The AFR calls for a recession

Damn, who wouldn’t run a newspaper? Aside from the small problem that you lose money hand over fist, it entitles you pontificate every which way with no consequences.

Yesterday I noted that the AFR had backflipped its editorial direction on the need for a Budget surplus. Today it’s official:

Standard & Poor’s and Fitch Ratings delivered a timely wake-up call with their warning in this newspaper ­yesterday that federal Treasurer Wayne Swan needs to deliver a tough budget next month in order to protect Australia’s coveted AAA credit rating. Mr Swan, to his credit, seems to understand the economic imperative of returning the budget to surplus in 2012-13 in order to send a strong signal about the importance of responsible fiscal ­management.

But it is worrying that business groups such as the Australian Institute of Company Directors, as well as most economists working in the financial markets, seem to think achieving a ­surplus next year is neither here nor there.

The Australian Financial Review  will be the first to applaud Mr Swan if his budget on May 8 vigorously cuts wasteful ­government spending, delivers more than a paper-thin surplus and provides a credible path for eliminating the budget’s ­substantial structural or underlying deficit.

Actually no, not the first. The AFR has indulged a round of surplus bashing and it took MB to set it straight. Another point for the blogosphere. Anyways, now it’s on board with reality, the paper is equally failing to analyse the implications of its own belated recommendation. Apparently:

Those cautioning against the need to bring the budget back to surplus continue to see fiscal policy as a short-term tool for managing the business cycle, arguing that cutting government spending will hit the economy too hard. Fiscal policy was certainly called upon, and then overused, during the global financial crisis. But the bigger lesson of Europe and the United States is that fiscal policy needs to be set on a medium-term basis.

Using fiscal policy to try to manage the ups and downs of the business cycle invites trouble as it is too politicised, making it too clumsy for the purpose and resulting in a bias towards increased government spending. Politicians will use every chance they get to throw money around to cushion downturns, but are all too reluctant to take it back during booms. Tighter budget policy will also allow the weight of economic management to fall on interest rates and the dollar, giving the Reserve Bank of ­Australia more room to ease monetary policy if the economy does weaken. What is needed is a broader medium-term framework to guide budget planning over a longer period rather than the approach now employed, which projects revenue and expenditure only over the next four years.

The RBA successfully uses a medium-term approach to monetary policy, anchoring price expectations around a low-inflation target that makes its job much easier. Ratings agencies also take a longer view when assessing Australia’s creditworthiness, with S&P pointing out the government must show it is committed to stabilising debt over the medium term. Australia’s myopic fiscal policy has led us to the invidious position of having a budget that is still in the red despite terms of trade at unprecedented highs and unemployment that has declined to about its natural rate. The argument that a small ­deficit wouldn’t matter ignores the bad signal this would send to foreign creditors.

Whoa, where do I begin! First, the RBA is s false analogy. It does not have a medium term horizon going beyond 4 years. That’s absurd. Next and oddly enough, we don’t have a political culture obsessed with throwing money around. We have the opposite, one obsessed with public surpluses, irrespective of what ratings agencies think.

Moreover, the only part of the 2008 stimulus that was profligate were the measures aimed at supporting house prices. These cost very little but combined with monetary easing to cause a blowoff in household mortgage debt. Beyond that, the stimulus was copy book. Well designed and well executed. With timely roll out, as well as fantastic results for growth and the job market. It’s logically absurd to criticise government for wasted stimulus which is by definition quick and widespread not precise and parsimonious. The AFR’s ideological clap trap then leads it to rewrite history:

Australia squandered too much of the first stage of the ­mining boom, reinforcing unrealistic political expectations that we have plenty of room for big-spending programs such as disability insurance schemes, universal dental care, paid ­parental leave and childcare rebates for nannies.

Australia needs to make the most of its prosperity by getting its economic house in order, reducing our vulnerability to future external shocks. Mr Swan must use his fifth budget next month to lay down a marker, ignore the pleas of naysayers, and deliver the 2012-13 surplus that he has repeatedly promised.

Where was the AFR during the mining boom? Did it call for mass cuts, an SWF etc. No. Did it take the banks to task as they built the housing bubble and became too-big-fail? No. Has it led an intellectual debate about how to return the risk currently borne by the tax payer to the banks? No.

