Subjects: First Home Owners Scheme; economy; GST; foreign investment; Australian dollar
E&OE................................
MITCHELL:
In our Canberra studio the Prime Minister, Mr Howard good morning.
PRIME MINISTER:
Good morning Neil.
MITCHELL:
We'll take calls in a moment if you'd like to speak to the Prime Minister. Mr Howard you've decided to double the First Home Builders Grant, why?
PRIME MINISTER:
Because there has been a very severe contraction in the new home building sector of the construction industry. It's clear from the national accounts figures that came out on Wednesday that that contraction contributed more than any other single thing to the negative growth figure. The right thing to do is to respond immediately with a targeted measure that's affordable, but a measure that will have an immediate response. What we're going to do is to double the home savings grant for First Home Buyers from $7000 to $14000 for new homes. It will remain at $7000 for people who buy their first home which is an existing dwelling. The additional amount will be available between today and the 31st of December this year. In other words for contracts entered into to buy or build a new home during that period. The existing $7000 will stay of course for existing homes and at the 31st of December in relation to new homes we will revert back to the $7000. The Commonwealth will of course be funding the entire cost of this proposal although it is administered by the states. I'll be writing to each of the State Premiers today, I've already signed the letters, and they'll be going out today outlining the details of what is proposed. I'll be asking the States to play their part by reducing stamp duty, they've got quite a stamp duty bonanza from the increased value and cost of housing over the past couple of years..
MITCHELL:
Where to you want them to reduce stamp duty.
PRIME MINISTER:
Well we just want them to give some stamp duty relief, they can clearly afford to do so.
MITCHELL:
Across the board or.
PRIME MINISTER:
No in relation to new homes.
MITCHELL:
Ok,
PRIME MINISTER:
Yep, and what I'll be saying to them is I'm not making this $7000 in any way conditional on what the states are doing. It is going to happen and it's going to happen immediately and the Commonwealth will bear the full cost. I want to make that very clear - but I do ask the states to put aside any political point scoring on this and if they are interested in the state of the home building industry and they're interested in the employment they can play a part. Some of them may be able to play a bigger part than others but any contribution that they can make in relation to reductions in stamp duty on new homes can build the attractiveness of people deciding to buy a new home. What we want is activity in new dwellings. There's plenty of activity in existing properties, that's not the problem, the problem is new dwellings.
MITCHELL:
When did you decide to do this?
PRIME MINISTER:
Yesterday.
MITCHELL:
As a result of the figures?
PRIME MINISTER:
Two things, a result of the figures and also a meeting I had with the leadership of the Housing Industry Association last week. I spent an hour with the leadership of the housing industry last week. I listened vary carefully to what they had to say, I said that I would respond within a couple of weeks, I knew that the national accounts figures were coming out, I wanted to get the benefit of those figures before I made a decision and I had a meeting with my senior, the Treasurer and my senior colleagues yesterday.
MITCHELL:
It's described as panic.
PRIME MINISTER:
Well, that's not right. What is a Government meant to do when you have clear evidence that the economy has gone backwards in one quarter because of a particular slump in an identifiable area. You sit on your hands, you say 'oh no it'll all come right' or do you try and do something that's targeted that you know will have an immediate effect, is affordable, I mean this will cost $60 million, we calculate, this financial year and no more than $90 million next year. It is eminently affordable.
MITCHELL:
Where does the $150 million come from?
PRIME MINISTER:
The $150 million, $60 million will come out of this year's budget and the $90 million out of next years.
MITCHELL:
Does that mean you'll have to cut somewhere else?
PRIME MINISTER:
$90 million in a budget of our size, $130, 40, 50 billion is not something that's going to tip us into deficit.
MITCHELL:
It won't tip us into deficit does it mean you'll have to cut back elsewhere? When the petrol excise was coming off you were telling us things were so tight.
PRIME MINISTER:
What I.
MITCHELL:
You'd be required to either increase taxes or cut spending.
PRIME MINISTER:
. you were talking there, what I was saying was that there were new initiatives that we would other wise have undertaken that we wouldn't. Look there's nothing, there's no benefit that anybody has at the present time or anything of that nature that is going to have to be cut to pay for this. We're talking about $90 million in next year's budget. The petrol excise proposal involved $555 million in next year's budget.
