An adult conversation about the economy, please!

Over the last week or so I have noticed a growing voice of concern over the mining industry and the Australian economy generally. This started with an article from Jessica Irvine which slanted an argument that Australian resources are sovereign wealth and therefore mining companies should be paying a larger proportion of their profits back to the Australian people:

Here’s something to keep in mind the next time you hear a mining magnate or chief executive complaining about an outrageous assault on their industry. Those minerals they’re mining – all that gold, iron ore, coal and uranium – it’s yours. You own it.

By virtue of your incredibly good fortune to have been born on, or migrated to, this particular rocky outcrop in the southern seas, you posses an equal claim to all the rich resources lying beneath. ”Australians all let us rejoice … our land abounds in nature’s gifts of beauty rich and rare.”

It was not always so clear cut. But around the turn of the 20th century, Australian state governments moved to take ownership of all the minerals under the earth, on behalf of all Australians. The old property law of ”for whoever owns the soil, it is theirs all the way up to heaven and down to hell” no longer applied

I have some sympathy for this argument. I do believe that mining companies are getting off lightly under the current taxation regime and I also agree that resources are the sovereign wealth of all Australians. However, I also think that there are far better ways that Australians can gain from large industries, such as mining, above that of simple taxation transfers back to the government sector.

That position however, is not the point I want to focus on today.

What you may have noticed about Ms Irvine’s article is that she never actually addresses the issue as to why Australians aren’t already benefitting from the mining boom. Her entire article, although thought provoking, misses a major concern that I have with the Australian economy,  something I have mentioned previously.

A couple of days after that article appeared in the national media Wayne Swan penned an economic note in which he also glossed over the major structural issues within the economy which has led to the failed wealth capture from the mining boom.

Australia walks tall in the global economy. Unlike virtually every other advanced economy, we didn’t fall into recession as a result of the global financial crisis. Our stimulus response kept the doors of businesses open and hundreds of thousands of workers in jobs. Today our economy has grown by 7.4 per cent on pre-GFC levels, putting us streets ahead of the seven major advanced economies. In fact, three of the seven haven’t yet recovered the ground they lost during the GFC.

 

Many people don’t realise that one of the lingering effects of the GFC has been a massive write-down of tax receipts – at MYEFO, government revenues were down by $140 billion over the five years to 2012-13 from the pre-GFC forecast. Since then we’ve seen further weakness in company tax receipts as highlighted in the National Accounts, which showed company profits down 2.7 per cent in the December quarter. This will inevitably flow through to the budget bottom line and obviously means we will have to find significant savings in the May Budget.

The Right strategy

Despite the tough global conditions, we remain determined to return the budget to surplus in 2012-13, and we will get there. It’s the right strategy for the economy, for confidence and for Australian jobs – particularly with growth on track to return to trend. You only have to look to events overseas to see why this is so important. Europe’s sovereign debt crisis is the result of governments failing to set out and stick to credible paths back to surplus. Maintaining our fiscal rigour is absolutely essential at a time when markets are punishing those without discipline. It sends a message of confidence to the world in uncertain times and also provides the Reserve Bank with maximum flexibility to respond to any further deterioration in the global economy.

The complexity of the task is increased because we can’t rely on the rivers of gold that flowed into government coffers during the last mining boom. As I’ve discussed before, we shouldn’t expect a repeat of the massive $334 billion upward revision to tax revenues that occurred between 2004 and 2007. Because of the much higher level of investment today, mining companies are able to claim much larger tax deductions.  And unlike last decade, commodity prices are already at high levels so mining companies aren’t posting the same growth in profits that they once did. Australia’s terms of trade is forecast to gradually decline in the years ahead as increased global commodity production comes on line. All this means that government revenues will not grow at the sorts of rates we saw during the previous boom, and we’ll have to continue to find budget savings that balance fiscal discipline with fairness.

As you may have noticed the entire focus is on mining and not once during that note did Mr Swan bother to mention what actually caused the the falling government revenues as noted in his own budget paper :

Total revenue has been revised down by $9.0 billion from parameter and other variations, largely reflecting downward revisions to company taxes, individuals income taxes and GST. Weaker company tax revenue reflects the more subdued economic conditions, owing in part to the recent natural disasters and lower than expected consumption expenditure. Lower capital gains and higher than anticipated accumulated losses accrued during the global financial crisis also play a role. Individuals’ income tax revenue is lower due to weaker capital gains and slower aggregate wage growth. Downward revisions in GST receipts reflect weaker than anticipated consumption expenditure.

The financial charts from that document clearly show that falling government revenues were due to overestimations of income, consumption and capital gains taxes.

Then today came this article from Tim Colebatch in which he attempts to explain the underperformance of the economy  in the context of the RBA’s monetary policy.

Australia’s economy is not doing as well as our ministers and senior officials like to boast. They keep telling us it is ”in a sweet spot”, displaying strong fundamentals, outperforming the world, we’ve heard it all. But the statistics show the real Australian economy is very different.

This time last year the Reserve Bank forecast that Australia’s GDP would grow by 4.25 per cent over 2011. Even after the Queensland floods it still forecast this, implying a growth rate of 6 per cent over the second half of the year. In the May budget, Treasury raised its growth forecast for the 2011-12 financial year to 4 per cent.

Last week the Bureau of Statistics reported that the economy actually grew 2.3 per cent in 2011. In the second half of 2011 it grew at 2.5 per cent. It has added just 10,000 jobs in a year. And, above all, a sharp divide has opened up between the mining states of the north and west and the everything-else economy of the south-east, where two-thirds of Australians live.

What went wrong?

Quite a few things. First, officials underestimated the strength of the headwinds created by the combination of a dollar at record highs and interest rates at relative highs. Outside mining-related areas, growth in 2011 was minimal, yet home mortgage rates are still at 2005-06 levels. Small business overdraft rates are at the levels of late 2007, when the Reserve was trying to slow down an overheated economy.