That’s enough AFR bashing for today. But now we need to ask what exactly are the consequences of a surplus drive that will pull growth down by 2.5% over the next 12 months. Since Q1 2008, GDP growth has averaged 2.3%. Ipso facto the AFR wants a recession.

That may be. Then again, it may not. The outcome will depend upon how the private sector responds. Such a hit to growth will, of course, drive down interest rates. And the question is, what will that do?

There are several possible outcomes. The dollar will fall and, assuming world growth remained on track, imported inflation pressures would rise. That’s not necessarily a problem, though. There may be enough deflationary pressure emanating from the Budget cuts, which could force further household retrenchment.

The upside from the dollar falling is that exporters will no longer have to take the brunt of the adjustment to mining led growth.

So one possible outcome is that we shift the burden of adjustment further onto the household sector.

But that may not happen. Despite the budget cuts, lower rates may, rather, trigger a renewed desire to borrow, especially to speculate on houses. If that happens, then we’d enter a nice little mini boom, that would last a few months before either the RBA or ratings agencies snuffed it out. Why? Because inflation risks would quickly rise and/or it would cause the rush of deposits into the banks to dwindle and offshore borrowing to resume. I can’t see foreign creditors celebrating that.

We’d reach a nice little surplus, though, just before we crashed.

This is the trap in which we are caught. It is not going to be resolved by pontificating this way, that way, or both ways. Hard questions need to be asked about how to elude it. These include:

  • do we need a macro-prudential policy to prevent the banks from firing up another round of mortgage mayhem on lower rates?
  • what is the precise time frame for a return to surplus that balances growth and banking liabilities?
  • what new economic narrative is needed from the government to help Australians navigate this trap?
  • does the current policy of export replacement to contain the mining boom making any sense at all in this environment?
  • how can the bank’s offshore liability risk be decoupled from the national budget?
  • do we need a Son of Wallis inquiry?
  • what roll should the tax reform play? What of mining taxes and investment property concessions like capital gains, as well as negative gearing?
  • how can interests be prevented from doing what needs to be done in the national interest?
Papers love to quote Donald Horne’s famous line about Australia’s mediocre leaders. It’s true. But the main reason for it is mediocre media.
Houses and Holes

Comments

  1. Beyond that, the stimulus was copy book. Well designed and well executed. With timely roll out, as well as fantastic results for growth and the job market

    Woah! What have you done – Now that should get the wing nuts and the AbbottBots frothing at the mouth!

    Seriously, I call this The Ozification of AFR – Michael has a stuck berry and he is going berserk, using the AFR as his personal vendetta machine – firing Quiggin, open warfare on the labor government with Lara Bingle leading the charge. Who knows, he seems to have some long simmering and repressed anger against his former boss too.

    • With the benefit of hindsight, I think the best of the Rudd stimulus was the cash handouts. It provided an immediate boost to confidence and got Australians out from under their beds. As Ken Henry said “Go early, go hard and go households”. The infrastructure stimulus (BER etc) dragged on way too long, and the govt was spending like drunken sailors long after the worst of the crisis had passed.

      • I agree on the broad case for immediate action. But residential vested interests (banks, RE agents) and construction industry (big companies) benefitted the most.

        The stimulus made the already fat people fatter (with their leased BMWs and Falcodore utes) . I would have much preferred a WPA type program with tradies working on minimum wage on infra projects (including school halls).

        But that should not give an excuse to the AbBots complaining about wasteful spending, given that their 11 year legacy is a vastly bigger problem of a ponzi finance credit bubble.

        • Both things are mutually exclusive and equally bad policy.

          Saying that, the wasteful spending of the current government is entirely their fault, the housing bubble was created at various levels of government and the banking sector.

          Yes, the previous federal government gave us cuts to capital gains tax, but there was already negative gearing. Then there was the planning regulations implemented by the states and their dependence on rising house prices for revenue.

          Rather than pointing out the bias of liberal supporters, you actually show your own.

          • Both things are mutually exclusive and equally bad policy.

