Bill Shorten to moderate housing prices
Former banker David Murray has urged the Coalition to ban self-managed super funds from borrowing and to do so quickly or risk a stampede of further leveraging between now and the next election which would put more pressure on house prices.
Responding to plans by Labor on Friday to restore a ban on SMSFs borrowing that was lifted in 2007, Mr Murray, the author of the Abbott government's Financial System Inquiry, said the Coalition should follow suit.
He warned that there was a general perception the Coalition may lose the next election, as the polls currently suggest, and "there could be a rush to put more borrowings into super funds".
But the government not only rejected Labor's proposal, which was part of an expanded housing affordability plan, Prime Minister Malcolm Turnbull began playing down expectations about the Coalition doing much at all on housing in the May budget.
He said the assumption that housing affordability would be a centrepiece of the budget was media speculation and "I don't think that's a fair description".
"The focus of the budget is and has to be firstly driving continued strong economic growth. You know that is the tide that we have to ensure lifts all boats," he said.
Internally, the government is worried it has created too high expectations about housing affordability, more so given it is loath to do much about demand side factors such as investor tax breaks, and that it believes supply side issues are predominantly state issue.
SMSF Association CEO Andrea Slattery said there was "little or no convincing evidence" that the use of borrowing by small super funds was playing a significant role in affecting housing affordability.
Self-managed super funds own 0.18 per cent of the property market and banning them from borrowing will do nothing to bring down property prices or help first-home buyers, she said.
The same goes for Labor's plan to double fees and charges on foreign buyers, who own 1.8 per cent of established houses, a move the property industry called "discrimination".
Labor, which has already promised to curb negative gearing and capital gains tax concessions, unveiled a raft of new measures yesterday which included the SMSF borrowing ban, a doubling of fees and penalties that apply to foreign investors buying residential property, and a proposal for a nationwide tax on investors who leave properties vacant in a process known as land banking.
The SMSF borrowing ban is the most significant addition and something the Coalition could adopt without inflaming its support base, still smarting over last year's budget cuts to superannuation tax concessions.
Assistant treasurer Michael Sukkar said Labor's policy was "a half-hearted dog's breakfast".
"Labor's attack on self-managed super funds shows they are once again reaching for the chainsaw," he said.
"Their rushed proposal includes a ban on borrowing for commercial property, including shops and offices, which have nothing to do with improving housing affordability.
"Residential property in self-managed superannuation funds accounts for less than a quarter of one per cent of the total value of Australia's housing stock."
"Labor just don't understand the need for finely tuned measures on housing. Instead they are determined to pursue proposals that attack professionals, small business people, self-employed Australians and those who aspire to be self-sufficient in retirement."
Mr Murray said a case could be made for exempting commercial property but overall he was in favour of a general ban.
"Already at the time of our inquiry there was a very rapid rate of growth from a small base of borrowings by super funds," he said.
"There s a lot of investment around housing assets. I don't think that's very good in the context of what's happening in the housing market and the systemic risks it raises."
Economist Saul Eslake, a critic of the decision of the Howard government just before it lost power in 2007 to allow SMSF investment in property, backed the Labor ban, saying SMSFs just added another preferentially taxed way for Australians to borrow to speculate on rising property prices.
"This was a bad decision by the Howard government in its dying years," Mr Eslake said. "Labor is absolutely right to be focused on it."
Shadow treasurer Chris Bowen rejected the industry criticism on Friday, saying all the elements were needed to contribute to housing affordability.
"It is true that self-managed super investment is a relatively small part of the [housing] market, but it is growing rapidly," he said.
"It is growing exponentially. It is an explosion, it is a factor in the overheating of the market and it needs to be dealt with.
"We would never say that foreign investment was the biggest cause of the house price explosion, but it is a factor, and as part of our well-calibrated, wholistic plans, it does need to be addressed."
Since 2012, borrowings by self-managed funds has grown from $2.5 billion to $24 billion, of which 91 per cent, or almost $22 billion has been for residential and commercial property.
Mr Murray argued in his 2014 FSI inquiry that unchecked growth could pose a threat to the nation's financial system stability over the long term due to growing exposure to bad investments.
"In addition, borrowing by superannuation funds implicitly transfers some of the downside risks to taxpayers, who underwrite adverse outcomes in the superannuation system through the provision of the age pension," his inquiry said.
The Reserve Bank of Australia also backs the SMSF borrowing ban.
Finance Minister Mathias Cormann has called Labor's newly announced housing affordability plan a one-size-fits-all approach, that could prove disastrous to markets outside Sydney and Melbourne.