Mr Colebatch goes on to talk about the “mining investment boom” yet once again fails to actually mention the root cause:

Aren’t there flow-ons from mining to the rest of the economy? Yes. Treasury deputy secretary David Gruen estimates ”the mining-related economy” – ”those parts of the domestic manufacturing, construction and service industries that directly contribute to mining production and investment” – has swollen from producing 4 per cent of GDP to 9 per cent.

Some of that is in the south-east. But the data is clear: the ”trickle down” to south-eastern Australia from the mining boom is a trickle. What the high dollar and high rates are doing is not.

But aren’t mining profits spent in Australia? When they fund more mining investment, yes. But there is less flow-on from mining dividends: 80 per cent of our mining shares are owned overseas, and most of the Australian shares are held by super funds whose job is to save, not spend.

And that touches on my major issue with all of this.

For some reason this country appears to be unable to have an adult conversation about what is actually happening in the economy. The government refuses to acknowledge the structural weaknesses, preferring to blame the mining sector, while the media stands by with flaccid analysis of the major issue.

The major structural issue with the economy is that for the last two decades fiscal policy has been used to steer national income towards housing.

As the last year has proven, housing is an asset that requires ever expanding domestic private sector debt  to maintain its value at current levels. In order to maintain that level of credit expansion the Australian banking system, and therefore the Australian economy, has had to continually borrow from the rest of the world while expanding its own balance sheet.

I believe this to be a fairly simple economic concept,  yet for some reason this country’s financial and political elite appear to be unable to communicate it. Is this because.

a ) They simply don’t undertand how the economy actually works; or

b ) By admitting that the private sector debt expansion has been the major driver of the economy for the last two decades, they believe they are admitting their own failure of economic management and oversight.

Personally I don’t care, because this is not a time for blame.  The mining boom is a transitionary economic phase in which large amounts of foreign capital will circulate around the economy, mostly as higher incomes for mining exposed services, but ultimately will leave Australia because we still run large deficits with the rest of the world and our most profitable enterprise are only partly owned by locals.

This is not a time for our government and media to point exclusively at one sector of the economy and blame them for the problem. This is a structural issue that has been growing for many many years and a large proportion of the population, including the government, has profited from it.

There is, however, a finite amount of time available to Australia to capture capital flows associate with the mining boom in order to redirect the Australian economy in a direction of sustainable wealth for our nation. My biggest concern is that I see absolutely no one addressing this most fundamental of issues.

So please, can we all sit down and have a full disclosure adult conversation about the structure of the Australian economy, including a future path to sustainability, while we still have the good fortune of being the envy of the rest of the world.

Comments

  1. I did not realise that we are now living in a marxist/communist/socialist paradise yet? Please explain, I must have missed the transition. 1. Belongs to ‘Traditional Indigenous Australian’s’ first 2. Then States/Territories 3. Miners & Shareholders………you and me want a slice of the pie; become a shareholder or go work in the mines!

    • I did not realise that we are now living in a marxist/communist/socialist paradise yet?

      Umm.. No.

      Not unless we are now a province of the Peoples Republic of China (If you haven’t noticed, they have a communist one-party rule).

      But then, you are a China fanboy and I guess you’ll positively relish the prospects of living in a commie/socialist paradise.

    • “So please, can we all sit down and have a full disclosure adult conversation about the structure of the Australian economy…”

      “I did not realise that we are now living in a marxist/communist/socialist paradise yet?”

      Asked and answered.

      • [email protected]MEMBER

        begging your pardon TP
        revealingly? instead of unfortunately?
        Timely information surely would help.
        The MB raison d’etre?

      • russellsmith55

        +1

        This article is a bit like the ‘An Inconvenient Truth’ of the Australian economy.

      • I sincerely believe that the only way these things will ever be addressed and improvements are made to economic policies would be via a major overhaul of the political system which diminishes the power of business, vested interests and the two major parties who have become to used to their comfortable position.

        However, trying to even discuss any change (regardless of feasibility) to anything economic, business or government related is answered by the door of conservatism thrown in your face.

      • Politics in Australia is like deciding on whether you will go to Coles or Woolworths – ie they are both essentially the same so who cares.

      • aj, at present truer than ever: the party you would least expect is advocating austerity; the alternative (again you would least expect) advocating a ridiculously expensive welfare program (paid maternity leave).

        Tweedledum and Tweedledee.

        Alas, we have all contributed to this.

        Time for Adult Conversation!!!

    • I suggest you go read Andrew Bolt’s reply (which was fundamentally wrong) to Jessice Irvine, as that is more up your alley by the sounds.

      For those wondering, I was reading the Daily Tele whilst waiting for my coffee a few days ago, and someone had left it open at Bolt’s column. Normally I wouldn’t go near anything written or uttered by Bolt.

  2. [email protected]MEMBER

    ‘So please, can we all sit down and have a full disclosure adult conversation about the structure of the Australian economy, including a future path to sustainability, while we still have the good fortune of being the envy of the rest of the world.’

    NO not meaningfully DE. Not a chance. Buckley’s.
    Comes down to political will and “SKILL” coupled with vision.
    And on that score we are bereft.

    • [email protected]MEMBER

      Australia, the lucky country, riding on the
      [insert current flavour of the cycle commodity] boom.

      Expect more of the same.

      Don’t expect to recover any misallocated capital from the past blunders.

  3. Nobody in a position of power (political/social/media) will speak about the elephant in the room because it has mutated into an 800 pound elephagorrilla called Politico-housing-banking-media complex.

    We’ll just have to wait until the baby boomers die off before we can have an adult conversation.

    • err * I meant the baby boomers in charge of public policy – both fiscal and monetary – die off or are thrown out.

      • I suspect an extended housing market decline will force governments to start facing some uncomfortable facts about our balance of taxation and expenditure.

        If the housing market decline is combined with even a moderate slow-down from China…we’re in big trouble.

        We pride ourselves on being a low-taxing country (I know some will disagree but I believe we’re around 7th lowest in the OECD) and we are trying to combine that with very generous middle-class welfare.

        I’ve spent a lot of time in Ireland and the Celtic Tiger economic model was very similar.

      • [email protected]MEMBER

        Maybe. where is the replacement talent? with the new vision?

