Kudos to Bob Gottleibsen today. He finally manages to drag Australia’s growth quandry into the MSM light:
As the mining boom begins to fade, Australia is returning to “normal” and will require its new jobs to come from Sydney, Melbourne and Brisbane plus their surrounding areas.
…So what do we need to do? First off all we need to take the pressure off the Australian dollar, which is crippling four of our main capital city employment areas – exports education, tourism, manufacturing and research. And the higher dollar is also helping to send services employment offshore.
Too right and well done Gotti (although it’s actually about production, not jobs). Nonetheless, it is great to see an economic grey-beard at last canvassing the growth conundrum we at MB have been pointing to for years. Gotti goes on to highlight that there may be questions over lowering the dollar using interest rates because of the risk of a resurgent housing market. He concludes:
Over the weekend I was also exchanging views with Australia’s largest apartment builder Harry Triguboff who says that, while the rate cuts so far have boosted dwelling prices in certain areas of Sydney and Melbourne, in Queensland and the Central Coast they are still down by approximately 20 per cent.
“Think of these areas. They must rise. They need to rise desperately. We cannot have a country where only 20 per cent of the properties go up and 60 per cent go down while 20 per cent are static.”
…So here we have a crazy situation where we desperately need to kindle investment in export education, tourism, manufacturing and research plus we need a lot more houses to be built but we are holding it all back because we are frightened of a housing price bubble.
If banks increased their deposit requirements we could lower rates and there would be no housing bubble. Alternatively we could curb negative gearing.
Mostly true. Although we already have a house price bubble, not the danger of one. And the fact that it was caused in large part by negative gearing means to remove it now will cause the system to collapse as a million plus property investors head for the exit. So that’s out. Banks increasing deposit requirements (via macroprudential coercion) is a damn good idea and I’m all for it.
But mostly because it will prevent the kind of wide spread house prices that Harry would like to see.
Why would the removal of negative gearing (which is only of benefit if the property makes a loss, after all) cause a stampede to the exits, if it’s one at a time when it’s not punitive? If interest rates fall to a level that make the removal of NG a minor bee sting, not the elephant gun it would be with interest rates at, say, 10%, then what is there to stampede to the exits over? Hold and rent will become the norm, as the cost of a stampeded would be realising a loss. Much better to just grin and bear any property price correction with a positive or minor negative yield, if you’re a landlord, that crystallize a loss. It holds the property market in check, and allows for generally lower interest rates to support both it and the wider economy until such times as a raising of rates is appropriate.
Maybe, but my view is it would send property into a spiral from which it would take 60 years to return.
Doomster!
she’s onto me!
Right on. Why hold a property for rent if I receive a net yield of 3% and pay 6+% with no tax benefit? Might as well sell it. Would only take a few of baby boomer NG landlords to run the numbers and take this option before property is falling, falling and return of capital starts to replace return on capital as the issue front of mind.
I doubt it will be 60 years though, 1-2 decades is my tip, at some point property will be a buy again purely on rental yields.
Okay. Let’s propose that tomorrow morning we all come into the trading rooms and read ( Cash Rate Cut out of Cycle to 2%. Negative Gearing abolished”. What are landlords going to do? Sell? To whom? Go out of business.Nope. The Cash Rate will look after them ,and whoever else is in any business to set the economy to rights. People like me, cash holders would be, again, unhappy, but that’s not about to change. So where’s the selling of property going to come from, and to whom?
Point taken. I still think it would take the market apart. Huge psychological blow. And although rates may protect in the short term, the prospect of higher rates and no subsidy is rightly terrifiying.
I have suspicions very similar to yours. But I mention that NZ scrapped all of it’s rural subsidies; at a stroke of a pen, in the 80′s. It was traumatic; but we’re still here! Likewise your Wool Corporation scrapped the wool floor price in the early 90′s; it was traumatic, but wool’s still being grown in Aussie. The saviour is that there was/is an underlying need for the commodity itself. Once the price adjustment has taken place, I’d suggest the industries will be far better structured to go forwards. I expect that situation to be the same with residential property. It’s just a matter of finding the right time, economically and politically, to do it.
Wool is not the financial system.
No it isn’t. That’s why if one accepts that ‘houses’ is what’s left of the Aussie financial system now that Holes is on the way out, then a financial solution is appropriate. Slash interest rates, that’s pretty financial, and set about other much needed readjustments when there’s a foil to whatever squealing there might be.
So should they remove NG from margin lending into shares as well?
Same thing, but never mentioned here for some reason.
yep
yep they should do it for shares as well. I think you’ll find the reason there is not the same antipathy for getting rid of margin lending on shares is:
1) shares are not a necessary consumable like housing, so we dont mind as much if prices are pushed up.
2) the quantum of debt claimed for margin lending losses is negligible compared to housing so the tax payer burden is not as great.
but as I said before, remove both and you wil have no complaints from me.
I wouldn’t remove it – I’d quarantine the deduction to the asset class that made the loss.
$20,000 interest expense on your shares? Deduct that from dividend income.
$20,000 interest expense on your investment property? Deduct that from your rental income.
I agree AB, this is a better way to do it.
Not the same thing. Housing is a social asset.
The sole purpose for shares is to generate liquidity for investing/speculating.
But this does raise the question of just how valid are financing costs as a deduction against income. The revenue authorities are moving against this as we speak turning to new fixed thin-cap limits etc.
AB – i think you might find that is already the case ie if your interest and other costs are 40,000 and your rental is 20,000, you get to claim a loss of 20,000 not 40,000
@Squirrel – Nope, you can claim the deduction against any other income including salary.
That’s the definition of negative gearing for many people – your asset is earning less than it costs (but you hope to make that up via capital gains) so you get a tax deduction against other income.
Do you realize that abolition of negative gearing is conspicuously absent from the Henry tax review? I think I know why; because it takes too much to make all the necessary changes that need to accompany the abolition.
You see, the treatment of negative gearing is coupled with the indexation of the income tax. The central question is whether an individual’s combined income should be taxed as a whole or as separate entities. Then it follows that the only equitable way to abolish negative gearing would be to separate wage incomes from investment incomes.
In other words, each individual would be required to file two tax returns each year, one for wages and the other for investment incomes. The wages should be taxed as they are now. The investment income should be taxed at a flat rate that matches the corporate tax rate. Doing so would remove incentives for subdividing one’s income to multiple entities for taxation purposes, and thus would close loopholes. It is simpler, fairer, more equitable and evasion resistant.
I might add, this decoupling of investment incomes from wages is not new, nor would it be the world-first should Australia choose to implement it.
When I said Yep, I meant what AB said.. quarantine deductions to the source of income.
Technically, that can’t be hard for ATO to implement in the next FYI, though in fairness, some grandfathering provisions may be needed.
I just wonder why people on this site want to play with fire.
Abolishing negative gearing without the necessary changes I outlined above would be a dangerous idea. As dangerous as banning short selling while allowing margin lending (which breaks symmetry). It will destroy coherency within the taxation system. I think the integrity of the taxation system is a lot more important than pricking the housing bubble, especially when the introduction of broad based land tax would just do the job (which is recommended by Dr. Henry).
And, given the history of our politicians’ cherry picking, I would think it dangerous for Dr. Henry to recommend a total overhaul of the taxation system in self-consistent manner (which I had outlined above).
@Dumpling – ‘coherency in the tax system’?
The reality of the Australian tax system is that politicians cherry pick the reviews after allowing approx 5-10 yrs for the issues to bubble up. (Rudd broke the unspoken rules in his all spin no substance response to cherry picking the H review – this cost him badly as evidenced)
There is very little coherency in the tax laws i can assure you that.
Yep dumpling.
Not many people get that the transaction is the same…margin lending to buy or short selling the share.
The first shorts cash to be long shares. Short selling shares means being long cash.
@flawse,
Exactly.
I found that we share a lot in thinking between us.
@aj
I know that the current taxation system has a lot of problems (in fact it is ancient), and that is precisely why Dr. Henry compiled his tax review.
But that does not mean that it is a good idea to make it even lexx coherent.
Do we as a population need to build houses.
I’m not up to date on numbers of people per household but if a return to ‘normal’ economic times results in less prosperity we will have a higher number of people per household.
Keen at one stage had a figure that reasoned that with a return of numbers per household to a bit earlier time there was no need to build houses for another 30 years.
It’s a question of what we are, as a nation, going to invest in.
Did you check out interest.co.nz top 10 list today? (its on my must read list everyday – I have filtered my media down to less than 10 things to read a day, this is one of them)
Linked a study on GDP (I know you hate it, but bear with me) growth rates in specific parts of the USA – guess what? Tech and knowledge/human capital wins. Best line was this:
“The lesson for national economic growth is rather simple. It makes sense to focus the future economy less around housing, roads, and physical capital, and more toward the accumulation of human capital and knowledge assets.”
