Treasurer Scott Morrison has hit back at suggestions the government should tighten tax breaks for investors to improve housing affordability in Australia, arguing increased supply is the best way to manage the problem.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
And he has warned Australians to be careful about trusting their banks' mortgage advice, arguing "just because a bank says you can borrow it, doesn't mean you should".
As the Turnbull government prepares the May budget it is engaged in an internal debate about whether to reduce the capital gains tax discount available to investors.
Prime Minister Malcolm Turnbull and Finance Minister Mathias Cormann have argued forcefully against touching capital gains tax, though the Treasurer is said to have entertained the idea. The government will not change negative gearing - as Labor has proposed - in the May 9 budget, nor would it cut the CGT concession in the manner the opposition has proposed.
On Tuesday night, Reserve Bank governor Philip Lowe criticised banks' lending standards for the explosion in Sydney and Melbourne home prices, while also arguing one of the reasons investor loans and interest-only loans had climbed so fast was "the taxation arrangements that apply to investment in residential property in Australia".
Speaking to ABC radio on Wednesday morning, Mr Morrison said: "The big issue driving the mismatch in house prices around the country are supply and demand", before taking aim at the Labor Party's negative gearing and capital gains tax policies.
He did not directly respond to Mr Lowe's reference to taxation arrangements for investment properties but argued the "status of our housing markets around the country are very different".
"You've got one set of circumstances in Perth, and for that matter South Australia or Tasmania, negative gearing and capital gains tax concessions exist there as well, and property prices in Perth are going the other way, or have been," he said.
"In the eastern states you've got a very different response, even on the east coast you've got a different market in Queensland to Sydney and Melbourne. The idea that you should be focusing solely on broad tax policies that impact every market, and will impact it differently, you've got to be very careful about this."
"This is why the government, in addressing the demand side issues in the housing market, has always preferred working with the regulators to ensure they use more common sense, calibrated and measured responses. Basically, Labor say they want [to use] a chainsaw, we think you should use a scalpel."
The Treasurer also praised recent steps taken by the banking regulator to tighten lending conditions for interest-only loans in an increasingly heated housing market.
"Sometimes when ... the banks say they will loan to [people], they seem to think that is somehow a green light and an assurance that they will be able to repay this [loan]," he said.
"The changes APRA [Australian Prudential Regulation Authority, the banking regulator] have put in, the banking regulator has put in, are very sensible but you have to be very calibrated about this."
Labor shadow treasurer Chris Bowen said Mr Lowe's comments on tax concessions marked a "strong intervention by the Governor".
"The governor doesn't intervene lightly in these debates and I think it just adds to the long list of people who have called this out: that negative gearing as the most generous property tax concession in the world. Combined with the capital gains tax discount [it is] making housing affordability worse," he said.
"Supply is a key part of the equation, we've said that consistently but a couple of points: firstly our policy of limiting negative gearing to new supply only really encourages that supply and secondly, look at Sydney for example where housing supply is at record highs, development approvals are at record highs, constructions are at record highs and yet we still have the massive price rises we've seen recorded this week."
Sydney house prices soared 18.9 per cent in the year to March, and 1.4 per cent in March alone. Melbourne prices climbed 15.9 per cent and 1.9 per cent in March itself.
In the entire year to December wages grew just 1.9 per cent.
- with Peter Martin
Follow James Massola on Facebook