MITCHELL:
Is there other stimulation planned?
PRIME MINISTER:
No, we don't plan other targeted stimulation because the accounts have thrown up this area as being in particular difficulty if you followed some of the things the Treasurer said about the accounts earlier this week. Many areas of the economy are going very strongly but the dwelling construction industry, which has enormous knock on ripple effects on other parts of the economy. I mean the white goods industry, on hardware and all those things that are related. You're not only stimulating housing, you're not only going to put people back into work on dwelling construction sites, you're not only going to give work to sub-contractors but you're also going to have some beneficial effects on these other parts of industry.
MITCHELL:
.what you're spending here is to compensate the effect of the GST on the building industry.
PRIME MINISTER:
We knew there would be an impact from the GST on the building industry. There was, there was a surge in activity before the 1st of July, an enormous surge of activity before the 1st of July and then there was a downturn. We knew that would happen. What has happened is that it's been a little greater than we expected.
MITCHELL:
So this is effectively wiping out that effect of the GST.
PRIME MINISTER:
No, what it's doing is it's providing stimulation for more activity. I mean, we never said that there wouldn't be a transitional impact in relation to this industry from the GST. But what you've got is a situation where with lower interest rates there is already the beginning of a turnaround in dwelling construction but we would like to give that turnaround a stimulus so that there is a rapid and more broadly based recovery in the industry. Now, it is a sensible, speedy, prudent response to an identified weakness in the economy. Now, that is what a sensible, active government does.
MITCHELL:
There's a couple of calls specifically on this. We'll take those, if you don't mind. George, go ahead.
CALLER:
Good morning, Mr Howard.
PRIME MINISTER:
Yes.
CALLER:
I'm very sorry to say that once again you have duped and I'll tell you why you've duped. Respective homebuyers such as myself are cringing at this new concept of yours but builders must be rubbing their hands together in glee. You mark my words that if somebody were to do a survey today on what new house prices are and check it again in six months.sorry, in two months time, even one month's time, you'll find that they will have, very coincidentally, will have increased by the same amount of grant that you've provided.
MITCHELL:
You're saying it will just put the prices up.
CALLER:
Absolutely. It has happened every time in the past, every time, and it will happen again.
PRIME MINISTER:
When you say every time in the past.we haven't always had a first homeowners scheme.
CALLER:
Well, the present $7000, who [inaudible] that?
PRIME MINISTER:
Well, I don't hear many people saying they don't want it.
MITCHELL:
Well, is there any way of ensuring that it doesn't just go on the bottom line of the houses, Prime Minister?
PRIME MINISTER:
Well, if you want a whole lot of elaborate regulations..I'll tell you the best thing that will guarantee it and that is, in fact, the very flat state of the home building industry. Can I just say, you actually have had people lose their jobs in this industry over the last few months. I have spoken to home builders, through the housing industry association, who don't have any work at all.
MITCHELL:
Well, that's on your head, though, Prime Minister, because there's not much doubt as to [inaudible] and if jobs have gone.
PRIME MINISTER:
Neil, in the end, everything is on my head. But can I just deal with one thing at a time. You asked me about the response effect. The response effect, I believe, will be immediate and I believe the competition brought about by the fact that a lot of people in the building industry will want work, will ensure that pricing is very competitive.
MITCHELL:
Okay, Jenny, go ahead please.
CALLER:
Hi, Neil. I have two questions for the Prime Minister.
MITCHELL:
Yep, go ahead.
CALLER:
Good morning, Prime Minister. Look, I just wondered, this new home grant that's out, is it means tested because I know of two cases that.
MITCHELL:
Okay, we don't need the cases, the question.
PRIME MINISTER:
No, it's not means tested. The answer is it's not means tested.
MITCHELL:
What was the second one, Jenny, second question?
CALLER:
I've got a blank. Yeah, so I was just wondered whether that was it.
PRIME MINISTER:
No, it's not.
MITCHELL:
Not means tested, why is that Prime Minister?