Link: http://www.interest.co.nz/opinion/61417/mondays-top-10-nz-mint-joseph-stiglitz-muppets-seizing-navy-ship-when-junk-gold-think-
Rubbish. That is a “backward look”. Here is a “forward” one:
http://www.newgeography.com/content/003007-the-us-cities-getting-smarter-the-fastest
The anti-growth, vibrant, hip, cool cities have ultimately priced out even the higher-educated young people.
“New Geography” is one of the best sources of regular information on the resurgence in the low-cost cities of the USA. Look at where both Boeing and Airbus are building new factories. This makes perfect sense to anyone who has read Dr William Fruth’s short online book “The Flow of Money and Its Impact on Local Economies”.
http://www.easternwib.com/The%20Flow%20of%20Money%20%28booklet%29.pdf
Business-friendly regulations and low land costs count for a lot. Add the fact that these things exist in a fully “developed” part of the world, and it is no contest for where is the only place in the world worth moving to or investing in.
The economist Ryan Avent recently noted that every high-tech job created in a city, has a variable effect on “trickle-down” or “spin-off” jobs in the local economy. The lower local housing costs are, the more local trickle-down/spin-off jobs are created from high-tech ones. This is almost certainly because of the much higher “discretionary” spending after housing costs, in the local economy. High-housing-cost economies support the national and international banking and finance sector far more than they support their local economies.
And seeing housing costs find their own much higher “ratio to incomes” in the “exclusionary” cities, even the higher-qualified people in oncoming generations end up “priced out”. And often, the “creative” people do not have the money when they are starting out, to locate somewhere expensive. Silicon Valley was cheap when the important players first set up there. It is now an exclusionary “address” for old established IT businesses and their highly remunerated workforces. Grassroots innovation and creativity will be happening somewhere else where costs are low.
An absolutely “must read” on this very subject, for anyone who has not read it: a hard-hitting open letter from successful Silicon Valley entrepreneur T. J. Rodgers arguing that California has now destroyed the conditions under which Silicon Valley was able to begin, especially low cost land and low cost small business premises.
http://www.fcpp.org/images/publications/Cyprus%20letter.pdf
If we should have learned anything from Glaeser’s “Triumph of the City” it is that the path dependent evolution of economically successful agglomerations is never understood until it has been running its course to fruition several decades later. Meanwhile, local governments engage in “races to the bottom” trying to attract the latest s*xy “vibrant” cool creative sector into their region, when it is most likely already a “twilight” industry.
I will go out on a limb and say that we are now in an era where the cities that have “got the basics right” and are not “exclusionary”, are going to wipe the floor clean with the “exclusionary” cities. The famous urbanist Jane Jacobs also noted that most of the “creativity” in urban areas occurred in the lower-rent “unrenewed” parts.
The “study” cited in Prince’s link, has the typical flaw in it that it fails to account for “exclusion”. You could prove that expensive exclusionary suburbs have the highest incomes and GDP growth too, compared to the rest of the suburbs; would this be regarded as evidence that all suburbs should be planned and administered like those ones? Why do we accept conclusions like this for whole cities?
It is not that the cities pointed up as successes, have great policies that lift all boats in society, it is merely that they have excluded lower skilled workers and the industries that employ them. I recommend 2 papers, “Unequal Britain” by Gibbons, Overman and Pelkonen (2010), and “Superstar Cities” by Gyourko, Mayer and Sinai (2006). Both point out that lower income people would NOT be “better off” by moving them to a city with “higher incomes” and MUCH higher housing costs….!!!! And in fact there is no guarantee that work even exists for them at all in the latter…….
Thanks Phil…there’s about a decade of reading there!!!!
Why is it that somehow environmental considerations, and urban amenity considerations are anti-growth, anti-innovation and bad for business? This year in Melbourne the bay has been toxic to swim in for a big part of the year – the opportunity lies in making our cities big AND liveable. Otherwise we just have another toxic mega-city where majority of people don’t live they just exist. (There are plenty of these already for those that want them.)
The story of the development of the sewer system in London is a great example. I bet at the time there were a bunch of old guys going – what rubbish this is just making our business more expensive and we’ll be out competed by the French…
If the cost of property and space is too much it’s because we’ve allowed the rent seeker classes (read old super fund owners with property portfolios) preferential access to credit to do nothing but acquire and well…rent-seek.
The solution is more creative, more innovative and more forward thinking than the old-guard can or want to understand.
Appreciate your passion on this issue but is blinds you as well.
Great rebuttal, aj.
There are any number of quality-of-life considerations that make a place attractive and desirable to live in, and thus attractive for businesses, other than housing price-to-income ratios.
PhilBest is the quintessential Utopian. That is, all you have to do is ‘a‘, and everything will come out roses. In PhilBest’s case, ‘a‘ is to eliminate regulation and government intervention (with a special emphasis on eliminating urban land restraints).
Of course things like polluted beaches and waterways that might result from this don’t fit into PhilBest’s Utopian vision. Neither do images like this, unbridled urban growth and the rapid proliferation of the automobile culture:
http://money.cnn.com/gallery/news/economy/2012/10/07/china-traffic/index.html?iid=Lead
Those images of congested traffic in China are no worse than a long-weekend around Paris. You’ll have to do better than that.
http://www.bbc.co.uk/news/magazine-19660765
@ loonyright
You don’t like those? Well try these on for size:
http://www.google.com.mx/search?q=photographs+of+pollution+in+china&hl=es-419&rlz=1R2ADRA_esMX474&prmd=imvns&tbm=isch&tbo=u&source=univ&sa=X&ei=1c1yUOGhAaryiQL0n4AQ&sqi=2&ved=0CCsQsAQ&biw=1680&bih=848
Thanks Prince I’ll let that (“more toward the accumulation of human capital and knowledge assets.”) percolate through this brain for a bit. I have a vague suspicion that it all still relies on free unlimited credit.
I keep reading about the digital printing of goods…I am having trouble conceiving of it for other than relatively simple objects. Combined with robots etc I get.
One of the problems we have is that, for the majority, we are continually dumbing down our education system. The Asians, from what I’ve seen, are miles in front of us.
Anyway I’ll think about that stuff!
I think Keen is right on this. If income growth slides as a result of poor credit growth then the shortage will evaporate.
Will evaporate? It already has. We’ve now got a surplus of almost 300k houses. We may be further down this road than most care to acknowledge.
Shortage denier.
Wrong kind of surplus buddy. We need (that is I want) a surplus that keeps rents down to a reasonable portion of a wage.
Flawse,
Some years back, in my naivety I spent some time petitioning government (both “sides”) to offer tax incentives to
homemortgageowners, and amnesty from Centrelink (ie, pension) impacts for government benefit recipients, if they choose to let out spare bedrooms. In particular, where doing so would enable easing mortgage stress (extra income), or cost-of-living challenges (pensioners). According to my research at the time,there were over 8 million spare bedrooms in Australia. We had (have) one of the poorest rates of Housing Utilisation in the world, with more than 89% of Owners without a mortgage, and over 80% of Owners with a mortgage, having one or more spare bedrooms in their home (ABS 2005-06).I think that both yourself and Steve are on the right track there.
Thanks Op8…Also I remember (now!!!) the census showed this up rather well.
there were over 8 million spare bedrooms in Australia
1) How many spare car seats are there?
2) What use is your information?
BTW. Your suggestion of relaxing the rules to allow letting out bedrooms is a good idea.
Maybe Sir Paul Callaghan has an idea….
http://www.youtube.com/watch?v=OhCAyIllnXY
FWIW.
“Had” an idea. Sir Paul is sadly deceased before his time, from cancer. A major loss to NZ.
The guy was brilliant – he gives insights that economic specialists have failed to give, for generations. I have seen him in action – he could grasp whole new systemic concepts outside his area of expertise with a mere few minutes explanation from an expert in that field. And then, in economics at least, go on to reach the essential conclusions that the “experts” had not.
Callaghan was right especially about the fact that farming and tourism merely provide low income work for the less skilled, but all actual growth in income levels come from “value added”, the higher-tech the better. He pointed out that if New Zealand had 100 more businesses equivalent to its current “top 40″ manufacturing exporters, it would move from the bottom of the OECD tables to the top.
I was just beginning to engage in a regular email dialogue with him on the subject of land economics and urban planning, when his health battle made him less available. I pointed out to him that it made no sense by any standard, to “preserve farmland” from urban growth, because the urban economy puts land to use earning dozens or hundreds of times as much income per acre.
I also shared with him some of the insights I mention above about Silicon Valley, and creative youngsters who are the wave of the future being helped by lower urban land costs and less red tape. Also the fact that the McKinsey Institute said in 1998 that a “Silicon Valley” phenomenon could never occur in the UK thanks to its urban planning system and inflated land prices. In fact agglomeration economies are reduced under these conditions, because potential new participants in agglomerations are “excluded” before the agglomeration has even started, by the high land costs and the fact that tight urban zoning leaves no spare land for later “market” location decisions. This is why the USA’s highly dispersed cities are so dam PRODUCTIVE. McKinsey pointed out that the productivity difference was 20% to 40%.
