WEBVTT - Is super a fairer way to fight inflation than interest rates?

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<v Speaker 1>I'm Ruby Jones and you're listening to seven am. The

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<v Speaker 1>Reserve Bank of Australia yesterday left interest rates on hold

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<v Speaker 1>at four point three five percent, a relief for those

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<v Speaker 1>with a mortgage, but as the bank weighs up future

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<v Speaker 1>interest rate hikes to try and combat inflation, some economists

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<v Speaker 1>say there's a fairer way to keep spending under wraps

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<v Speaker 1>and spread the pain around, and the alternative could leave

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<v Speaker 1>us all with bigger retirement nest eggs. Today independent economists

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<v Speaker 1>saw slake on whether superannuation could be used to manage

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<v Speaker 1>inflation and what it all means for the future of housing.

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<v Speaker 1>It's Wednesday, August twelfth, So yesterday the Reserve Bank left

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<v Speaker 1>interest rates on hold, so that means that people's mortgage

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<v Speaker 1>dwpayments won't go up. Inflation, however, is still not as

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<v Speaker 1>low as the bank wants it to be. So tell

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<v Speaker 1>me a bit about how the Reserve Bank would be

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<v Speaker 1>weighing all of that up.

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<v Speaker 2>Well, you're right, the Reserve Bank will be conscious that

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<v Speaker 2>although the Gune quarter inflation number was a bit better

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<v Speaker 2>than they had expected, it's nonetheless well above the upper

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<v Speaker 2>band of their two to three percent target, and even

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<v Speaker 2>more so above the midpoint of that target, to which

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<v Speaker 2>they now attach greater weight than they did previously. They'll also,

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<v Speaker 2>I think, be determined not to repeat the mistake that,

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<v Speaker 2>with the benefit of hindsight, they made last year in

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<v Speaker 2>cutting interest rates only to find inflation rebounding to above

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<v Speaker 2>their target band again. So I think although they left

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<v Speaker 2>interest rates unchanged yesterday, they've also left the door open

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<v Speaker 2>to raising rates again if inflation surprises on the upside.

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<v Speaker 3>The forecasts are uncertain and there are upside risks to inflation,

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<v Speaker 3>so we will need still need to see some further

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<v Speaker 3>progress before the Board can be confident that we are

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<v Speaker 3>going to get inflation back to target with current nitary

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<v Speaker 3>policy settings. The Board will raise interest rates further if

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<v Speaker 3>that is what is required to bring inflation down in

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<v Speaker 3>a timely way.

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<v Speaker 2>But also they will be more cautious in starting to

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<v Speaker 2>cut rates when inflation does ultimately come down. I think

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<v Speaker 2>they'll want to see at least two quarters with the

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<v Speaker 2>annual inflation rate at two points something, rather than as

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<v Speaker 2>they did in the first half of last year, starting

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<v Speaker 2>to cut rates with inflation still above three And they

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<v Speaker 2>can't afford to make that mistake again, so people who

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<v Speaker 2>are hoping that the Reserve Bank will cut rates at

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<v Speaker 2>some point in the next twelve months are probably going

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<v Speaker 2>to be disappointed, okay.

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<v Speaker 1>And so in terms of trying to bring that inflation

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<v Speaker 1>rate down, the Reserve Bank it only has that one

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<v Speaker 1>lever interest rates. So is that a problem when the

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<v Speaker 1>ARBAA is looking to stop Australians from spending that they're

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<v Speaker 1>really only able to target that one third of the

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<v Speaker 1>population or so that has a home loan.

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<v Speaker 2>Well, it's certainly the case that the roughly one third

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<v Speaker 2>of Australian households who have a mortgage bear the brunt

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<v Speaker 2>of the fight against infletion. That's not to say that

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<v Speaker 2>other people aren't affected in different ways by higher interest rates.

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<v Speaker 2>I mean, businesses with overdrafts or term loans will also

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<v Speaker 2>be affected by higher interest rates, and that may have

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<v Speaker 2>some impact on, for example, the number of people they

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<v Speaker 2>continue to employ. Higher interest rates can also, as we've seen,

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<v Speaker 2>have an effect on house prices, and interest rates can

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<v Speaker 2>also have an impact on the exchange rate. For example,

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<v Speaker 2>higher interest rates, all else being equal, will tend to

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<v Speaker 2>push the Australian dollar up. But the biggest impact is

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<v Speaker 2>on households who have more. They will often feel that

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<v Speaker 2>that's unfair and ask why should we be bearing the

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<v Speaker 2>brunt of the fight against inflation, And the conversation that

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<v Speaker 2>is starting in some quarters is whether there might be

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<v Speaker 2>some alternatives to that.

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<v Speaker 1>Okay, well, let's talk more about that. What alternatives are there?