PRIME MINISTER:
Well, we think you always end up having silly arguments at the margin as who's entitled and who's not and it's better to have it completely non-means tested. It's so expensive to administer the means test. You get a lot of grievance at the margin. What is a good means test in Sydney is not a good means test in other parts of Australia because housing is a lot more expensive in Sydney than the rest of the country. So, you know, in the end, it becomes unmanageable.
MITCHELL:
Gabby, go ahead please.
CALLER:
Yes, good morning, Prime Minister. Just a quick question on the new first homeowners scheme. Does it apply to new investment property rather than residential property?
PRIME MINISTER:
Well, anything new.
CALLER:
Does that include investment property?
PRIME MINISTER:
Well, no, but you're a first homebuyer are you, are you going to live in the place?
CALLER:
Yes.
PRIME MINISTER:
Well, if you're going to live in it, that's fine. If this is your first home.
CALLER:
No, I'm using it for investment purposes under the current rule with the $1000, if you use it for investment purposes you're not eligible for the $7000.
PRIME MINISTER:
No, well, the same rule will apply to this.
CALLER:
Thank you very much.
MITCHELL:
Okay, so not for investment properties.
PRIME MINISTER:
No.
[COMMERCIAL BREAK]
MITCHELL:
The Prime Minister's in our Canberra studio. Mr Howard, I just had a thought during that ad break, if I signed a contract yesterday to build a new house, I only get $7000, don't I?
PRIME MINISTER:
I'm afraid so but there's always got to be a cut off point. I mean, I remember when I was Treasurer and we abolished death duties, they had to be from a particular date and I had a lot of people write to me and say that their Aunt had died a week earlier, could we sort of backdate it, I mean, there's got to be a cut off point somewhere.
MITCHELL:
Is it going to be a tough budget?
PRIME MINISTER:
It will be a responsible budget, of course. It will be tight, it will be responsible. We intend to stay in the black but it will be fair and it will be a budget that is the product of a lot of hard work and a lot of thought. It's not easy making a budget but, equally, we believe that we'll produce something that's appropriate for Australia's circumstances which are still economically very good, despite Wednesday's figure. We will be very foolish if we allow Wednesday's figure and some of the headlines that followed it to talk this country into thinking it's in recession. It is not in recession. It has not hit the wall. There are weaknesses in certain areas - one of them is the housing industry and we are addressing that today. But the fundamentals of low inflation and low interest rates and very low Government debt, all of those things are underpinning what is fundamentally a very strong economy.
MITCHELL:
Do you accept that the introduction of the GST has aggravated those problems, has amplified those weaknesses?
PRIME MINISTER:
There was a transitional impact from the GST which we always acknowledged would be there in relation to certain industries and one of them is housing. We've passed through the biggest part of the impact and we're providing some additional assistance there. As to the rest, the reality is that the personal tax cuts that accompany the GST and were an integral part of the GST provided quite a fiscal stimulus to the economy. Without those the contraction could well have been deeper.
MITCHELL:
Can we expect, do you believe further movement in interest rates in the next few months?
PRIME MINISTER:
I don't want to speculate. I note that most people say there will be but I don't want to speculate.
MITCHELL:
The dollar, in fact, the drop in the dollar has really wiped out any benefit of the cut in petrol excise.
PRIME MINISTER:
Well, I don't want to talk about where it is at the moment or where it might be in the future. I have to be careful of that. I simply make the observation that the currencies go up and down and that has price consequences for everything in the economy. I'd also make the observation that irrespective of where the price of petrol is at the moment or where it will be in 10 days time or six months time, I can say that as a result of what the Government has done it will always be 1.5 cents a litre cheaper, always, 1.5 cents a litre cheaper. I mean, these fluctuations of which you speak would have happened whether or not we had cut the excise by 1.5 cents. On top of that I can say to your listeners that we have abolished the half-yearly tax rises in petrol. So there won't be any more of those at all, no matter what happens to the price. So, however you look at it, the motorist is a lot better off. In the overall scheme of things, not an enormous amount but still better off as a result of those two decisions.
MITCHELL:
Sorry, you said you've abandoned them, you've dropped them indefinitely.
PRIME MINISTER:
Yeah, we're going to abolish it.
