Speaker 1: I'm Ruby Jones and you're listening to seven am. The
Speaker 1: Reserve Bank of Australia yesterday left interest rates on hold
Speaker 1: at four point three five percent, a relief for those
Speaker 1: with a mortgage, but as the bank weighs up future
Speaker 1: interest rate hikes to try and combat inflation, some economists
Speaker 1: say there's a fairer way to keep spending under wraps
Speaker 1: and spread the pain around, and the alternative could leave
Speaker 1: us all with bigger retirement nest eggs. Today independent economists
Speaker 1: saw slake on whether superannuation could be used to manage
Speaker 1: inflation and what it all means for the future of housing.
Speaker 1: It's Wednesday, August twelfth, So yesterday the Reserve Bank left
Speaker 1: interest rates on hold, so that means that people's mortgage
Speaker 1: dwpayments won't go up. Inflation, however, is still not as
Speaker 1: low as the bank wants it to be. So tell
Speaker 1: me a bit about how the Reserve Bank would be
Speaker 1: weighing all of that up.
Speaker 2: Well, you're right, the Reserve Bank will be conscious that
Speaker 2: although the Gune quarter inflation number was a bit better
Speaker 2: than they had expected, it's nonetheless well above the upper
Speaker 2: band of their two to three percent target, and even
Speaker 2: more so above the midpoint of that target, to which
Speaker 2: they now attach greater weight than they did previously. They'll also,
Speaker 2: I think, be determined not to repeat the mistake that,
Speaker 2: with the benefit of hindsight, they made last year in
Speaker 2: cutting interest rates only to find inflation rebounding to above
Speaker 2: their target band again. So I think although they left
Speaker 2: interest rates unchanged yesterday, they've also left the door open
Speaker 2: to raising rates again if inflation surprises on the upside.
Speaker 3: The forecasts are uncertain and there are upside risks to inflation,
Speaker 3: so we will need still need to see some further
Speaker 3: progress before the Board can be confident that we are
Speaker 3: going to get inflation back to target with current nitary
Speaker 3: policy settings. The Board will raise interest rates further if
Speaker 3: that is what is required to bring inflation down in
Speaker 3: a timely way.
Speaker 2: But also they will be more cautious in starting to
Speaker 2: cut rates when inflation does ultimately come down. I think
Speaker 2: they'll want to see at least two quarters with the
Speaker 2: annual inflation rate at two points something, rather than as
Speaker 2: they did in the first half of last year, starting
Speaker 2: to cut rates with inflation still above three And they
Speaker 2: can't afford to make that mistake again, so people who
Speaker 2: are hoping that the Reserve Bank will cut rates at
Speaker 2: some point in the next twelve months are probably going
Speaker 2: to be disappointed, okay.
Speaker 1: And so in terms of trying to bring that inflation
Speaker 1: rate down, the Reserve Bank it only has that one
Speaker 1: lever interest rates. So is that a problem when the
Speaker 1: ARBAA is looking to stop Australians from spending that they're
Speaker 1: really only able to target that one third of the
Speaker 1: population or so that has a home loan.
Speaker 2: Well, it's certainly the case that the roughly one third
Speaker 2: of Australian households who have a mortgage bear the brunt
Speaker 2: of the fight against infletion. That's not to say that
Speaker 2: other people aren't affected in different ways by higher interest rates.
Speaker 2: I mean, businesses with overdrafts or term loans will also
Speaker 2: be affected by higher interest rates, and that may have
Speaker 2: some impact on, for example, the number of people they
Speaker 2: continue to employ. Higher interest rates can also, as we've seen,
Speaker 2: have an effect on house prices, and interest rates can
Speaker 2: also have an impact on the exchange rate. For example,
Speaker 2: higher interest rates, all else being equal, will tend to
Speaker 2: push the Australian dollar up. But the biggest impact is
Speaker 2: on households who have more. They will often feel that
Speaker 2: that's unfair and ask why should we be bearing the
Speaker 2: brunt of the fight against inflation, And the conversation that
Speaker 2: is starting in some quarters is whether there might be
Speaker 2: some alternatives to that.
