Treasurer

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The Assistant Federal Treasurer Josh Frydenberg says he has been troubled by stories of property spruikers pushing people to set up an SMSF so they could borrow against their retirement savings to make speculative property investments. 
However he said such events were the exception rather than the rule so he has given the strongest signal yet that the Abbott Government will not implement a recommendation to ban do-it-yourself super funds from borrowing to invest in property.
"In the final report of the financial system inquiry, which the government commissioned David Murray to prepare, he recommended a complete ban on limited recourse borrowing arrangements in SMSFs," Assistant Treasurer Josh Frydenberg said on Friday as reported by Fairfax Media from the Tax Institute annual superannuation conference in Sydney.  
"I want to emphasise that we have been considering this recommendation very carefully but flag that we want to make sure the approach we take is proportionate to the risks that have been identified."
"To put it in context only 0.07%, perhaps 6,500 properties, were held in an SMSF through a limited recourse borrowing arrangement in 2013," he said.
"David Murray highlighted the risks associated with increased leverage in the financial system. Increased leverage always represents a risk and we recognise that. The government also recognises that most SMSFs do the right thing". 
Tightening the rules around how SMSFs can borrow to invest, instead of placing an outright ban on the practice, remained "under consideration", he said.
Asked whether he thought targeting action against property spruikers was a better solution than limiting the SMSF borrowing rules Josh Frydenberg said that was certainly an option.
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jchancellor-FAypfDUnLy

No borrowing ban likely for SMSF: Josh Frydenberg suggestion

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EXPERT OBSERVATION
In the months following the election I have given careful consideration to the current Statement on the Conduct of Monetary Policy. The Statement records the common understanding of the Government and the Governor of the Reserve Bank on the key aspects of Australia’s monetary policy framework.
The Statement has been issued seven times since 1996 and was last issued in September 2016 with the commencement of Philip Lowe as RBA Governor. During that time, changes to the Statement have typically coincided with either a change of Government or the appointment of a new RBA Governor.
Following careful consideration and consultation between Treasury and the RBA I have concluded that the existing statement is consistent with the Government’s and the RBA’s shared understanding of our monetary policy framework. Not changing the statement provides continuity and consistency at this time of global economic uncertainty. Domestic and global markets can be reassured that Australia remains a stable and predictable place to invest and do business with a proven and effective monetary policy framework.
As I have said on a number of occasions, the current inflation targeting approach has served Australia well, helping underpin our record 28 consecutive years of economic growth.
While inflation has been below the 2-3 per cent band for some time, I recognise that Australia is not alone in experiencing an extended period of low inflation, low unemployment and low interest rates. Over the medium term, inflation is expected to return to the band, consistent with the Statement.
JOSH FRYDENBERG is the Austrlian Treasurer
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j.ballantyne1990-6AQqhLzZaK

Inflation target kept intact in statement on the conduct of monetary policy: Josh Frydenberg

13 economists backed the RBA governor over the treasurer to fix things: Peter Martin

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Treasurer Josh Frydenberg has expressed a fear that "hard-working families" trying to get a housing loan have been hit by regulators being too stringent in enforcing responsible lending rules.
Frydenberg has welcomed the small rise in capital city housing prices, citing Treasury research that a 10 per cent increase in house prices could boost GDP by 0.5 per cent.
Treasurer Josh Frydenberg has pushed back against regulators being too stringent in enforcing responsible lending rules, warning that this could penalise "hard-working families" trying to get a housing loan and hurt the economy.
"It's vitally important that the housing market remains strong," he said.
"To date, ASIC  has adopted a principles-based and scalable approach. This has allowed flexibility for lenders to appropriately take into account the facts and circumstances of each case and vary the degree of inquiry and verification depending on the customer risk involved."
"Common sense dictates that a sensible balance needs to be struck because an unduly restrictive application of these obligations can do as much harm as an overly lax one. Clearly, the risk that the provision of credit may cause substantial hardship to some should not result in a significantly reduced ability to access credit by the vast majority of borrowers," the Treasurer added. 
After his speech to The Australian Financial Review's Property Summit in Sydney on Thursday, Frydenberg said he expects any further rate cuts to be passed on.
The banking industry has also warned that the flow of credit to key sectors like first-home buyers and small and medium-sized businesses could be disrupted if APRA proceeds with capital reforms that are more stringent than international standards.
The Australian Banking Association says any additional capital required that was in excess of the Basel III requirements would be “detrimental” to the domestic economy.
The so-called Basel III rules are part of a package of measures introduced after the global financial crisis aimed at making banks stronger. 
“At present, Australian economic growth is weak and any further impediments to lending such as increased capital requirements, combined with disadvantages in international markets, will have a further negative impact on economic growth when they come into effect,” the ABA says in a submission to the prudential regulator’s review of the capital framework for banks.
 
