TRANSCRIPT
THE HON PETER COSTELLO MP
Treasurer

Interview with Derryn Hinch, 3AW
Monday, 4 August 2003
4.05 pm

SUBJECTS: Housing Affordability; Stamp Duty; GST; First Home Owners’

Scheme.

HINCH:

On the line the Federal Treasurer, Mr Peter Costello. Good afternoon.

TREASURER:

Good afternoon Derryn.

HINCH:

What can this Productivity Commission actually achieve? The Prime Minister

has already said that he doesn’t think the price of housing will come

down, won’t slash the cost, what are you hoping to achieve?

TREASURER:

We want to have a look at some of the factors that are putting up prices

against first home owners. And I think it’s important to be very clear

about this. If you do have a house and the price is rising, you don’t

worry too much because you are tending to benefit from the price rises.

The people that worry the most, are people who don’t have houses. So,

we want to look at the factors that are making those prices high for

first home owners, and it will look at things like, is there enough land

being released, are the taxes and charges making prices higher than they

need to be, are there any other factors that are within the ability of

government to influence, so that the first home owner can get a start

in the market?

HINCH:

The thing though, I mean GST doesn’t apply on existing houses, only on

new houses, right…

TREASURER:

Yes.

HINCH:

…on building supplies and labour etc, and on the other hand though

you’ve got the State Governments reaping billions of dollars, hundreds

of millions of dollars in stamp duty.

TREASURER:

Yes. It’s an interesting point this one about GST because, as you said

there is no GST on established real estate. GST applies to the construction

of new houses. We think that as small a number as 15 per cent of first

home buyers are buying newly constructed houses. Let me turn that around

the other way, 85 per cent of first home buyers aren’t paying GST. So

I see that a lot of the States have been out saying, oh this is a problem

of GST, well for 85 per cent they are not paying GST.

HINCH:

But who says that a 22 year old couple have to have a home, have to have

a new home, why can’t they rent? You know and I know, people in my age

group waited until they were 35 before they bought a house.

TREASURER:

Well, the majority of them of course don’t buy a new home. The majority

of first home buyers, we know from the information I just gave you, up

to 85 per cent don’t buy a new home. What they might buy is they might

buy a unit or a flat, they might buy a house which is in need of renovation

and of course there is no GST on that; it gives them a toe-hold in the

market, those prices are going up, and as they become established in

the market, they are able to improve over the course of their life their

standard of housing and in fact that’s what most people do. Most people

don’t buy a new house as their first house. And this…

HINCH:

Yeah but who says a 22 year old couple have to own a home in the first

place?

TREASURER:

Well, they don’t; many 22 year old couples decide not to. And if they

decide not to, that is fair enough, nobody’s saying that they have to

own one. But, what we’re looking at is that group of people who do want

to buy one who are outside the market and are finding it hard to get

in. Now, as I said before, if you are already in the market Derryn, the

fact that the prices are going up is probably something that’s making

you pleased rather than unhappy, and I want to say to all of the people

who do own a house, this is not some plot to reduce the value of your

house, but it is the chance to look at that group to see if there are

any barriers that the Government should be addressing.

HINCH:

Did you think when GST came in that State Governments would back off

a bit on some of the things like stamp duty?

TREASURER:

Well, what I wasn’t…

HINCH:

That’s what I thought was going to happen.

TREASURER:

…yes, yes, no, what has surprised us is that the principal reason why

house prices went up was that interest rates came down. As interest rates

came down, we are now at 30 year lows, and you know, we have been running

our economic policy to get low interest rates. As interest rates came

down, because they were lower, people could afford to buy more expensive

properties. And what that did is that it kicked a whole lot of houses

that were previously being taxed at moderate stamp duty rates, $6,000

into higher brackets and they are now being taxed at $16,000 or $17,000

for the average house under stamp duty. We weren’t expecting that the

States would take this enormous windfall out of stamp duty, but they

did. In fact, we introduced, we the Commonwealth Government introduced

the First Home Owners’ Scheme, to give a grant of $7,000 to people who

are buying their first home. We pointed out to the States that this would

bring new people into the market, there would be more house purchases,

that the States as a consequence would get more stamp duty and would

they please look at that to try and relieve some stamp duty for those

first home buyers. But none of them did.

HINCH:

Yeah, and are not expected to?

TREASURER:

Well, you know, so we have a situation now, this is the frustrating thing,

we have a First Home Owners’ Scheme whereby you’re given $7,000 to buy

your first home and the stamp duty is $16,000. So what do they do with

their First Home Owners’ Grant? Go and try and pay off some of their

state stamp duty. It is a pretty frustrating merry-go-round out there.

HINCH:

But as the Prime Minister has said though in the past couple of days

that this Inquiry, this Productivity Commission Inquiry, is not likely

to slash the cost of homes is it? Because of supply and demand.

TREASURER:

Well, if you agree with the principle that I have just put, that one

of the reasons why prices are high is interest rates are low, and we

have no plans to put up interest rates, then of course that will still

be one of the main driving factors. But you can look at the supply side

of the equation. It is said, and I don’t know what the answer to this

is, Derryn, which is why I think we should have an Inquiry. It is said

that not enough new land is being released for urban development. They

just aren’t releasing enough and as a consequence, it is hard for the

builders to get land to build new houses. Now, undoubtedly if you increase

the supply of housing prices would come down to some extent. But this

is why we need a Productivity Commission Inquiry to look at that point.

HINCH:

Well, I know you have got a plane to catch, I thank you for your time.

TREASURER:

It’s great to be with you Derryn. Thanks.

HINCH:

Thank you. Good bye.

TREASURER:

Good bye.