Lowe: Politicians need to fix housing issues and tax

Former Reserve Bank governor Phil Lowe has issued a call for the government to deal with the ­“politically sensitive” issue of addressing overly generous tax concessions around family homes and tweak the tax regime, based on expert advice that the GST is too low and income tax too high.

Dr Lowe was speaking at his first presentation to shareholders since joining the board of Future Generation, a philanthropic fund manager, and when asked what changes needed to be made to the tax regime, he referred to reports by the International Monetary Fund and others.

“They say Australia by comparison with other countries taxes wealth generation too high,” said Dr Lowe, who becomes chairman of Future Generation next month.

“In other words, the GST is too low and income and wealth tax is too high.

“Politicians can’t say that, but that is the advice.”

The former governor was direct when addressing the biggest elephant in the tax room, the ­nation’s housing crisis, with the cost of owning and renting homes continuing to skyrocket, despite the official interest rate remaining at a 12-year high of 4.35 per cent.

“Another thing these reports highlight is just how concessional the treatment of housing is in the Australian tax system,” Dr Lowe said. “The treatment of a family home in assets tests, in the pensions test, a lack of capital gains tax, negative gearing arrangements. There are a lot of things that people have drawn attention to that could help.”

Home prices across Australia hit new highs in March, with the median value of a home in a capital city shooting to $832,000, according to the PropTrack Home Price Index. That’s despite the fact that the chances of an interest rate cut this year have decreased.

“Each of those is very politically sensitive,” Dr Lowe said of the suggested changes. “I think we’re stuck. It’s fine right now, but will we be fine in 10 years’ time if we keep getting stuck? If nothing ­really changes, then our living standards will stagnate and it will be our kids and grandchildren that bear the cost of that.”

That cost could be an increasing wealth divide between those who own their own homes and those who either don’t or are starting to struggling with dramatically higher mortgage repayments, after the RBA’s fastest ever rate hike cycle post-Covid and under Dr Lowe’s watch.

Dr Lowe warned rates might not fall this year either as the nation struggled to bring inflation from 3.4 per cent to its target rate of between 2-3 per cent.

“It’s possible they’ll need to go up again because there’s still quite a lot of underlying cost pressures in the economy,” he said. “If wages are growing at 4 per cent, that doesn’t make for 2.5 per cent inflation unless productivity growth picks up. There’s still quite a lot of cost pressures in the economy, partly because productivity growth is weak.”

Future Generation founder and veteran stockpicker Geoff Wilson had a slightly more optimistic view on rates, predicting a cut might come toward the end of the year.

The Wilson Asset Management chief also remained optimistic in the short term that equity markets wouldn’t suffer any negative consequences of sticky inflation and higher interest rates.

“I think this will be a good year,” Mr Wilson said. “And I think next year will be a tough year.”

Even though he predicted a worsening of conditions in six months, Mr Wilson had three top stock tips, including A2 Milk Co, which he predicted could rise 50 per cent over the next 12 months based on growth in the China baby milk powder market.

“This is the Year of the Dragon, which is power and a whole lot of positive thing,” he said. “Marriage registration (in China) jumped 40 per cent in the quarter to December so everyone’s going to want to have a child up there.”

Also on his tip list were AMP and Global Data Centre Group.

Offsetting a conservative stance from Wilson Asset Management, Nikki Thomas from Magellan Group, which is one of the fund managers that also provides pro bono stock picking for the Future Fund, had a strongly bullish stance.

“We’re at a point where ­interest rates are plateauing at worst and probably going to come down later this year, in most countries around the world,” Ms Thomas said.

“That’s a tailwind for economies and for investors in equities.”

If rates didn’t come down, as she predicted, it would be because “growth is too good”.

“That sounds pretty good to me … we will climb the wall of worry”, about the global economy, she said.

Ms Thomas said she had a number of top stock picks, but picked Nvidia, which makes GPUs critical for the speed of ­artificial intelligence as a top stock, despite the fact its share price has already risen more than two-fold in the past 12 months.

Sticking with an AI theme, Ms Thomas said she also believed Amazon and Microsoft to be top stock picks.