Don't blame negative gearing for price spurt: Peter Costello

The former federal treasurer Peter Costello has said negative gearing isn’t causing property prices to go up; "what is causing that is interest rates,” he told a Women in Banking and ­Finance luncheon in Melbourne last week.

“When interest rates fall, property prices have to go up ... The quickest way to bring down property prices is to double the interest rate. I don’t think we should change the rule that allows you to deduct borrowing costs for any business, including the business of rentals if you want to go into that business.

“And I don’t think that is the answer to property ­prices if you think there is a ­problem.’’

Mr Costello also said he remained comfortable with the local banks’ exposure to the property market, The Australian reported.

“The default rate in Australia is very low by international standards,” he said.

“The one thing your little Aussie battler will do is hold onto their house. Sell the dog, the kids, but hold onto the house, which means the banks have not been the subject of big defaults.

“Do I see waves of household defaults? No I don’t actually. The banks are probably going to be asked to put in more capital and their risk weighting will be increased. That won’t turn the banks from being big profit-makers to loss-makers.’’

Mr Costello said he continued to support a broadening of the base of the GST. 

“The bigger question to me is: don’t ask me about broadening the base, tell me where you are going to spend the money."