Sir Paul was very interested in these angles and goodness knows what he might have done with them in future writings and presentations.
Phil,
“This is why the USA’s highly dispersed cities are so dam PRODUCTIVE. ”
By no means an expert on this but it strikes me that another reason for the success of the US in technological and manufacturing advancements has been the ferocious competition between the cities to attract new investment. That one facet alone- fierce competition- creates it’s own low cost dynamic for when capital is looking to invest.
Phil, saw this and thought of you.
“Home construction in the US has indeed been on the rise due to tight housing inventories (see discussion), particularly in neighborhoods where people actually want to live”
Dallas Fort-Worth!! Lorax may look with disdain on these US cities, many others certainly do not.
http://soberlook.com/2012/10/residential-construction-will-not-have.html
Yes, but there are some things PhilBest’s simplistic little formula doesn’t explain.
If indeed “highly dispersed cities” are the express ticket to paradise, then why isn’t Atlanta housing construction surging ahead too? Here are the statistics:
http://www.theatlanticcities.com/housing/2012/05/top-us-cities-new-home-construction/1935/#
There must be other explanations, other factors involved. The author of the above linked article cites two:
Two factors stand out to explain which areas have the most construction. The first is long-term employment growth, which is the best guide to future housing demand. The second is smaller recent price declines: metros where prices fell less during the bust had less overbuilding and are therefore ready to absorb new housing. Among the ten metros with the highest rate of construction, all had above-average job growth over the past ten years, and none had experienced the huge home price declines that the hardest-hit areas did during the crash.
Amen to the existing bubble H&H. Pity they’ve moderated the bears over there. Almost half way through the day and still not a decent comment getting through!
After the 1999 crash in Colombian real estate their regulators imposed minimum deposits of 30% (ie: Max 30% LVR).
This has worked fairly well, though some do turn to ‘off the books lending’ to cover the deposit.
did you mean “Max 70% LVR”?
How will average households respond to increased price of everything?
Start the refinancing shenanigans again to live off the proceeds – just like they have for the last 10 years? All works well when the home ATM is open and they’re trying real hard to kick start it at the moment.
Where did that post go??!!
I don’t recall anything sensitive in there?
I;ve removed it because the hypocrisy is unbearable.
ROFL. That is both hilarious, and perhaps the best reason I’ve seen given for an act of censorship. Bravo!!
There was no hypocrisy! Just a failure to answer valid questions. If you saw the deleted comment you would know.
No, I didn’t see it. And I’m still laughing! ‘Tis a beautiful thing … made my morning.
Well yes, HnH is a humerous chap at times.
Hopefully a fair one too – and replaces the original comment.
I’d like to see the comment. I think 3d1k does his cause more harm than good through the transparency of his hypocrisy.
Lorax, asking pertinent questions does not make one a hypocrite.
I never saw the comment, so I can’t, er, comment.
I was talking more generally. We all know who you work for and where your motivations lie.
As I said, your motives have become so transparent I think you do your cause more harm than good.
Still laughing!
Greater hypocrisy lies in calling for a range of interventions without adequately/rationally debating consequences.
I’ve never heard Triguboff do anything but talk his own book. He neatly encapsulates the lack of loyalty displayed by many toward this country.
“…..We cannot have a country where only 20 per cent of the properties go up and 60 per cent go down while 20 per cent are static.” Why? think about it. Why can’t we?
Go and have a nice warm bath Harry and enjoy your last few years on Earth. Give up the empire building old man.
Absolutely. This is classic rent-seeking, zero-sum wealth transfer stuff. Fiscal child abuse.
If Triguboff was talking about actually building homes at a fair price I would agree with him. But he is talking about growing the cost of the pieces of dirt that structures are sitting on, lumbering the population up with debt (especially the young) in return for precisely NOTHING. Nothing additional to the existing stock of “capital” has been bought with the extra debt, not infrastructure, not efficiency-gaining appliances or upgrades to homes, not anything.
Half this thread seems to have been taken up with a discussion of “negative gearing”, as if reforming this, or tightening credit, will do anything to the capital-swallowing black hole of urban land, rationed and racketeered thanks to the eco-Taleban planners.
News flash: inflated land prices are a COST to every part of the economy related to productivity or structural economic growth. Keeping urban land prices up is misguided folly and will come back to bite any economy in the long run. Productivity is reduced, congestion is increased, workforce cost pressures are increased, discretionary spending is reduced. Compare: Texas and the UK. Which does Australia want its urban economies to be like in another couple of decades?
I am looking forward very much to a forthcoming McKinsey Institute Report that does for Australia’s absurd urban policies what their 1998 Report “Driving Productivity and Growth in the UK” did for the UK’s “Town and Country Planning” System. Fingered it for being the main cause of significantly “lagging” economic productivity.
Phil, Texas has half the population England has in an area over 5 times bigger. Don´t you think this may have a bearing on your question? In addition it is also important to consider that “diffuse” development has hidden costs that are not in the initial pricetag. For example, who pays for the infrastructure necessary to support sprawl, or to maintain it for that matter? Or the fuel to move goods and people around? I agree that current planning policies the worl over are misguided and appear to be aimed (conspiracy theory spolier) at stamp duty collection. Far better to tax land use instead. That is, of course, if you believe in true capitalism, it is so rare nowadays.
There are a number of factors which contribute to Texas’ current prosperity which have nothing to do with public policy or political ideology, all of which have been pointed out to PhilBest before, and all of which he continues to ignore.
Here’s a study that looks at some of those factors. As the authors conclude:
The Texas growth narrative is well-known by now. Texas’ population grew by 11 million people (79 percent) between 1980 and 2011, more than double the rate of growth of the nation as a whole. (See figure 1.) With that population growth came job growth. Since the 1990s, the rate of Texas job growth has been a full percentage point or more above the national average most years.
The American Legislative Exchange Council, among others, has suggested that other states should adopt policies that will make them more like Texas in order to grow their economies. One example from the introduction to ALEC’s recent Rich States, Poor States report: “[M]any governors are looking at Texas, which has led the nation in job growth over the past three years, as the state with the best policy to emulate.” [1] In particular, ALEC notes the state’s tax policy as a plus.
But if those governors look closely, they won’t find much they can emulate. The reality is that much of Texas’ growth results not from its policies but rather from factors that state officials cannot control. For example, Texas has been benefiting from cheap and plentiful land, a location that enables international immigration and trade, abundant natural resources such as oil and gas, and other advantages that cannot be exported.
Even with all those natural advantages, Texas’ economic picture is not entirely rosy, and it may not be able to retain the advantage it currently holds over other states for much longer. Beyond population and job growth, Texas continues to lag behind the rest of the country in other important measures of economic success. About one in ten hourly wage jobs in Texas pays at or below the minimum wage ($7.25 per hour), more than in any other state, and Texas has the nation’s 11th-highest poverty rate. Such high levels of poverty and low-wage employment make the Texas economy a dubious model for the nation.
ELIZABETH McNICHOL AND NICHOLAS JOHSON, “The Texas Economic Model: Hard for Other States to Follow and Not All It Seems”
http://www.cbpp.org/cms/index.cfm?fa=view&id=3739
Agreed, but equally important is the aftermath. What happens when circumstances change but you keep trying to apply the old rules; or as Phil seems bent on doing, applying rules from parallel universes? Thanks for the link.
No, that’s not hypocrisy. That would be obscurantism.
Best get your terminology right before going on the attack
D’oh!!! Please replace 3d1k’s post … my riposte makes it worth leaving there
Thanks!
Obscurantism? wtf. That applies to those refusing to address valid questions whilst making calls for various interventions.
I am open to the discussion, as others clearly are not. This reluctance on the part of others is where any hypocrisy lies.
If you saw the original comment Op8 – go for it, interested to read your view.
Hypocrisy – the state of promoting or administering virtues, moral or religious beliefs, principles, etc., that one does not actually have or is also guilty of violating
Obscurantism – the practice of deliberately preventing the facts or the full details of some matter from becoming known.
Your specific complaint, in response to HnH’s act of censorship – “calling for a range of interventions without adequately/rationally debating consequences.”
Sounds very much like your accusation would be more accurately described as “obscurantism” than as “greater hypocrisy” to me.
Yada yada. Nonetheless, there are NO hypocrisy in my original comment – which I am sure Jimbo can attest to – he did respond.
Fair questions seeking fair responses.
I trust you will forgive my taking the “Yada yada” and “Nonetheless”, + failure to address my proof that you used the wrong accusatory terminology, + quick attempted diversion with the Straw Man regarding your own lack of hypocrisy (which I neither said nor inferred), as a concession that you now recognise your error
Don’t thank me. You’re most welcome
“Yada Yada” is 3d-speak for “OK I was wrong, but that’s not important”
“Think of these areas. They must rise. They need to rise desperately.”
Sorry?…why do some of the worlds most overvalued and productivity-killing property prices need to rise?
