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Friday, 16 June 1989
Page: 4211

Senator MACKLIN(9.18) —I move:

That the Bills be now read a second time.

I seek leave to incorporate the second reading speeches in Hansard.

Leave granted.

The speeches read as follows-


This Bill will have 3 important effects on the current deregulated mess that passes for the Australian Economy. The first will be to encourage savings. The second will be to offer small investors, especially the aged and those who have retired, a secure investment with a good return. The third effect will be to assist those who are currently saving to buy their first home as property prices rise or are struggling to meet their escalating mortgage repayments as interest rates rise.

The Bill will exempt from tax the first $2,000 of interest earned by anyone who deposits their money into accounts paying no more than 12% with financial institutions which lend for housing. So people with bank and building society deposits will benefit. More money will be available at a lower interest rate to those borrowing to buy their own home. This Bill will therefore make a substantial contribution to increasing the level of savings in Australia and to ensuring that people buying their own home to live in do not have to pay the massive interest rates currently dictated by unregulated financial markets.


In December 1988, the Economic Planning Advisory Council (EPAC) issued a paper entitled ``trends in private saving''. It noted that private savings have trended down since the mid 1970s and stated that ``without a significant improvement in the incentive framework for saving, private saving is unlikely to make a major contribution to the further adjustment in domestic savings that is needed''.

Since then, our deteriorating balance of payments problem and ever growing foreign indebtedness have resulted in economists, bankers and business people demanding that something be done to increase the incentive to save. Recently 2 Ministers of this government have been prepared to advocate publicly the need for incentives to increase the level of savings in Australia.

Why is it important to increase our domestic savings? Australia is buying too much from overseas countries and exporting too little. Our increasing level of foreign indebtedness and foreign ownership means that we must pay increasing amounts of rents, interest and dividends to the foreign owners of Australian assets and to foreign lenders. If we could save more in Australia, we would need to borrow less from overseas and we could reduce the rate at which we are selling off Australian Businesses and Land and Property to overseas buyers. We would therefore begin to reduce our repayments to overseas lenders and owners of Australian Assets. As Australians save more, they buy less and this means that we will buy fewer imports.

There is little argument about whether we need to increase our level of domestic savings. The argument is really about how to do it. The deregulationists and expenditure cutters who determine the economic policies of the Hawke Government, the Liberal/National Party coalition, Australian big businesses, and the foreign bankers who have been generous enough to lend us our foreign debt, all want to increase savings by inflicting more pain on Australians. They want us to use monetary policy (i.e. higher interest rates), fiscal policy (that is more expenditure cuts) and tax increases in the form of consumption taxes to increase domestic savings. In short, they believe that we must suffer pain in order to increase savings.

The Australian Democrats are not interested in yet another attack on the living standards of low and average income households to wrench more savings out of the economy. We oppose expenditure cuts which enable the Treasurer to gloat about the size of his domestic surplus. We oppose consumption taxes because they cannot be avoided by low income earners who get pushed further into debt and poverty. We oppose more increases in interest rates. We know that many Australians will save more if we give them a direct incentive to save by not taxing the first $2,000 of interest earned. That is what this Bill will achieve.

Someone with $10,000 of savings and $20,000 of other income, will currently lose money by investing in a savings account at 12%. They will earn $1,200 in interest and pay $412.50 in income tax and medicare levy, approximately $400 in provisional tax, leaving them with a return of less than $400 on their $10,000 investment. With inflation running at 7%, they lose at least $300 by investing their money at 12% given the existing tax regime.

This Bill will enable existing and potential savers to achieve a real return on the first $2,000 of interest they earn. The limit of $2,000 will mean that people with a lot of money will not get the tax concession for interest above $2,000. For all Australians with savings, but particularly for retired people and the aged, this will be a good opportunity to invest some money safely. They will not need to invest in complex bonds, trusts and elaborate tax minimisation vehicles which may be risky, to avoid the punitive taxes on savings. They will be given access to an honest, secure and simple form of investment.

Last year, the Japanese Government began to take a 20% slice of the interest earned on savings accounts which had been totally exempt from taxes for 25 years. These tax free savings accounts, called maruyu, have been a major inducement for the Japanese to save. Japanese industry has had ready access for many years to a vast reserve of cheap capital. It was established last year that almost $US2.5 trillion were in these accounts.