MITCHELL:
Abolish totally.
PRIME MINISTER:
Yes.
MITCHELL:
Is soggy dollar unfair?
PRIME MINISTER:
Look, I don't want to talk about the currency. Neil, you know how sensitive a currency is to prime ministerial.we have a flexible exchange rate and people must take a long view of a flexible exchange rate and they should not react to the short-term level of the currency whether that level be low, high or medium.
MITCHELL:
What are the implications of what's happening in Japan at the moment for this country?
PRIME MINISTER:
It's a reminder that we're living in a world where the two major economies, Japan and the United States, are experiencing economic downturns.
MITCHELL:
Will that flow through to this country?
PRIME MINISTER:
Well, it could, although Japan has been in a weak position now for a long time. And fortunately our economic relationship with Japan through such things as our commodity agreements, that is largely unaffected to date by the Japanese downturn. And, can I say, the weaker dollar has the silver lining that in relation to commodity prices and commodity exports, it does boost them quite a lot. But we do live in a world economy and what is happening in the United States can have an impact on what is happening in Australia. Fortunately, because our own inflation rate and interest rates are so low and because our Government debt is so low, that will cushion some of those adverse effects.
MITCHELL:
At the time of the debate about petrol prices or petrol excise you told me it would be fiscally irresponsible because to do so, to cut the excise would mean you either had to increase taxes or cut spending on things such as hospitals, which will it be?
PRIME MINISTER:
Well, I did say that we were going to re-order our priorities in the budget. I don't believe in the process of re-ordering our priorities we are going to.we won't be effecting essential services.
MITCHELL:
Will you be increasing taxation?
PRIME MINISTER:
We will not be increasing taxation.
MITCHELL:
You told me, Prime Minister, it was one or the other.
PRIME MINISTER:
Well, I have to look at exactly what I said but when you talk about impacts on revenue and expenditure it could mean that you won't be able to give relief in an area where relief does not now exist because of the decision that's been taken on petrol excise.
MITCHELL:
Okay, well you goaded Kim Beazley yesterday into saying no increase in taxes after an election, you're now saying the same thing?
PRIME MINISTER:
Well, we reduce tax.
MITCHELL:
Yes, but the next election, you will not increase - if you win the next election you won't increase taxation on fuel?
PRIME MINISTER:
No, we are a low tax party, not a high tax party.
MITCHELL:
So I take that there'll be no increase in taxation. You'll go to the election campaign and say there'll be no increase in taxation.
PRIME MINISTER:
We will certainly not be promising any increases in taxation at the next election.
MITCHELL:
Will you be promising decreases?
PRIME MINISTER:
Well, you've asked me the question - no, I will be giving an undertaking we won't be increasing..at this stage, Neil, the only undertaking I will give is that we're not going to increase taxation. As to what we might do by way of decreases, I'm not in a position to make any comment at the moment about that. It's nine months before the election and for me to start saying without having done a budget and so forth, for me to start giving promises about cutting tax, at this stage.
MITCHELL:
Well, it's what you were after from Kim Beazley yesterday [inaudible]
PRIME MINISTER:
No, no, the difference there is that Mr Beazley is promising to roll back the GST. And if you roll back the GST you have to find billions of dollars to pay for the roll back. I mean, look, he can't seriously ask the Australian public to believe that taking the GST off caravan parks represents a roll back.
MITCHELL:
Will you look at any roll back?
PRIME MINISTER:
No, we think the base is right. I mean, we haven't embraced any roll backs.
MITCHELL:
You said nine months to an election, is that a hint or are you just talking.
PRIME MINISTER:
Well, that's when the election is due, isn't it?
MITCHELL:
Oh, roughly.
PRIME MINISTER:
Roughly, yeah. I mean, I know you fellows are in the business of sort of tripping we blokes up on everything but, I mean, I'm talking generally. Okay, eight, nine, seven, eight, nine months. I mean, it's got to be held by the end of the year, that's what I'm saying.
MITCHELL:
It's going to be hard to stand on your economic record, what will you stand on?
