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Despite noting challenges in housing, Treasurer Josh Frydenberg has said that he is “optimistic” about Australia’s economic future and its continued expansion.
Speaking at the Address to the Australian Chamber of Commerce and industry lunch in Brisbane on Tuesday (16 July), Mr Frydenberg shared his “optimism about why the Australian economy, despite the challenges we face, can and will continue to grow and deliver benefits to all Australians”.
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Noting that he recently met Reserve Bank governor Philip Lowe and senior Treasury officials last week, he said that the representatives “agreed the economy has shown remarkable resilience and continues to grow despite the challenges”.
The challenges, Mr Frydenberg said, included “flood, fire and drought” that have impacted regions across the country, challenges in the agricultural sector, changes in the global markets, and local housing.
On housing, Mr Frydenberg commented: “Since peaking in September 2017, house prices across the eight capital cities have fallen 10 per cent.
“Developments in the housing market have been driven by a number of factors. There was APRA’s interventions to bring down growth in the investor segment of the market to more sustainable levels, and there was uncertainty around the opposition’s proposed housing tax, which impacted upon sentiment.
“This contributed to a decline in dwelling investment, with growth falling by around 3 per cent over the year to the March quarter,” according to Mr Frydenberg.
The federal Treasurer noted that while dwelling investment accounts for just 6 per cent of GDP, it “nevertheless generates widespread spill-over effects across the economy”.
“Retail spending in housing-related categories, such as furnishings, household equipment and hardware and garden supplies, has recorded softness recently as the housing market has come off.”
He went on to outline that an “often overlooked component of investment” is ownership transfer costs, consisting of stamp duty, conveyancing costs and other costs associated with transferring ownership of an asset such as a house.
For example, the federal Treasurer noted that the most recent accounts showed this measure fell by 23.8 per cent over the year and was responsible for reducing total economic growth by 0.4 percentage points.
However, he said that despite these challenges, “there is every reason to expect that Australia’s economic expansion will continue”.
Mr Frydenberg told the Australian Chamber of Commerce that he took hope from the fact that the Australian economy has experienced nearly 28 consecutive years of economic growth, is one of just 10 countries that has a AAA credit rating from the three leading agencies, and that the Coalition government has an “economic plan designed to see Australia through these challenges”.
“These are strong foundations. And with strong foundations, we can have confidence about building a stronger, better Australia.”
Looking at the housing challenges, Mr Frydenberg commented: “There are signs the property market is stabilising. The latest CoreLogic results show a slight rise in Sydney and Melbourne housing prices in June.
“I am encouraged that auction clearance rates in those cities are now currently around 70 per cent and are well up on the 50 per cent clearance rates this time last year,” he said.
“With uncertainty around housing taxes clearing post-election, as well as the Reserve Bank’s recent interest rate cuts, sentiment is improving and we should see more buyers returning to the market.
“The government’s First Home Loan Deposit Scheme to start on 1 January next year will also help another 10,000 first home buyers realise their goal of buying their first home sooner,” the Treasurer outlined.
He concluded: “While it is clear that the Australian economy faces a number of challenges, some are within and others outside of our control. I understand the public’s high expectations of government, but I have to confess that controlling the weather and managing great power relations are sometimes beyond us.
“Nevertheless, those levers of economic management that we can control are being used to Australia’s advantage and give us reason to be positive about the outlook.”
[Related: RBA reveals FHB deposit scheme calculations]