Speaker 1: Okay, well, let's talk more about that. What alternatives are there?
Speaker 2: Well, if you go back far enough in history, two
Speaker 2: or three decades after World War Two, the most common
Speaker 2: response of governments too unacceptably high inflation was not to
Speaker 2: raise interest rates, but in fact to raise taxes. Most
Speaker 2: famously in the early nineteen fifties, in the aftermath of
Speaker 2: the Korean War, will Boom when Australia's inflation rate got
Speaker 2: to over twenty percent, you're a figure that's hard to
Speaker 2: imagine today. And on a number of other occasions in
Speaker 2: the nineteen fifties and in the late sixties and early seventies,
Speaker 2: governments did similar things in response to bouts of inflation
Speaker 2: that fell out of fashion from the second half of
Speaker 2: the nineteen seventies onwards, politicians became increasingly unwilling to take
Speaker 2: decisions that made significant parts of the electorate worse off.
Speaker 2: It was far easier to allow the Reserve Bank to
Speaker 2: do that, and then as we see whenever the Reserve
Speaker 2: Bank puts interest rates up, Treasurer Jim Chalmers refers to
Speaker 2: it as the independent Reserve Bank and easy in effect saying,
Speaker 2: don't blame me, it's the independent central bank. And that's
Speaker 2: much more convenient for politicians to do than having to
Speaker 2: take the responsibility for making decisions that might people temporarily
Speaker 2: worse off. So we're probably not going to go back
Speaker 2: to that way of responding to infletion. The suggestion that's
Speaker 2: been put more recently is could adjustments to the compulsory
Speaker 2: superannuation contribution rate play a role in dampening inflationary pressures
Speaker 2: when they're a problem. And I think the answer to
Speaker 2: that is yes, it could.
Speaker 1: Potentially talk me through that idea.
Speaker 2: Well, as I think people will understand. If you are working,
Speaker 2: your employer is required to put I think the figure
Speaker 2: is now about twelve and a half percent of your
Speaker 2: gross pay into superannuation. It might be possible, during periods
Speaker 2: of high inflation to increase that proportion by say half
Speaker 2: of a percentage point or maybe even a full percentage point,
Speaker 2: which would in turn reduce people's wages That wouldn't be popular,
Speaker 2: would reduce their take home pay, but it would have
Speaker 2: a similar effect to higher interest rates in the sense
Speaker 2: that if you reduce people's take home pay by increasing
Speaker 2: their superannuation contributions temporarily, that means they have less money
Speaker 2: to spend on the whole range of goods and services,
Speaker 2: reducing the demand for it and hence reducing upward pressure
Speaker 2: on inflation. And I guess the argument for thinking about
Speaker 2: this is that it affects a much broader group of
Speaker 2: the popular than those who have mortgagues. It doesn't affect
Speaker 2: people who aren't working retired people. The other consideration about
Speaker 2: this would be, of course, that if you are required
Speaker 2: to contribute more to superannuation temporarily, it's still ultimately your money.
Speaker 2: You'll get it back when you retire and draw on
Speaker 2: your superannuation. Or alternatively, the government could consider reducing superannuation
Speaker 2: contributions temporarily when inflation is low and unemployment is high.
Speaker 2: It could be a way of stimulating spending by giving
Speaker 2: people more money to spend when economic activity is softer.
Speaker 1: Okay, so right now this is not something being considered
Speaker 1: by the RBA or the government. What would need to
Speaker 1: happen for a change like this to be introduced and
Speaker 1: who would be in control of it.