      • The problem is, for the last 15 years the people who really want to make a difference don’t believe that the normal political system is the way forward.

        Most go for direct action, or social networking etc. because the normal party political system has proven itself to be so crap …

      • Quite some time ago Geraldine Dooge quoted something said (or written) by some famous person, “Wise men who refuse to become involved in government are destined to be ruled by less wise men.”

        I don’t think anything will change unless good and wise people inundate Lib and Labor branches as new members and force changes through; i.e. changes like how candidates are selected right through to the policies the party endorses.

    • Unfortunately, Mav, the post-baby boomers in positions of power don’t show any more signs of “getting it”. Our PM only just makes it into some definitions of the baby boomer generation, being born in 1961. The younger lot on her side – Shorten, Plibersek, Ellis, Roxon, Burke, Bowen, Butler, Combet – don’t seem to have much idea. Not so sure about Wong – she may be the exception.

      On the other side we have Hockey, Pyne, Joyce, Dutton, Hunt, Mirabella and Billson. (I am getting depressed just writing this – it is hard to comprehend how little talent there is in Federal parliament at the moment.)

      It may be that we need to wait for both baby boomers and Gen X to die off (or at least leave public life) before that intelligent conversation can begin.

      • [email protected]MEMBER

        Indoctrination is a pain, AH.

      • You missed the permanent government – the public “servants” running the Treasury, RBA and all the other departments in between (ASIC) – Parko, Glenny et al.

        Their independence has either been compromised or they have a self-interest in keeping the housing bubble going.

      • Quite right, Mav, but again I suspect their putative younger successors are also infected. The only people not infected are those who have significant numbers of contemporaries who have been priced out of the housing market, those few who can still think for themselves (as a baby boomer, I like to think I qualify here) and probably some baby boomers who have experienced the pain of seeing their children unable to afford housing.

      • [email protected]MEMBER

        That is a major hassle. The ballot box can’t get at them!!

    • [email protected]MEMBER

      Elephilla or Goriphant.
      Pick one

  4. Hallelujah. For my money, Australian economy post of the year – no – since MB inception.

    What needed to be said has been said. MB itself, as an interface of rapidly growing influence and importance, can only benefit from adhering to these strictures. A genuine attempt to strive for informed, impartial and mature dialogue will ensure this blog becomes something to be reckoned with and not just another economic and business ideologically driven ’empty pocket’.

    “The major structural issue with the economy is that for the last two decades fiscal policy has been used to steer national income towards housing.”

    You’ve outed the key issue (whilst noting others) – the challenge is on.

    • +1.

      Somebody really needed to say it. Feels like such a breath of fresh air. Let the truth be told, however inconvenient it may be.

    • [email protected]MEMBER

      It is the MB ethos writ large and loud

      • Try last name…that would make you look like a ‘straight-dope’ now wouldn’t it ….Besides,you still owe me $500 ,n for that blunder it doubles..some charity’s going to do quite well out of you .Krusty the clown..and if I may,it’s Jason full-stop…wishing I’d caught you earlier…

        Cheers JR

  5. Bravo Sir:

    “…the media stands by with flaccid analysis of the major issue.

    The major structural issue with the economy is that for the last two decades fiscal policy has been used to steer national income towards housing.”

  6. I am a shareholder and I haven’t seen much wealth returned by that route. Hard to compete with massive capital spend (probably mostly from o/s) and of course (failed) M&A during the mother of all booms.

  7. Great post DE.

    Maybe MB can start the trend by starting to have adult conversations on the topic.

    jelmech…if this is not too much of an invasion of your business, what ratio is your wages bill to your profits? (I do have a purpose in asking!) Mine is something like 3 to 1 but I’m just a warehouse not a manufacturer.

    • [email protected]MEMBER

      I’m a one man band these days flawse.
      Semi retired as I cant do what I used to.
      So I guess I’m not useful to your coming point??

      • Thanks I was just trying to get a bit of an idea how all the proposed programne might benefit manufacturers. For my business a $100 tax cut would be offset by a rise of $300 rise in my wages bill. (not exact but approximate)
        I was thinking that for a manufacturing operation this ratio might be a lot higher as one would imagine more employees per $ profit.
        Thank you for the reply. I won’t pursue it further here.

      • Well, every business lobby group from Perth to Cairns. They euphonize it as “productivity”

      • Yes well I didn’t. Typically you were more interested in slagging off with your own presumed better opinions than actually noticing anything anyone has written.
        I was just actually seeking info from Jelmech which would be painfully obvious if you actually read the post

  8. From a purely legal point of view, the mineral wealth does not belong to the nation but rather the states.

    As a New South Welshman, I personally have absolutely zero claim to the iron ore of West Australia. Likewise, they have no claim to the coal wealth of NSW.

    Why do so many commentators continue to suggest otherwise?

    • Then you and Victoria should give up your GST receipts from WA mining.

      There are imbalances all over the place hatless, that is what is being addressed here.

      • [email protected]MEMBER

        And those imbalances TP shriek for a solid federation.
        We got that right.
        The fine tuning of the federation just hasn’t happened. We got that wrong. So far.

      • jesus h christ boom boom it is in the constitution. If WA were to secede it would arguably be financially better off. It is the interstate transfer payment system that is arguably the reason why we aren’t extracting mucho deniro during the mining boom. Because of the transfer payments system what incentive does a state have to increase royalties?

        Anything they gain from increased royalties will be taken from them in reduced GST. zero sum game. miners laughing.

      • and if any increase, the Fed reimbursing the miners.

        The whole debacle is a travesty of intention crossed with mis-application crossed with political revisionism crossed with…

        A shambles, from inception.

    • I think this is a far point hatless, and I should have noted the distinction in the post.

      >As a New South Welshman, I personally have absolutely zero claim to the iron ore of West Australia. Likewise, they have no claim to the coal wealth of NSW.

      That maybe legal true, but fiscal transfers via the federal system are not a new concept.

      • And seeing as Australia has one monetary policy for the entire economy, then fiscal transfers via the federal system will be a necessity. Especially to realign large imbalances across the wider economy, such as those caused by a stagnating service sector and booming mining sector.