Because High Rise Harry wants to make another billion $s off the backs of mega mortgage mugs.
As to why Gotti wants it.. access journalism.. he prints whatever his benefactor says without question, regardless of the merits of what has been said.
Bingo.
So why is gotti’s gratuitous garbage being repeated here, with approval?
I guess Gotti’s brazen hypocrisy was so self-evident that publishing the article does more harm than good (to Gotti).
Which brings me nicely to the point as to why HnH removed 3d1k’s comment.
I agree with Patrician and Mav in what they are saying here. I am deeply disappointed that H and H has not ripped the Triguboff et al nonsense to shreds. Median multiples that represent “affordability”, are “3.0″. Australia’s cities have MM’s ranging from 7 to 10.
Waffling on about how damaging a “20% fall” might be, is just waffling on.
I know nothing about the deleted comment, I have just come into this specific part of this thread, and agree with Patrician and Mav on the disgraceful rent-seeking, zero-sum wealth transfer racket that is nothing more than a cancer on the Australian economy. Maybe killing the cancer means nearly killing the patient, but talking about keeping the cancer alive, and even letting it grow some more, merely displays a lack of grasp of the subject of economic systems. Zero sum wealth transfers are not “wealth creation”, and zero sum wealth transfers in urban land represent a cost to every part of the economy that actually produces anything; it is a “gain” only to the “economic dead weight” rent-seeking sector.
I can assure you Phil, there was no hypocrisy – I simply questioned the wisdom of Gotti’s article (and by extension Harry’s pleas).
Phil,
IF I have correctly understood HnH’s broader perspective as expressed over some time, he is only too cognisant (indeed, more than most) of the Oz housing price bubble and its causes, our relative MM etc, but when it comes to the question of price falls and potential triggers for same, he is justifiably concerned that big falls, too rapidly, would spell Armageddon for the Australian economy – our banks crippled, inevitably inept government policies in response (eg, bailouts), mass unemployment, etc. The consequences of a rapid, large scale fall in prices – however desirable that may be to some – would negatively impact far more people far more deeply than does our present situation. And so, in taking a long view, I understand that his preference would be for a slow decline in house prices over many years, thus getting us into a better balanced position, with affordable housing, but without an Armageddon on the way there.
With all due respect to the many MB posters who seem particularly vexed by the RE/house price issue, might I suggest that this is a not unwise position to take. Can it be achieved? Count me amongst the sceptics.
Sincerest of apologies to HnH if I have misrepresented his views.
Patrician, my questioning of the wisdom of some of Gotti’s comments put me on the slippery path to deletion. Tread carefully!!
+1 They (with the finance companies) rolled the speculation dice and lost.
It’s not the best idea to bail anyone out, but if we must can please just bail out the poor home-owners suckered into too much debt, not the bl..dy finance and development barons or the PI speculators so they can just kick the game off again.
(of course this will not be the way it plays out – politicians need jobs and construction jobs are the only ones we got)
Agree, even if you don’t see urban planning as part of the racket, like I do.
You would like this:
http://www.financialsense.com/contributors/charles-hugh-smith/housing-diminishing-returns-opportunity-cost
Without wanting to presume too much, I don’t think aj disagrees that urban planning is part of the racket, I think he disagrees (as I do) that it’s ALL of the racket.
Well put. It’s a racket all right and stripping away the few thread-bare rights of those that arent wanna-be white-shoes while leaving the whole free money thing on the table is dooming us to a hell that cannot be imagined.
(Ok maybe a touch of hyperbowl)
H & H,
I’m all for the removal of negative gearing on new loans commenced after introduction date (eg budget night, 2013).
New tax regimes, (or removal of old ones) are normally accompanied by some sort of ‘grandfathering’ for tax-related decisions.
If all existing loans before changeover date were allowed to continue negative gearing, I think the risk of a run-for-the-exit bubble-pop would be much reduced.
It would be a case of the slow melt continued.
“…..We cannot have a country where only 20 per cent of the properties go up and 60 per cent go down while 20 per cent are static.” Why? think about it. Why can’t we?
Maybe this is another example where we need regional tax zones ie no negative gearing or rent assistance in harbour suburbs as an example
This is not a bad idea – but the variability in housing makes it a bit unworkable.
But really just get rid of the perks as a threshold effort – gives the speculators time to adjust, and the punters don’t get angry because their middle class welfare is being taken away. This is the time honoured way in tax.
No CGT exemption on residential houses or CGT discount on investments over 2 mil, cap neg gearing above say 50K on a property.
Inflation will do it’s thing, and in a few years it will be of limited value and everyone will have forgotten about it.
(However, our marvellous duopoly party system wallowing in soft corporate corruption doesn’t give two sh8ts about people.)
Just abolish urban growth containment and adopt a system of new municipal incorporation and infrastructure financing like Texas and many other US States have. All this other stuff is just so much dancing around the edges.
You’re railing against the symptoms not the disease pb. Urban constraints are the solution we devised to stop the white-shoes rooting up the place. Stop the cheap money and the crony pollies and the rent seeker dies and withers like subsidised vineyard.
“We cannot have a country where only 20 per cent of the properties go up and 60 per cent go down while 20 per cent are static.”
Translation: I’m into free markets up to a point. The point being where I stop making as much money as I used to. Let’s try something else now please!
This is NOT “free markets” at all. In “free markets”, anyone could build a new subdivision of houses on $60,000 sections and chop $250,000 off the current cost of new housing and halve the median multiple in Aussie cities ( the price of existing housing is set by the price of new).
Removing negative gearing may lead to a housing crash but leaving it in contiues the housing bubble.
Can’t we go halfway and make it so that you can only claim back say 20% at tax time? most NGers are in the 37% + tax brackets
I’d limit the deduction to the same asset class (e.g. can’t claim housing loss against salary) but if we did it your way, why not say you can only claim 50% of the loss if you’re only going to pay 50% of the capital gains tax (after holding the asset for more than 12 months)?
This is the Henry Review proposal: tax rental income/losses at a discount (Henry said 40 per cent).
So net-rental-income-positive landlords would be taxed less than presently, and net-rental-income-negative landlords’ losses wouldn’t reach so far into their non-rental incomes.
A milder reform than quarantining rental losses to rental assets.
This is the Henry Review proposal…
Henry was chock full of good ideas and good policy. Sadly the housing lobby will tear it to shreds and all governments know this. Look what the miners did to the RSPT.
We need a politician of great courage — Keating came closest — to take on the housing lobby.
RSPT, an arrogant tax doomed to fail.
http://www.macrobusiness.com.au/2011/05/rspt-anniversary/
I don’t know about “arrogant”, but certainly ill-conceived. And yes, doomed to fail.
I wonder who advised the MCA to spend $15 million fighting something that was “doomed” to fail? It seems shareholders money was wasted needlessly in rolling an elected Prime Minister.
” It seems shareholders money was wasted needlessly in rolling an elected Prime Minister.”
And Mav, the AWU (Howes), Gillard and Swannie had NOTHING to do with it.
Your off with the pixies on this one.
GSM, Enough with the hand waving and obscurantism (thanks Op8!! ).
My main point is this – Why was $15 million of shareholders money thrown away by the MCA in opposition to a tax that was “doomed” to fail?
Re the secondary question, the AWU or Gillard didn’t fund the $15 million ad campaign, did they? They were just opportunistic pollies who took advantage of the weakness (and polling data?) supplied by the MCA.
Mav, re your question,
Just a thought, but maybe the MCA too, failed to see the mining boom folding up so soon?
Alternately – and herein my ignorance of the mining sector and who represents who writ large – could it be that the reason the MCA fought it, is because they represent locally-owned miners, who were always going to be hit by the RSPT/MRRT/MRRT 2.0 … whereas the Big 3 foreign-owned multinationals, who are the real beneficiaries of the Rudd coup that also took down the RSPT, are not represented by the MCA?
A reminder – the Big 3 went all quiet once they had Gillard in. The local miners kept up the ruckus … and rightly so, I might add.
“My main point is this – Why was $15 million of shareholders money thrown away by the MCA in opposition to a tax that was “doomed” to fail?”
Private money so no concern of yours or mine how they spend it, unless you are a shareholder.
And of the tens of BILLIONS of taxpayer money wasted by this Govt? And what of the tens of millions (in members fees, some who may not vote Left) handed over by Unions to aid Labor re-elections? None of this money is buying influence I suppose?
GSM, agree yet again.
Private money so no concern of yours or mine how they spend it, unless you are a shareholder.
None of my concern, eh? Is that the best you can do, GSM?
Why are we worried about private debt and private credit bubbles?
And 3d1k, if you don’t have a argument, don’t hide behind someone else’s.
could it be that the reason the MCA fought it, is because they represent locally-owned miners
No, Op8. I think the opposite is true. MCA represents the largest mostly foreign-owned miners like BHP, Rio and Xstrata.
Our local robber barons like Gina are part of another lobby group – AMEC (Association of Mining and Exploration Companies).