The Japanese Government acted to reduce (but not abolish) the tax concession after pressure from the U.S. Government to do something to increase Japanese domestic consumption. I doubt whether the Japanese Government sought the advice of our deregulationist Treasurer or his Liberal Party counterpart. Japan acted sensibly in the first place to give a tax concession to encourage domestic savings and now under extreme pressure they are only removing a small part of that exemption. Japan was able to restructure the economy without becoming dependent on foreign investors and foreign lenders because it had adequate levels of domestic savings.


This Bill will also make it easier for those who are saving to put a deposit on a home. Escalating house prices have widened the deposit gap for many prospective home buyers. If they struggle to save something, the Government taxes away their earnings. As house prices increase, they cannot save enough to keep up with inflation in general let alone the inflation in property prices in most of Australia.

The Bill deliberately gives the tax incentive to save in such a way as to encourage people to save with financial institutions that lend for housing. This will mean that more money will move into financial institutions which lend for housing. Savings banks and building societies will be able to attract more money at lower interest rates because people will save with them to get the tax benefits. Consequently banks and building societies will be able to pass on the lower interest rates they are paying for money to those who are borrowing to buy a house to live in. Interest rates on home loans will fall.

The Hawke Government and the Liberal and National parties have voted to give a tax incentive to those who are buying their second, third or fourth property as investments. That is their priority. The person who owns many houses gets to claim the interest payments on borrowings as a tax deduction and can then offset any further losses against income they earn from other sources. The Laboreals can come up with exotic reasons to support tax concessions for property investors. This is the first of 2 Bills which will give the Government and the Opposition the opportunity to support tax concessions which will benefit those who are trying to buy their first home and those who are struggling to pay it off. The Australian Democrats believe that Australians wanting to buy a home to live in and those who are attempting to pay off the homes they are living in deserve a tax break too. If we cannot afford to help them, why are we helping property investors? Why are we suffering expenditure cuts and high interest rates so that wealthy Australians can buy more luxury imports and Australian companies can borrow more money overseas?

In looking at the cost of this proposal, we must recognise that we can save future revenue on public housing and social security payments due to the increasing poverty created when housing becomes less affordable. In terms of our balance of payments and foreign indebtedness, we will be able to make future savings on the interest repayments to foreign lenders. We can save Australia from increasing dependence on foreign investment and begin to reduce the increasing proportion of our wealth which goes in the form of rent and dividends to foreign owners of Australian assets.

At the end of 1988, all savings bank deposits totalled $67 billion and all building society deposits totalled $19 billion. These accounts were of course in a variety of term deposits, cheque, pass book, investment and statement accounts, with varying interest rates. To calculate the possible revenue loss means making a number of assumptions.

First, about the proportion of current deposits that would be attracted to accounts of up to 12%;

Secondly, about the higher rate at which new savings will grow as a result of this measure;

Thirdly, about the number of people earning interest who are already below the tax threshold;

Fourthly, about the level of interest rates in the future; and

Finally, about the marginal rates of tax on current and future savings and therefore what if anything the Government will deliver as tax cuts this year.

Clearly, it is impossible to come up with a precise costing because of these assumptions.

In June 1988, the total interest paid by savings banks was $4.1 billion. If we assume that this grows to $5 billion this financial year and about half this amount is paid on accounts that attract the concession then $2.5 billion of interest payments would not be taxed. If we assume that the average tax paid on this amount is about 30%, then the Government will lose some $800 million in revenue from interest on savings accounts with banks. If building societies continue to attract about one-third of the savings attracted by banks that would add another $270 million, making the total cost just over $1 billion.

The cost would be reduced when interest rates fall and the 12% limit is reduced. Similarly, the cost would be lower with lower tax rates. This cost, however, is less than the almost $2 billion the Government has given away in company tax cuts. It is also less than the cost to the Government of giving a tax concession to Australian companies which borrow overseas and use the deduction on the interest they pay on their borrowings to pay little or no tax.

However, it will be money well spent to encourage savings and home ownership, rather than allowing the wealthiest Australians to import luxury goods and giving tax concessions to property investors so that they can pay more for a home than Australians looking to buy a home for themselves to live in.