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<v Speaker 2>Well, if you go back far enough in history, two

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<v Speaker 2>or three decades after World War Two, the most common

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<v Speaker 2>response of governments too unacceptably high inflation was not to

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<v Speaker 2>raise interest rates, but in fact to raise taxes. Most

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<v Speaker 2>famously in the early nineteen fifties, in the aftermath of

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<v Speaker 2>the Korean War, will Boom when Australia's inflation rate got

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<v Speaker 2>to over twenty percent, you're a figure that's hard to

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<v Speaker 2>imagine today. And on a number of other occasions in

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<v Speaker 2>the nineteen fifties and in the late sixties and early seventies,

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<v Speaker 2>governments did similar things in response to bouts of inflation

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<v Speaker 2>that fell out of fashion from the second half of

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<v Speaker 2>the nineteen seventies onwards, politicians became increasingly unwilling to take

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<v Speaker 2>decisions that made significant parts of the electorate worse off.

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<v Speaker 2>It was far easier to allow the Reserve Bank to

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<v Speaker 2>do that, and then as we see whenever the Reserve

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<v Speaker 2>Bank puts interest rates up, Treasurer Jim Chalmers refers to

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<v Speaker 2>it as the independent Reserve Bank and easy in effect saying,

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<v Speaker 2>don't blame me, it's the independent central bank. And that's

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<v Speaker 2>much more convenient for politicians to do than having to

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<v Speaker 2>take the responsibility for making decisions that might people temporarily

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<v Speaker 2>worse off. So we're probably not going to go back

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<v Speaker 2>to that way of responding to infletion. The suggestion that's

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<v Speaker 2>been put more recently is could adjustments to the compulsory

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<v Speaker 2>superannuation contribution rate play a role in dampening inflationary pressures

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<v Speaker 2>when they're a problem. And I think the answer to

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<v Speaker 2>that is yes, it could.

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<v Speaker 1>Potentially talk me through that idea.

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<v Speaker 2>Well, as I think people will understand. If you are working,

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<v Speaker 2>your employer is required to put I think the figure

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<v Speaker 2>is now about twelve and a half percent of your

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<v Speaker 2>gross pay into superannuation. It might be possible, during periods

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<v Speaker 2>of high inflation to increase that proportion by say half

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<v Speaker 2>of a percentage point or maybe even a full percentage point,

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<v Speaker 2>which would in turn reduce people's wages That wouldn't be popular,

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<v Speaker 2>would reduce their take home pay, but it would have

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<v Speaker 2>a similar effect to higher interest rates in the sense

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<v Speaker 2>that if you reduce people's take home pay by increasing

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<v Speaker 2>their superannuation contributions temporarily, that means they have less money

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<v Speaker 2>to spend on the whole range of goods and services,

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<v Speaker 2>reducing the demand for it and hence reducing upward pressure

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<v Speaker 2>on inflation. And I guess the argument for thinking about

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<v Speaker 2>this is that it affects a much broader group of

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<v Speaker 2>the popular than those who have mortgagues. It doesn't affect

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<v Speaker 2>people who aren't working retired people. The other consideration about

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<v Speaker 2>this would be, of course, that if you are required

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<v Speaker 2>to contribute more to superannuation temporarily, it's still ultimately your money.

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<v Speaker 2>You'll get it back when you retire and draw on

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<v Speaker 2>your superannuation. Or alternatively, the government could consider reducing superannuation

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<v Speaker 2>contributions temporarily when inflation is low and unemployment is high.

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<v Speaker 2>It could be a way of stimulating spending by giving

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<v Speaker 2>people more money to spend when economic activity is softer.

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<v Speaker 1>Okay, so right now this is not something being considered

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<v Speaker 1>by the RBA or the government. What would need to

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<v Speaker 1>happen for a change like this to be introduced and

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<v Speaker 1>who would be in control of it.

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<v Speaker 2>It would require an Act of Parliament for the superannuation

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<v Speaker 2>contribution rate to be changed, so it's been suggested that

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<v Speaker 2>an alternative might be to grant the Board of the

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<v Speaker 2>Reserve Bank the power to vary the superannuation contribution rate

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<v Speaker 2>within defined limits over time. There would be no net

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<v Speaker 2>gain to the superannuation industry. Sometimes the contribution rate would

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<v Speaker 2>be above its average level, sometimes it would be below it. Yes,

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<v Speaker 2>there might be some questions around allowing an unelected body

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<v Speaker 2>like the Board of the Reserve Bank or some other

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<v Speaker 2>authority set up for that purpose, to have that sort

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<v Speaker 2>of power, but we've already done it with the power

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<v Speaker 2>to set interest rates, and I guess the argument here

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<v Speaker 2>is that reliance wholly on interest rates, while it's easy

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<v Speaker 2>to administer and it's reasonably well understood, works quickly, it

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<v Speaker 2>does place most of the burden of dealing with inflation

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<v Speaker 2>on a relatively small part of the population, typically younger

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<v Speaker 2>than the average. They're the ones who have been your mortgages.