        (Unless, of course, you believe in Gina’s economic zones, then lower east coast be damned…)

    • It’s kind of weird though, because what you are talking about is just some arbitrary line in the sand (quite literally).

      Most people in Perth have had as little to do with getting the stuff out of the ground as the NSWer’s. Why should they have any more benefit to it than NSWer’s. I speak as a Perthite not involved in getting the stuff out of the ground btw.

      • It’s kind of weird though, because what you are talking about is just some arbitrary line in the sand (quite literally).

        .. probably marked out on map with a ruler, by some middle-manager in the British East India.

        And I bet it was the same F#@#er who drew the straight line borders all over Africa, America and the Middle East.

    • [email protected]MEMBER

      Well the states in sum are the nation, and although WA iron ore is seemingly WA’s alone, we all know that there are mechanisms to see that wealth can be used throughout the commonwealth.
      Following from that then, the statement that Australian mineral wealth belongs to Australians is fair enough.
      I guess it is in the context.

      • But anyone can get some of Australia’s mineral wealth. There is still plenty of undiscovered out there. You just have to go find it, raise capital, create a business… Oh sorry, you don’t want that, you just want to siphon off what others have done, via the govt mechanism, without doing any of the work yourself?

        Hey we’re Aussies, we deserve it!!!

      • That’s not it at all, talk about a sense of entitlement.

        There is a whole bunch fo minerals in the ground. No miner ever exercised any enterprise in putting it their.

        It is a gifted windfall.

        And of course, it is valuable to some other party to have it extracted.

        A service is rendered, and a pretty simple service to be exact, web site design is more complex than mining.

        An enterprise is awarded the privilige to extract it, and their reward is what a company calls profit. They are employed because they have greater access to the right skills and access to capital.

        Again, not the minerals themselves, it did not appear there out of any ability of miners.

        The owners, in this case the states, and by default its electorate, would be better served if this service was tendered out fee for service for extraction.

        In competing interests, it is expected they would want some varying rate but no way should they get all the gain when the commodity price rises.

        We would like to think that state governments would set the right royalty price, however what faith do we have that state governments are not compromised?

      • [email protected]MEMBER

        Another raw nerve. The right royalty price??

      • We SOLD all the rights to it in order to over-consume!!!! That’s the fact. We have and are exchanging our national wealth in exchange for imported BMW’s TV’s Air Conditioners and, for that matter, Pink Batts!!!

        We will get nowhere in any debate until that is acknowledged. There will not be any reform until that is acknowledged. In doing so we MUST recognise and respect private property rights.

      • “A service is rendered, and a pretty simple service to be exact, web site design is more complex than mining”

        I have not been involved in mining since the mid 90’s but this just tells me you don’t really understand what’s involved at all. Yes Metallurgy, Geo-Physics, Geology, Surveying, Chemical and Mining Engineering etc these were my peers when I was involved, all a doddle compared to web design…

        Your hyperbole makes the rest of your argument difficult to ingest.

      • [email protected]MEMBER

        ‘Oh sorry, you don’t want that’
        Yes I do Mikef and I want the benefits to improve the federation overall.
        Basic nation building for mine.
        And it is a two way street

      • [email protected]MEMBER

        Context issue again

    • Agree with hatless.

      The owneship of minerals lies with the states and not ‘all australians’. This is laid down in the Australian consitution and shd not be ignored by commentators wanting an ‘adult’ conversation. In fact there was no reason to introduce this blog with this erroneous comment from Irvine and it detracts from and minimises the gravitas of a very sensible blog otherwise.

  9. “For some reason this country appears to be unable to have an adult conversation about what is actually happening in the economy”

    100% correct. and that is becuase what is happening in the economy is exactly what all these people who wont talk about what is really happening said could never happen.

    that is, we had a debt fuelled housing bubble and that bubble has now burst. i brought it up at a dinner party on sat night amongst my mortgage holding friends.

    that conversation lasted about 2 minutes before people quickly changed the topic back to something less confronting.

    heads firmly in the sand. but i think the problem for people is that they are so far up to their necks in it they cant do anything about whats coming anyway. So why ruin a good dinner party over it?

    • [email protected]MEMBER

      ‘the problem for people is that they are so far up to their necks in it they cant do anything about whats coming anyway’

      +10 GB
      They been sold a pup

  10. “So please, can we all sit down and have a full disclosure adult conversation about the structure of the Australian economy, including a future path to sustainability, while we still have the good fortune of being the envy of the rest of the world.”

    DE, please don’t use the S word. It is little more than a meaningless slogan. It will only lead to endless sidetracking arguments about what “sustainable” means, what is and is not sustainable, etc. The underlying philosophy is well-meaning, but too overlaid with ideological baggage.

    Perhaps instead of a path to sustainability, we can talk about a path to GPEC.

  11. Swanny watches NBC’s Community, I now dislike him roughly 0.56% less.

    He said “Australia is streets ahead”

    Thats a phrase coined by Chevy Chase’s character Pierce.

    • [email protected]MEMBER

      0.56% seasonally adjusted or just the raw data?

  12. Great post DE. You have been concentrating your thoughts on Europe so it’s good to have you back commenting on the Australian economy.

  13. Really good article. Why indeed is it so hard to just admit that fiscal and monetary policy is focussed on the wrong things?

    The answer: politics

    “Oh by the way guys, you know how we have been telling you to own your own home, and it doesn’t matter how much you borrow because prices always go up, for decades now? Yeah, that was really stupid of us and a huge mistake, we are now going to suffer the consequences of it. Oh and we want to raise taxes elsewhere because receipts are down due to our over reliance on stamp duties and capital gains and we gotta pay for all this welfare somehow.

    So, let’s sit down and have an adult discussion about the next steps and how we can go about fixing the structural problems in our economy, whislt encouraging business to invest in areas other than housing and mining. Whilst keeping expenditure down to only what we need.

