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Estimates: Economics Legislation Committee: Treasury Portfolio: Department of the Treasury

Estimates & Committees
Lee Rhiannon 7 Jun 2017

Monday 29 May

Senator RHIANNON: I just want to pick up on the First Home Super Saver Scheme aspect of your so-called housing affordability plan. Many economists, including Saul Eslake, have noted that some policy responses to soaring house prices have taken the form of measures which allow people to spend more on housing than they otherwise would. Will the super saver scheme have that effect by increasing the demand for housing, which in turn will have the effect of further inflating prices?

Mr M Brennan: I will make a couple of introductory marks and then I might hand over to Ms Wilkinson. I would make two observations about it. One is that, as I think was alluded to in the Macroeconomic Group session today, the housing saving account is a mechanism that allows first home buyers to save with the benefit of a tax effective vehicle, but it is not a mechanism that allows them to reach into compulsory superannuation contributions. So it is not really an access-to-superannuation sort of mechanism, and some of the commentary, including from Mr Eslake, that talked about the potential inflationary effect was actually geared more towards proposals that would allow that.

Senator RHIANNON: But he was speaking also in more general aspects. There has been a dialogue about these problems.

Mr M Brennan: Yes. I think the broader point is that we would note that the housing package that was announced in the budget was fairly broad and had a range of measures which do different things and, to some extent, have some potential offsetting or rebalancing effects. So it is true that there are measures—that one in particular—that have the intent and the effect of boosting the ability of a first home buyer to save for a deposit. On the other side of the ledger, there are a number of mechanisms, include targeted at both foreign investors and at investors, which aim to take a bit of heat out of the market on that side. That sort of rebalancing of the ledger is common to a lot of the housing policies that we are seeing across the Commonwealth. The Victorian government's policy is exactly the same. It has got a reduction in stamp duty for first home buyers offset by the removal of the off-the-plan stamp duty concession, for example, and an increase in the stamp duty surcharge on foreign buyers. I would prefer not to see that particular super saver initiative in isolation so much as to see it as part of a bit of a rebalancing that provides some assistance to first home buyers but is also trying to take a little bit of heat out from the investor side.

Senator RHIANNON: I draw you back to the question. When you talk about rebalancing the ledger, it can start sounding like you will end up where you were. But the question was: will the super saver scheme have the effect of increasing the demand for housing and then the further effect of further inflating prices?

Mr M Brennan: Overall I do not think it will have an inflationary effect on prices in the context of the package overall. The overall intent of the housing affordability package is to place downward pressure on prices. Whilst it is hard to be quantitatively precise about the impact, I think that is the overall direction, because we have measures that go to increasing supply and we have measures that go to taking some of the benefit to investors out of the system, so I do not think it will be inflationary overall.

Senator Cormann: It is important point, and we had this conversation this morning. There are some very specific design features that actually minimise any risk that it would be inflationary. Some of the discussion in the lead-up to the budget from commentators and others focus on suggestions that the government might consider giving access to first home buyers to their past super savings or indeed their future compulsory superannuation contributions. That is, of course, not what the government has done. There is not going to be a sudden influx of capital into the housing market which would boost demand and which, all other things being equal, would push up the prices by more. What we have done is give first home buyers the opportunity to make additional voluntary savings in the future, post 1 July 2017, in a tax-incentivised way. That is additional voluntary savings for the express purpose of saving for first home buyer home deposits. Compared to some of the speculation in the lead-up to the budget, this is very much a measure that has been very carefully designed as part of, as Mr Brennan indicates, an overall package, which is focused on improving housing affordability.

Senator RHIANNON: Minister, I note you did not deny that the effect will be the increase in the demand for housing—that is huge. In considering how volatile the market is, it is huge.