From his astroturfing activities here, it seems MineBot double-dips in both the MCA and AMEC cookie jars.
I agree that Dr. Henry’s idea is in the right direction. I just wish he and his team goes a bit farther.
Removing negative gearing goes to soverign risk, which is not usually considered an issue in Australia – investment decisions based around one set of fiscal rules would suddenly be exposed to a new set of unexpected, unbudgeted costs. Grandfathering would be a must, or a new risk premium would need to be put on every investment made in Australia for the next 50 years.
I do not think that sovereign risk means what you think it means.
Sovereign risk is the risk of a government becoming unwilling or unable to meet its loan obligations, or reneging on loans it guarantees. https://en.wikipedia.org/wiki/Credit_risk#Sovereign_risk
I think it’s better described as political risk.
Call it political risk, policy risk, regulatory risk… it is the risk of a country changing regulation in respect of investments that have been made in the past. Removing a tax concession is as good as nationalising a portion of the asset.
To me, if someone wants to loose money on an investment then that is their business. The bigger issue is that insufficient tax is recovered when money is made. For example, if the land value is going up, a broad land tax would annually collect some portion of that increase. Also, the 50% CGT discount needs to be aligned with the interest deduction- if you only want to pay tax on 50% of the profits, only claim 50% of the interest as a deduction on the way through!
“the 50% CGT discount needs to be aligned with the interest deduction”
It is already aligned.
Capital gains can be taxed at the full rate only if capital losses are fully deductible from the other investment incomes. In other words, as long as a government prohibits deduction of capital losses from the other investment incomes (which is a prudent thing to do to discourage excessive risk taking), CGT should be taxed at half the rate.
In a period for which the GDP growth are negligible, and in the absence of a hidden tax of inflation, a share market is a zero-sum game. There are equal amounts of capital gains as capital losses. And a government should not raise revenue from nothing! Other than this principle, there is also a pragmatic reason. If capital gains are taxed at the same rate as risk-free bank interests, AND if capital losses are not deductible from other investment incomes, nobody would invest in shares that would have driven economic growth.
For a longer period for which the GDP growth is positive, CGT is a tax on actively participating the economic growth.
AHHHH, +100.
I hope we see a lot more of you, “Dumpling”. I don’t think I’ve seen you on here before.
The recent NZ Productivity Commission Report on Housing Affordability said pretty much what you just did about CGT’s. CGT’s are partly “spite tax” and partly token “being seen to be doing something for housing affordability” on the part of people who do not want to admit that the problem is urban planning. Good socialists don’t give a toss about poor people when it comes to the consequences of urban planning, which is like an article of religious faith with them.
@pb don’t ya think its a bit fairies in the garden to think that just magically the rent seekers go away? They will just own and destroy more, they have a limitless lust for growth.
This inane theory might hurt the fringe developers but the aristocrats will laugh at how easy it was to sell more debt to the serfs, and with the current rules will own and lease back this lost amenity as sure as night follows day.
Unfettered development is no cure for frailties of human greed.
@PhilBest
In fact, I have been posting for a while now on selected topics; mainly on shares and euro zone problems.
CountryBoy said:
Removing negative gearing goes to soverign risk, which is not usually considered an issue in Australia – investment decisions based around one set of fiscal rules would suddenly be exposed to a new set of unexpected, unbudgeted costs.
That’s quite an argument to invoke for the continuance of the status quo, conflating rent-seeking with national security.
There are winners and loosers in the game of life every day, but of course the coupon clippers must be shielded from all risk, and especially political risk.
Negative Gearing – just to add a little balance. My wife and I have held an investment/life-style property for 10 years now and for the first 9 years we got a reducing refund back on our tax returns. However for the next 15 years we will be paying tax and and an increasing rate as the interest proportion of the repayments diminishes.
I suspect that a number of others will soon enter this ‘zone’. So while the debate is valid it is not a simple case of negative gearing lasts for ever.
I also suspect that a lot of people will hold off rolling over as prices have not increased by the ‘usual’ amount…
If only it was just m&d with a shack at the beach. The reality is more ugly – it’s residential property investors setting the market price on homes that families would like to live in.
Capital is going to flow into housing until policy is changed. Can’t see it any other way with falling IR’s; the average punter will believe the sprukers.
“….Capital is going to flow into housing until policy is changed…..”
Agree, as long as the policy that is changed, is urban land rationing.
Mr Gottleibsen is only half right. The bigger issue for Australia will remain our high cost of doing business. Those NEW jobs are not going to come via a lower Australian dollar (although it will help to a degree), they are going to come via more competitive wages, taxation, and regulation. Do we really imagine we are going to attract manufacturing and research investment away from Asia and Europe via a lower dollar ? NO. The unavoidable answer, which nobody seems prepared to countenance, is lower wages, more attractive taxation, less regulation. There is no avoiding this.
There are some stock waiting for you at your local village green, LR!
We’re going down loony. None of the Canberra crowd have a clue about this or if they do it’s political suicide so they won’t act. We’ll change only after a major crisis IMO. In the meantime we’ve about to get our butt taxed off…all they know.
loonyright:
Doesn’t lower wages mean a lower standard of living for working Australians?
Doesn’t lower wages and lower taxation, mean a much lower tax take, which either means a much bigger deficit or sharply lower government expenditure?
Didn’t we try the “less regulation” idea in the lead up to the financial crisis?
I agree with you, we have a problem with our high cost base, but surely the doubling of the currency from 2002-2007 was a very significant part of that?
As for a lower standard of living, yes – it inevitably will require that during the transition period to a more competitive economy. I don’t think many Irish regret their own adjustment which helped attract so much new investment and broadening of their skills base (even if they do lament how they then spend their wealth, bailing out their banks, and the absence of their own currency). Unions are unsurprisingly seeking to avoid such an adjustment in the IR system, but it cannot be avoided in the long-run. They are only prolonging and worsening the pain. The sooner they are unable to influence policy, the better for everybody.
Lower government expenditure cannot be avoided, if that wasn’t already plainly clear from the course of economies worldwide laden with the debt incurred through so much entrenched entitlement. It is FANTASY to think we can avoid deficit spending long term by increasing taxes to cover over our lack of competitiveness.
The nexus between government, financial sector, and central banks has landed us in this mess. There would not be so much need to divert investment to property speculation to drive economic activity to begin with if we were actually a competitive economy that could attract investment across a broader industrial base.
Australia has been losing investment in research and manufacturing well prior to 2002. The volatility of our currency is of nothing compared to the static, elevated cost of doing business – all resulting from higher wages, unattractive taxation, and unattractive levels of regulation.
We are a stable, well educated populace – this should be the ideal home of all kinds of investment. Instead we have slowly and steadily dug ourselves into an entitlement mindset out of proportion to our ability to fund it. If we truly want a competitive, diversified economy that is not realiant on commodity prices and low interest rates to drive activity via the property market, then our uncompetitive wages, taxation and regulation MUST be addressed. It is fantasy to think we can change our fortunes without changing these factors.
Very well said.
The nexus between government, financial sector, and central banks has landed us in this mess.
Correct.
+1 loony.
“all resulting from higher wages, unattractive taxation, and unattractive levels of regulation.”
And the source of most of these ailaments?
Govt.
Like Europe, we are becoming a “Governmentalised” economy. Gillard is signalling more of this with her ” more new jobs will be created in health and education than in mining” speech. Govt will provide job growth to the Australian economy.
Like Europe, we are becoming a “Governmentalised” economy. Gillard is signalling more of this with her ” more new jobs will be created in health and education than in mining” speech. Govt will provide job growth to the Australian economy.
Yes, truly what we want to excel at is the menial labor of digging dirt out of the ground cheaper than $2/day Africans, not the wealth multipliers of good education and a healthy population.
doc,
“Yes, truly what we want to excel at is the menial labor of digging dirt out of the ground cheaper than $2/day Africans, not the wealth multipliers of good education and a healthy population.”
You always do choose the extreme to make the invalid point , which actually is nonsense.
The only multiplier at work here is the number of Public Servants on the taxpayer funded payroll, the exact intended consequence of every Socialist Govt. Canberra could lose tens of thousands of roles in these mega Depts and the patient in the bed would not see an iota of difference. Likewise education.
But then again you clearly hold the PS dear so I understand your position.
Smithy, spending on education has risen almost exponentially with very little demonstrable benefit in most areas. In fact, international tests continue to place Australian students lower down the ladder (every year?) in many spheres despite increasing cost burden to taxpayers of the education system – a system in the vice of a very powerful vested interest – the education lobby, providers and unions.
Health is more complex as the drive for preventative health/diagnostics takes hold. At some point, some of this will be pared back, by necessity. Another powerful vested interest.
You always do choose the extreme to make the invalid point , which actually is nonsense.
What is the other outcome you expect from the mining industry ? What is your basis for implying it should be a significant (in terms of headcount) employer ?