    Oh and all that welfare you have been getting? Sorry, but it’s going to have to be cut drastically as the nation can’t afford it and welfare is meant as a safety net to protect those who are most vulnerable, not a lifestyle choice or a reward for being middle class and/or a major international company.”

    Isn’t as easy as “miners are rich and evil, it’s all their fault!”

    • A politician admit they’ve wrong? I’ll back Phar Lap to win the next Melbourne Cup before I hear a politician utter those words.

    • darklydrawlMEMBER

      Outstanding…. Funny how the truth is rather simple, but oh so hard for to say out aloud. Excellent comment.

      • +1 Darkly. MattR, always on the mark with comments, even venturing into the murky no-go zone of social democracy, its sustainability (or otherwise).

    • “…welfare is meant as a safety net to protect those who are most vulnerable…”

      Exactly.

    • Really good article. Why indeed is it so hard to just admit that fiscal and monetary policy is focussed on the wrong things?

      Boomerism.

      The chief investment analyst at my work place said it best about inflation.

      ‘Someone has to pay, and it’s easiest when the payors don’t know they are paying’

      The system is about giving largese to boomers, the largest voting bloc. They have been pampered their entire lives.

      Conditions for their parents are respective lifestages were harder.

      Conditions for Gen X and Y at respective life stages are being observed as harder.

      Focused on the ‘wrong things’ is code for ‘focused on taking from others and giving to the boomers’. While ‘wrong’, a very large voting blo is happy.

      Others are just coincidental recipients.

      The answer: politics

      Same thing I described above.

      “Oh by the way guys, you know how we have been telling you to own your own home, and it doesn’t matter how much you borrow because prices always go up, for decades now? Yeah, that was really stupid of us and a huge mistake, we are now going to suffer the consequences of it.

      It is limited to houses, it’s just a nice capital sum when PPOR is CGT exempt.

      Profit share is historically high compared to wage share. Well after a lifetime of work and now starting to retire, guess who has accrued plenty and seeks an income stream off other peoples exertion? The Oz vehicle tends to be market linked super.

      Oh and we want to raise taxes elsewhere because receipts are down due to our over reliance on stamp duties and capital gains and we gotta pay for all this welfare somehow.

      Well I wouldn’t put it strictly down to that.

      It in previous 15 years, and for boomers that is 45-60, this tends to be the window of highest earning power. it matches nicely that they tend to be empty nesters, and thus put most into the kitty.

      Younger people can’t because they are either children, or have household/family formation obligations. None of this is a virtue, it is called chronology.

      The generation before the boomers paid 60% highest marginal tax rates at peak earning power. It helped pay for free university for boomers, a higher funded public healthcare system, higher general services all round.

      Chronologically speaking, the last 15 years was now the boomers turn to put back in. They reneged.

      Now as we have a taxation system that is structurally in deficit and boomers now entering retirement, there is a mad scramble for tax receipts that will have minimal impact on productivity, so they can’t go after taxing income.

      So, let’s sit down and have an adult discussion about the next steps and how we can go about fixing the structural problems in our economy, whislt encouraging business to invest in areas other than housing and mining.

      Well the latter two are chosen because they are easy. In a world of abundant capital and nature endowing Australia with resources, of course it is easy. And while it earns extraordinary profit thus non-productive people can claim at the surplus (i.e. welfare) then that will be par for course.

      Unless you promote enterprise, and cease calling easy ways out (i.e. mining and housing) hardwork then who will be motivated to change.

      Do it yourself, shame real estate agents at house parties, refuse to let them enter your house. Otherwsie this view won’t escape from the blogogentsia.

      Whilst keeping expenditure down to only what we need.

      No other generation is as profligate as the boomers. They have had a lifetime of profligacy and will not tolerate being told now is the time to stop. They will resist any measure to stop this profligacy at the ballot box.

      Oh and all that welfare you have been getting? Sorry, but it’s going to have to be cut drastically as the nation can’t afford it and welfare is meant as a safety net to protect those who are most vulnerable, not a lifestyle choice or a reward for being middle class and/or a major international company.”

      Again, boomers don;t view it as a safety net, they view it as “I’ve put in, now it’s time to get a return on it.”

      I have a wonder letter to the editor from the West Australian pinned to my board dated 3 Jan 2009. it is titled “Baby Boomers are entitled to a return”.

      A telling paragraph is ‘Australian-born baby boomers have spent 45 years contributing to the tax coffers and are only expecting their dividend on their investment’

      Craig bradshaw – Thornlie.

      Never mind minimal budget surpluses and virtually no current account surpluses in all that time. Never mind all their taxes have been spent on schools, roads, military, health system, etc, and trying to explain their is nothing left for them.

      It will be refuted. it is not about a safety net, or responsible for ones self to not require a safety net. It is about entitlement, a perverse, deep seated sense of entitlement that has lived on the largese of some other party their entire lives.

      They spent their parents surpluses, didn’t accrue any of their own, and are now leaving debt they can’t repay and will forward to their kids and grandkids.

      The conversation is hard to be adult when the proper conversation is being avoided.

      Isn’t as easy as “miners are rich and evil, it’s all their fault!”

      The more sane minds aren’t saying that.

      They are saying that life will continue beyond this commodity boom or the remaining life expectacny of the baby boomers. There also seems to be no vision beyond either of those scenarios by policy makers.

      In the latter, with Gen X and Y heavily indebted in housing and really unable to accrue surpluses, how will boomers sell out of their enterprises?

      Many SME owners are relying on selling their business to fund retirement. Who will have the funds to buy this? Will their be a deeper enough market to provide a fair price?

      In tapping all our young already for housing, degrading the education system that they are seeking private education, they are cash flow poor so how can a sum be found to manage this shift of assets?

      This is what I am saying, this sort of policy view isn’t even on the radar.

    • [email protected]MEMBER

      Damn straight

      Ponzi Scheme!

      Can I dismantle it?

      Uh oh

      Can I hide?

      gulp

  14. Is this because.

    a ) They simply don’t undertand how the economy actually works; or

    b ) By admitting that the private sector debt expansion has been the major driver of the economy for the last two decades, they believe they are admitting their own failure of economic management and oversight.