Senator Cormann: I disagree. If you were to give people access, in aggregate, to a significant amount of capital that would not otherwise be available, it would boost demand and it would have an inflationary effect on prices. That is actually not what is being done here; it is a much more calibrated measure. People who want to buy their first home are able to save for their first home deposit now. What we are saying is that we are giving them the opportunity to save for that deposit in a tax-incentivised way, similar to the way that people currently are able to make additional voluntary savings to their retirement savings. They are able to make, in relevant circumstances, in prescribed circumstances, savings which attract tax incentives towards their first home deposit. It is a very carefully designed measure.

Senator RHIANNON: When you say 'carefully designed', you have actually carefully designed it to benefit those who are already better off.

Senator Cormann: I disagree—

Senator RHIANNON: Seriously, Minister, take the question at least. Is it not correct that the higher your income, the more you benefit from this scheme? You cannot deny that.

Senator Cormann: What I would put to you is that this is one of many measures—and I think Mr Brennan and his colleagues would be able to take you through all of the important measures when it comes to incentivising investment into social housing in particular. There is a whole range of measures that are specifically targeted at boosting supply in the lower end of the market. You have to really look at this in its totality as an overall package.

Senator RHIANNON: You have done the classic there of just answering another question. Let us just stay with the issue about first home super savers. In your government's example of a household budget, you give the example of Michelle and Nick. Michelle and Nick are on a combined income of $120,000, and managing to save an extra $12,500 towards their deposit. For people living in Sydney, this does not really sound good news when you consider that house prices are rising by five per cent a year. Median house prices are sitting on $100,000 in Sydney, and obviously that means that there are a lot more that are a lot more expensive than this. So Sydney house prices keep rising by five per cent a year. Michelle and Nick in Sydney, and probably in other areas, would find the required deposit would be more than their extra savings. So that is actually deceptive. You have a cute little diagram of Michelle and Nick, but Michelle and Nick would be still left without having a deposit that will buy them a home in many parts of Australia, on the east coast at least—isn't that the case?

Senator Cormann: The measure is as it is described in the budget paper. The measure that you are asking about, the first home buyer savings vehicle, through superannuation, is one of many measures. It will help people saving for a deposit on their first home to save up to $30,000 tax, effectively, per individual if you qualify, all other things being equal. If you are a couple, that means that you are able to save up to $60,000 tax, effectively, which is obviously better than the current situation. Now, you might not agree with the measure. You might think it does not go far enough, you might think that the First Home Super Saver Scheme should be expanded or reduced, but we have put it forward in a way that we think is sensible and in a way that we believe provides appropriate support in all of the circumstances to Australians who are saving to buy their first home.

Senator RHIANNON: Let us move on to the downsizers, the $300,000—the other tax break that you have provided. How many households are expected to downsize and take advantage of this tax break on super?

Mr M Brennan: I might refer that to Ms Jenny Wilkinson, but we may also require our Tax Analysis Division, who undertook the costing of the measure, if we need to get some of the assumptions underpinning the costing.

Ms J Wilkinson: In the process of developing this measure, we did not have an estimate of the actual number of individuals who would downsize. That was not necessary in order to conduct the costing, and I am happy for Mr Ewing to walk you through the process of conducting the costing. But, certainly, the expectation is that the downsizing measure will provide an incentive to some people who were thinking about whether to downsize. It provides a small incentive to them to downsize. It reduces, as the Treasurer said, one of the barriers to downsizing. And it potentially can affect the timing: it might be the case that somebody who was thinking about downsizing down the track will decide to bring that forward. Those are the two effects that you would expect the downsizing measure to have.

Senator RHIANNON: If there is no estimate of the number, it is starting to sound more and more like you have come up with a package of measures to say you are doing something about housing affordability to really try and kill off this story which has been bad news for you, Minister. Just staying with this issue, because it seems extraordinary that you have no figures on it, does that mean that Treasury has not modelled this measure's impact on house prices? If you do not have numbers, how can you work out what the overall impact of it is going to be?