PRIME MINISTER:
Well, I don't accept that it will be hard to stand on our economic record. See you are assuming that because we have one, or asserting, that because we have one negative quarter that's the end of everything. Can I say that is inaccurate.
MITCHELL:
I agree with you.
PRIME MINISTER:
It is.
MITCHELL:
I agree with you. The foot and mouth disease and mad cow disease in the United Kingdom, does this mean we can increase our meat quotas from England and at least, in some sense, profit from the awful thing that's happening there?
PRIME MINISTER:
Well, can I first of all say that I feel desperately sorry for the British and for the farmers in the United Kingdom for what's happening. It doesn't automatically mean that because there are large surpluses and what, of course, has happened is that European consumers in reaction to both mad cow disease and foot and mouth disease have dramatically reduced their consumption of beef. What happens in a situation like this is that people stop eating beef, it doesn't matter where it comes from. And that has happened. There's been a dramatic drop in consumption - I think something like 28% to 30%, drop in the consumption of beef inside the European union.
MITCHELL:
But there would be a chance for Australia.
PRIME MINISTER:
Well, it's quota.certainly we are ready and we've already made contact, not in any kind of ghoulish way but quite pragmatically and sensibly and quite upfront. If we can get increased Australian beef sales into the European Union, and you can only do that by getting a variation of the very strict quotas, then we will certainly take advantage of that and that will be of benefit to our local industry. But I have to warn people who might see an easy opportunity here that sure there's a huge problem with European beef but there's an equally big problem in that consumers have stopped eating beef and the market is disappearing as well as the edibility of European beef.
MITCHELL:
Prime Minister, the polls and the State election results show very much that the Government, your Government, is on the nose. Is there any chance, do you believe, that you can still win the next election?
PRIME MINISTER:
Oh yes, I do, I think it will be very tough. But it is seven, eight or nine months before the next election.
MITCHELL:
Do you feel the pressure of all this?
PRIME MINISTER:
Well, I've had a lot of pressure in my political career. In a situation like this, of course you feel a degree of pressure, of course you do.
MITCHELL:
Is this as tough as it's been?
PRIME MINISTER:
I've had it tough on a number of occasions but look, Neil.
MITCHELL:
The polls are the worst since the Liberal Party was formed.
PRIME MINISTER:
Do you know there was a Morgan Poll in August of 1998 that had us at 30.5%?
MITCHELL:
Well, this is lower.
PRIME MINISTER:
What, half a percent.
MITCHELL:
Yeah.
PRIME MINISTER:
A half lower. Look, Neil, it is tough at the moment but I'll just go on doing the best job I can for the Australian public. And I will work and fight and argue and think my way out of these challenges. I want the Australian people to know that I'm still very enthusiastic for my job. I have a lot of energy. I have a very strong personal commitment to doing the right thing by the Australian people. I know that we're going through a difficulty but, more importantly, I'm concerned about giving reassurance and acting where necessary in relation to the country's economy because that is - my responsibility to the way the economy effects the Australian people is the most important responsibility I have. And I can promise them that I've got a lot of fight and energy and commitment and passion in me and I intend to use all of it for the benefit of the Australian public.
MITCHELL:
Paul Keating rolled Bob Hawke and won the unwinnable election, is there any prospect of Peter Costello or anybody else entertaining such thoughts with your position?
PRIME MINISTER:
Well, that's a matter always for the Liberal Party. I don't hear people saying they want me to go. I'm keen to stay. I believe I can do a better job for the Party at the next election than anybody else because of my experience and my understanding of issues. But, Neil, I've never been reluctant to talk about these things, as you know.
MITCHELL:
Has anybody raised it with you other than the media?
PRIME MINISTER:
No, nobody's come to me and said, mate, it's time to go.
MITCHELL:
No tap on the shoulder.
PRIME MINISTER:
No, you fellas keep raising it and that's fair enough and I don't mind answering it. I just want people to know that I believe I can continue to do a very good job for our country. I believe I can lead the Party to victory at the next election. It's tough but nobody should think that the Labor Party's a shoe in. I think they're already developing a lot of hubris on that subject.
MITCHELL:
Prime Minister, thank you for your time.
PRIME MINISTER:
Thank you.
[ends]