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Cabinet talks focus on housing affordability -

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Cabinet talks focus on housing affordability

Broadcast: 03/03/2008

Reporter: Kerrin McKechnie

Prime Minister Kevin Rudd is still blaming the previous government for allowing inflationary
pressures to build in the economy, but his promise to put political parties under financial stress
is all his own work, as he outlines a plan to reform political donations.

Transcript

TONY JONES: For mortgage holders and renters alike, the situation is bleak. According to the Prime
Minister, housing affordability is the worst in living memory and its going to get worse before it
gets better. That's especially true if interest rates go up again tomorrow.

Kevin Rudd's still blaming the previous Government for allowing inflationary pressures to build up
in the economy. But his promise to put political parties under serious financial stress is all his
own work. Earlier tonight, the Prime Minister laid out a plan for major reforms to political
donations and campaign financing.

From Canberra, Kirrin McKechnie reports.

KIRRIN MCKECHNIE: Labor was a huge winner from political donations in the lead-up to last year's
federal election, with the unions helping top up the party's war chest. Now the Prime Minister
wants to make political donations more transparent.

KEVIN RUDD, PRIME MINISTER: The time has well and truly come for Australia to have comprehensive
campaign finance reform.

KIRRIN MCKECHNIE: Kevin Rudd's eyed off three areas for reform. They include reducing the donation
declaration level from $10,000 to $1,000, banning foreign donations and putting a cap on the size
of donations.

KEVIN RUDD: I think you've got to be very worried, at the end of the day, about whether a democracy
therefore ends up being up for sale. I am not about to be Prime Minister of the country which
allows that to happen.

KIRRIN MCKECHNIE: While the new measures could put the squeeze on political parties, it's the
financial pressure on families that will capture the nation's attention, when the Reserve Bank
board meets tomorrow.

JOSHUA WILLIAMSON, TD SECURITIES: I think it's a near certainty that we are going to see interest
rate increase tomorrow. I mean, not just the inflation gauge, but a whole raft of economic and
activity data has suggested that the economy was growing far too strongly and the Reserve Bank
needs to tighten monetary policy further.

KIRRIN MCKECHNIE: A rates hike would be another blow to home owners already facing testing times.
More than a million low to middle income earnings are now spending more than 30 per cent of their
income on mortgage repayments or rent. And in just a decade, mortgages have doubled.

KEVIN RUDD: Australia has a real problem with housing affordability. It's no exaggeration to say
that in early 2008, housing affordability is the worst it has been in living memory.

KIRRIN MCKECHNIE: The grim housing outlook certainly put a dampener on Kevin Rudd's 100th day in
office. The celebrations were short-lived at today's Cabinet meeting in Brisbane, as ministers
mulled over the alarming figures. The Government's response is to expand two of its elections
commitments to tackle housing affordability. Local councils will get $30 million to better process
development applications and Kevin Rudd's rolling out his scheme to offer tax breaks for investors
who build low-cost rental accommodation past its five year deadline.

KEVIN RUDD: The Government envisages that this extension would double the target of new affordable
rental properties from 50,000 to 100,000.

BRENDAN NELSON, OPPOSITION LEADER: We have to remember that the Housing Industry Association this
year estimates there will be 151,000 housing starts, 20,000 short of what is required. So whilst
the average of 10,000 a year over five years is a step in the right direction, we've still got
quite a lot of housing need that will be considerably unmet into the future.

KIRRIN MCKECHNIE: And it's only said to get worse for mortgage holders, who some economists say
have been fairly resilient until now.

JOSHUA WILLIAMSON: I think we'll start to see interest rates start to bite the consumer in the next
three to six months. We are looking for a second interest rate rise in May. Now that's going to
take the target cash rate to seven and a half. And a cash rate at that level is going to start
seeing variable mortgage rates encroach on double digit levels. And I think that will have a very
significant psychological response in the minds of consumers, homeowners and households.

KIRRIN MCKECHNIE: For Kevin07, it all just got a whole lot tougher in '08. Kirrin McKechnie,
Lateline.