Monday, 4 December 2017
Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Bill 2017, First Home Super Saver Tax Bill 2017; Second Reading
Senator Cameron, I hope you feel appropriately chastised after that speech from Senator Steele-John for your apparent impotence in this debate. Perhaps you will have the opportunity in due course. I'll come back to Senator Steele-John's comments in a moment, but, before I do, I want to put on the record, as others have done in this debate, why I share the concern held by many that this is a very serious issue. Like Senator Steele-John, I am a young person—not as young as him but still younger than most in this chamber—and I feel the pain of my generation when it comes to housing affordability. Most of my friends don't yet own a home, although they certainly aspire to it, and many of them right now are wrestling with the challenges of the housing market. They are struggling to save a sufficiently large deposit to buy a home, or are struggling to service large mortgages, or are contemplating servicing large mortgages and all the impacts that will have on them, their life decisions and their family.
There are some, particularly in the media, who like to suggest that this is not a serious issue and that young people these days are just entitled and want to have everything at once. While there are perhaps some valid criticisms of my generation, happily in this debate we have some objective data which allows us to measure whether, in fact, housing affordability is more severe and problematic than it ever has been before. All of that data points to the answer being yes. To take one example—one stable measure throughout time—which is the average number of years of average salary required to buy an average home. In the mid-1980s it would take about three years of household income for an average household to buy an average home. Today it's more than six years—more than doubling. In cities like Melbourne and Sydney, it is considerably higher. It up to eight or nine times the average person's salary to buy an average home. Another good measure which really captures the difficulty for young people to enter the housing market is the proportion of household income required to save a deposit to enter the housing market. In 1990 it was 50 per cent of an average household income to save a deposit for an average home. Now, according to the Reserve Bank of Australia, it is 100 per cent. So there are some fairly tangible measures of why this problem is serious and why we should confront it.
Before I get to the measures that the federal government announced in the budget and the other ideas that other senators have suggested in this debate that the federal government should take up—and I do acknowledge that there is a role for the federal government in this debate—I think it is very important that we recognise that, primarily, those with the most powerful levers at their control are state and local governments when it comes to the question of housing affordability. This is best captured in an annual report produced by a think tank in the United States called Demographia, which, for more than 13 years, have measured housing affordability in comparable Western countries. The consistent finding that they reach year after year after year is that jurisdictions that have the most restricted land supply policies and the most restrictive development policies, which allow the least new homes to be built, surprisingly, or perhaps unsurprisingly, have the least affordable homes. Those jurisdictions with relatively relaxed land release policies with relatively light regulation on property construction are also the jurisdictions that have the most affordable housing. It holds both internationally and within one country, such as the United States, when you compare jurisdictions for housing affordability. In cities like San Francisco, with very restrictive land release and housing development policies, compared to a city Houston, which has very relaxed policies in that area, the gulf in housing affordability is particularly stark.
It's a very relevant point for Australia to consider, because Australia is not like jurisdictions like Hong Kong, Singapore or Switzerland, which have relatively limited land masses and where there is a natural restriction on the supply of land for housing. We are the least densely populated continent on the planet and there is no shortage of land available to be developed for housing. The only restrictions we have on the release of land and the regulation of what you can do on that land are those that are artificially imposed by governments. As Senator Whish-Wilson will remember from his economics classes, when you artificially restrict the supply of something, its price goes up.
This is an issue where the primary responsibility rests with state governments and local councils, who do control very important levers in this area. That's not to say that the federal government has no role in increasing housing supply. There are some ways in which we can do so. I was very pleased that the government announced in the budget that they were examining all the Commonwealth land held by the federal government, including some now unused defence sites and whether or not they can be developed for housing. There's one in Maribyrnong, in my home state of Victoria, which is going to be developed for a very significant housing development, and I think that is a really positive move. Of course, the federal government can also incentivise states to release more land and help states meet the cost of infrastructure if that land is on the fringe. That is often a great cost borne by states, which leads them to be reluctant to release new land. So there are some things that the government can do and does do to expand supply—but, primarily, that is a matter for state and local governments.