            Umm.. No and No. Private debt and public debt are not mutually exclusive. And they are not equally bad policy – public debt is manageable % of the GDP, inspite of the ‘wasteful spending’ as you put it. Private debt, on the other hand is reaching peak debt levels, skimming very close to a Minsky moment.

            Re bias, if you stop frothing and actually look at what I have written, you will notice that I have criticized the stimulus.

          • Ugh, who’s frothing? I’m not talking about the differences between private and public debt. I’m talking about government policies and yes, they are mutually exclusive and equally bad.

            Private debt is massive due to a large number of factors, not the policies of a single government (policies that weren’t reversed by the current government mind you). Claiming that the Howard government is the main cause of our huge private sector debt is ridiculous in the extreme. Yes he had some poor policies that encouraged it, but far worse were land restrictions driving house prices up, the myth that house prices always go up and access to easy credit that started in the 1980s.

            Not only that, claiming public debt is ok because it’s ‘manageable’ is complete nonsense. Just ask Britain, the US and Europe how ‘manageable’ their public debts are. Yes, ours is much smaller, but it doesn’t take much to go from ‘manageable’ to ‘astronomical’.

          • I dunno MattR.. I think by 2007 the bubble was well and truly stoked. Howard & Co were responsible for the first FHOG, and also responsible for significant increase in middle class welfare (freeing up money for specuvesting).

            But agreed, we haven’t had a decent government since the 80s.

          • Let’s not deviate from the issue at hand and go on a fishing expedition – the topic is debt, both public and private..

            Lets have a look at the numbers.

            Private debt under Howard went from 80% of GDP in 1995 to 150%.

            Public debt under Labor went from 0% of GDP in 2007 to 20-26%.

            You can try to make excuses and blame it on various levels of govt, banks and planning regulations. So can I, blaming an external event called the GFC for the 20 odd % rise in public debt. But I won’t.

            There is no beating around the bush on that – these debt numbers are a direct consequence of the policies followed by the respective governments.

          • “Lets have a look at the numbers.
            Private debt under Howard went from 80% of GDP in 1995 to 150%.”

            Beating about the bush? Why not go down to the farm and find the biggest cherry in the orchard?

            Did Howard force people to borrow money did he? Funny, here I was thinking that people were individuals and could make their own decisions, apparantly it’s all Howards fault. The old ‘the devil made me do it’ argument.

            Yes, I can blame this on various levels of government, because it was an issue created by various levels of government, including the ALP government BEFORE Howard. Like I said before, you accuse others of bias, but you are clearly biased yourself.

            “Public debt under Labor went from 0% of GDP in 2007 to 20-26%.”

            …in 2010. Just thought I’d finish your sentence there. Labour have increased debt by 8.3% of GDP per year since taking office, based on the 2010 levels, the coalition increased in only 6.3% based on your numbers.

            So blaming everything on the government shows that the current mob are still further behind.

            Consider the fact that Howard was not even close to being solely responsible for the increase in private debt but the ALP should certainly take the bulk of responsibility for theirs AND there has been an increase in private debt as WELL.

            So I guess they aren’t equally bad, the ALP’s is much much worse. But hey, wouldn’t want my ‘bias’ to show as an ‘AbBot’.

        • The use of construction as stimulus and the cash splash were probably a result of seeing what happened to employment in construction and retail in the US.

          Lower skilled were the large portion of the unemployed and so the insulation was a brilliant idea to soak up unskilled labour, but poorly designed by the Canberra bureaucrats whose risk management and processes for ensuring value for money were poor, as they were for a significant part of the BER.

          Naturally the construction companies also benefited and the legacy was that few failed and most held together their teams and kept employing construction workers.

          • But this is the problem, and ultimately why stimulus never actually works. The government simply cannot do things as well as the private sector.

            If they actually wanted to stimulate the economy they would have slashed taxes and let the people who actually build wealth do what they do best.

          • The government simply cannot do things as well as the private sector.

            CSIRO Wi-fi?

            What about Leightons project management problems lately? Can anyone here at MB say they got better service from a big four bank or from the ATO?

            Whilst I used to believe your statement was an absolute, and for the majority of profit making enterprises, it is largely true, it is not something that can be generalised about Matt.

          • “Whilst I used to believe your statement was an absolute, and for the majority of profit making enterprises, it is largely true, it is not something that can be generalised about Matt.”

