John Fraser, the Australian Treasury Secretary, warned that further restrictions could be imposed on Australian banks. He warned regulators to be cautious of excessive debt sloshing in Australian financing system. During his interaction at the Canberra Senate estimates hearing, he also backed the company tax cuts the coalition offered to make the country more competitive.
Assets and debts
Fraser also warned that the assets of the Australian household sector are approximately five times more compared to its debts. The sector holds debts amounting to two trillion and maintaining assets worth $12 trillion. The Treasury Secretary reminded everyone that asset values could always drop, and they frequently do so as well. In contrast, debt values generally do not drop. The net worth gets squeezed in the process. Approximately 75 percent of Australian household assets are in superannuation and housing. Only for these reasons, Fraser said, financial regulators in Australia are aware of the risks due to household sector debt. The government will continue to enforce the excellent lending practices by the Australian financial institutions.
Scott Morrison, the Treasurer, ordered Australian Prudential Regulation Authority in March to halt investor lending by limiting the interest exclusive loans. This must be in excess of 30 percent of the new approvals of home loans. At the same time, high-risk loans will also be tightly controlled. He said that although progress in this regard has been quite positive, the regulators must consider carefully where efforts in the future to maintain the financial stability would be against the cyclical excesses. If not these excesses, the structural risks present within the financial system must be tackled. Homeowners were warned that interest rates will move up in the future and people should be prepared to face such an uncomfortable situation.
Migration for the better
Fraser said that the Treasury has started to study home buyer migration towards regional centers from the capital cities of the east coast. This will assist to ease the house prices. He said that the Australian Government had not paid much attention to smaller regional cities until now. He termed such migration as non-trivial migration. He hoped that this migration will turn out to be a trend and not a one-off affair. If this happens, it will help the government on a number of fronts, including with the issue of housing affordability. When it came to company tax cuts, Fraser said that it is in accordance with similar moves all over the world.