Fed: No promises on extending home buyers grant: Tanner
By Colin Brinsden, Economics Correspondent11 Mar 2009 6:12 PM
CANBERRA, March 11 AAP - The federal government won't make a budget promise to extend the life of increases to first home owners' grants, even though there is evidence it has been a success.
Addressing the National Press Club, Finance Minister Lindsay Tanner said he expected the budget would be "very tough" to put together, but doubted the government's forecast for a seven per cent jobless rate by mid-June next year would need to be revised up.
Official labour force data will be released on Thursday, which economists expect will show the unemployment rate jumping in February to 5.0 per cent for the first time in nearly three years.
"Clearly, there are job losses occurring in certain parts of the economy and we are committed to minimising that," Mr Tanner said.
While there has been much debate over the effectiveness of the government's cash handouts strategy to stimulate the economy in the face of a global recession, new data shows first home buyers are piling into the market to take advantage of the increased housing grants.
The grant was doubled to $14,000 for purchase of established homes and trebled to $21,000 for those buying a new home as part of last year's $10.4 billion stimulus package. The offer ends in June.
Home lenders have asked the government to extend the deal to the end of the year at least, given the increased demand for mortgages.
"There's no question that the data thus far suggest that's been successful in its purpose," he said.
But Mr Tanner refused to "fuel expectations" ahead of the May 12 budget, which is still in its early days of preparation.
First home buyers made up a record 26.5 per cent of home loans granted in January, coming off a trough of around 16 per cent a year ago.
Total home mortgages granted rose 3.5 per cent to 55,628 loans in January, the fourth consecutive month of growth.
JP Morgan economist Helen Kevans expects demand for home loans will be underpinned by first home buyers, as well as lower interest rates and falling house prices.
"That said, the massive wealth destruction underway in the highly-leveraged household sector, tighter lending standards, and rising unemployment, will to some extent deter both first home buyers and investors," she said.
Mr Tanner said preparing the budget would be tough because of the enormous challenges facing the country and the emerging spending needs that weren't there a year ago.
"It's tough because instead of asking ourselves how deep we want the surplus to be ... because of the collapsing revenues from the global recession we are confronting very substantial deficits," he said.
But he said the expected debt levels were sustainable, and comparable with levels during the middle of the Howard years.
He likened it to someone earning $100,000 a year taking out a $5,000 personal loan.
He also said the government doesn't plan to "slash" public sector jobs, but he wouldn't reveal if it would reimpose an extra efficiency cut across government departments.
After winning government, Labor imposed an additional one-off two per cent public service cut, on top of a longstanding annual 1.25 per cent efficiency dividend.
Other data released on Wednesday showed only a modest fall in consumer sentiment, despite a barrage of bad news in recent weeks.
The Reserve Bank of Australia this month unexpectedly left its cash rate unchanged, the economy recorded its first quarter of negative growth in eight years - prompting speculation about a recession - while a fall in petrol prices came to a halt.
At the same time, global economic conditions continued to deteriorate.
The Westpac-Melbourne Institute consumer sentiment index for March released on Wednesday fell just 0.2 per cent from the previous month.
"On the face of it this is a surprisingly good result," Westpac chief economist Bill Evans said.
