The government has ruled out any changes to negative gearing when it releases its Budget next month but the Coalition is split on curbing the 50 per cent capital gains tax deduction for investors. Labor wants to see it cut to 25 per cent.
Speaking on ABC radio yesterday, Mr Morrison was wary about potential changes to capital gains tax, pointing out it would have an impact on slower housing markets in Western Australia, Tasmania and South Australia.
“The key judgement that has to be made is, in any of these areas, that you don’t do harm. And the status of our housing markets around the country are very different,’ Mr Morrison said.
“You’ve got one set of circumstances over in Perth and to that matter in South Australia and Tasmania. I mean negative gearing and capital gains tax concessions exist there as well and property prices in Perth are going the other way, or have been.
“In the eastern states you’ve got a different response. Even on the east coast, you’ve got a different market in Queensland than you do to Sydney and Melbourne.”
He pointed out that the Governor of the Reserve Bank of Australia Phillip Lowe was not talking about negative gearing when he spoke about the housing market in a speech he gave in Melbourne on Tuesday night.
“Labor say they want a chainsaw and we think you should use a scalpel,” he said.
Mr Morrison’s comments coincide with the chair of the Australian Prudential Regulation Authority (APRA) Wayne Byres warning banks will be required to hold more capital against their home loan books.
Speaking at the Australian Financial Review’s Banking and Wealth Summit in Sydney, Mr Byres said there would be a strategic review into the banks’ high exposure to debt to ensure they had sufficient capital reserves.
“If we are going to put an increasing number of eggs into a single basket, we’d better make sure that basket is an unquestionably strong one,” Mr Byres said.
“Put simply, the capital adequacy framework needs to address the concentration in housing lending that has built up in the banking system over time.”
APRA has already announced new measures to control lending and rein in the risk.
Figures published by the Reserve Bank of Australia yesterday show that household-debt-to-disposable-income ratio is now sitting at about 189 per cent. For much of the 2000s, it was at about 160 per cent while only 25 years ago, it stood at about 60 per cent.
Research by consultants Digital Finance Analytics shows that about 670,000 of the nation’s 3.1 million households are unable to meet their living and interest rate costs, despite record low interest rates.
“The battlers are always close to the edge, but if you look at those in severe stress they’re more widely spread,” Martin North, the firm’s principal told the Australian Financial Review.
“It’s the more affluent household groups, with big mortgages and lifestyle, now finding mortgage rates are rising when wages aren’t that are more exposed. They’re used to being profligate and they may not have as much in the bank as you’d expect.