Housing affordability measures in the 2017 federal budget are unlikely to do much to cool Australia’s record property prices, says Moody’s.
The ratings agency says the measures are also unlikely to have an immediate impact on the latent risks in the housing market as people go into more debt to finance home purchases.
“Specifically, while the measures over time could improve housing affordability through an increase in the housing stock, they are unlikely to address record high house prices and household leverage at a time of weak wage growth,” says Moody’s in analysis of the budget.
House prices have been booming with record low interest rates. According to the latest numbers, Sydney and Melbourne property markets rose by more than 20% over the last year.
Among the housing affordability measures, the federal government has introduced a tax-effective savings scheme for first home buyers, cut some of the perks from negative gearing and made it more attractive for older Australians to downsize.
The budget will also have an impact on the banks. The big four — Commonwealth, Westpac, ANZ and NAB — plus Macquarie have been hit with a new tax announced in the budget.
Moody’s says the bank levy, raising $6.2 billion over four years to help repair a hole in the budget, will impact the profits of the major banks.
“Australian banks earnings and profit growth are facing multiple headwinds from moderate credit growth, low interest rates, strong price competition for new business, rising capital requirements and the potential for rising credit costs,” says Moody’s.
“The bank deposit levy announced by the government as part of its federal budget measures will place further pressure on bank profits.”
At the same time, other measures in the budget could restrict the ease with which the financial impact of the levy could be passed on to bank customers, inhibiting the traditionally strong pricing power that has been a feature of the system’s major banks.
Moody’s says the impetus for a royal commission into the banking system is likely to ease following the announcement that the government will legislate for a new Banking Executive Accountability Regime.
Senior bank executives will now be registered with the financial regulator APRA. If in breach, they can be deregistered and disqualified from holding executive positions, and be stripped of their bonuses.
“This, along with the establishment of the announcement of Australian Financial Complaints Authority (AFCA) as dispute resolution mechanism, will likely moderate the political momentum for a Royal Commission,” says Moody’s.
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