    Or c) They’re scared sh*tless of the economic implications of an uncontrolled housing bust, as in the US, Spain and Ireland.

    That’s why they’re propping it up, and that’s why the policies that steer national income into housing won’t be changed.

    But lets (for a moment) imagine we elect a government that has the courage to change these policies. A government that successfully engineers a soft-landing of the Great Australian Housing boom. What would we do with those rivers of cash that once flowed into negative gearing and CGT concessions?

    How would we encourage more productive, sustainable enterprises? A few more Cochlears, perhaps an Aussie Samsung, or a Google? While the mining boom persists, I don’t believe this will happen. Our comparative advantage will always be in dirt-digging. We will always be disadvantaged in other sectors because of the strength of the currency, and the capital flows going into mining investment, starving the rest of the economy of capital.

    So even absent a housing bubble, and the policies that encourage it, the mining boom is still a huge impediment to a more sustainable Australian economy.

    Knock yourselves out MineBots…

    • [email protected]MEMBER

      ‘But lets (for a moment) imagine we elect a government that has the courage to change these policies.’

      That why I’ve got SOL lorax, I can’t imagine that.
      It aint happening bro.

      • We ( the population ) are too dumb to elect a government ( also too dumb for use ) to do anything than fart around trying to get elected next time …

        the system is short term, the people don’t know the issues .. the system is farked …

    • mate I’ve made the point many times that the money is not going to mining. One of the reasons why we have high foreign ownership of mining is because our fucked up instos won’t invest. It is the houses that are your enemy, not the holes. Also have a look at the size of the houses component of the economy fore fucks sake.

      apart from that I agree — where are our Googles, Nokias, Apples, RIMM etc. Answer: no C word will fund them here.

      • Krusty: While I agree that our obsession with housing is a huge problem, and nothing will be fixed until that is fixed, the holes are still a problem.

        Imagine an Australia with sane housing prices, and a tax system that didn’t encourage housing speculation. Would we really invest in potential Googles and Apples with the dollar above parity and mineral prices at such high levels? I doubt it.

        Indeed, with credit growth at 35 year lows, housing market weak, residential construction anemic, I would suggest the Australia we see today is much like this imaginary non housing obsessed Australia. That is, the mining sector booming, the mainstream economy weak, and trade-exposed sectors in recession.

        The Googles and Apples you speak of, would struggle to get off the ground in such an economic environment.

  15. SO, the mining tax is to discourage investment in mining to some degree? And, thus the money will then flow into other sectors? Is that the theory?

    If it is global capital flows we are talking about I’m not sure how this makes sense.

    Have I got the argument wrong? Can someone clarify?

    • Taxation is not about raising revenue (thats the secondary effect), its about regulating the behaviour of what is being taxed.

      A mining tax is not about “getting more money out of mining” its about regulating the economy so that mining doesn’t become THE economy. Do you see the subtle difference?

      The same concept is applied (but in the opposite way) to tax incentives for housing – its not about the revenue foregone, its about encouraging a speculative market to increase paper wealth. Taxing housing properly is not about “taking money” from investors, its about regulating their behaviour so that housing is NO LONGER the economy.

      • [email protected]MEMBER

        Perhaps income tax is a separate issue, V

      • There was a good MB article about Central Banker land. The short summary is that since the central bank can just create money (as can banks when they lend it out) the important thing is using the “free exchange tokens” to result in people contributing to the society in general. DE or TP or such might be able to remember the article name and hence link better than me.

      • Good luck getting random punters to buy that. But you have a platform so stating this is very useful and may actually get punters to think about it. (I agree by the way but I am confident that ALP politicians and liberal politicians do not understand this — Swan and Hockey = dumb and dumber. As dumb as I think Swan is, I just shudder when Hockey opens his mouth)

    • [email protected]MEMBER

      Ya tax sumfin ya get less of it.
      MRRT Carbon tax Ciggy excise Parity pricing on fuel

      • [email protected]MEMBER

        Gotta get of my bum and get across the compo details of the carbon tax MinBog.
        My ears are atwitchin’.

    • I am amazed at those supporting the mining tax. They think the money is going to support/develop other industries. Its not, its being spent on vote buying. It will add to our future problems as the money that will be brought in is less than the promises now being made on the giveaways.

      • Agreed.

        If we want to support/develop the rest of the economy it means repairing the framework that is damaging those industries. Not levying new taxes on (currently) successful sectors.

        Which is precisely the thread topic; dealing with the true structural problems and not papering over them.

  16. innocent bystanderMEMBER

    >> can we all sit down and have a full disclosure adult conversation

    for the conversation to count, have impact and effect change maybe it will require a new political party?

    • The Greens are kinda in the right place at the right time. If they get their sh*t together (put the environmental and marxist crazies under wraps) and bring things like this to the public’s attention, promising real reform, it could be a real vote-grabber.

      • The environmental and marxist crazies ARE The Greens. A lot of their supporters haven’t noticed, but it is obvious if you actually read their policies.

        The Democrats would have been a better bet, but they ate each other.

      • Burb, I reckon no apologies required.

        The Greens desire a utopian society – all the needs of which are paid by another – which is the ‘other’ they despise.

        It is the fundamental flaw with Green economics/politics.

      • ultimately they are a party of anger, envy and frustration with nothing to offer rank and file punters, once you strip away the spin.

      • they are very authoritarian, But we have had creeping authoritarianism in the mainstream parties as well.

        time for revolution …I need to revert to hugo chavez for that. Krusty lacks revolutionary street cred.

        (ps. ASIO if you are monitoring my transmissions I do not mean this literally)

      • [email protected]MEMBER

        But it is not Bob Brown. Hence ” A lot of their supporters haven’t noticed, but it is obvious if you actually read their policies.”

        cannibalism soon.

  17. Forget crowd surfing to find an MB logo, maybe it’s time you guys did it for a decent economic policy. Understand of course you’re not going to get vanilla agreement from all, but the exercise might be interesting. I know for certain you are likely to get better ideas here than from the house on the hill.

    You might need proportional representation for the more obscure viewpoints….