As I said, in a moment I'll come to the things that the federal government is doing that I support and which are in this legislation—which I hope passes the Senate, if not tonight, in the next few days—but I think we should consider the things that the federal government should not be doing that have been advocated by other senators in this debate. Senator Steele-John was not alone among Greens senators and, indeed, Labor senators in advocating that negative gearing and capital gains tax be reformed or abolished in order to deliver more affordable housing. If you took the word 'housing' out of that sentence and you applied it to any other market, people would ask that you have your head read. If we were ever worried about the affordability of bread, milk, meat or any other staple products, no-one would suggest that a way of solving that affordability problem would be to increase taxes on people who buy them or who produce them. That is exactly what Labor and Greens senators are suggesting in this debate. They think that somehow housing will become more affordable if we increase taxes on housing. It's very strange logic and, happily, we have the experience in this country of having tried to do so under the Hawke government, as previous senators have mentioned, and it was not a happy experiment—even the then Hawke government realised the adverse impact that had on housing affordability, particularly for renters, and in cities like Sydney that led to a massive spike in rental prices, and they quickly reversed their decision.
What I love most about the discussion about negative gearing—and it was particularly evident in Senator Steele-John's speech—is the idea that Labor and Greens senators are striking a real blow against the rich and the ruling class by getting rid of negative gearing, and that it'll really teach all those rich fat cats to stop taking advantage of the tax system. The truth is much more mundane. The people who most often take advantage of negative gearing are, in fact, middle-income people. The professions who most frequently take up negative gearing are teachers and police. Even if you abolished negative gearing, as the Greens and Labor propose, it wouldn't remove negative gearing as a feature from the system entirely. It would just close it to middle-income people. It would remain an option for high-income people, and it's worth spelling out exactly how this is the case so that perhaps the Greens senators and other senators can reconsider their policy in this area.
Rich people don't need to use negative gearing, because they don't derive their income primarily from a salary; they derive their income from investment income from shares, property and other assets. Often they hold these assets in a company structure, so they can put a home, a commercial property, shares, or any other asset or business within a company structure. Any losses incurred by one of those asset classes can be offset against the income earned in the other asset classes, so rich people, effectively, always have access to negative gearing because they are able to include all of their income-generating assets in one structure, a company structure.
Middle-income people can't do that. They can't afford to set up a company structure or put their home or their investment property in a company structure, because they don't have enough money to make that worthwhile. Accounting and legal fees, let alone the complexity of doing so, mean that it's not worthwhile for them. So the negative gearing system that we have instituted in this country is available to those middle-income people, and it allows them to offset the losses they might make on their investment property against their personal salary income and levels the playing field between them and wealthy people. Abolishing negative gearing would have the perverse effect of taking away this right for middle-income people but preserving it for the wealthy, which I assume is not the intention of the Greens and others.
I'd like to come now to another idea proposed by the Greens—and particularly clearly articulated in Senator Bartlett's speech—which is that the federal government should abolish stamp duty and replace it with a land tax. Whatever we think of the merits of that idea, there's a fairly major obstacle to implementing it—that is, stamp duties are levelled at the state level by state governments. Any land tax that would be levelled would happen at the state level, so proposing a swap from one to the other is not really something we can practically do here in Canberra. Senator Seselja might make some observations in his speech about how that experiment is going at the territory level where, right now in the ACT, the ACT government is doing a swap between land tax and stamp duty, and—
Senator Seselja interjecting—
Lo and behold; surprise, surprise. What does it result in, Senator Seselja? In higher taxes. Most homes in the ACT are now paying more tax than they did previously under the old system. It was supposed to be revenue-neutral. It was supposed to be a direct swap. It's not working out that way for most homeowners in the ACT.
I'll come now to the measures in this bill that the government are proposing, and I want to focus on the initiative to encourage savings because, as I mentioned earlier in my speech—as have others—one of the real barriers to entering the housing market is being able to save enough for a deposit. While the bank may be willing to lend you a significant amount towards the principal cost of the home, you do have to be able to save enough for a deposit. In a climate—particularly like that of the last few years—where house prices have been rising, the amount that you have to save for a deposit has been increasing quite fast as well. So many young couples have been struggling to keep up with the rising house prices, and therefore the rising deposit, and it's made it really difficult for them.
The government has proposed—and I want to particularly congratulate my colleague in the other place Michael Sukkar for championing this initiative—the First Home Super Saver Scheme, which takes advantage of the superannuation system we already have in place, and has a tax advantage of being able to save money. While it's a very important thing for young people to begin to save for their retirement in 40, 50 or 60 years time, wouldn't it be better if they were also able to save for a much more immediate and important financial goal?