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<v Speaker 2>Some of them are also carrying the cost of raising

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<v Speaker 2>children and so forth. Whereas if it was done through

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<v Speaker 2>the superannuation system, some people might argue it would be

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<v Speaker 2>fairer if the burden of fighting inflation was spread across

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<v Speaker 2>a bigger section of the population than simply those who

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<v Speaker 2>happen to have a big mortgage.

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<v Speaker 1>Still to come, our interest rates and the government's tax

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<v Speaker 1>changes are affecting the housing market.

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<v Speaker 4>You seem to have been surprised by the speed and

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<v Speaker 4>extent to which the property market has turned down. Was

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<v Speaker 4>that a consideration in keeping rates on hold today? And

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<v Speaker 4>will it stop you from making interest rate decisions in

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<v Speaker 4>the future About inflation, we.

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<v Speaker 3>Were a bit surprised on the downside, but no, that's

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<v Speaker 3>not what's keeping us on hold. What's keeping us on

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<v Speaker 3>hold is that we've already raised three times.

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<v Speaker 1>So let's talk a bit more broadly about the housing

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<v Speaker 1>market because interest rates, alongside the government's recent changes to

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<v Speaker 1>negative gearing and capital gains tax have made a difference.

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<v Speaker 1>We've seen a lot of panic as a result about

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<v Speaker 1>falling house prices from some sections of the community and media.

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<v Speaker 1>So tell me what the impact has been so far?

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<v Speaker 2>Well was so far? House prices in Sydney and Melbourne

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<v Speaker 2>are down about five and a half percent from their

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<v Speaker 2>peak at the turn of the year. House prices in

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<v Speaker 2>Canberra have fallen by about two and a half percent,

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<v Speaker 2>and house prices in Perth, Adelaide and Brisbane have started

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<v Speaker 2>to fall a little bit in July. Now it's important

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<v Speaker 2>to put some of those figures in perspective. I mean,

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<v Speaker 2>house prices have risen by hundreds of percent over the

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<v Speaker 2>last thirty or forty years. So you know, someone who's

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<v Speaker 2>house price might have fallen by five percent over the

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<v Speaker 2>last six months, is they bought that house ten or

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<v Speaker 2>more years ago. They're still well in front. The overwhelming

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<v Speaker 2>majority of people who've bought property recently are likely to

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<v Speaker 2>live in it for at least eight years. That's the norm.

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<v Speaker 2>It's unlikely that someone who pays their mortgage down and

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<v Speaker 2>place that they live for eight years will still be

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<v Speaker 2>in negative equity in eight years time. But you know,

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<v Speaker 2>we may well see property prices fall a bit further

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<v Speaker 2>than they had expected.

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<v Speaker 1>There is a balance, though, right, I mean, you want

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<v Speaker 1>house prices to fall to make getting into the property

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<v Speaker 1>market more achievable for people, but you want to be

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<v Speaker 1>able to do that without tanking the housing market. How

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<v Speaker 1>do you think that the government is tracking on those

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<v Speaker 1>two metrics?

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<v Speaker 2>Well, I think so far, so good. I yes, you're right.

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<v Speaker 2>You wouldn't want to see house prices fall by twenty

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<v Speaker 2>five percent in twelve months. You know that would obviously

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<v Speaker 2>have a potentially significant dampening impact on economic activity. But

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<v Speaker 2>declines of the sort that the banks are now forecasting,

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<v Speaker 2>I think will be manageable. They won't tank the economy.

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<v Speaker 2>There are some people who obviously won't like it, but

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<v Speaker 2>it's not the end of the world, and I think

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<v Speaker 2>it is the most effective thing that could happen. If

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<v Speaker 2>you are keen to see younger Australians have the same

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<v Speaker 2>chance of becoming homeowners as their parents and grandparents did

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<v Speaker 2>in decades gone by.

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<v Speaker 1>Tell me a little more about what you think we're

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<v Speaker 1>going to see over the next year or a couple

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<v Speaker 1>of years. How much further will house prices fall?

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<v Speaker 2>Well? I suspect that we will see, as the major

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<v Speaker 2>banks are now forecasting, prices decline by somewhere in the

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<v Speaker 2>vicinity of ten percent from their peaks in the most

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<v Speaker 2>expensive cities. In other places, it might be smaller. If

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<v Speaker 2>Australians choose to elect a government that wants substantial cuts

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<v Speaker 2>to immigration, then prices could fall by more than that,

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<v Speaker 2>and I think there would be other consequences of big

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<v Speaker 2>cuts in Australia's migration program that I would necessarily want

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<v Speaker 2>to see. But absent that, and assuming that we don't

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<v Speaker 2>see big multiple increases in interest rates over the next

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<v Speaker 2>six to twelve months, which I don't think we will,

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<v Speaker 2>then a decline in prices of the order of ten

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<v Speaker 2>percent or so will probably be as far as it runs.