    • Absolutely!!! Or Mixed Member Proportional if you want to retain location representation.

      However, the ‘incumbents’ (major political parties, business and other vested interest) know this as well and have been conditioning the Australian public to see it as an unstable, unworkable arrangement.

      Just one more fable upon which the wealth of a lucky few is built.

  18. There is no way Australia, or New Zealand for my part, is going to do anything about the distortions in the property market. Why? Because our parliaments are not elected to govern in the best interests of our countries, but the vested interests of those that elect them. And no property owner ( ie. the majority of voters, always ) is going to vote to elect a Government that even raises the topic of housing reform that damages perceived household wealth, let alone looks to seriously alter the status quo.

    • [email protected]MEMBER

      What about us parents?

  19. JunkyardMEMBER

    +1

    Great post DE.

    I’m constantly amazed that housing, and also commercial realestate, is left out of almost every economic discussion in the MSM.

    All the recent talk in the media about productivity, the decline of retail, min wage and penalty rates etc… Hardly a whisper about commercial landlords sucking the life out of shopping strips one after the other.

    • [email protected]MEMBER

      macrobated

  20. I am disapointed to see so many people salivating at the prosepct of a housing collapse or encouraging a housing collapse which would hurt so many fellow Australians.

    The much maligned housing industry is one of our larger employers and when all ancilliary industries relying on housing/construction are brought into the picture, including furniture retailers for example, it is probably the biggest employer in the nation.

    As such no government in its right mind would let it collapse or engender a collapse.

    There has been a gentle price deflation since the start of the GFC. I believe its about 15% overall todate. Another few percentage would not affect too many, although many who purchased since the GFC could/would see a capital loss if forced to sell.

    The RBA and federal goverment are probably very satisfied to see this occur rather than introduce more laws to hasten this or cause a crash.

    And no neither I nor any member of my family is in any way involved in the housing or associated industries.

    • Nobody is ! – We just want a gentle rebalancing. No one wants a crash and all the associated chaos .. but we can’t carry on like this …

    • [email protected]MEMBER

      don’t be disappointed Anton. I get your drift but the boosters are gunna cop it in the neck and that is good.
      The potential crash that would cause so much dislocation will be subjected to many strategies to manage the fallout [ad hoc].
      Lots of can kicking to come.
      Plus Our welfare net aint to bad.
      I’ve used it once when I still had a mortgage.

    • A very fair point. But remember the housing boom has created a high level of social and cross generational inequity with pronounced winners and losers.

      Those not holding a winning ticket are in an invidious position – join the game and pray and hope the complex keeps the game going and there is no irish style wipeout, or sit around and watch their tax dollars fund and support asset prices and the speculators.

      The real answer is to de-financialise housing and phase out the subsidies but given the politico-housing complex has shown they don’t give two sh8ts about the losers (mainly the young) I’m actually surprised there is not more activist dissent against the beggar your neighbor speculators.

      • [email protected]MEMBER

        P H Complex will give 2 whatsits when they realise that the young are the growth they need.
        The young are flipping the bird as we type…..

        As for our speculative brethren and their lack of activism thus far can I be forgiven for thinking that most of them aren’t beggar thy neighbour types?
        Might I posit that the majority don’t get the speculative aspect of what they’ve signed up for?

        PS JOKE [Can I volunteer to be third rifle on the left when the spruikers are at the wall?]

      • I’m disinclined to be so soft on the specuvesters – they are well aware that any further gains they make come at the expense of others that don’t have access to asset backed lending and healthy tax breaks.

        I would suggest that they do not care in the slightest that their gains come at the expense of others in society.

        (appreciate that most are not fully aware of the level of speculation involved)

  21. Not sure I agree with the premise that the major structural issue with our economy is fiscal policy slanted towards housing. Such distortions are merely symptomatic of Neoliberal economic policies and the financialisation of developed economies. Part one of the adult conversation surely needs to address whether it is even possible to change the global economic & legal paradigm which constrains the ability of our political leaders to instigate meaningful reforms which might challenge the interests of the rentier class. Everything else is window dressing.

      • Globalisation is here to stay. Ideally. But there are genuine obstacles to be overcome now that we are in the second/third stage.

        Developed economies squeal like ‘stuck pigs’ when circumstances they have enjoyed via supremacy in the globalisation chain are threatened.

        A reversion is insular focus, imo, is a great threat in the geopolitical environment we inhabit.

        Corporations are citizens!! We are all citizens, have all participated in this great experiment. An experiment that made lead to a truly ‘one world’ notion, or perhaps alternatively, just of global elite and capital driven by little other than self interest.

        Interesting times.

      • Ha “corporations are citizens”. hilarious – yes citizens – free of such pointless things like the social moral obligation to keep their word.

    • [email protected]MEMBER

      “Part one of the adult conversation surely needs to address whether it is even possible to change the global economic & legal paradigm”

      And history suggests??

      Short back and sides not much off the top?

      • I don’t think it can be changed – which is why I think we are kidding ourselves about having adult conversations and national discussions about the kind of economy we want. The most ‘Adult’ way I could put it would be to say that all of that easy money whoring its way around the globe would have found its way into our pants eventually, even without the government pimping for Johns and buying the first round of drinks. Hot money is always looking for its next client, it doesn’t matter what asset it blows. Unless we are prepared to start showing more respect for ourselves or start wearing rubbers, then we just have to reconcile ourselves to suffering these continuing nasty doses of neoliberal venereal disease.

      • The Adult Conversation aspect retains importance regardless.

        Acknowledgement, real acknowledgement, of the role and acquiescence to the forces of globalisation within a small open economy such as ours is the first step.

        And DE is right – in terms of where we have mechanisms and the desire to effect. If?

      • [email protected]MEMBER

        Thanks SB Brilliant
        I take it that greed is NOT good.><
        But what to do about hot money and the velocity of hot money? Well it sounds like regulation. Which means principled Governments. WHich aint happenin' bro!

        PS I dont think much of the 'adult' meme

      • I’m probably second guessing and if DE corrects, fine.

