Reserve Bank head hits out at negative gearing, banks

The head of the Reserve Bank of Australia has got the whole country talking today and it all comes down to some comments he made in a speech overnight.

RBA governor Philip Lowe used his speech to talk about the issue of housing affordability and household debt.

But its his comments about negative gearing that are really making waves.

As the ABC reports, Dr Lowe linked “taxation arrangements” for property such as negative gearing to the “unusual” level of interest-only loans being written in Australia.

He said “ongoing increase in indebtedness and rising housing prices” posed a “risk to the future health of the Australian economy”.

It follows comments he made back in February in which he suggested negative gearing and capital gains concessions should be scrapped.

So what makes his comments about negative gearing so significant?

Well, it’s the first time the Reserve Bank has actually spoken out on the issue and some are seeing it as an appeal to the government to make some changes to the current system.

Also on the agenda for Dr Lowe was household debt, which he described as “high and rising”.

“Slow growth in wages is making it harder for some households to pay down their debt,” the ABC reports he said.

“For many people, the high debt levels and low wage growth are a sobering combination.”

And the banks also copped some criticism in the speech.

Dr Lowe accused them of giving loans to people who could barely afford to repay them.

He said banks were assuming people could live more frugally than they can, leaving households with little buffer if things go wrong.

“Too many loans are still made where the borrower has the skinniest of income buffers after interest,” he said.

He was also critical of the Federal and State Governments, saying they made “insufficient investment” in transport infrastructure which was pushing up the prices of housing.

And if you’re hoping for a rise in interest rates to boost your retirement savings, you could be waiting a while.

The ABC reports that Dr Lowe and the RBA board want to “see an improvement” before they are confident that the economy’s growth is strengthening.

What do you think of Dr Lowe’s comments? Do you think negative gearing is causing problems in the economy?