Speaking to Loan Market brokers at the group’s Game On conference in Tasmania on Monday (12 August), Treasurer Josh Frydenberg outlined that while there had been “challenges” and “headwinds” affecting the economy, “there is much we can be optimistic about”.
Among the challenges being faced, the Treasurer said it was “well documented” that the global economy is “facing challenges principally concerned with the growing trade dispute between the United States and China”.
“We have seen, in recent days, an unwanted escalation in these tensions and in the Reserve Bank’s board’s own words, ‘the risks to the global economy remain tilted to the downside’,” he said.
“However, we should not overreact, and it is time for cool heads to prevail. The global growth outlook over the rest of 2019 and into 2020 depends on how significant negative impact of those trade tensions are.”
Looking at the domestic challenges, Mr Frydenberg highlighted that “flood, fire and drought” had all impacted on the regions across the country as well as on overall economic growth – particularly noting that drought conditions had negatively impacted farm output, with farm GDP close to 7 per cent lower than it was this time last year.
“Weaker wages growth and an adjustment in the housing market are continuing to weigh on household spending,” he said, but added that “the combination of the government’s tax relief and the RBA interest rate cuts, though, provide a timely and important boost to household disposable incomes”.
He revealed that the Australian Taxation Office had already paid out approximately $9 billion in tax refunds to more than 3.6 million Australians for the 2018-19 fiscal year, which he said is “money that will be spent at local businesses and on local economic activity”.
“At the same time, record levels of public infrastructure spending and a continued investment recovery in the mining sector will continue to support confidence and economic activity,” he added.
“So, while we do face challenges, we remain confident that we have the right economic plan to navigate these challenges and ensure the Australian economy continues to grow.”
“When it comes to the Australian economy, there is much we can be optimistic about,” the Treasurer said.
“We have a budget that is returning to surplus for the first time in 12 years, a plan to pay off Med Care by the end of the decade. Australia continues to be just one of just 10 nations in the world with a AAA credit rating from the three leading credit rating agencies.”
He continued: “Under the Coalition government, we’ve helped create nearly 1.4 billion new jobs with welfare dependency at a generational low.
“This year, employment growth was 2.4 per cent, more than double the OECD average of 1.1 per cent and faster than any of the G7 nations. The participation rate has recently hit 66 percent, the highest on record. The number of women is close to a record high in terms of women in the workforce, and the gender pay gap is now at a record low.
“And we recorded our largest trade surplus on record at $8 billion in June, following 17 consecutive months of surpluses – the longest such run since the 1970s.”
Mr Frydenberg also noted that the economy grew by 0.4 per cent in the March quarter to be 1.8 per cent higher through the year, and growth continues to be broad-based with net exports, public fund and household consumption, and new business investment all contributing to growth in the first quarter of this year.
Turning to the property market, the Treasurer told Loan Market brokers that the established property market is “showing signs of stabilising”, with prices across capital cities increasing for the first time in almost two years, alongside an improvement in the auction clearance rates, which have risen to about 70 per cent in Sydney and Melbourne (compared to around 50 per cent at the start of the year), which he said was “particularly welcome”.
Mr Frydenberg highlighted that the government had been implementing a range of housing initiatives to “help Australians at all stages of their life make the most of their circumstances”.
“We’re helping first home buyers and downsizers, building infrastructure to boost housing supply, and providing support to homelessness services to help those who need it most,” he said.
Mr Frydenberg particularly highlighted the upcoming First Home Loan Deposit Scheme, which will be available from 1 January 2020 to allow up to 10,000 first home buyers a year to access mortgages from “selected banks and non-bank lenders” and buy their first home “with as little as a 5 per cent deposit”.
He commented: “We want to help Australians realise their goal of buying their first home by cutting years off the time it takes to save up for their deposit.”
The Treasurer revealed that government would be “working closely with stakeholders, including mortgage brokers, in developing the First Home Loan Deposit Scheme to ensure it is appropriately targeted and minimizes any red tape on eligible first home buyers accessing the scheme”.
Mr Frydenberg outlined that the Minister for Housing and Assistant Treasurer, Michael Sukkar, is leading this initiative and “will provide further details ahead of the scheme’s [commencement] at the start of next year”.
Following his speech, the federal Treasurer was asked for his thoughts on the ramifications of interest rates remaining “as low as they are”, to which Mr Frydenberg answered: “A low interest rate is not particular to Australia; three-quarters of the developed economies in the world have interest rates lower than 2 per cent, and about a third of the developed world have interest rates below 1 per cent. This is a relatively new phenomenon, and what we have in Australia is an example of this, in that we have relatively low unemployment (we’re at 5.2 per cent), low inflation (at 1.6 per cent, which is below where our target of 2-3 per cent is), and we have low interest rates (with a cash rate of 1 per cent).
“This is very different to what central banks had expectations of. Because traditionally, central banks have to reduce interest rates when unemployment had been low because they’ve been worried about inflationary concerns. But inflation is not really there, and one of the reasons is because new technology and manufacturing costs and those sort of things have brought down the price of goods that we purchase.
“So, this new environment, I think, will be with us for some time to come, and the Reserve Bank governor has indicated that he expects interest rates to remain low for some time to come. There has even been speculation of further interest rate cuts. That is obviously not good for depositors, people who are savers and have their money in the bank, but it is good for people entering the housing market, and no doubt, those lower interest rates may be part of the reason why we are starting to see a boost in auction clearance rates, which I understand that last week (in the cities) were above 80 per cent, which is concurrent with where it was a year ago,” he said.
“So, I think it augurs well for the housing market, but low interest rate is not an Australian phenomenon – it’s a global one,” Mr Frydenberg concluded.
[Related: ‘Dovish’ RBA in ‘wait and see mode’]
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.