Senator Cormann: Let me make a general—

Senator RHIANNON: Mr Brennan made the point—

Senator Cormann: Let me make a general point in response to that question. This is a package which, overwhelmingly, is designed to increase the supply of housing. Obviously, the price of anything is a function of supply and demand. When demand exceeds supply, prices go up. When we have a housing affordability issue, or an affordability issue in relation to anything, it is because demand for a particular product—and housing is no different—exceeds supply. So there are a whole range of measures in here which will boost supply. And, while you will find it is very difficult to quantify the effect in the future of specific measures to boost supply, what you do know is that if you boost supply when you have an affordability issue, all other things being equal, prices will be lower than they otherwise would have been. That is self-evidently the effect of boosting supply in a market where supply is not meeting demand. To the extent that you are pursuing very carefully calibrated and very carefully designed measures to assist, on the demand side, people who are currently locked out of the housing market, then it is important that you do it in such a way that you minimise any unintended consequences, and that is what we have done in the way that we have designed this package. But, directionally and overarchingly, the effect of this package is one of boosting supply, which will boost affordability.

Senator RHIANNON: But, Minister, it is hard to give any credit to your comment that it is 'carefully calibrated' when you have no estimation of numbers. Let us try and get some more detail—seriously.

Senator Cormann: We can write up the model and we can put in assumptions, but in the end this is going to play out in the real world. We will be able to have a conversation down the track about how it has worked, and, if it has not worked as well as we would like, we will consider making further adjustments. I say it again: if you have an affordability issue in relation to something that is an important social issue, then increasing the supply will improve affordability; there is no question. We will be able to monitor, moving forward, to what extent it has or it has not done so, and whether further policy action is required.

Senator RHIANNON: How will eligibility for involvement in the downsizers scheme be determined? Will the size or price of the new dwelling the householder moves into matter, or could you actually buy a bigger or more expensive dwelling and still be eligible—a few details on how it works?

Mr M Brennan: We are going to be developing some of those implementation details with a view to presenting the legislation, from memory, in the spring of 2017—is that right, Ms Wilkinson?

Ms J Wilkinson: Correct. Mr M Brennan: So some of those things have yet to be worked through. As a general disposition, I think the view is not to be overly prescriptive about square metreage and dollar value, but I think that is something on which we will consult and come to a view—the government will come to a view.

Senator Cormann: Obviously, the price of the new home that you move into would have to be less; otherwise, you would not be releasing any capital which you then would be able to direct, in these circumstances, into your superannuation account to take advantage of the provisions in this measure. If you are going to sell your home in order to buy a more expensive home, you will then not have available to you capital to direct into your superannuation or retirement income account to take advantage of this measure, self-evidently.

Senator RHIANNON: That is interesting to hear, but you cannot be too sure, considering the lack of detail—

Senator Cormann: No, no—we are absolutely sure.

Senator RHIANNON: You cannot be too sure with your policies, I mean. You cannot be too sure—

Senator Cormann: This is a matter of black-and-white maths.

Senator RHIANNON: considering the way you have presented it.

Senator Cormann: It is a matter of black-and-white maths. If you sell something and then you buy something more expensive, you do not have any net savings available to you, out of those two transactions, to use for the purposes of a measure that is designed to encourage downsizing by relevant Australians. It is a matter of pure maths that, if you sell something and then buy something that is more expensive, those two transactions will actually lead to a negative outcome that you would have to fund from other sources.

Senator RHIANNON: Well, considering so much of your maths when it comes to housing, Minister, is about assisting people who have wealth to make more wealth through negative gearing—

CHAIR: Senator Rhiannon, I think that is a statement.

Senator RHIANNON: I have one more question.

CHAIR: Do you have a question?

Senator RHIANNON: Yes. Minister, do you have to occupy the new dwelling to be eligible, or could you buy an investment property with the proceeds of the sale? Do you have to live in the place? Do you have any rules about this?

