Peter Costello

Speeches

Launch of the Great Australian Dream Project, House of Representatives Alcove, Canberra

LAUNCH OF THE GREAT AUSTRALIAN DREAM PROJECT

HOUSE OF REPRESENTATIVES ALCOVE
PARLIAMENT HOUSE, CANBERRA

MONDAY, 14 AUGUST 2006

First of all to my colleagues, I won’t acknowledge all of my colleagues that are here today but thank you for coming out. We have a Party Meeting at 12 noon to discuss fuel and border protection so whatever I say I am going to finish at about 2 or 3 minutes to 12 and you won’t have to walk out on my speech. Can I say to you Ron Silberberg, Alan Moran, John Roskam from the IPA and acknowledge Rod Kemp of course who is a former IPA Director here, thank you for the work that you do and thank you for being part of this wonderful project.

Bob Day has been a President of the HIA, he is one of the largest, if not the largest, homebuilders in Australia and he is somebody who has thought very deeply about housing policy. He has practical experience, he was a wonderful president of the HIA. And even more than that, Bob Day is the endorsed Liberal candidate for Makin in South Australia at the next election and so I wish you all the best Bob, in relation to that.

I would like to see an Australia in the future which has a higher fertility rate, a growing population, sensible further development of housing and infrastructure, better water security and low energy costs which will come about through the development of our great energy resources. I would like to see an economy which is growing off the back of population growth and productivity growth. I would like to see a nation confident about its prospects. Confident enough for families to have children and to seek their own little part of the country in which to house their children and in which to see their family grow.

And I know that this can only be bought about if we have a land affordability policy. And I want to endorse what Ron Silverberg said earlier. When you look at the indexes of house construction costs, they haven’t grown that much over the last 20 or 30 years. In fact Australia’s domestic house building industry is probably the most efficient in the world. It is nearly all done by contract. It is not unionised. And it has managed to take new materials and turn them into finished houses which are the envy of the world.

There are some people that go off at the standard of Australian housing. You have heard the derogatory term, ‘McMansion.’ Well I make no apologies for the kind of houses that are being built today that people want to buy. That is what people want for the security of their families. Our houses today are much bigger than they were in years gone by, and the standard is much greater, and the market is moving to meet it. And Australia’s domestic house building industry is as efficient as it has ever been. What we have in Australia is we have a land affordability problem and if you look at the way in which land prices have increased in recent years you can see they are out-stripping house building prices by huge multiples and of course, nowhere is this occurring more than in Australia’s most expensive real estate market in Sydney. And the reason for prices being in Sydney so far ahead of other parts of Australia is the question of land availability and therefore land affordability.

Ladies and Gentlemen, over the last ten years Australia has enjoyed an unbroken period of economic growth. We are now in the longest period of economic growth in Australian history. We have lived through the largest accumulation of wealth in Australian history. This year our economy will reach for the first time $1 trillion.

Although we had an increase in interest rates a week or so ago, interest rates today are still substantially lower than they were when this Government came to office. And I can certainly remember buying my first home before financial deregulation when credit was rationed.

There were some people that couldn’t get home loans at any price – credit was rationed. And I remember being so pleased after I had qualified for a home loan based on my savings record with my bank and going home and telling my young wife that we had qualified for a home loan and we could now buy a house and what’s more we qualified for the Government regulated low home loan rate of 12½ per cent, which we could then cocktail up with much higher rates if we wanted to go beyond the 80 per cent loan to valuation ratio.

And so today we have much greater access to finance. As I said, notwithstanding the interest rate rise of a week or two ago, the standard variable mortgage interest rate of 7.8 per cent is much lower than the rate when this Government came to office. And we have seen that many young Australian families have the confidence to buy homes. The shape of the housing market in Australia is approximately a third of people own their homes outright, a third of people have mortgages and are paying off their homes, and around a third of Australians are renting. Our home ownership rate in Australia is around 70 per cent. Only Italy in the G7 has a higher rate. And our home ownership rate is higher than the Anglophone countries, the UK, the US, Canada and New Zealand.

But young Australians, and older Australians too, still aspire to home ownership. Why? Because it gives them a security in life, a security that gives them their little piece of our country. It is a bit like The Castle, their little piece of turf that they can defend against all-comers and that gives them security and their family security. And we should encourage and nurture the aspiration to home ownership. This is something that is important not just in an economic sense but also I believe in a social sense. That is one of the reasons why this Government introduced the First Home Ownership Scheme of $7,000 for first home buyers in 2000, a scheme that 830,000 first home buyers have now taken part in.