The only multiplier at work here is the number of Public Servants on the taxpayer funded payroll, the exact intended consequence of every Socialist Govt. Canberra could lose tens of thousands of roles in these mega Depts and the patient in the bed would not see an iota of difference. Likewise education.
Where is the evidence for your implication that education and healthcare do not facilitate a more productive workforce ? Where is the evidence that headcount can be reduced without impact to services ?
But then again you clearly hold the PS dear so I understand your position.
I recognise public services provide some valuable services. Unlike your extremist view that it provides none.
Smithy, spending on education has risen almost exponentially with very little demonstrable benefit in most areas.
By what metric ?
http://www.tradingeconomics.com/australia/public-spending-on-education-total-percent-of-gdp-wb-data.html
AUD
Smithy:
http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1301.0~2012~Main%20Features~Financing%20education~111
So it’s gone up by about a third over seven years.
Not the type of growth most people would associate with the word “exponential”.
I don’t think many Irish regret their own adjustment which helped attract so much new investment and broadening of their skills base (even if they do lament how they then spend their wealth, bailing out their banks, and the absence of their own currency).
They probably would have liked it more if that same new investment and broadening of skills base was done without mass impoverishment and unemployment.
Lower government expenditure cannot be avoided, if that wasn’t already plainly clear from the course of economies worldwide laden with the debt incurred through so much entrenched entitlement.
Most of America’s debt has come from the Government assumption of private debt (ie: bank bailouts) and has nothing to do with “entitlement”.
Numerous European countries fund their “entrenched entitlement” (and substantially higher taxation than Australia) without problem (and with no shortage of innovation and industry).
There would not be so much need to divert investment to property speculation to drive economic activity to begin with if we were actually a competitive economy that could attract investment across a broader industrial base.
The answer to attracting investment is not to engage in a race to the bottom with an authoritarian Government running a country filled mostly with people living in subsistence poverty.
Unless, of course, you want to live in such a country. In which case you have plenty to choose from.
Some quite sensible commentary in the few above, but not one comment about the fact that inflated housing costs erode discretionary income and increase workforce cost pressures.
Abolish the urban land rationing “Baptists and Bootleggers” racket!!!!
Ireland had no choice. Do you think they could have reformed their economy without pain ? Do you think we will achieve our own needed reforms without some level of social dislocation ?
France is funding their entrenched entitlement without problem, I suppose ? Greece ? Portugal ? Spain ? And Australia ? Higher taxes are going to help France attract business investment and entrepreneurs now, do you think ? Greece is going to attract investment with high wages, is it ? Maintaining the status quo would have helped Ireland, do you think ?
As has been said here before, if this is a race to the bottom, then we had better get strategic to avoid winning gold. The reality is we have to compete for investment, and at our current level of wages, taxation and regulation, there are far better choices for businesses and the entrepreneurs who drive them.
Ireland had no choice. Do you think they could have reformed their economy without pain ?
Maybe if they hadn’t broken it in the first place.
France is funding their entrenched entitlement without problem, I suppose ? Greece ? Portugal ? Spain ?
Norway. Finland. Denmark. Germany. Netherlands.
http://mattcowgill.wordpress.com/2011/12/01/the-welfare-state-is-not-to-blame-for-the-euro-crisis/
Higher taxes are going to help France attract business investment and entrepreneurs now, do you think ? Greece is going to attract investment with high wages, is it ?
[...]
The reality is we have to compete for investment, and at our current level of wages, taxation and regulation, there are far better choices for businesses and the entrepreneurs who drive them.
Are you trying to argue that high-taxing Northern European countries don’t have “investment and entrepreneurs” ?
Why are we not attracting the type of investment whose absence is endlessly lamented on this site ? The high Australian dollar, is it ? High commodity prices, is it ? Where was all of that investment back in 2001 ?
Yes, of course. Let’s aim to be Norway (vast oil reserves), Germany (vast manufacturing base supported by an artificially low common currency and wage restraint). Now, how do we do that, Dr ? How do we attract the investment away from those European countries ? Who do we export those goods to ?
Socialist Scandinavian countries are on borrowed time. That level of welfare cannot be supported indefinitely. Their time for reform will come. As it has for us.
Why are we not attracting the type of investment whose absence is endlessly lamented on this site ? The high Australian dollar, is it ? High commodity prices, is it ? Where was all of that investment back in 2001 ? Yes, of course.
[...]
Now, how do we do that, Dr ? How do we attract the investment away from those European countries ? Who do we export those goods to ?
Good questions. Why don’t you apply them to other countries like Australia and figure out how they do it.
Let’s aim to be Norway (vast oil reserves), Germany (vast manufacturing base supported by an artificially low common currency and wage restraint).
What excuses do you have for the other countries that manage to survive without driving the majority of their citizens into poverty ?
Socialist Scandinavian countries are on borrowed time. That level of welfare cannot be supported indefinitely. Their time for reform will come.
Why ? Clearly they are capable of producing enough to sustain their lifestyles.
Ireland. A population of people not unsurprisingly just like Australian, perhaps a little more bellicose. Here’s how they turned their fortunes around. Reduced company taxes to attract investment, reduced red tape, let their wages fall to competitive levels. Pissed the proceeds up against the walls of their oversized houses, but that’s a different issue.
drsmithy says:
Maybe if they hadn’t broken it in the first place.
Exactly!
The neoliberals implement Neoliberalism Stage I, which invariably entails gorging on hot money, and when the wheels come off that, which they always do, they then use that as an excuse to implement Neoliberalism Stage II, and right on down the line.
That’s what happened in Mexico, each crisis beginning in 1982 used to usher in the next higher stage of Neoliberalism. Now Mexico is an economic, political, and social basket case, bordering on ungovernability.
loonyright says:
Ireland… Here’s how they turned their fortunes around.
On what are you basing your assertion that the Ireland has turned its fortunes around?
It looks to me like, if leading economic indicators mean anything, that Ireland is headed in only one direction, and that is down. GDP is flat, unemployment is rising, labor participation rate is in freefall, and public debt is soaring, much if it, if not most of it, incurred to bail out the financial sector.
http://www.esri.ie/irish_economy/
Neoliberal aplogists did the same thing with Chile, trotting it out as the poster child for neoliberalism, when the country was an economic, political and social basket case.
our uncompetitive wages, taxation and regulation MUST be addressed. It is fantasy to think we can change our fortunes without changing these factors.
Loony, you cite Ireland several times, but Ireland didn’t have the option of currency depreciation, we do.
You say uncompetitive wages, taxation and regulation are the underlying reasons for our lack of competitiveness, but my experience as an exporter during the last decade is that all of these factors were insignificant compared to the doubling of the exchange rate.
My salary costs were very competitive with the dollar at 50c, and hopelessly uncompetitive with the dollar at $1.10.
My biggest gripe with the tax system is the amount of time doing BAS and IAS forms, and the gap between the company rate and the top individual rate.
Regulation (apart for the tedious tax forms) was never an issue.
@The Lorax,
In order to achieve heaven on earth, “it inevitably will require,” as loonyright puts it, “a lower standard of living…during the transition period to a more competitive economy.” In dispensational premillennialism, a theology popular amongst right-wing evangelicals in the United States, this is what is known as the “tribulation,” a relatively short period of time in which the world will experience hardships, disasters, famine, war, pain, and suffering, which will wipe out more than 75% of all life on the earth before the Second Coming takes place.
As Eric Hoffer, the “longshoreman philosopher,” observed in The True Believer, “Mass movements are usually accused of doping their followers with hope of the future while cheating them of the enjoyment of the present.” The leader of a mass movement “kindles the vision of a breathtaking future so as to justify the sacrifice of a transitory present. He stages the world of make-believe so indispensable for the realization of self-sacrifice and united action.”
Neoliberalism and Communism certainly fit the mass movement mold, and there’s not much difference between the Neoliberal and Communist Utopia: a coercion-free state with “no soldiers, no gendarmes, no policmen, prefects or judges, no prisons, laws or lawsuits,” as Engels put it. With both Neoliberalism and Communism, or as far as that is concerned with any of these Utopian ideologies, heaven-on-earth never arrives. Here’s how Greg Grandin describes how the phenomenon plays out in Neoliberal regimes:
In addition to money men, right-wing activists traveled to Chile in a show of solidarity with the Pinochet regime. Publisher of the National Review William Rusher, along with other cadres who eventually coalesced around Reagan’s 1976 and 1980 bids for the Republican nomination, organized the American-Chilean Council, a solidarity committee to counter critical press coverage in the US of Pinochet…. As to the “interim human discomfort” caused by radical free-market policies, Rusher believed that “a certain amount of deprivation today, in the interest of a far healthier society tomorrow, is neither unendurable nor necessarily reprehensible.”
[....]
Like Friedman, Hayek glimpsed in Pinochet the avatar of true freedom, who would rule as a dictator only for a “transitional period,” only as long as needed to reverse decades of state regulation…..