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Responsible home loan lending rules don't need to be overly stringent: Treasurer Josh Frydenberg

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Prime Minister Morrison and Treasurer Frydenberg will do their best to leave the cupboard bare next Tuesday while still delivering a budget surplus in 2019-20. 
It has been just over three months since the <a href="https://theconversation.com/myefo-reveals-billions-more-in-revenue-9-billion-in-fresh-election-tax-cuts-108889" target="_blank">December budget update</a> but once again the government has been gifted a windfall of unexpected revenues, despite a raft of economic data suggesting the economy has slowed its rate of growth.
This is because the things that really matter to the budget have all done better than was expected by the Treasury just months ago. Strong conditions in commodity markets and lower unemployment mean that in the current financial year the budget bottom line will be about A$3 billion better than had been expected in December, and about A$12 billion better next financial year.
Since the last budget only last May, the outlook for 2018-19 has improved by A$12.3 billion and the outlook for 2019-20 by $13.8 billion.
<h2>Going up</h2>
Rising commodity prices and export volumes have pushed up the profits and tax bills of mining companies.
Iron ore is the standout. Prices have exceeded the Treasury’s December forecast on the back of lower international supply (a result of the tragic dam wall collapse in Brazil) and continued growth in demand from China.
In December, Treasury expected iron ore prices to average US$55 a tonne. But in fact they have averaged about US$75 a tonne. That alone will add about A$2 billion to government revenues in 2018-19 and, if maintained, A$6 billion in 2019-20.
Add in a weaker Australian dollar and the combined effect will account for almost half of the net improvement in the overall budget position this financial year and the next.
Iron ore is only one of our exports.
Coal prices have also exceeded expectations, which should add another A$1 billion to A$1.5 billion to revenue over the next two years.
And there’s more to it than mining. Corporate profits have generally been strong despite some storm clouds forming around the banking industry and the economy more generally.
Another thing driving the better budget starting point is strong jobs growth and a lower than expected unemployment rate, boosting the government’s financial position through lower unemployment benefits and a higher personal tax take. The February employment statistics showed an unemployment rate of 4.9%.
The Treasury had expected the rate to fall more slowly, only getting to 5% by June and then staying there for several years.
If the budget cupboard was untouched, which it won’t be, the budget would have a deficit of next to nothing this financial year and an impressive surplus as high as 1% of gross domestic product next year, a year ahead of the government’s schedule.
<h2>But it mightn’t last</h2>
These upside surprises from the corporate tax take can just as quickly go the other way.
Assuming they will last, as budgets often do, would be to make the same mistake as the Howard-Costello government, which made permanent changes to tax rates and commitments on the back of revenue that prove to be temporary. So did the Gillard-Swan government some years later with its “spreading the benefits of the boom” package.
Corporate profits might struggle to improve in future years in an increasingly difficult economic environment. No one knows what will happen with commodity prices. Right now China is using infrastructure spending to stimulate its economy, but it won’t always do that. Eventually its growth will be less metal-intensive.
But with the government well behind in the polls, I doubt these considerations are getting much attention.
<h2>China drives budgets, the US drives rates</h2>
The US economy sets the global price of money, which in turn determines the environment in which our Reserve Bank sets Australian interest rates and works out how to deal with the bursting of the housing bubble, which was itself in no small part the result of an easy US monetary policy in the wake of the global financial crisis.
China, on the other hand, determines the global price of commodities and trade flows and so helps determine corporate profitability in Australia.
This contrast between the two has never been greater, with the government flush with unexpected revenues while the Reserve Bank walks a knife-edge of low real economic growth, financial stability risks, and already easy monetary policy.
It is best summed up in this chart of real and nominal gross domestic product, which shows annual growth in real GDP (which affects the economy) slowing to 2.3% while growth in nominal GDP (which drives the dollars flowing into the Treasury) growth climbing to more than 5%.
<hr>
<a href="https://images.theconversation.com/files/265512/original/file-20190325-36276-1r5rog7.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/265512/original/file-20190325-36276-1r5rog7.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""> </a>SOURCE: <a class="source" href="https://www.propertyobserver.com.au/http://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0" target="_blank">ABS National Accounts</a>
Looking beyond this budget, the major risk for the Australian economy is a retrenchment of consumer spending on the back of falling house prices and tighter credit conditions.
The national accounts suggest it has already started.
The worry is that domestic spending, which is dominated by consumer spending, will weaken to the point at which it forces businesses to shelve hiring and investment plans, pushing unemployment back up.
A vicious cycle could result in some type of recession.
How can the government and the Reserve Bank try to control these risks?
One way would be to do what they have always done and cut interest rates in an attempt to boost household and business cash flows.
Another would be to take some of the free cash being generated by China and use it to boost domestic demand through temporary arrangements that help the economy ride out the adjustment to lower house prices.
It could be done in many forms including tax cuts and targeted cash injections into low and middle income households.
<h2>Expect extra and earlier tax cuts</h2>
The government has known about the much better revenue position for months.
To date it has displayed incredible restraint in spending it.
New policy announcements since the December update have been limited to about A$500 billion a year, which isn’t bad for a government facing an election wipeout before winter.
But it would be wise not to get too glowing about its restraint.
Instead we should expect a cascade of policy announcements culminating in a major tax cut to be revealed on budget night next Tuesday.
The government has a A$12 billion war chest.
It is most likely to spend it in the form of tax cuts, most likely by bringing forward the second stage of the already announced cuts due to take effect in July 2022.
That would mean lifting the ceiling for the 32.5% tax rate from A$90,000 to A$120,000 and lifting the ceiling for the 19% rate from A$37,000 to A$41,000.
Bringing forward those already legislated tax cuts by three years to July 2019 would cost the budget less than A$10 billion a year and still leave room for a surplus in 2019-20 and room for targeted election pork barrelling.
With the government so far behind in the polls there is virtually zero chance this extra income will be saved for a rainy day. Although the Coalition’s chances of re-election are remote, Prime Minister Scott Morrison is an optimist who might think a surge of generosity and a few lucky breaks could get him over the line.
The more likely possibility of an election loss means Morrison will want to keep the incoming government’s cupboard as bare as he can. This means keeping the budget surpluses small so that if the Labor Party wants to go on a spending spree, it will have to renege on his promised tax cuts.
The good news is that whatever the government does in the budget and no matter what party forms the next government, the budget position is all but back in balance.
It will hold us in good stead should the global economy run into trouble.
It will be all the more needed if the Reserve Bank pushes interest rates below 1% over the coming year, leaving it little room to cut further.<img src="https://counter.theconversation.com/content/113727/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/warren-hogan-530397" target="_blank">Warren Hogan</a>, Industry Professor, <a href="http://theconversation.com/institutions/university-of-technology-sydney-936" target="_blank">University of Technology Sydney</a>
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/expect-tax-cuts-and-an-emptying-of-the-cupboards-in-a-budget-cleanout-as-the-billions-roll-in-113727" target="_blank">original article</a>.
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jrobinson-rf4aSBido9

