Chalmers admits tax reforms helped drag down house prices

Treasurer Jim Chalmers has admitted the government’s budget overhaul of property-tax concessions is contributing to the fall in home values as a new snapshot of the economy shows cash-pressed consumers are splurging on EVs but giving up their overseas holiday plans.

As private sector economists forecast property values to continue falling through the rest of this year and well into 2027, Chalmers said higher interest rates and the turmoil facing the economy from the war in Iran were also adding to downward pressure on home prices.

The June quarter national accounts, released on Wednesday, showed the economy expanded by 0.4 per cent, taking annual growth down from 2.5 per cent to 2.1 per cent.

Half of the growth was due to a lift in household spending with most of that coming through a record purchase of new cars.

The bureau noted that there was a record sale of EVs and hybrids as people sought to avoid the surge in oil prices caused by the US’s war against Iran and the closure of the Strait of Hormuz. Spending on transport actually fell, due to the lift in pump prices.

The surge in EV purchases has continued into the current quarter. Figures from the Electric Vehicle Council covering Tesla and Polestar showed another rise in purchases through August to be 91 per cent up on the same period last year.

It said other areas of discretionary spending were “subdued” due to rising cost-of-living pressures. This was most evident with a sharp drop in international tourism, as Australians abandoned their northern-summer plans for travel to Europe and the United States.

Essential spending also fell, particularly on electricity and gas caused by the warmer-than-normal winter.

Home construction continues to grow, up by 1.6 per cent in the quarter to be 5.8 per cent stronger over the past year to be at its highest level since early 2019.

But there are doubts how much longer the lift in new-home builds can continue given the slowdown in the overall property market, the increase in the cost of construction – which is partly due to the surge in oil prices and strong demand – and the government’s budget tax measures.

Chalmers, who noted Australia remained equal with the US as one of the fastest-growing economies in the world, described the overall result as “robust” given the headwinds facing the economy.

Pressed on forecasts by the Commonwealth Bank that property prices could fall by as much as 13 per cent in Sydney, Chalmers said the budget changes in areas such as negative gearing and capital gains tax were weighing on the market along with other factors.

“We’ve said on a number of occasions that that is not the only factor. It’s a factor but not the only factor, and the evidence of that,” he said.

“What is too frequently ignored, is that house prices and auction clearance rates were softening before the budget, and that’s because of movements in interest rates and developments in the economy more broadly.”

Shadow treasurer Tim Wilson accused Chalmers of deliberately trying to tank the property market.

“This was by design. This is the economy that Labor has designed,” he told News24.

The bureau said there was also growth due to public demand and net trade thanks to a lift in exports. It was the first positive contribution to growth from the trade sector since late 2023.

Private investment, which was a key factor in the March quarter, was flat in the June quarter due to a sharp fall in the imports of data processing equipment used in new data centres.

But business investment was flat despite firms continuing to construct new buildings for data centres. There was also a lift in engineering construction for new renewable and mining projects.

There continued to be concerning signs about the nation’s economic foundations. Productivity was flat in the quarter to be down by 0.2 per cent over the full year. Unit labour costs jumped by 0.9 per cent in the quarter to be 0.5 per cent higher since June last year.

The Commonwealth Bank’s head of Australian economics, Belinda Allen, is one who expects the overall economy to slow as investment in new homes ebbs as interest rate increases bite and property prices ease.

“But this will not be enough to stop another interest rate hike from the RBA in November given recent inflation data indicating upside risks have materialised,” she said.

Sunny Nguyen, Moody’s Analytics head of Australia economics, said the figures confirmed that higher interest are biting into households’ spending plans.

She said while household nominal income grew by 1.5 per cent in the quarter, they had only spent 0.4 per cent of it.

“In the March quarter, they drew on savings buffers to cover essentials; now they are rebuilding them,” she said.

EY Australia chief economist Cherelle Murphy said the economy’s long-term problems had been exposed by the figures.

“Australia’s economy is caught between resilient demand and weak supply-side performance. These national accounts will do little to ease the Reserve Bank’s concerns about the inflation outlook, and we continue to expect that another rate rise will soon be delivered,” she said.

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