Accordingly, the Junta justified its terror as needed not only to prevent Chile from turning into a Stalinist gulag but to sweep away fifty years of tariffs, subsidies, capital controls, labor legislation, and social welfare provisions — a “half century of errors,” according to finance minister Sergio De Castro, that was leading Chile down its own road to serfdom.
[....]
But before such a savage nirvana of pure competition and risk could be attained, a dictatorship was needed to force Chileans to accept the values of consumerism, individualism, and passive rather than participatory democracy. “Democracy is not an end in itself,” said Pinochet in a 1979 speech written by two of Friedman’s disciples, but a conduit to a truly “free society” that protected absolute economic freedom. Friedman hedged on the relationship between capitalism and dictatorship, but his former students were consistent: “A person’s actual freedom,” said Finance Minister de Castro, “can only be ensured through an authoritarian regime that exercises power by implementing equal rules for everyone.” “Public opinion,” he admitted, “was very much against [us], so we needed a strong personality to maintain the policy.”
Neoliberalism, however, brought Chile not only dictatorship, but unprecedented poverty and human suffering. After a short Indian summer between 1976 and 1981, when massive amounts of foreign capital flooded into the country, the wheels came off the world’s first great experiment in Neoliberalism. As Grandin goes on to explain:
In 1982 things fell apart. Copper prices plummeted, accelerating Chile’s balance of trade deficit. GDP plunged fifteen percent, while industrial production rapidly contracted. Bankruptcies tripled and unemployment hit 30 percent. Despite his pledge to hold firm, Pinochet devalued the escudo, devastating poor Chileans who had either availed themselves to liberalized credit to borrow in dollars or who held their savings in escudos. The Central Bank lost forty-five percent of its reserves, while the private banking system collapsed. The crisis forced the state, dusting off laws still on the books from the Allende period, to take over nearly seventy percent of the banking system and reimpose controls on finance, industry, prices and wages. Turning to the IMF for a bailout, Pinochet extended a public guarantee to repay foreign creditors and banks.
GREG GRANDIN, “Milton Friedman and the Economics of Empire”
http://www.counterpunch.org/2006/11/17/the-road-from-serfdom/
Loony, my questioning of the wisdom of some of Gotti’s comments put me on the slippery path to deletion. Tread carefully!!
You are one of the few posters here with a consistent, educated, well reasoned point of view, which also happens to be at odds with the underlying political stance on this site. Few here seem prepared to accept the reality of the choices we face.
+1 loony.
” Few here seem prepared to accept the REALITY of the choices we face.”
It’s the biggest blindspot on the blog.
Am I in right-wing echo chamber? GSM, loonyright and the MineBot all +1′ing each other. How surprising!
GSM, FWIW I think this is one of the few blogs where the REALITY of our choices is even discussed.
The biggest blind spot of the loony right is we have allowed ourselves to become utterly dependent on a construction bubble engineered by a Communist regime. Never in human history have so many right wingers been so supportive of massive government spending by Communists!
loonyright,
The bigger issue for Australia will remain our high cost of doing business.
Yup.
The unavoidable answer, which nobody seems prepared to countenance, is lower wages, more attractive taxation, less regulation.
I broadly agree with your arguments. However, I don’t see “lower wages” in our future. There are too many powerful interests (eg, unions) that will never countenance it.
What I do see coming, is higher unemployment. In the absence of being able to cut wages, businesses will have no choice. Retrench, or die.
More attractive taxation? Less regulation?
Pffffffft.
“Corruptissima republica plurimae leges. [The more numerous the laws, the more corrupt the state.]” – Tacitus, the Annals ca. AD 69
Speaking of Tacitus, am I the only person who finds it both incongruous and indeed, repugnant, that our present minority government has so often pointed to the “180″ or “190″-odd new laws passed, as somehow representing evidence of its “success” credentials?
Op8,
You are so wrong. What you are referring to are the PROGRESSIVES. They label themselves thus similar to those states that have the word “Democratic” in their handle – like the Democratic Peoples Republic of Korea. Meaning, they are anything but.
I have argued here many times, Big Govt is the enemy of our future prosperity. To even think otherwise is naive and delusional. Our nation has been churning out brainwashed students with this ,leftist pc, progressive, Govt cures all ills clap trap for nearly 2 decades. We are paying for that error now. It’s not looking good.
I must say, you’ve lost me with the “You are so wrong” bit. Unless what you meant is, passing lots of laws IS indeed a sign of success for a government of the “progressive” persuasion .. ?
And your “argument” is utterly worthless since you have offered no definition of what “Big Govt” actually entails, and thus what would not be considered “Big Govt”.
Op8,
Sorry, next time I will turn on the sarc text for easier comprehension.
For a “progressive” to be Progressive, they must be REgressive with their plethora of new onerous laws.
doc,
“you have offered no definition of what “Big Govt” actually entails, and thus what would not be considered “Big Govt”.
You havent read it. I won’t be jumping through hoops for you doc. But, try to work with this. Govt IMO would be acceptable if it were 33% less than what it is now both in PS headcount and nett $ costs.
Hope that helps you.
GSM … gotcha. Sorry, was a bit slow on the uptake there.
You havent read it.
No, you haven’t made it.
But, try to work with this. Govt IMO would be acceptable if it were 33% less than what it is now both in PS headcount and nett $ costs.Hope that helps you.
No it doesn’t because it’s meaningless and completely without either analysis or justification. 33% in what areas ? What is the basis for this 33% number ? What makes you think it will result in a 33% drop in costs ? What services will be reduced or cut completely to reach this number ?
I note also that your number has increased from 25% to 33%. I’m quite confident in another month it’ll be 40%. Such is the outcome of an argument driven by ideology rather than analysis and evidence.
“I note also that your number has increased from 25% to 33%”
SO, you are paying attention?
Yes it has increased. I was being far too conservative with 25%. There would still be too much fat left. FYI I had a discussion with spleen on MB a few weeks back itemising where I think cuts should be applied. He had some thoughtful ideas too. You must have missed it.
1) Your inconsistencies are making me dizzy & nauseous; :mrgreen”
2) I think you are always “far too conservative”. M’kay?
Yes it has increased. I was being far too conservative with 25%. There would still be too much fat left. FYI I had a discussion with spleen on MB a few weeks back itemising where I think cuts should be applied. He had some thoughtful ideas too. You must have missed it.
Should be pretty trivial for you to copy and paste the main points then.
Are you arguing that none of those laws are useful or have positive outcomes ?
I think it is quite obvious that is not what I am arguing.
So at what point does quantity of legislation start becoming a problem ?
“So at what point does quantity of legislation start becoming a problem ?”
Started about 5 years ago when the “Progressives” started their wondrous march forward.
Smithy, the labrynthine voluminous Tax Act is a good place to begin. Recently expanded via MRRT and God only knows about the carbon tax regulatory legislation.
The vast quantity of freedom-restricting, privacy-invading anti-terrorism legislation put in by Howard & Costello doesn’t rate a mention ?
More competitive wages will come either as the result of a new accord, an overhaul of the industrial relations system, or much higher unemployment. Unions need to be part of the solution or get out of the way so that we can achieve more competitive wages and regulations sooner rather than later.
Ultimately there will be no choice but for us to accept a lower standard of living for some time, lower taxes to attract business investment, and less regulation. There is no other way. We are better taking the front foot on this reform, taking our pain, than having it forced upon us down the track by forces that may be far less benign than our current political and social institutions.
agree with all that loony…but it ain’t going to happen. We’ll keep doing what we are doing…let the dollar fall and have the powerful unions, professions, politicians and public servants compensate themselves. As far as that group go the rest of the country, including less powerfully located workers, can get totally screwed. Our assets will be cheaper to buy so we’ll continue to get by on flogging assets.
I’m not sure how long it can go on for but I’m guessing a while yet.
So you would agree that we are well on the path to effective loss of national sovereignty a la numerous other over-indebted, insufficiently productive, over-entitled nations (eg PIIGS), flawse?
It HAS to happen, flawse. You can’t keep selling the furniture for ever. There is no option. Either we take our medicine of our own volition and start competing, let our wages fall to more competitive levels, reduce welfare, reduce the size of government, accept lower standards of living for a period – or this will be forced on us in a far more unpleasant fashion. Somebody please explain how else this is going to happen ?
Less than a fifth of the population is unionised, mostly in low- to average- paying and social-status jobs like retail, services and teaching.
Their power seems grossly overstated by any rational measure. Certainly if they have as much power as some here imply they do, one has to wonder why the Unionised workforces largely fit into the categories above.
Experienced teachers are not low paid. Carers are low paid.
Hence the reason I said “low- to average-paid”.
Slightly above average salaries I thought (I understand that here in WA an experienced teacher can expect $80-100k). In any case, average would appear very fair.
Slightly above average salaries I thought (I understand that here in WA an experienced teacher can expect $80-100k).
How much would an “experienced” Accountant earn ?
In any case, average would appear very fair.