Speaker 2: It would require an Act of Parliament for the superannuation
Speaker 2: contribution rate to be changed, so it's been suggested that
Speaker 2: an alternative might be to grant the Board of the
Speaker 2: Reserve Bank the power to vary the superannuation contribution rate
Speaker 2: within defined limits over time. There would be no net
Speaker 2: gain to the superannuation industry. Sometimes the contribution rate would
Speaker 2: be above its average level, sometimes it would be below it. Yes,
Speaker 2: there might be some questions around allowing an unelected body
Speaker 2: like the Board of the Reserve Bank or some other
Speaker 2: authority set up for that purpose, to have that sort
Speaker 2: of power, but we've already done it with the power
Speaker 2: to set interest rates, and I guess the argument here
Speaker 2: is that reliance wholly on interest rates, while it's easy
Speaker 2: to administer and it's reasonably well understood, works quickly, it
Speaker 2: does place most of the burden of dealing with inflation
Speaker 2: on a relatively small part of the population, typically younger
Speaker 2: than the average. They're the ones who have been your mortgages.
Speaker 2: Some of them are also carrying the cost of raising
Speaker 2: children and so forth. Whereas if it was done through
Speaker 2: the superannuation system, some people might argue it would be
Speaker 2: fairer if the burden of fighting inflation was spread across
Speaker 2: a bigger section of the population than simply those who
Speaker 2: happen to have a big mortgage.
Speaker 1: Still to come, our interest rates and the government's tax
Speaker 1: changes are affecting the housing market.
Speaker 4: You seem to have been surprised by the speed and
Speaker 4: extent to which the property market has turned down. Was
Speaker 4: that a consideration in keeping rates on hold today? And
Speaker 4: will it stop you from making interest rate decisions in
Speaker 4: the future About inflation, we.
Speaker 3: Were a bit surprised on the downside, but no, that's
Speaker 3: not what's keeping us on hold. What's keeping us on
Speaker 3: hold is that we've already raised three times.
Speaker 1: So let's talk a bit more broadly about the housing
Speaker 1: market because interest rates, alongside the government's recent changes to
Speaker 1: negative gearing and capital gains tax have made a difference.
Speaker 1: We've seen a lot of panic as a result about
Speaker 1: falling house prices from some sections of the community and media.
Speaker 1: So tell me what the impact has been so far?
Speaker 2: Well was so far? House prices in Sydney and Melbourne
Speaker 2: are down about five and a half percent from their
Speaker 2: peak at the turn of the year. House prices in
Speaker 2: Canberra have fallen by about two and a half percent,
Speaker 2: and house prices in Perth, Adelaide and Brisbane have started
Speaker 2: to fall a little bit in July. Now it's important
Speaker 2: to put some of those figures in perspective. I mean,
Speaker 2: house prices have risen by hundreds of percent over the
Speaker 2: last thirty or forty years. So you know, someone who's
Speaker 2: house price might have fallen by five percent over the
Speaker 2: last six months, is they bought that house ten or
Speaker 2: more years ago. They're still well in front. The overwhelming
Speaker 2: majority of people who've bought property recently are likely to
Speaker 2: live in it for at least eight years. That's the norm.
Speaker 2: It's unlikely that someone who pays their mortgage down and
Speaker 2: place that they live for eight years will still be
Speaker 2: in negative equity in eight years time. But you know,
Speaker 2: we may well see property prices fall a bit further
Speaker 2: than they had expected.
Speaker 1: There is a balance, though, right, I mean, you want
Speaker 1: house prices to fall to make getting into the property
Speaker 1: market more achievable for people, but you want to be
Speaker 1: able to do that without tanking the housing market. How
Speaker 1: do you think that the government is tracking on those
Speaker 1: two metrics?
Speaker 2: Well, I think so far, so good. I yes, you're right.
Speaker 2: You wouldn't want to see house prices fall by twenty
Speaker 2: five percent in twelve months. You know that would obviously
Speaker 2: have a potentially significant dampening impact on economic activity. But
Speaker 2: declines of the sort that the banks are now forecasting,
Speaker 2: I think will be manageable. They won't tank the economy.