            As you say, it’s largely true.

            Obviously there are a few things that the private sector simply can’t provide, but even taking them in to account my point stands. The government would have been much better off going in to debt based on tax cuts rather than simply spending money like sailors at port.

          • drsmithyMEMBER

            If they actually wanted to stimulate the economy they would have slashed taxes and let the people who actually build wealth do what they do best.

            By which you mean hoard it amongst themselves and exploit everyone else, right ?

            America has already demonstrated the folly and outcome of your plan.

          • The government simply cannot do things as well as the private sector.

            You should remember that Telstra and its copper network was a government enterprise, before it was sold off by you know who in order to deliver budget surpluses and a super fund for public servants (called Future Fund).

            The government would have been much better off going in to debt based on tax cuts rather than simply spending money like sailors at port.

            Trickle down economics does not work – various studies and reality back that up. But since you insist, you did get a tax cut of $900, didn’t you?

            .. oh wait, you didn’t 😛

          • “By which you mean hoard it amongst themselves and exploit everyone else, right ?
            America has already demonstrated the folly and outcome of your plan.”

            Yeah true, I mean, the lack of social mobility has nothing to do with government intervention, subsidies and artificial monopolies or anything. It has everything to do with cutting income taxes for people in the top tax bracket…

            Because cutting corporate taxes wouldn’t mean higher dividends for mum and dad shareholders or anything like that. It would just make ‘evil’ rich people ‘hoard’ their wealth. Muahahahaha…

            Honestly…

          • “You should remember that Telstra and its copper network was a government enterprise, before it was sold off by you know who in order to deliver budget surpluses and a super fund for public servants (called Future Fund).”

            Yep, and no matter how bad their service is now, it was still worse when it was government owned.

            “Trickle down economics does not work – various studies and reality back that up. But since you insist, you did get a tax cut of $900, didn’t you?
            .. oh wait, you didn’t”

            /sigh I’ll ignore the childish snipe.

            Trickle down economics most certainly works and reality does back that up. Simply saying “it doesn’t work, various studies etc” changes nothing.

            If trickle down economics DIDN’T work then we could simply tax the ‘rich’ at 100% and everyone would be fine.

            Lower taxes results in economic growth, this is a known fact of life, I find it surprising that people, especially on a blog devoted to economics, refuse to accept this.

            I guess that’s what happens when politics gets involved right?

          • I should add, lower taxes increases growth, down to a point. Obviously the government needs to pay for essential services.

            Right now taxes are way above what I would consider an optimum point.

          • CSIRO Wi-Fi.
            I think that’s an example of Govt-squandered potential, rather than good management. I reckon Bill Gates, Steve Jobs et al would have turned the discovery into $billions, not $millions.
            CSIRO didn’t patent the invention in places like China, India, S America, Russia so they miss out on mega $.
            Public service bean counters to blame?

            CSIRO WiFi patent win – ABC AM – 2 April 2012
            http://www.abc.net.au/am/content/2012/s3468587.htm

          • drsmithyMEMBER

            Yeah true, I mean, the lack of social mobility has nothing to do with government intervention, subsidies and artificial monopolies or anything. It has everything to do with cutting income taxes for people in the top tax bracket…
            I guess that’s why countries with high taxes typically have poor social mobility and countries with low taxes typically have high social mobility, right ?

            Oh, no, hangon, we drifted off to Libertarian fantasy land again. Back here in the real world it’s the complete opposite.

            Because cutting corporate taxes wouldn’t mean higher dividends for mum and dad shareholders or anything like that.
            No. It’d mean bigger profit margins and bonuses for the top 0.1%, just like it has in America for the last few decades (and especially the last 5-10 years).

            Like I said, America has already shown what your philosophy leads to. Real incomes for the top 1% have skyrocketed while incomes for everyone else have stagnated (if you’re lucky) or decreased. Ie: the rich are hoarding their wealth.

          • drsmithyMEMBER

            If trickle down economics DIDN’T work then we could simply tax the ‘rich’ at 100% and everyone would be fine.
            This is what’s called a non-sequitur.

            Right now taxes are way above what I would consider an optimum point.
            Where is your evidence ?