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<v Speaker 2>The banks are now forecasting declines of between five and

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<v Speaker 2>ten percent for the average of all capital cities. Is

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<v Speaker 2>that a bad thing? Well, although a lot of people

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<v Speaker 2>might think it is, the reality is that most people

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<v Speaker 2>who own property only own one. That is, the one

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<v Speaker 2>in which they live. You can't crystallize any increase in

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<v Speaker 2>the value of that property unless you sell it. And

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<v Speaker 2>usually people who sell the home in which they own

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<v Speaker 2>are selling it in order to trade up to a

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<v Speaker 2>bigger one or to one in what they think is

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<v Speaker 2>a more desirable location. Well, the value of your house

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<v Speaker 2>might have gone up a lot, but that means the

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<v Speaker 2>value of the property you're leaking to buy has also

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<v Speaker 2>become more expensive as well, So are you really better off? Conversely,

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<v Speaker 2>if you're looking to sell your own home because you

0:14:13.040 --> 0:14:15.800
<v Speaker 2>want to downsize, your kids have left home and you

0:14:15.880 --> 0:14:17.800
<v Speaker 2>may not want to look after as big a house

0:14:18.040 --> 0:14:20.560
<v Speaker 2>as you've lived in for the past thirty years. Well, yes,

0:14:20.600 --> 0:14:22.680
<v Speaker 2>the value of your house might have gone down, but

0:14:22.960 --> 0:14:25.120
<v Speaker 2>so has the value of the house you're going to

0:14:25.120 --> 0:14:28.480
<v Speaker 2>buy and replacing it. So are you actually worse off

0:14:28.600 --> 0:14:31.440
<v Speaker 2>or not? And I think the answer to that is

0:14:31.680 --> 0:14:35.120
<v Speaker 2>for most people know, yes, if you have an investment

0:14:35.160 --> 0:14:38.760
<v Speaker 2>property and prices have gone down, but share prices go

0:14:38.840 --> 0:14:41.440
<v Speaker 2>up and down a lot. And nobody thinks that if

0:14:41.680 --> 0:14:44.360
<v Speaker 2>share prices have gone down and people who bought shares

0:14:44.720 --> 0:14:47.600
<v Speaker 2>might have a loss on their books, that the government's

0:14:47.640 --> 0:14:50.920
<v Speaker 2>under some moral obligation to stop the losses from happening.

0:14:51.240 --> 0:14:53.760
<v Speaker 2>In my view, why should property be any different.

0:14:56.400 --> 0:14:58.360
<v Speaker 1>So thank you so much for your time.

0:14:58.600 --> 0:15:00.600
<v Speaker 2>That's been a pleasure. Thank you for having repeated.

0:15:18.040 --> 0:15:20.680
<v Speaker 1>Also in the news, Victoria is set to ban the

0:15:20.760 --> 0:15:23.920
<v Speaker 1>use of suppression orders by convicted rapists after the recent

0:15:24.040 --> 0:15:26.600
<v Speaker 1>use of the loophole to hide the identities of high

0:15:26.680 --> 0:15:31.960
<v Speaker 1>profile offenders. Ralph Carr, a prominent entertainment manager, and Tom Sylvanni,

0:15:32.080 --> 0:15:34.840
<v Speaker 1>the son of AFL football at Steve and Silvanni, both

0:15:34.920 --> 0:15:37.640
<v Speaker 1>use the law to suppress their identities during the trials

0:15:37.680 --> 0:15:41.520
<v Speaker 1>and eventual convictions for rape. New Premier Ben Carroll says

0:15:41.520 --> 0:15:46.880
<v Speaker 1>his government is committed to closing every loophole and Australia

0:15:46.920 --> 0:15:49.120
<v Speaker 1>is set to roll out bird flu vaccines for some

0:15:49.160 --> 0:15:52.560
<v Speaker 1>of our most at risk wildlife. Native species which are

0:15:52.560 --> 0:15:56.200
<v Speaker 1>in captivity in places like zoos and wildlife sanctuaries will

0:15:56.240 --> 0:15:59.200
<v Speaker 1>be the first to be vaccinated. Wild Birds are nearly

0:15:59.240 --> 0:16:01.360
<v Speaker 1>impossible to back XCIN eight as two doses of the

0:16:01.440 --> 0:16:05.800
<v Speaker 1>vaccine are required for full protection. I'm Ruby Jones. This

0:16:05.920 --> 0:16:07.560
<v Speaker 1>is seven am. Thanks for listening.