Thomas Jefferson is quoted as saying, “The government you elect is the government you deserve”.
With a new Labor government in Canberra, we will very quickly have a chance to see whether we have the government that we need.
You can’t help but think Labor has had the misfortune to seize power at an inauspicious moment, when the country faces massive challenges on multiple fronts.
Labor’s last election victory in 2007 coincided with the onset of the Global Financial Crisis (GFC), so perhaps Coalition disappointment at defeat might be tempered by relief at being able to sit this one out.
It’s notable that the latest Westpac-Melbourne Institute consumer sentiment index plummeted to 86.4 this month, a level not seen since February 2009 when the dark clouds of the GFC rumbled
overhead.
That sharp loss of confidence can be attributed to volatility on the share market, cost of living blowouts with accompanying inflation, and the Reserve Bank lifting its cash rate, triggering mortgage increases that have taken the steam out of a property boom that was already winding down.
Nothing diminishes confidence like the prospect of property prices falling, given that most Australians have their life savings tied up in bricks and mortar.
We have never quite resolved the conflict between a desire for house price inflation and the equally compelling need for stable pricing to enable young Australians to enter the market.
Nobody wants to see a housing crash and I doubt this will occur, but for the long-term health of the property sector, this is the correction we had to have.
Those with significant equity in their homes accrued over time are looking at paper reductions, prices they might have achieved had they sold during the pandemic price boom.
More recent buyers who bought at the peak of the market taking advantage of abundant cheap debt have no need to panic, provided they retain their jobs and can trim their spending to deal with the rising cost of living.
And those who are yet to enter the market might have a better chance of moving from renter to first home buyer as prices moderate.
Hopefully governments at state and federal level will resist the urge to offer broad based stimulus, which only inflates demand.
Until supply chain issues and skills shortages are addressed, the country is simply not in a position to increase supply to meet demand in a meaningful way and the activity that is now underway will not deliver any significant volumes for at least a couple of years.
Some of the measures introduced by the previous Coalition Government to assist first home buyers have merit and should be retained, such as the First Home Loan Deposit Scheme, which makes it easier to buy on a low deposit without need for Lenders Mortgage Insurance.
Likewise, the First Home Super Saver Scheme, which provides concessional tax treatment for savings within a super fund, is a considered and non-inflationary assistance measure.
Interventions such as the Labor Government’s proposed Help To Buy shared equity scheme where the Federal Government holds a stake of up to 40 per cent, have the potential to push up prices and demand though the 10,000 national cap may contain the ripple effect.
The most important contribution the new Labor Government can make to addressing Australia’s critical housing needs is to ramp up the construction of affordable and social housing.
The Albanese government has promised $10 billion for 30,000 low-cost homes including 10,000 affordable homes for essential workers.
Canberra tends to have far less impact on the property markets than state governments and next Tuesday we’ll hear from NSW Treasurer Matt Kean as he delivers his first Budget.
A lot of the headline items have already been released and we can expect some major announcements about the long awaited reforms to stamp duty.
Premier Dominic Perrottet made it clear during his time as Treasurer that he wanted transfer tax replaced by a broad-based land tax, a subject I wrote about more than two years ago.
It is a bad tax and it has to go, but the devil is all in the detail of how we transition in a way that is fair to property owners, both owner-occupiers and investors, and also doesn’t imperil the state’s finances.
Last year’s Budget showed the NSW Government enjoyed an unexpected $1 billion uplift in revenues from stamp duty amounting to $9.379 billion for the 2020-21 financial year.
Although it might appear risky to remove the state’s largest source of taxation revenue only a blind optimist would expect future stamp duty revenues to be quite so generous.
If the government wants to get off the turbulent roller coaster ride of the property cycle and improve liquidity in the property market, tax reform is the only solution.