Senator Cormann: If you want to be able to put money into your superannuation fund, you have to be able to release some capital from the transaction. That would be No. 1. No. 2 is that I assume some Australians who might consider taking advantage of this might be approaching a phase in their lives where they might be considering going into a nursing home. These are all circumstances that, quite appropriately, could fall into the overall ambit of this measure. But, as Mr Brennan and Ms Wilkinson have already indicated, some of that implementation detail is to be finalised in time for the introduction of the relevant legislation later this year.

CHAIR: Senator Rhiannon, you have gone well beyond your 15 minutes. Do you have one more question, and then I can turn it over to Senator Ketter?

Senator RHIANNON: I have a few more questions, so can you come back to me?

CHAIR: I will come back to you then.


Senator RHIANNON: Minister, we know that National Housing Infrastructure Facility will get $1 billion from you over five years for local infrastructure and we know that the government will direct the NHIF where to invest that. What is stopping one of your state parties from accepting a large donation from a developer who knows he can boost his profits with a quick injection of infrastructure funds into an area he has major development plans for? What safeguards will you put in place to stop such pork-barrelling?

Senator Cormann: Firstly, I reject the premise of the question.

Senator RHIANNON: We have had evidence. If we had a national ICAC, you would have evidence federally. Eleven MPs went out of New South Wales, Minister, because of such problems.

Senator Cormann: I reject the premise of the question. Going to the quote from the fact sheet which was discussed with Senator Cameron before: The Government will be able to direct the NHIF to invest in particular projects where this addresses a significant housing supply issue. So there is a test here that applies. As Mr Brennan has previously indicated, this measure, as per the budget papers, is due to come into effect from 1 July 2018. There is still work to be done in terms of the practical implementation arrangements, and specifically the appropriate governance arrangements. I completely and utterly reject the premise of your question. This is, of course, the overriding purpose of any such investment into a particular project: that it addresses a significant housing supply issue.

Senator RHIANNON: But you have identified the problem—that is what developers do to get out there and identify and deliver on significant housing supply issues. That is why you need to deal with this problem.

Senator Cormann: You are quite entitled to oppose the measure. We believe that across Australia with the appropriate incentives there is the opportunity to encourage local governments to make appropriate decisions to facilitate infrastructure development that would help increase housing supply. We all talk about the fact that there is a housing affordability issue. To the extent that there is a housing affordability issue, it is because supply is not keeping up with the growing demand. It means that the way to sensibly and meaningfully address it is to boost supply. Working in partnership with local government is one measure that can, through practical means, help to boost the supply of housing, particularly affordable housing.

Senator RHIANNON: We both know that the housing crisis is driving inequality in Australia, and you have come up with a housing scheme that furthers that inequity.

Senator Cormann: I disagree with that. We might have to agree to disagree.

Senator RHIANNON: I will give you a specific question and you can say if this is wrong. Does the government accept that the wealthier a household is—family home excluded—the more they benefit from the downsizer package? Aren't you setting up a system where some lower-wealth retirees could be worse off if they take up this scheme?

Senator Cormann: You are picking out one specific measure that is part of an overall package. That particular measure will help contribute to an increase in the supply of housing—

Senator RHIANNON: Answer the question, Minister.

Senator Cormann: by removing one of the assessed barriers, reducing reluctance to sell a house that might otherwise be too large because of relevant tax considerations.

Senator RHIANNON: The question was about inequity.

Senator Cormann: I disagree with you.

Senator RHIANNON: That is what the question was. If you disagree with the question you need to identify where I am wrong. I am extrapolating from what the government has put in this part of the housing affordability package: 'If retirees deposit some of the value of their home in their super this can reduce the amount of the age pension they can claim.' Isn't that correct and isn't that why it will drive further inequity?

Senator Cormann: You are asking me to provide financial advice based on—

Senator RHIANNON: No, I am not. I am asking you to talk about your package.

Senator Cormann: The overall effect of the package is that it seeks to increase the supply of housing in order to reduce pressure on housing affordability. And that is what we believe it will do. We will monitor the impact of it, of course, and, as I have indicated before, we will make adjustments as appropriate.