This Bill will enable people who are buying the house that they live in to get some tax relief on their home loan repayments. The Hawke Labor Government and the Liberal and National Party Coalition, give favoured tax treatment to people buying investment properties. In this Bill, the Australian Democrats will give much needed tax relief to Australians who are struggling to pay off the homes in which they live.

As I introduce this Bill, interest rates are high and rising. I am sure that in the future interest rates will fall, but nobody knows when. Maybe this will coincide with an election. Yet all Australians must realise now that in a deregulated financial system, interest rates can rise at any time and when interest rates on housing loans rise, many Australian suffer.

Those who have recently taken out mortgages find it difficult to meet the increased repayments. Some lose their homes. People who are about to purchase a home have to think again because they do not know whether they will be able to afford the increased repayments. Without doubt, deregulation has made it more difficult for many Australians to buy a home to live in. The same cannot be said for property investors who are encouraged to buy many homes with special tax concessions.

The Government has taken some action to reduce the pressure that foreign investors were putting on home prices in Australia. However, it was little action, very late. Following this action, foreign investors can and do buy property for development.

There seems to be something very wrong with this Government's housing priorities. Foreign investors can still push up home prices. Australian investors who already own a home and buy another one, two or three houses as investments, are allowed to claim the interest they pay on their home loans as a tax deduction. If they are making a loss on renting out their investment properties, they are allowed to deduct that loss against taxable income from other sources. The Hawke Government, with the support of the Liberal and National Party Coalition, reintroduced this mechanism of negative gearing to subsidise at the taxpayers' expense, the losses deliberately incurred by property investors. They are prepared to give a tax incentive to people who are not living in the houses they are buying.

It is sad indeed that the property investor can afford to pay more for a property than the person who is buying a home to occupy. It means that investors can outbid potential owner occupiers at an auction. This is the result of giving all the tax breaks to the property investor and nothing to the person buying a house in which to live. The property investor gets to deduct the loan repayments and to negatively gear. The owner occupier faces crippling interest rates which are still rising and meet the full home loan repayment with no tax relief.

This Bill, therefore, gives the tax benefit to Australians who are living in the houses they are buying. Australians who are currently finding it very difficult to keep increasing the payments on their housing loans while their real incomes are falling, need this help to stay in their homes. Australians who are contemplating buying a home to live in need this assurance that they will get some tax relief. Otherwise as their mortgage commitments rise, they risk financial hardship and eventually being thrown out of their homes when they can no longer afford to meet their loan repayments.

In essence, this Bill is similar to legislation introduced by the then Treasurer and now Leader of the Opposition, as part of the 1982-83 Budget. In those halcyon pre- deregulation days, he was prepared to deal with the problem of high interest rates making home ownership unaffordable to average Australian income earners.

This Bill will introduce a tax rebate on the interest paid in excess of 10% per annum on the first $80,000 of a housing loan. Those buying the most expensive houses will not abuse the system because the rebate is limited to interest paid on the first $80,000 of a loan. We will also prevent the highest income earners from getting the biggest benefit by applying the same 40% rebate to all owner occupiers with home loans, irrespective of their actual marginal rate of tax.

In Austria, Denmark, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Germany, Japan, New Zealand, the UK and the USA, there is either full or partial tax allowance for interest on home loans for a principal residence. So this is not an unusual measure. Given the financial problems confronting Australians who have recently bought or who want to buy a home to live in, there is at least as great a need to introduce this legislation now, as there was when it was introduced in 1982.

The cost of this measure will vary as interest rates fluctuate. Obviously if we get home loan interest rates down to 10%, there will be no cost. However, at current interest rates, the costs are likely to be in the vicinity of $200 million.

If my Bill to exempt from tax the first $2,000 of interest earned from savings accounts with financial institutions that lend for housing is passed, then money at 12% or less will become available to institutions that lend for housing. Interest rates on home loans will then drop and the cost of this tax subsidy will be reduced.

Can we afford not to help Australians buy their own home? Can we afford to have more Australians trying to find accommodation in less public housing because they cannot afford to buy a house? Can we afford to sell Australian houses to foreign investors and allow housing to become unaffordable to average Australians? Can the Labor, Liberal and National Parties afford to deny tax relief to people buying a house to live in when they have voted to increase the tax incentives for property investors to buy many houses?

I commend this Bill to the Senate.

Debate (on motion by Senator Richardson) adjourned.