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Wednesday, 3 December 2003
Page: 23633


Mr McMULLAN (3:27 PM) —The interest rate increase announced by the Reserve Bank today adds further pressure to the already stressed living standards of young Australian families. Any Australian who has recently bought a house at the current wildly inflated prices is really vulnerable as a result of this further interest rate increase. Young families who are striving to get into the housing market will find that this interest rate increase may well put their first home even further out of reach. This is, of course, a big problem for all those young families, but it is also a big problem for their parents, who are increasingly concerned about when their children will get the opportunity to break into the housing market.

It is not as if the government have not been warned. They have been warned time and again—not just by the opposition but by the Reserve Bank, independent economists and international commentators like TheEconomist magazine and the OECD. But the Treasurer has refused to act. That is typical of this Treasurer. He is a fair-weather sailor, always keen to take the glory when things go right but missing in action when things get tough. He has conspicuously failed to act on the dramatic increase in household debt in Australia. It has been escalating. Everybody knew that this meant that families would be more vulnerable when interest rate increases started, but the Treasurer did not want to acknowledge there was a problem.

Everybody knew that there was a need to regulate the property seminar industry, but the Treasurer was basking in the short-term glow of the wealth effect as more and more Australians were attracted to the overly inflated residential property market. So he did not want to do what he needed to do to regulate the property seminar industry. Everybody knew that the housing cycle was unsustainable and that the government should be doing what it could to smooth it. TheEconomist said so, the OECD said so, independent commentators said so—and, of course, the opposition, and particularly the new Leader of the Opposition, have been saying so for a long time. But the government failed to act. They virtually forced the RBA's hand. It must be clear to everybody on the Reserve Bank board that, if they do not act, no other arm of the government will.

There is one more thing I want to highlight. Usually, when interest rate rises occur, as with other economic changes you expect there to be losers and winners. In this instance the losers are clear: they are people with high debt, particularly people with high mortgage debt and particularly young Australian families. The winners should be independent retirees and pensioners who depend on interest income for their lifestyle, those who have paid off their mortgages and have a small or sometimes not so small deposit in the bank. But today's report makes it clear that the banks are failing to pass on the interest rate increase to depositors. They pass it on as quick as a flash to borrowers but not to depositors. The government should be using its powerful advocacy role to pressure the banks to pass on these increases quickly and in full to those independent retirees and pensioners and other depositors dependent on this for their income. And what do we get? Not one word—nothing.

Let us look at the impact of these changes on families. The RBA's decision to increase the rate by another quarter of a per cent—that is half a per cent in the last two months—has left Australian families increasingly under pressure. They are paying more for their education—and maybe even more after today if the government get their proposal through the Senate—and they are paying more for their health services, with bulk-billing falling and the rate of non-bulk-billed services going up. It is harder to find child care for their young children and babies and even harder to find affordable aged care for their parents and grandparents. Australian families are now using record levels of their disposable income to repay debt, including mortgage repayments. The government like to deny this and they come up with fudges. The Treasurer was at it again today, fudging the figures in a way that Ross Gittins exposed them for, and I will come back to that in a moment.

Let us look at the Reserve Bank data. It shows that Australian families are paying more in mortgage interest repayments as a proportion of their disposable household income. The RBA's own data shows that mortgage interest payments are chewing up more of the household budget than ever before. These figures show that in 1996 the average new mortgage was $96,700, with monthly repayments of $922. If the minister thinks these figures are not right, he is welcome to quote some different ones. But the RBA's data says mortgage repayments on the average new mortgage in 1996 were $922. Today, average monthly mortgage repayments for a standard mortgage are around $1,300 per month, up by $58 a month in just the last month.

Of course, that is because the debt level is so much higher. It is simple arithmetic. You are paying interest on more debt, you are paying higher repayments, and the government do not seem to have worked out that you actually have to pay the money back as well: it is called principal. You pay higher interest and you pay higher principal. It comes back to more money that you have to pay. The figures come together very dramatically with another set of figures that we have debated here before and with which members will be familiar. These figures make it clear that Australians are paying on average $8,000 per year more in tax to the federal government since the Howard government came to office—$8,000 more per year because it is the highest taxing government in Australian history. But Australians are also paying more than $400 per month more on the average mortgage; that is $5,000 a year more in average mortgage repayments. In other words, families are $13,000 a year worse off after paying their tax and mortgage, not to mention the extra payments for education, health, child care and aged care. That does not mean every family is worse off; there are some whose position has improved. But young families, who are moving into first homes, taking out a mortgage for the first time, if they can get into the housing market—


Dr Emerson —Record low access.


Mr McMULLAN —which is a terrible crisis, because home loan affordability is at a record low—


The DEPUTY SPEAKER (Hon. I.R. Causley)—The member for Fraser does not need any assistance from the shadow front bench.


Mr McMULLAN —the percentage of first home buyers in the housing market is at a record low, and every parent in Australia is worried about whether their children will be able to get into the housing market—whether they will be able to do what NATSEM says and get over that hurdle into their first home.