Senator RHIANNON: What one takes from that is that you are not denying that for people—

Senator Cormann: I completely reject that too. I am not going to accept you verballing what I have said.

Senator RHIANNON: We will move on. Back to Michelle and Nick, our couple in your—

Senator Cormann: An important point that I should add to this is that in this budget we are not making any changes to the pension asset test arrangements. This is a voluntary opportunity and nobody is forced to do anything that would leave them worse off. This is one particular incentive, one particular measure, that is part of an overall package that will help to increase the supply of housing.

Senator RHIANNON: But isn't it relevant to your package? As people become more aware that their pension could be reduced if they go into this scheme, the scheme may not deliver what you want, in terms of downsizing. That is why I am asking the question. You should engage.

Senator Cormann: Different measures will impact on different people in different ways, depending on their personal circumstances. That is certainly true with any individual measure and it is true with any package of measures. That is why we have an overall package and not just one measure. The overall effect of it, we believe, is to increase the supply of housing and to reduce pressure on housing affordability.

Senator RHIANNON: I want to return to what I asked about earlier. There is one aspect I want to clarify. This is the example where you spoke about Michelle and Nick. They have an income of $120,000 combined and they have managed to save a bit under $12,500 extra for their deposit. If that household is located in Sydney or Melbourne and the prices keep rising at anywhere near the recent rate, won't the increase in the required deposit be more than the extra savings?

Senator Cormann: Again, the point we would make is that the effect of the package we have put forward in the package, overall, is to help reduce pressure on housing affordability. There is one measure, which you have just referenced, that provides a tax incentive to encourage first-home buyers to save for their deposit through their superannuation account by making additional voluntary savings. Any income that gets diverted, salary sacrificed, into that arrangement will be conditionally taxed. Any earnings will be conditionally taxed. When the money is withdrawn there will be a 30 per cent discount off the relevant marginal tax rate for the taxpayer. There is a limit, of course. There is a lifetime cap of up to $30,000 that can be saved that way, per taxpayer. For a couple that means up to $60,000. We believe that certainly provides an incentive that clearly currently is not there. Would people prefer if they could save more, all other things being equal, in a tax effective way? Probably, but this is what we have judged we can afford in the context of the budget, and we believe it will make a positive difference.

Senator RHIANNON: Just on the issue of house prices, does the government's position remain that you want house prices to continue to rise?

Senator Cormann: House prices are a function of supply and demand in the market. We have a set of measures here which are aimed at reducing pressure on housing affordability, with particular focus on social housing and first home buyers. That is what we are seeking to achieve.

Senator RHIANNON: But the government has been on the record as saying that you want house prices to keep rising.

Senator Cormann: Close to 70 per cent of people across Australia either own or are paying off a mortgage on their own home. I am sure that people in those circumstances would rather the value of their home continues to increase. What we are doing here through some targeted measures—focusing, in particular, on social housing, on the affordable housing end of the market and on first home buyers—is putting in place measures that will reduce housing affordability pressures for those people.

Senator RHIANNON: Just going back to the issue of housing supply: the last National Housing Supply Council report in 2013 estimated the shortfall of affordable housing available to the bottom 40 per cent at 539,000 properties. Is the government planning to meet that shortfall with their new housing policies, including the National Housing Finance and Investment Corporation?

Senator Cormann: The government is providing additional tax incentives for investment in affordable housing and social housing. We are also, of course, proposing the establishment of the National Housing Finance and Investment Corporation as an affordable housing bond aggregate of which we also leverage additional investment in affordable housing. These measures, combined with a series of other measures in the budget, will help ensure that the supply for that segment of the market will increase in the future.

Senator RHIANNON: Do we take that as a yes?

Senator Cormann: We take it as a: that is what we are working on.

Senator RHIANNON: Will the NHFIC have any target with regard to additional supply?

