27 January 2017
Transcript - #2017003, 2017

Doorstop interview, London

SUBJECTS: Visit to London and Germany; housing affordability; Social Impact Investing; Labor’s plans to increase rents; false claims on government debt; Bill Shorten’s reckless opposition to free trade

TREASURER:

[AUDIO BEGINS] …opportunity to get behind a lot of the thinking behind those initiatives. This has been a very productive week. Over the course of the week I have also had the opportunity to meet with the Bank of England, the European Central Bank as well of course Chancellor Hammond earlier in the week to get down on how the progress is going on post-brexit election issues, particularly in the area of financial services. Obviously both countries are very committed to trade and the opportunity for a free trade agreement with the UK when the appropriate opportunity presents itself, but other Ministers have commented specifically on that. In this visit I have particularly been focused on the financial services issues and there is already enough uncertainty and volatility in the global economy and the global financial system, we don’t need to needlessly add to that by not having a very seamless transition. We understand there are lots of issues, politics and so on that goes into this but the G20 in particular has done I think a very good job of promoting greater stability post the global financial crisis so there is no need to interrupt that.

QUESTION:

In terms of housing affordability Treasurer, you have spoken today about supply being a possible solution or part of a solution to the housing affordability crisis. Why was it necessary to come to the UK to learn that supply is often a good way of meeting demand?

TREASURER:

Well I had already made the point back in Australia last year that supply issues are the predominant and overwhelming factor in Australia’s housing affordability challenges. When I say that it is not just supply when it comes to single dwelling lots on the fringes of major metropolitan cities like Sydney or Melbourne or Brisbane, it is affordable housing in brownfield cities in [inaudible] areas. It is appropriate dwellings for people who need to age in place which is a big part of what happens in Australia and having the appropriate accommodation stock. It is not a one dimensional property market any more here in the UK as it is in Australia. So that perception was reinforced while I was here in the UK. While the markets are very different the point I was making earlier in the day was the UK do not have negative gearing, they never have in the way we have it which is being able to offset net rental losses against wages income. Doesn’t happen here but yet they have the same housing affordability problems. I think that underscores the fact that that is a bit of a red herring argument. Yes you use macro prudential controls to I think sort out some of the issues around investors just like they have here but the primary issue, if you are serious about addressing housing affordability is you have got to address supply.

Now what they are doing here in the UK I think is very exciting. The sort of partnership I saw yesterday between Lend Lease and Southwark Council is extraordinary. They are not just transforming the lives of the affordable housing residents who will go back into what was once the notorious Heygate Estate, they are transforming the lives of those people and those communities. The social impact of those outcomes of a development like that are massive So Social Impact Bonds and today I have talked about releasing the Social Impact Investing discussion paper, that is all tied up together and they have been doing that longer here with scale than we have. So to answer your question, that is why.

QUESTION:

So what will you take back in terms of the housing association model you will be speaking about today and the onus on developers to supply affordable housing for all parts of the market?

TREASURER:

Well that already happens at a very small scale in Australia, particularly in Victoria. It is increasingly becoming a factor in development application consent in other parts of the country. But what is interesting here is that was a pre-existing condition and take the example over in Southwark, it is 25 per cent that needs to be affordable. Now what is interesting is that they have formed a partnership there that goes beyond the transaction and the consent. They are doing things by the way they develop the estate which means rather than getting a big cash payment to the Council they get a leisure centre, they get a skills transformation centre for people coming out of, in some cases jail and needing to reskill and get jobs. That is all incorporated into the development. So they are taking I think a very social impact assessment of the benefits from the public sector and are working with the private sector player in Lend Lease who I am incredibly proud to see what they are doing there as an Australian. That was Dick Dusseldorp's vision when he first set up Lend Lease in the 70s and to see it lived out here on the streets of London – gosh I would love to see it down on the streets of Australia and I think there is a real opportunity for that.

QUESTION:

Treasurer your own MPs are calling for changes to negative gearing so isn’t it time to stop pretending it’s not part of the mix that contributes to housing affordability?

TREASURER:

Well what is part of the mix is how you address any sort of overheating of investor sentiment. That is the issue. How you deal with it is a matter for various policy options and the policy option the government has supported has been the macro prudential changes to limiting investor credit growth for the banks. That has been very successful. It halved the rate of credit growth for investors. That is the outcome they were seeking…

QUESTION:

Your own MPs are calling for change…

TREASURER:

They will participate in the debate but I am more interested in what the outcome is. I don’t get as fixated on wearing around a t-shirt for particular policy prescriptions, I am about the outcomes and if the outcome means you can cool investor sentiment without crashing the property market in Australia by using those more subtle measures then that is a much better way to do it. I will be happy to have those conversations with colleagues on my return.