Home ownership has been the bedrock of Australian society for at least 50 years. Not only has home ownership in Australia been important to individual families and driven a lot of economic activity in the home building industry—and, as people do renovations and additions, which we all seem to be doing endlessly, that has been good for the economy—but it has also been fundamentally important to our society. The bedrock of our stability and of our equity is that Australians have access to first home ownership, and it is in crisis today. Let us look at a quote from that radical organisation that is always of course very critical, the Reserve Bank of Australia:

In 1990, a 10 per cent deposit on the median priced house was equivalent to 25 per cent of average household income. Today the figure is around 45 per cent.

From 25 per cent to 45 per cent—that is why people are finding it hard to get into their first home. Housing affordability is a crisis for the younger generation. They face the prospect of being excluded from the great Australian dream. But it is not only housing; it is having a big impact on small business as well, so I am very pleased the Minister for Small Business and Tourism is here, because Australian small business will be affected.

The Leader of the Opposition this morning correctly said that these rate rises would impact on small businesses who were seeking to share in the benefits accruing to larger companies and corporates. The Treasurer often quotes his beloved tables in the Economist magazine. However, if we look at the most recent interest rate tables in the Economist, particularly the 90-day rate, which is what drives most of the leasing and other contracts for small business, what do we find? That Australian businesses are paying the highest interest rates of any country in that list. We are No. 1. And we are the only country in which those 90-day rates have increased in the last 12 months—the only country on that OECD list.

What does that mean for Australian businesses? It means that they are paying interest rates more than four per cent higher than their counterparts in the USA, three per cent higher than those in Canada and more than three per cent higher than those in the Euro area. For all of them that are exposed to world trade and world markets, they are at a significant competitive disadvantage even before you look at the question of the impact of the dollar.

Let us look more immediately at the effect of today's decision, which affects the overnight rate and took the Australian overnight rate to 5.25 per cent. I will refer you to the interest rates of other OECD countries: Austria, 2.09 per cent; Canada, 2.82 per cent; Denmark, 2.1 per cent; Finland, 2.0 per cent; Germany, 2.0 per cent; Greece, 2.0 per cent; Ireland, 2.0 per cent; Japan, zero; New Zealand, five per cent—nearly as high but not quite; Portugal, two per cent; and Spain, two per cent. Turkey is above Australia. We are doing better than one country in the OECD. The Turkish rate is 26 per cent. The UK rate is 4.06 per cent and the US rate is 1.08 per cent. So we are just ahead of Turkey in the OECD—second only to Turkey.

I suppose the Treasurer will claim that we are doing very well—our rates are much lower than Turkish interest rates. But with respect to the short-term rate which affects small businesses—particularly the 90-day rate—we are at the top of the range, and it is putting more and more pressure on their capacity to compete with bigger businesses who can borrow internationally at more competitive rates and competitors from other countries who can borrow at much lower rates.

Before I conclude, I want to return briefly to the question of independent retirees. Today's Australian Financial Review details a report by industry researcher Infochoice, which found that most banks had not adjusted their interest rates on savings accounts and that the interest rates on basic savings account that most Australians have have not changed at all. Where there is more competition, they have started to move in things like term deposit accounts and cash management rates. The major banks raised their rates for term depositors by an average of 0.16 per cent but they raised their rates for borrowers by 0.25 per cent. When interest rates went up, the rate for the people paying the banks went up immediately and in full and the rate for those the banks were paying went up later and by 0.16 per cent. I do not believe the government should step in and regulate that sort thing—those days are long gone—but we do need the government to put some pressure on the banks to protect the interests of independent retirees and pensioners.

The data that has been quoted today makes it clear that housing affordability is at an all-time low. The budgets of young families are under enormous stress. Today's interest rate increases will only make the pressures on those young families in the housing market or aspiring to get into the market even greater. It will put them under even more pressure. It is equally clear that a significant part of this responsibility needs to be sheeted home to the inaction and ineptitude of the Treasurer. Everybody who has had the opportunity to comment on this matter has warned the Treasurer that he needs to act on the explosion in debt—and he has done nothing. Every commentator warned him that he needed to act on the extent to which the property seminar industry has been getting out of control—was he the only person in Australia who did not know that Henry Kaye existed?—artificially inflating the residential housing market, particularly in the investment housing area, and leading people more and more into inflated prices. Everybody has been warning the Treasurer on the need to take some initiative to smooth the housing cycle—most particularly the current Leader of the Opposition—and the Treasurer has consistently refused to act. It is easy for us to establish that it is the Treasurer's failure; the only problem is that it is not he who pays the price. Young Australian families are paying the price in their mortgage payments or in the increasing gap between them and entry to the housing market. The purchase of that first home has been a cornerstone of stability in Australian society for decades. It is now under threat like never before. Housing affordability is at an all-time low. (Time expired)