a much smaller 60 per cent mortgage combined with a separate 20 per cent loan on which no interest or rent is paid. In return, the borrower gives the shared equity investor a minority portion of future capital gains, capped at 40 per cent. If the property’s value stagnates, they simply repay the original 20 per cent sum with no interest. If the value declines, the shared equity investor actually wears 20 per cent of the losses. Importantly, since the lender has no ownership interest in the property, the borrower has complete control over it.

Shared equity has since been taken up in Australia by the Bendigo Bank and the Adelaide Bank as well as by the South Australian, Western Australian and, most recently, Tasmanian governments. The Australian model has also been inspiration for the UK and New Zealand governments to support similar shared equity products, with the British investing £1 billion in their scheme.

Despite acknowledging their merits, the Rudd-Swan government have done nothing to support shared equity mortgages in this country. When it comes to housing, they show little interest in the 80 per cent of Australians who are in private housing. With more than 200,000 people expected to lose their jobs over the next few years, this will put increased pressure on people trying to pay their mortgages.

A few months ago, in response to the Leader of the Opposition, the government decided to invest $8 billion in the residential mortgage backed securities market—the RMBS market—to increase liquidity and ensure continued competition for housing finance. Only $1 billion of these funds has so far been committed. I note reports this week in the media that the government has been largely the sole investor in these RMBS products that have come onto the market. Some 80 per cent of the purchasing of funds making investments in these products has been done by the government. Shared equity funds were not a beneficiary of this decision. Unlike the banks, they do not benefit from the government’s deposit guarantees. However, these shared equity funds are similarly strained by the global financial crisis.

The chief long-term investors in shared equity are super funds. These investments are their way of accessing Australia’s $3.2 trillion housing market. However, due to losses in share portfolios and application of their rigid asset allocation models, super funds are now withdrawing from shared equity. The Rudd government has an opportunity to break the capital drought faced by shared equity funds by immediately setting aside up to, say, $500 million from the $8 billion already committed to the RMBS market to invest in the shared equity sector. This would allow 5,000 Australian households to access shared equity mortgages and instantly cut their monthly mortgage repayments by up to 30 per cent or more, or reduce their upfront home purchase by a similar margin. This is especially necessary given the government and the OECD are now forecasting an increase in unemployment, as I mentioned before.

Moving to a shared equity loan is one way to reduce this burden. A rise in mortgage default would undoubtedly stress our housing market, which has so far weathered this crisis relatively well. In fact, the biggest challenge facing our private housing market across Australia at the moment is unemployment. Mortgage default for banks is still, however, 40 per cent less than it was when Labor last left office in 1996 and the coalition government took over. The key difference is that back then unemployment was at 8.1 per cent. Sharp increases in mortgage default caused by rising unemployment would lead to dumping of housing stock and a collapse or even just a fall in house prices.

The human costs would also be great, with families forced to rely on already overcrowded social housing and other government support. These impacts would not be temporary. For some the impact would be intergenerational. Just last week I was speaking to the homeless council here in parliament, and I stated very clearly that I thought the biggest risk for their clients was there being more clients coming their way as a result of them being unable to remain in the private housing market. Keeping people in their private homes is one way to ensure that the important resources we have available for social housing in this country remain available for those who most need it. For all these reasons we must do all we can to keep Australians in their homes during this crisis. This will require governments and lending institutions working together to give people and families struggling with their mortgages real options, and that includes passing through rate cuts in full. I am disappointed to learn that Westpac has today chosen not to do that for their mortgage holders.

Kevin Rudd, the Prime Minister, and the Treasurer should move now to invest in shared equity. The government should also consider providing access to rent assistance for mortgagees who have lost their jobs. Why we spend $2.2 billion on income support to help eligible families pay the rent but not a mortgage is a question worth asking, especially in these times. Ideas such as government providing HECS style income contingent loans through the tax system, to provide a lifeline to mortgagees while they get back on their feet again, as recently suggested by Melbourne University academic Joshua Gans and the ACTU President Sharron Burrow, also deserve consideration. Finally, as I have mentioned, banks must pass on rate cuts in full and they must work to tailor solutions to keep their clients in their mortgages and in their homes.

This crisis brings many challenges to this country. This country is well placed to meet those challenges. The single greatest challenge facing us now, particularly for the housing market, is unemployment. We need to ensure that there are commercially sustainable solutions available to people to keep them in their homes and to keep them in their mortgages. The banks, together with the government and community sectors, need to work together to do all that they can to keep people in their homes, because, as we know, if you lose your home, if you lose your job, you can also lose your marriage. The level of social dislocation and family breakdown that will result from that is something we are all far too familiar with in our own electorates. We see people come through our doors on a daily basis to tell their stories. Those stories usually start with one massive life-impacting event, which is either the loss of a job, the loss of the home or something of that nature.

We are going to face the social consequences of this in the next 12 months. We need to ensure that we have things in place to give people options to get themselves back on their feet so that we do not consign them to generations of dependence—on social housing, on social support and on all these other institutions—

See this speech in context