QUESTION:

So you think that changing negative gearing as Labor proposes would crash the property market?

TREASURER:

I think it is a very blunt measure that we know would increase rents. Now how can you help people who are saving to buy a home by putting up their rent? I think what Labor have done on negative gearing has become jingoistic on housing affordability policy. They believe in silver bullets. It is foolish and it is reckless and it doesn’t help anybody. The way that Bill Shorten and indeed Chris Bowen and the others have engaged in addressing Australians' frustration at the moment with the politics of populism and denial I think is a cruel hoax. It is not going to help anybody buy a home, it is going to make people and family see their rents go up. So I will leave that to them. They clearly don’t understand what is happening in the UK or even in the Australian property market.

QUESTION:

Are you bit worried though that some of your own colleagues seem to be falling for their jingoism as you describe it?

TREASURER:

No.

QUESTION:

Why not?

TREASURER:

Because I am not. I am confident in the argument we are making Latika. I am confident in our focus on results…

QUESTION:

Your colleagues are not.

TREASURER:

That is your assessment and I will have further conversations with them as we build up towards the Budget this year. What we will deliver is something that addresses the full scheme of challenges that exist in that sector and will be taking our colleagues along with that.

QUESTION:

How seriously are you looking at the UK housing model to introduce in Australia and will it work in Australia?

TREASURER:

I think the last part of that question is the thing we now assess closely. There are real differences. The housing association sector here in the UK is a very big player in the housing market – they effectively have the same place in the UK housing market that mum and dad investors have in the Australian housing market and one of the great dangers of what Labor are proposing in Australia is they are saying to mum and dad investors who are the one who provide the rental properties in Australia is we are going to force you to put the rents up on everybody in order to accommodate what a change in policy in that area would achieve. We have to look at the detail of this now but things like the Housing Infrastructure Fund which was in the autumn statement and the focus on clearing away impediments to sites becoming available not just on the fringe but all throughout the city, that is really important and their understanding that there is not a one size fits all policy to this. The problem with negative gearing changes is that it impacts the market in Hobart as well as in Sydney but the problems in Hobart are different form the problems in Sydney just like the problems in London are different to the problems in Bristol. So nation-wide macro measures like on tax fall on the fair and the foul ground and you get very different outcomes. So what the UK is doing and I have had those discussions with Ministers at a very detailed level this week – they are working to ensure they can deliver things very much on the ground. Now they have the advantage of being a central government. We will have to achieve those same outcomes through partnerships with the States and Territories. But I think we have States and Territories who are very keen to pursue this and you have heard from the new NSW Premier that she is right up for those sorts of things.

QUESTION:

On the debt ceiling Treasurer, you said in your speech you are arresting the debt problem but it is actually climbing faster than it was under Labor and it is nearing half a $1 trillion…

TREASURER:

Well that it is not true.

QUESTION:

Are you going to raise the debt ceiling?

TREASURER:

Well it is not true that debt is rising faster than it was under Labor. The rate of debt growth in Australia today is lower than it was under the Labor government because the deficit is reducing and debit to GDP is going to peak and recede over the course of the Budget and forward estimates. I am not sure who is making that analysis but we will have to assess that issue as we work towards the next Budget.

QUESTION:

Gross debt is nearing half a trillion.

TREASURER:

Gross debt in nominal terms is one issue, the rate of growth in debt is what you are implying, that the rate of growth in debt in Australia today is higher than it was under Labor, that is not true.

QUESTION:

What about gross debt…

TREASURER:

Gross debt will peak at just over 30 per cent of GDP which is a third of what it is in many other developed countries and those issues will have to be accommodated in the normal way.

QUESTION:

What does that mean Treasurer?

TREASURER:

Well it means they will have to be accommodated in the normal way.

QUESTION:

Do you think Donald Trump’s embrace of protectionism will be damaging to the global economy?

TREASURER:

I think that the UK and Australia, as I have just explained to the audience today, have an alliance of thinking, an alliance of interest in being champions for trade and that those who are opponents of trade in Australia and simply want to walk away from it or give up on it as Bill Shorten wants to do, are an enemy of jobs. It is important for us as an open, trading economy – that is what is relevant to our economy. Other governments in other places will make judgments for their people as indeed the Trump Administration will. That is their job. But when it comes to Australia and what I have seen here in the UK, we are focussed on trade and focussed on the economic opportunities that come from trade and that means jobs and better incomes down the track. I am not going to tell our kids that they are not going to have the benefit of prosperity that comes from trade that my generation enjoyed. I think an anti-trade agenda in Australia, which is what Bill Shorten seems to be proposing, is bad for jobs and it is bad for our kids.