You will be aware that in February this year I commissioned a report by Dick Warburton and Peter Hendy to benchmark Australia’s taxation system against developed economies around the world. One of the things it showed was that our top marginal tax rate was higher than the OECD average so we cut it. One of the things it showed was that the threshold for that top marginal tax rate cut in too low so we increased it.

And one of the things that it also showed was that transaction taxes, chiefly State property transaction taxes, account for a staggering 1.6 per cent of GDP in Australia compared to an OECD average of 0.7 per cent. 1.6 per cent compared to an OECD average of 0.7 per cent.

When we benchmarked ourselves on incomes tax and found that we were high, we cut it. When we benchmarked ourselves on property taxes and found we were extraordinarily high nothing happened. In fact, in most States there has been no move in rates or thresholds for stamp duty on conveyances for nearly a decade. Let me quote the State of Victoria where neither rates nor thresholds on stamp duty on conveyancing have moved since April of 1998.

If they had been indexed to CPI you would be paying substantially less today, but if they had been indexed to the market, much less again, because as we all know the market has moved far in advance of CPI over the last eight years.

This is one of the things that is highlighted in this report, that property taxes are now taking an extraordinarily high part of the price of a new home. It is not only the stamp duty on the conveyance it is the development costs such as the infrastructure levy you have to pay in New South Wales, section 94 levies, and of course, GST applies to housing costs as well – let me remind you, all of which goes to State governments in addition to property and development.

One of the positive things that we have been able to do in return for the introduction for GST is to get State agreement for the abolition of other indirect taxes and I have now finally achieved an agreement with all State governments for the abolition of stamp duty on mortgages, leases and rental arrangements.

But outside of that agreement there is still a whole area of property taxes which are now impacting on young Australians – stamp duties on conveyances, infrastructure levies, development costs and the like.

In fact the Productivity Commission, which did an inquiry into the home development market, found when it released its report that in some cases the taxes on a new house can equal the land value of that new house, and land value is not cheap.

In August of 2003 I asked the Productivity Commission to conduct an inquiry into affordability and availability of housing for families. It concluded that government policy should be directed towards addressing structural factors, the supply side, structural factors that impede the supply side of the housing market. It noted the scope for State and local governments to moderate price and affordability pressures by improving land release, improving planning approval process, ensuring that developer charges for infrastructure relate appropriately to the benefits provided and are not used for general revenue.

It noted that constraints on the supply of land on the urban fringe have added to price pressures and it noted that State and Territory governments directly influence land release policies. Local governments generally decide what development is permissible and where.

Coco Chanel once advised that, in fashion, less is more. But it seems to me that planning bureaucrats in our State governments have taken this to heart. It is now their land release policy. Less means more. Less land, more cost to young people that are trying to get into the housing market. You will hear it often badged as “urban consolidation” but urban consolidation really means packing more people into existing services.

The great Australian dream, which still beats in the breast of young Australian couples and families, is to own their own piece of the Australian land. It is a worthy aspiration, it is one that has made our country great in particularly post-war and it is one dream that we should nurture.

A strong economic environment where families are confident of their employment prospects is critical to the housing market. Well who will enter a contract for 30 years if they are unsure what their employment prospects are going to be in the next year or two.

Economic stability is critical, but in addition to that, supply factors, the availability of land, the price to develop land, the cost of transferring that land, are absolutely critical to preserving that dream. There is so much room for reform here. And in accordance with the Productivity Commission’s report I ask State and local governments to go back and to look at that report, to look at the way we benchmarked taxes in this area against OECD practice and to find the incentive there to improve the situation.

This Government used that international benchmarking to make Australia’s income tax more competitive and I hope that State and Territory governments will use it to make land taxing policies internationally competitive as well.

So to the IPA and Alan Moran who are launching this document today, the Tragedy of Planning, Losing the Great Australian Dream, I want to say, we as a Federal Government are committed to keeping the great Australian dream, we will play our part, but we look for the goodwill of other governments to also play their part and to make that dream a reality for the thousands, the hundreds of thousands, perhaps the millions of Australians who want that security and deserve it, in Australia’s future. With great pleasure I launch the Tragedy of Planning, the Great Australian Dream. Thank you very much.

14 Aug 2006

View more speeches …

Latest News

Paris Diary

Peter Costello Paris Diary

Read more …

PPI - Rising Role of Sovereign Wealth Funds

Peter Costello Rising Role of Sovereign Funds Speech

Read more …

The Hole Truth

Peter Costello in the Daily Telegraph

Read more …

Videos

Video Screenshot

Watch videos …