        By Adult Conversation, I assume a request for considered, constructive, informed contribution to debate around the economy – not an auto-response to ideological fancies.

        Auto-response to pre-conceived views narrows opportunity for genuine liberated discussion. My own experience here at MB as an example – unquestionably pro SWF. Listened to contributors here (Krusty Chavez, Flawse, DE) embarked on own ‘investigation’ – a change of view, or rather, understanding.

        Keep an open mind. Assess arguments on merit rather than pre-disposition. Be Adult!

      • Indeed. Or as I prefer to say – have the maturity to accept that I am right and you are wrong.

    • The financialisation of developed economies coincides with a set of policies that was slanted towards housing.

      The malinvestment in housing at the expense of wealth-producing business and industry is also a primary driver of the more towards consumer and service economies. It hurts the complex stages of production.

      IMO the focus on GDP is a big part of it; it effectively moves policy towards consumption and housing. As long as you have a bubbling housing sector you show good “economic growth”, and you dont see the hollowing-out of the real economy.

      Of course the reverse is also the case when the bubble finally ends.

      • I agree with your description, but I see the cause and effect differently. I think the hollowing out of the real economy is the natural result of liberalising economic policy in favour of the cause of globalisation, which can’t work unless you give precedence to consumption. In this framework, asset inflation is inevitable and necessary to fabricate growth and the ‘wealth’ available for consumption.

  22. Mining BoganMEMBER

    What chance have we got of adult conversations when the big political stoush of the Queensland election is the gay marriage ad rot? We have an economic basket case and the pollies would rather talk about a man in a Madonna outfit.

    The powers that be want stupidity to rise to the top because that way their own stupidity is hidden.

    I’m going to go watch Idiocracy again.

    • The system is a short sighted populrity contest where most people haven’t even seen the models …

      • Mining BoganMEMBER

        Idiocracy opening line.

        ‘As the 21st century began, human evolution was at a turning point. Natural selection, the process by which the strongest, the smartest, the fastest, reproduced in greater numbers than the rest, a process which had once favored the noblest traits of man, now began to favor different traits. Most science fiction of the day predicted a future that was more civilized and more intelligent. But as time went on, things seemed to be heading in the opposite direction. A dumbing down. How did this happen? Evolution does not necessarily reward intelligence. With no natural predators to thin the herd, it began to simply reward those who reproduced the most, and left the intelligent to become an endangered species.’

        *sigh*

      • Mining Bogan, you are one of the witty tribe, but a movie is a movie. Try John Taylor Gatto, Dumbing Us Down – starts much earlier.

        In any case, the Idiocracy got it wrong:

        “Natural selection, the process by which the strongest, the smartest, the fastest, reproduced in greater numbers than the rest,…”

        Bacteria.

      • Mining BoganMEMBER

        Ha! I was just interwebbing books on the subject. He has a couple. Thanks for that.

        This is nice, I was looking at the book The Marching Morons which was where they got Idiocracy mostly from. Fourth link took me to a white supremacist hate site.

        Sounds about right.

    • Nah ,seems not the kind of different rise ,you’ll like again..you could always go flying top favorites into a super cape dressed in blue,like…n,watch Transformers as a follow through..better than going crazy ,again..More up lifting
      JR
      Mark-it up, Mgb’n

  23. We are a “Commonwealth.”
    We have to use the ballot box.
    Here is a simplistic start.Not a panacea.
    One man
    One vote
    One dollar.

    Political donations should be restricted to only one dollar per voter per annum/term.
    That would mean that you can only donate $3 per annum/term per voting adult. One for Local, one for State and one for Federal.

    No corporate funding, union funding or largesse for vested interests, whether groups or individuals.

    Donations could be matched with the electoral rolls.

    Expenditures to match donations by both individuals and parties, and publicised.

    Term limits on all public servants, whether political or civil servants?

    We need to put the common back into the Commonwealth before we unwittingly start down the road to Argentina Mk2.

    I know this seems a bottom up approach and simplistic but I cannot foresee a top down approach with the existing status quo.

    • And how about you pay that dollar WHEN you vote ( take out the compulsion) and it’s ‘given’ to whoever you vote for. That way, the candidates/parties have to really attract your vote/dollar, and only those citizens interested enough in the system get to pay/vote. The rest, get what they are given.

    • Also a new IPA paper on productivity available here http://ipa.org.au/publications/1997/does-australia-have-a-productivity-growth-problem- which makes many of the same points as the Greg Jericho Drum article. The paper is analyzed in this article http://www.theaustralian.com.au/business/economics/entrepreneurs-key-to-productivity-boost/story-e6frg926-1226297567984.

      A couple of key points from the Oz article:

      Productivity growth has fallen to levels not seen since the 1980s, but “there is little active intervention that government can undertake to improve that situation,” say authors Sinclair Davidson and Ashton de Silva.

      “falling productivity figures can even cloak sensible economic change”

      “nobody can tell if there is a strong link between productivity and industrial relations”, the authors argue.

      “One could as easily attribute the big fall to the huge increase in government handouts and bureaucracy since the early 2000s,” Professor Davidson says.

      “On-the-job training is far more important; overseas studies show foreign companies can train up unskilled labour to world-class standards, making a mockery of the relentless drive for university degrees.” (The Germans would certainly agree with that one.)

      “reducing the number of regulations and cutting taxes are the two best ways to encourage entrepreneurship and competition”.

  24. “The major structural issue with the economy is that for the last two decades fiscal policy has been used to steer national income towards housing.”

    I couldn’t agree more, DE!!! And who says government never picks winners, or rather losers as is clearly the case with housing…

  25. adult conversations are oxymorons among morons.
    we need new economic models which address the needs of citizens first and other stakeholders fitting in with the national interest always.
    tacit assumption that business is the only way is facile.
    singapore with its greater free market has much more social public policy which thrives in the freer market there. public housing, cheaper medicals, trade union supermarkets, effective consumer bulldogs with teeth, and stronger regulation over rogue businesses including MNCs were there once. where have they gone Joe DiMaggio? our nation [oz] turns its lonely eyes to you….