Expect tax cuts and an emptying of the cupboards in a budget cleanout as the billions roll in

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In its submission to the House of Representatives Standing Committee on Economics Inquiry into Home Ownership in Australia, the Department of the Treasury reminds that state and territory governments have the primarily responsibility in housing supply. Removing regulatory impediments, land use and housing infrastructure policies is what improving housing supply is about.
"Reform addressing states and territories’ planning and land supply policies is not a new area of work. The Productivity Commission Inquiry into First Home Ownership in 2004 noted the need for state and territory governments to have appropriate land release strategies in place and to improve the efficiency and effectiveness of planning and development policies. 
"Reform in this area has also been attempted previously. In July 2012, the Council of Australian Governments committed to the recommendations of the Housing Supply and Affordability Report (HSAR), which included improving planning, development and rezoning processes, and the release of land."
The demand for housing has increased along with the population. On the other hand, dwellings completion have not followed the population growth and remained constant over the past 15 years. The insufficient housing supply appears to have driven the increase in the dwelling prices.
"Housing is the largest asset class owned by Australian households, and is therefore a key driver of saving decisions. 
"Home ownership rates are relatively uniform across Australia with the exception of the Northern Territory. South Australia recorded the highest home ownership rate in Australia at 72.3%, with Northern Territory recording the lowest rate at 53.2%. 
"Home ownership rates in Australia are higher than comparable countries like the United States, United Kingdom, and New Zealand and a little below Canada. Rates of home ownership in some countries, such as Germany, are considerably lower."
"Dwelling investment accounts for around 5.5% of GDP in Australia. However, it has been highly cyclical in the past and has had significant impacts on GDP growth. 
"Between 2002 and 2012 there were two periods of strong increases in dwelling prices with price growth peaking in late 2007 and early 2010, but the supply response was muted compared with past cycles. 
"The number of building approvals for dwellings rose 17.6 per cent through the year to May 2015, implying a large stock of work yet to be completed. Reflecting the pipeline of work pending, the 2015-16 Budget forecasts dwelling investment to grow by 6 1⁄2% in 2015-16 and 41⁄2% in 2016-17. Dwelling construction is expected to directly contribute 0.3 percentage points to growth in both 2014-15 and 2015-16. 
"While construction is growing more rapidly in New South Wales than Victoria, Victorian construction is starting from a higher level, so the supply of new dwellings has been higher in that state over the past decade 
"Data suggest that there is still significant scope to increase the total supply of housing. National rental vacancy rates have been rising slowly since 2007 but remain low at 2.7% in the March quarter of 2015, well below the previous peak of 4.7% in 2002 
"Despite this, rental yields are low by historical standards. Net rental yields for three bedroom homes have fluctuated between 3.2% and 3.5% since late 2009 and are currently 3.3%. Low rental yields are a consequence of house price growth, which has outstripped growth in rents for most of the past two decades. 
"Rental yield is the average across Australian capital cities and is calculated by dividing net annual rental income by the median price. It does not take capital growth into account.
"National dwelling prices rose by 9.8% over the year to June 2015, a little below the peak reached in the middle of 2014.
"Price growth has been concentrated in Sydney and to a lesser extent, Melbourne. Dwelling prices in Sydney grew 16.2% in the year to June 2015, and by 10.2% in Melbourne." 
"In Sydney, price growth in the year to May 2015 varies between 9.3% in the Eastern Suburbs and 20.7% in Outer South Western Sydney. Of the 14 subdivisions that cover Sydney, price growth is stable or moderating in 10. 
"Melbourne price growth in the year to May 2015 varies between -0.2 per cent in Melton-Wyndham and 17.7% in Eastern Middle Melbourne, but 11 of the 16 subdivisions are experiencing growth between 3.3% and 6.8%. The majority of subdivisions in Melbourne have had steady price growth at current levels for the past year." 