Mr M Brennan: I think that has yet to be determined. If there were a target around supply, it would be broader than just the NHFIC. The government's approach to try and encourage more affordable housing comes through in a range of initiatives of which the NHFIC is one, and the bond aggregate is one, but the bilateral agreements with states would be another under the new National Housing and Homelessness Agreement. Any target—I do not think the government has put forward a target or adopted a target or anything like that—would not be specific to the NHFIC. It would be broader than that, but, as I said, the government has not, to date, put a target on the amount of additional affordable housing it is seeking to generate.

Senator RHIANNON: What I trust is a factual question, and should be able to be answered, is: what is the latest available data on the shortage of affordable housing?

Senator Cormann: We might have to take that on notice. That is, to be fair to the officers in the Fiscal Group of Treasury, probably more a social services portfolio question, but we will seek to assist you on notice.

Senator RHIANNON: With all due respect, Minister, you have come here for estimates. You have come here, being obviously very proud of your housing affordability measures—

Senator Cormann: That is your commentary.

Senator RHIANNON: Surely that one bit of data should be your starting point for how you are going to address this issue, and you say you have to take it on notice or you flip it off somewhere else.

Senator Cormann: There are different parts of government that are responsible for different aspects of public policy, which I am sure you are very well aware of. The questions that you have just asked go directly to the areas of responsibility in the Social Services portfolio.

Mr M Brennan: We will take that on notice. Any estimate of our shortfall—be it of affordable housing or housing supply in general—requires a fair bit of interpretation, judgement and assumptions. The same was true when the National Housing Supply Council was in full swing. It would often have an assessment of what the overall housing backlog was, and it required a fair bit of assumption about what the ideal level of housing stock ought to have been and how short we were from it. The same would apply to any estimate of what the shortfall of affordable housing is. I think that is part of the reason why, I suspect, there will be reluctance to place a precise target on how many new affordable housing dwellings we are aiming for on the part of government. I think it is more likely that we will see a broad directional commitment to trying to develop the sector and expand the affordable housing stock.

Senator RHIANNON: For any bond aggregator to be successful, the Affordable Housing Working Group report identified the need for complementary reforms to bridge the financing gap to meet investors' expected rates of return. What additional investment is the government expecting, and from what source, to meet this requirement?

Mr M Brennan: I might get Mr Robinson to give a sense of some of the work on other complementary measures, including some of the things that are in the budget.

Senator RHIANNON: It is both the additional investment and the sources that I am interested in.

Mr M Robinson: The Affordable Housing Working Group is still undertaking that work. We are due to report back in the middle of the year, which is the same time that the Affordable Housing Implementation Taskforce will report back on the finer details of the bond aggregator model. The sorts of areas where that financing gap can be closed can be many and varied. It might include things like contributions of land. It could be through planning and zoning changes—inclusionary zoning, for example, that requires the inclusion of affordable housing. It could be through direct financial support. Indeed, some of the initiatives that have been announced recently by states and territories are doing the sorts of things to close the financing gap that are being contemplated. I mentioned earlier to the committee the Social and Affordable Housing Fund in New South Wales. Recently, Victoria announced in a housing package a loan facility very similar to the Social and Affordable Housing Fund—a $1 billion fund that will be there to provide a source of financing to social and affordable housing providers.

Senator RHIANNON: You did not mention any contribution federally, so is there nothing on the books?

Mr M Robinson: The government, through the new National Housing and Homelessness Agreement, provides about $1.3 billion annually to states and territories. The government is seeking more concrete outcomes in terms of the supply of social and affordable housing under the new agreement to be negotiated with the states and territories.

Senator RHIANNON: But with NAHA and NPAH there is no additional funding, is there? So you are just saying you would move that funding over—it is not additional funding.

Mr M Robinson: There is additional funding under the NPAH. The current funding expires at 30 June 2018, so in the budget the government announced another $375 million of funding. It is essentially to extend the NPAH and make it permanent.

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