Senator Andrew Bartlett
Saturday, February 19, 2005
 
Burning Down the House: Interest Rates, Tax Reform & the Price of Housing

Yesterday, the Governor of the Reserve Bank, Ian MacFarlane, was quoted in the media as saying homeowners could expect interest rate rises "sooner rather than later". Virtually everything he pointed to as a contributory factor were things the Government could have addressed but has chosen not to.

Mr MacFarlane pinpointed exactly where the biggest problem is with the tax and the welfare systems – the effective tax rates paid by low and middle income earners. This is one area of tax and welfare reform where the Government would have received Senate support, but chose to do nothing.

He spoke of the need to remove barriers to workforce participation (which does NOT mean taking away people's income support) and reduce high marginal tax rates and withdrawn benefit rates.

In this story from News Ltd, John Howard makes a pretence of responding to the issues raised by the Reserve Bank Governor, but mostly talks about everything but. Among his comments, Mr Howard says “we have been trying to reform the disability pension scheme,” which is a reference to the Government’s attempts to kick people off the Disability Pension, which were stopped by the Senate.

As I detailed in my previous post, this is actually the opposite of what was proposed as welfare reform and has nothing to do with workforce participation. However, if the Government keeps maintaining this pretence, then there’s a better than even money chance they will get away with this deception, as I have yet to see this façade challenged in the media.

Mr MacFarlane also mentioned the need to address the impact of the taxation regime on housing prices, such as capital gains tax, negative gearing provisions and other measures that are helping to drive the price of home ownership out of the reach of Australians on average incomes.

This has echoes of the recommendations of the Productivity Commission report into the cost of home ownership. As can be seen from the Government's response to this report, they ignored all the recommendations which would require them to do something and supported all the rest which required action from the states.

The federal Government specifically decided to ignore those aspects of the personal income tax regime that have contributed to excessive investment in rental housing (and thus to skyrocketing house prices), ignore the housing needs of low income households and ignore the problems caused by the First Home Owner Scheme. And yet the Prime Minister has the gall to say “the family home ….. should always be something which is kept within the reach of Australians on modest incomes.” Unfortunately, he has already failed as far as many families are concerned, and many of those who have managed to get a toehold on home ownership now have such a huge debt that they live in fear of the smallest rise in interest rates.

posted by Andrew Bartlett @ Saturday, February 19, 2005 Permalink
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