Distribution of Home Ownership 
"The home ownership rate among households headed by a person aged 25 to 34 has fallen from 52.2% in 1995-96 to 42.0% in 2011-12, while for households led by a person aged 35 to 44, the rate has fallen from 72.9% to 62.1% over the same period. Ownership rates have been steadier for older age cohorts.  
"The proportion of loans being approved to first home buyers' is currently around 15%.This is slightly below the average over the past five years of 17.0%, and below the average of 21.6% in the second half of the 1990s. 
"The number of Australians buying a home for the first time has averaged around 4 per 1,000 people over the past five years, compared with around 5 per 1,000 people in the second half of the 1990s. 
"The two key factors influencing the purchase of a first home are savings for a deposit and having sufficient income to service a mortgage. 
"Since 2000, investors have generally accounted for between 30 and 40% of all housing finance approvals. However, during periods of strong price growth, investors tend to represent a larger proportion of financing, particularly in New South Wales."
Long-term macroeconomic drivers 
"Over the past 20 years annual net overseas migration has contributed between 0.3% and 1.5% to annual population growth. Net overseas migration grew strongly between 2006 and 2008 with the contribution of net arrivals peaking at 1.5% in 2008. 
"Net migration contributed 0.8% to annual population growth in the year to the December quarter 2014. Annual population growth rose above 1.3% for the first time since 1991 in 2006 and has remained above this level. 
"During the 1980s and 1990s migration flowed out of New South Wales and Victoria and into Queensland. The outflow from Victoria reversed in the mid-1990s, while the outflow from New South Wales intensified around 2001. Net interstate migration to Queensland has fallen from around 37,000 in 2002 to 6,000 in the most recent year (up to the December quarter 2014). 
"Net interstate migration to South Australia has been negative for most of the past 30 years. Western Australia has generally experienced inward interstate migration, although this flow fell sharply over the past two years and has been negative over the 3 quarters to December 2014, reflecting developments in the resources sector. 
"Overall, the rate of interstate migration in Australia has typically had a smaller influence on state populations than either natural increase or overseas migration. 
"Since 2001 the average size of households has remained steady at 2.6 people indicating a slowdown in the rate of household formation. 
"The long-term supply of dwellings in Australia is determined by the availability of land and redevelopment opportunities and the underlying capacity of the construction sector. 
"Data on the availability of land suggest that residential land releases have been declining over the past 15 years. This is consistent with a greater focus on the redevelopment of land closer to city centres, but also highlights the lack of growth centres outside of capital cities, with land release declining faster in regional areas."
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Treasury's submission to Aussie home ownership

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Sydney property prices have attracted the attention of the BBC, the British broadcaster, given their reaching the A$1m mark for the house median according to the Domain Group.
The article loses weight in conversion of course, €$736,000,and £471,000.
Melbourne - the next most-expensive city in the June conversion - was noted for being at A$668,030 (€$492,000, £315,000).
The occurance was referenced to <a href="/news/44289-sydney-s-1-million-house-median-arrives" target="_blank">international city price comparisons by the local Sydney press</a>.
They reported the Australian Treasurer Joe Hockey said the Federal government was willing to work with the New South Wales government to address what he described as a housing "supply logjam".
"The demand is extraordinary for Sydney so the response has to be to increase the supply of housing," Mr Hockey told reporters on Thursday.
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Sydney's $1 million median becomes international point of interest

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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."
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