Shadow treasurer Chris Bowen has sounded the alarm about the stability of the Australian financial system, while criticising the Turnbull government’s refusal to adopt Labor’s polices of paring back negative gearing, reducing capital gains tax discounts and stopping self-managed super funds borrowing to buy property.
In a hard-hitting speech on Wednesday, Mr Bowen will describe cutting the capital gains tax discount from 50 to 40 per cent – a policy measure considered, but unlikely for the May 9 federal budget – as “tinkering at the edges”, while he will mock the government for cooling talk of a housing affordability budget centrepiece.
The warning comes as new data reveals that most interest-only and investor loans from the big four banks are cheaper than a year ago despite a series of rate hikes and a regulator crackdown aimed at cooling the housing market.
Banks are being forced to tighten their lending standards amid booming house prices under a new policy unveiled by the regulator, the Australian Prudential Regulation Authority (APRA) last month.
Property investors and interest-only loans are in APRA’s sights as they can potentially put people at risk of “payment shock” when the loans revert to principal and interest.
But data collected by research group Canstar shows that, despite a series of rate hikes from the banks in response to the regulatory change, interest rates on many interest-only and investor home loans are still significantly lower across the big four banks compared with a year ago.
Commonwealth Bank’s standard variable interest rate for customers taking out an interest-only loan as an owner-occupier is 5.22 per cent, 0.38 per cent lower than April last year when it was 5.6 per cent.
National Australia Bank’s one-year fixed interest-only rate for owner occupies is currently 3.99 per cent, 0.60 per cent lower than in April 2016.
The period takes into account two official rate cuts by the Reserve Bank of Australia in May and August last year. The data assumes the borrower has a 20 per cent deposit and is buying a $350,000 property.
The Canstar findings were released ahead of Mr Bowen’s McKell Institute speech and are likely to be seized on by the shadow treasurer as evidence more needs to be done to cool the housing market.
Mr Bowen will argue, according to speech notes seen by Fairfax Media, that Australia has some of the most generous tax concessions for property investors in the world.
“Any so???called housing affordability policy which doesn’t deal with this is a sham,” he will say.
Those tax breaks, combined with rules that allow self-manged super funds to borrow money to buy property – a practice that has grown by 860 per cent since 2012 and which the Murray review recommended by abolished – have two effects.
First, Mr Bowen argues, they make property more unaffordable and make it harder for first home buyers to get into the market.
Second, in the event of an economic shock, they increase the risk for the Australian financial system because they have allowed households to borrow too much to invest in property.
“Over the last few years, housing affordability, rapid house price growth and record leverage has increasingly become an issue not only of fairness and equity, but also one of financial stability,” Mr Bowen will say.
“If Australia faced the unfortunate scenario of an economic shock down the track a responsible government would be able to tell the Australian people they did everything in their power to prevent a situation being worse than it could otherwise have been. The current government would simply be unable to do this. “
Economist Saul Eslake said the Canstar data showed the weakness of macroprudential measures designed to cool the market compared with changes to government policy such as abolishing tax incentives for property investors or adjusting the official RBA cash rate.
“The impact of recent supervisory measures has been overwhelmed by the impact of the two rate cuts in May and August last year,” he said.
“But doing the third best thing is better than doing nothing at all.”
Chris Richardson, partner at Deloitte Access Economics, said it showed money remained “incredibly cheap” in Australia.
“Is more needed? Potentially yes, at some stage you’re going to have to switch to different tools.”
Steve Mickenbecker, head of research at Canstar, said the data showed the latest rate hikes had not yet gained ground on the official cuts of last year.
“Over the period there has been a 0.5 per cent reduction in the RBA cash rate. If you look at the various rates here, a number of them have gone up but a lot of that clawing back has occurred in the last few months,” he said.
In the minutes of its April meeting, the RBA said the Council of Financial Regulators regulators could clamp down on home loans and “consider further measures if needed” to maintain financial stability.
The RBA also appeared to take aim at “particular features of the tax system,” including negative gearing, which the Turnbull government has all but ruled out tinkering with in the lead up to the May budget despite its influence on increasing loans to investors.
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