For most young people, it is to get into the property market. This policy will allow young people to make contributions of up to $30,000, at a total of $15,000 per year, into a specially sequestered part of their superannuation account to go towards their first home. They won't be able to remove any money from their superannuation for this purpose other than the money they put in for it. It won't come out of the legislated requirement of employers to put in nine per cent per annum towards their savings for retirement. It will allow them to put in extra above and beyond what they are already saving, but to do so for a particularly important purpose for most young people.
Giving that significant tax discount for many young working people will allow them to save for their deposit much more quickly than they otherwise would and to save a bit of tax on the way. I think this is a really positive, sensible, measured and targeted initiative. It goes to the heart of the real problem for young people in getting into housing market in a precise way and it uses existing legal structures. It does not necessitate the creation of any new legal structures. The superannuation system is there. We trust the superannuation industry to manage this money for the short time it will be there. I think that's a really positive initiative.
Another really positive initiative is to reduce the barriers to downsizing. One of the problems in the housing market is the incentives that are in place, partly in the tax system but also in the welfare system. Many older people who may still be living in the family home in which they raised their children but their children have grown up and moved out have perverse incentives to stay in that home longer than they might otherwise wish to, because of their superannuation, their pension or other welfare or taxation stresses that they may face. So they stay in their home for much longer than they would otherwise prefer to, and those homes are not available to young people and families who are looking for homes. It would make very good financial sense for a lot of older couples to downsize.
We have made some changes to the superannuation system to incentivise older couples who wish to downsize to do so. From 1 July next year, people who are aged 65 or over will be able to make a non-concessional contribution of up to $300,000 into superannuation from the sale of their family home, as long as they have held it for at least 10 years. If both members of a couple choose to do so, contributions of up to $600,000 may be made, and that is on top of all the existing caps. So any couple that has already reached their cap will be able to make this extra contribution of up to $600,000 into their superannuation. This is a real win-win initiative. It will improve the availability of family style homes in the housing stock, which is going to be particularly welcomed by young families. It will help secure the retirement income of older couples. It will encourage them to downsize when moving into a smaller and more appropriate home might be a very wise thing for them to do.
I will finish on one final note, which is to address another observation made by Senator Bartlett. As is often the case in these debates, when the Greens can't quite bring themselves to understand why other parties or senators have a different position to them, they look for a bogeyman. In this case, they've decided that it is property developers: property developers are the reason why the Liberal Party and the Labor Party and others may have the position they do on this issue. It's an intellectually lazy argument. We could easily make the same argument about them. It's certainly known that renewable energy companies donate generously to the Greens and that the Greens strongly support policies which encourage renewable energy. Renewable energy companies benefit from this because of the protection that, for example, a renewable energy target or other subsidies or schemes provide for the industry. Yet you don't often hear coalition or other senators come into this place and say, 'The only reason the Greens are supporting a renewable energy target is that they are trying to help their mates in the renewable energy industry who donate money to them.' It wouldn't be true because the Greens sincerely support renewable energy. They believe in it, and that's probably why renewable energy companies donate to them. I don't think that the cart and the horse are the other way around and that the Greens dreamt up this policy as a result of donations from the renewable energy industry.
It would be nice if the Greens occasionally showed that kind of understanding and that kind of goodwill towards other parties. There are many reasons for holding the positions that we do. Most of them, I believe, derive from genuinely philosophically held positions, well thought out positions derived from a careful analysis of the facts and the problems and out of a genuine attempt to solve them. Not everything in politics that is different from your own view must be badly motivated. Not everything in politics must be caused by some evil bogeyman behind the scenes making donations. If we were to follow the Greens' logic, we wouldn't just ban donations at state level in New South Wales from property developers; we'd also ban donations from any company that got an incentive out of the political system, and that would rule out many of their donors, too. I'd be interested to see whether they propose it. It would rule out the trade unions donating, too. If we didn't want to have people who potentially got something out of it donating to politics, we wouldn't allow trade unions to donate to the Labor Party.
I don't really believe that's why trade unions donate to the Labor Party. I don't believe that's why the Labor Party holds the positions that they do. I believe they hold those positions because they've sincerely thought about them and it goes to the core of their philosophy. That is my final plea in this debate tonight: even when we disagree in this place, it's not necessary to ascribe bad motives to others.