Fair (or not) is irrelevant. The point is arguing about the power of Unions when most of the Unionised workforce are not commanding high wages highlights how stupid portraying them as “powerful” is.
“Their power seems grossly overstated by any rational measure. ”
They own our Govt. How much more power do they need to demonstrate to you. Oh, I forgot that blindspot.
They own our Govt.
Ah, you mean like the wealthy “own” the Liberal party ?
How much more power do they need to demonstrate to you. Oh, I forgot that blindspot.
What is this “power” they’re supposed to demonstrating, exactly ? What is the current Government doing that isn’t in-line with the policies it was elected to enact ?
What I wrote was “There are too many powerful interests (eg, unions) that will never countenance it.” It was, as stated, an example.
However, since you’ve focussed on that in particular, my response would be this: The issue there is not necessarily the number of voters that unions may or may not directly influence. The pertinent issue is that unions manifestly hold significant sway in the ALP. The ALP is a political party. It will not do anything else but attempt to present itself as the workers’ / “working families’” champion (as do all the other cretins, of course). Such does not include allowing itself to be seen as countenancing lower wages.
In precisely the same way, I suggest that one can rest assured that Big Corporates – I have the financial sector in mind – need not worry about lower wages under a Coalition government.
Such does not include allowing itself to be seen as countenancing lower wages.
Which, in the context of most Unionised workers not being particularly highly-paid, hardly seems unreasonable.
In precisely the same way, I suggest that one can rest assured that Big Corporates – I have the financial sector in mind – need not worry about lower wages under a Coalition government.
A non-trivial difference being many, if not most, in the financial sector could far better afford reductions in income without serious impact to their living standards.
Don’t disagree with either of your points here.
However, with respect, this discussion has now become rather convoluted. To recap – I responded to loonyright, disputing the likelihood of our seeing lower wages and suggesting higher UE more likely. You responded by cherrypicking my reference to unions as an example of the kinds of “powerful interests” who I believe will prevent lower wages from happening, and alluded to their having less power than folks credit them for. I responded to that by clarifying my example, and pointing to another (financial sector). You’ve responded by defending low paid workers, and suggesting high paid workers can afford to earn less.
So … returning to the actual substance of my original comment … do you agree with me that we will see higher UE rather than lower wages, or do you not?
Probably. Though I’m unconvinced simply “lower wages” would have a huge impact without it being massively “lower”.
What I’m questioning is that Unions have the kind of power being frequently attributed to them in contemporary Australia. I’ll leave it at that.
Do we want to rebuild our high value manufacturing sector ? Attract investment in high tech industries ? Establish a base for world leading medical research and pharmaceutical companies ? Or NOT ? A lower Australian dollar will help. but there is no attracting that investment and keeping it here long term unless we can compete on wages, taxes and regulations with those countries currently attracting that type of investment. Tell me what other way there is ?
Glad you point out that such a low % of the workforce is Unionised. Which begs the question as to why Unions get to dictate ALP policy and leadership. Unions need to be part of the solution or get out of the way.
Do we want to rebuild our high value manufacturing sector ? Attract investment in high tech industries ? Establish a base for world leading medical research and pharmaceutical companies ? Or NOT ? A lower Australian dollar will help. but there is no attracting that investment and keeping it here long term unless we can compete on wages, taxes and regulations with those countries currently attracting that type of investment. Tell me what other way there is ?
Are you arguing that no other country in the world with similar levels of wages, taxation and regulation to Australia is attracting investment ? Or are you arguing that Australia has the highest levels of wages, taxation and regulations in the world ?
Glad you point out that such a low % of the workforce is Unionised.
And unsurprisingly this has gone hand in hand with declining conditions and pay for most workers.
(Yet apparently that’s not enough, they need to take even less.)
Which begs the question as to why Unions get to dictate ALP policy and leadership.
Well, you _are_ begging the question, but I doubt that was your intention.
What type of investment is Australia attracting disproportionately ? What type of investment is Australia losing ? How do we create more diversified industrial base not beholden to commodity prices and property construction and a low Australian dollar to lure tourists and foreign students ? These issues have been well canvassed on this site, but not many will countenance the notion that one of the main barriers to changing the investment paradigm in this country is to ensure our wages are competitive, our taxation system is competitive, and our regulation is competitive. Do you honestly believe we will diversify our economy away from resources, tourism and financial services with higher company tax rates, higher wages and more regulation ? Without incurring some degree of lower living standards for a period. It is just a fantasy to believe we can make this change without sacrifice, and changing our cultural ethos to one of hard work, virtue, forbearance, and admiring entrepreneurial endeavour.
Their power seems grossly overstated by any rational measure.
You sit here and criticise others and their comments without a single constructive argument.
Then you come out with tripe like this. The whole edifice of inefficiency stems from Union activity. The stupidity of much of the WHS currently being forced on businesses; taxes for everything; excessive costs and stupidity of stupid union work to rules garbage everywhere.
But….sure many workers are not part of unions…I wonder why. The answer lies in teh fact they only look after the powerful and don’t give a rats a…e about the average worker. They spend their time imposing costs on the average bloke not making his life better.
You sit here and criticise others and their comments without a single constructive argument.
Then you come out with tripe like this.
Seriously ? You write that and then follow up with utter garbage like this:
The whole edifice of inefficiency stems from Union activity.
Bullshit.
One example of how Unions have helped efficiency is by limiting working hours, ensuring people aren’t forced to labour for ludicrous amounts of time, ultimately decreasing their productivity and ability to contribute to the wider economy.
The stupidity of much of the WHS currently being forced on businesses; taxes for everything; excessive costs and stupidity of stupid union work to rules garbage everywhere.
WHS is another example of how efficiency can be improved. Ensuring a safe and healthy workplace makes workers more productive and efficient because it reduces the probability of their output being dramatically curtailed by things like injury or death.
Though, if you subscribe to the “employees are just easily replaced generic cogs” view of your workforce, then obviously providing a safe workforce is just an impost on efficiency, since if some poor sucker gets his arm ripped off by a machine you can just call in another guy from the street outside and get him working again immediately.
As always, reality disagrees with Libertarian Opposites World. Workers do have value beyond their ability to lift things. They do carry institutional value in their experience which cannot be easily and immediately replaced. There *are* productivity and efficiency benefits to ensuring workers are happy and safe in their workplace.
But….sure many workers are not part of unions…I wonder why.
Because the Neoliberal charlatans have convinced them they can get a better deal acting alone. Which, to be fair, is true for a handful, who are dutifully held up as the icons of hope and potential. The numbers tell the real story, however, which is that labour wage share has been steadily declining for decades while productivity skyrockets. In America, workers wages haven’t improved for four decades while upper echelon remuneration has gone through the roof.
The simple fact of the matter is that the average worker acting alone has zero bargaining power to negotiate fair and equitable remuneration for his labour, and that unfair position will see him getting screwed.
“Low – average social status”.
Teachers? Really? Harks back to the days of Pride and Prejudice, Oliver Twist et al.
In my world teachers are recognised and respected for the importance of the job they are doing – educating future Australians.
The remark is repugnant.
Do not mistake me for someone who does not value teaching very highly – I know and am related to far too many of them for that. I was merely pointing out that to contemporary Australian society, teaching is not considered a particularly prestigious job.
One need look no further than our resident right-wingers, who regularly disparage teachers as “brain washing our children”.
“Those who can, do. Those who can’t, teach.” has become a much more common refrain over the last decade.
[...] Australia, exchange rates, export industry, property market Excellent comment from Loonyright at Macrobusiness.com.au on damage to Australian industry caused by the higher dollar: Australia has been losing investment [...]
At the end of the day the issue is malinvestment and the various tax breaks that have been created over the years by governments at all levels and of both political parties.
Issues such as rental assistance proping up the whole edifice as well as negative gearing as well as the various nuances of CGT.
The CGT exemption on the principal residence, with the six year exemption because it is equal to two terms of parliment for example.
I detest both political parties and I believe only one government over the last 50 years had the gonads to try and reform things, which was the Hawke/Keating mob when Keating was treasurer. The simplification of CGT by Costello in hindsight was a mistake given how our inflation has fallen.
Both parties are vile and disgusting corporate crony aberrations. They are riddled with soft corporate compromises, they are beholden to the rent-seekers that own their soul and they long stopped caring about anything but the old firm and sustaining the hypocritical nepotism that infests their ranks.
The cable-leaks showed the contempt they have for the people.
“Too right and well done Gotti (although it’s actually about production, not jobs).”
+1
It is the productivity, or lack thereof that is the real problem, and even then, productivity is not the only issue, without competitiveness what is the point of productivity?
Arguably the dollar will take care of both of those – a low currency has surely given the Asian production powerhouses a distinct advantage through the 90′s and 00′s. A low dollar will reduce the global value of our wages, and the prices of our finished goods.
But it all continues to fall over if we don’t produce the things that people actually buy. What is actually being bought around the globe? Does Australia produce it? Does Australia produce the individual components to make those items? If not, let’s get cracking! There’s work to be done.