Speaker 2: There are some people who obviously won't like it, but
Speaker 2: it's not the end of the world, and I think
Speaker 2: it is the most effective thing that could happen. If
Speaker 2: you are keen to see younger Australians have the same
Speaker 2: chance of becoming homeowners as their parents and grandparents did
Speaker 2: in decades gone by.
Speaker 1: Tell me a little more about what you think we're
Speaker 1: going to see over the next year or a couple
Speaker 1: of years. How much further will house prices fall?
Speaker 2: Well? I suspect that we will see, as the major
Speaker 2: banks are now forecasting, prices decline by somewhere in the
Speaker 2: vicinity of ten percent from their peaks in the most
Speaker 2: expensive cities. In other places, it might be smaller. If
Speaker 2: Australians choose to elect a government that wants substantial cuts
Speaker 2: to immigration, then prices could fall by more than that,
Speaker 2: and I think there would be other consequences of big
Speaker 2: cuts in Australia's migration program that I would necessarily want
Speaker 2: to see. But absent that, and assuming that we don't
Speaker 2: see big multiple increases in interest rates over the next
Speaker 2: six to twelve months, which I don't think we will,
Speaker 2: then a decline in prices of the order of ten
Speaker 2: percent or so will probably be as far as it runs.
Speaker 2: The banks are now forecasting declines of between five and
Speaker 2: ten percent for the average of all capital cities. Is
Speaker 2: that a bad thing? Well, although a lot of people
Speaker 2: might think it is, the reality is that most people
Speaker 2: who own property only own one. That is, the one
Speaker 2: in which they live. You can't crystallize any increase in
Speaker 2: the value of that property unless you sell it. And
Speaker 2: usually people who sell the home in which they own
Speaker 2: are selling it in order to trade up to a
Speaker 2: bigger one or to one in what they think is
Speaker 2: a more desirable location. Well, the value of your house
Speaker 2: might have gone up a lot, but that means the
Speaker 2: value of the property you're leaking to buy has also
Speaker 2: become more expensive as well, So are you really better off? Conversely,
Speaker 2: if you're looking to sell your own home because you
Speaker 2: want to downsize, your kids have left home and you
Speaker 2: may not want to look after as big a house
Speaker 2: as you've lived in for the past thirty years. Well, yes,
Speaker 2: the value of your house might have gone down, but
Speaker 2: so has the value of the house you're going to
Speaker 2: buy and replacing it. So are you actually worse off
Speaker 2: or not? And I think the answer to that is
Speaker 2: for most people know, yes, if you have an investment
Speaker 2: property and prices have gone down, but share prices go
Speaker 2: up and down a lot. And nobody thinks that if
Speaker 2: share prices have gone down and people who bought shares
Speaker 2: might have a loss on their books, that the government's
Speaker 2: under some moral obligation to stop the losses from happening.
Speaker 2: In my view, why should property be any different.
Speaker 1: So thank you so much for your time.
Speaker 2: That's been a pleasure. Thank you for having repeated.
Speaker 1: Also in the news, Victoria is set to ban the
Speaker 1: use of suppression orders by convicted rapists after the recent
Speaker 1: use of the loophole to hide the identities of high
Speaker 1: profile offenders. Ralph Carr, a prominent entertainment manager, and Tom Sylvanni,
Speaker 1: the son of AFL football at Steve and Silvanni, both
Speaker 1: use the law to suppress their identities during the trials
Speaker 1: and eventual convictions for rape. New Premier Ben Carroll says
Speaker 1: his government is committed to closing every loophole and Australia
Speaker 1: is set to roll out bird flu vaccines for some
Speaker 1: of our most at risk wildlife. Native species which are
Speaker 1: in captivity in places like zoos and wildlife sanctuaries will
Speaker 1: be the first to be vaccinated. Wild Birds are nearly
Speaker 1: impossible to back XCIN eight as two doses of the
Speaker 1: vaccine are required for full protection. I'm Ruby Jones. This
Speaker 1: is seven am. Thanks for listening.