          • drsmithyMEMBER

            CSIRO didn’t patent the invention in places like China, India, S America, Russia so they miss out on mega $.

            What would be the point in registering a patent in countries where violation of IP is practically Government policy ?

      • Anyway, I think I focused too much on the first part of this blog post.

        As the second part goes, let’s focus on future actions needed.

      • I tend to agree Lorax, if you look at my COTD yesterday, note that the public spending “bubble” or peak has now been wiped out – it has drawn forward all that demand and cut it off, as the gov’t races back to surplus.

        The cash handouts – whilst sounding awful (I gave all of mine to charity) – were a better response, even though I know some used it to buy plasmas from China off Gerry Harvey…

      • Yep and just about every dollar of it became Foreign Debt….great solution! Why do you think this was all money for nothing? Govt handouts are not money for nothing. They add to debt somewhere

    • Mav, that first post definitely one of your wittier attempts. Well done. I don’t agree, but again well done. 🙂

  2. lower rates may, rather, trigger a renewed desire to borrow, especially to speculate on houses

    But will it? Most people here assume it will, but I’m not convinced. Australians appetite for debt and speculation seems to have undergone a step change down since the financial crisis. Most of the developed world has had ultra-low rates for almost four years now, and there’s no sign of the credit binge returning.

    • I agree with you Lorax, there is general fear in taking on debt at the moment. People are worried about their jobs, so they can’t justify taking on higher mortgage. With no to limited capital growth people are not going to upscale their houses in droves unless they have to; family situation changes etc.

      • The small interest rate cuts before Christmas demonstrably lifted the housing market!!!
        I raise the question again ‘where else are Aus going to invest their money?’

        1. Build a factory, quite apart from the artificially high dollar, unions, Govt charges, Taxes, WHS and general business bashing by Govt preclude any sensible person investing in industry. Witness the number of factories currently leaving for offshore…and I don’t mean to China.

        2. Invest rural industry? The 50 years of bashing the farming community is reaching new highs.

        3. Invest in mining…too long a project time before you get any benefit then the smallest extra profit you make, after waiting a decade for a return, will be taxed at super rates.

        Housing is it. You may get a short period of savings and lower expenditure but in teh face of higher inflation and negative rates housing investment will be back in vogue.
        What does everyone think happened after all the other recessions in Australia in the past five decades? How do you think we got to where we are?

        • Yeah I see your point. It is a pity that it has come to that however as you say it has been a long time coming.

        • Jumping jack flash

          “I raise the question again ‘where else are Aus going to invest their money?”

          Well it’s not really their money is it? It’s the banks money we’re talking about.

          Most Australians’ “wealth” is borrowed money.
          Their savings is essentially borrowed money, either by themselves or by someone else and given to them, that hasn’t been spent.
          Their equity is debt bubble foam caused by rising asset prices pushed up with borrowed money.

          Only a tiny percentage of Australians’ wealth can be attributed to the sound fundamentals of increased productivity causing increased profits.
          Most of the “productivity” we have these days is caused by increased consumption from debt fuelled demand. The tail wagging the dog.

          All of this shrinks and eventually disappears as the debt does.

    • FHBs taking on a high LVR mortgage, ‘sharing’ a mortgage with a ‘friend’, getting ‘help’ from their parents – all these have been made up into a ‘new normal’ by RE Spruikers and MSM. Chris Joye is already talking about a ‘recovery’ and pushing a ‘permanently high plateau’ meme.

      Some sheeple will most definitely be fooled by these memes. We need a shock event that gets through the myths created, for everyone to understand what is going on.

      • ‘Some sheeple will most definitely be fooled by these memes. We need a shock event that gets through the myths created, for everyone to understand what is going on.’

        +1. Many sheeple.

        They don’t have a negative frame of reference. Twenty years of growth despite a global dot com bust and a supposed once in a lifetime GFC and basically zero impact on bricks and mortar. It’s not a question of if lowering rates will make a difference, IMO they clearly have. No boom, but slide halted.

        • this is me, thank god I found MB. I was someone who grew up with only boom times (and liberal government) as I’m only 24. Looking around at peers (and people old enough to remember the last bust) I genuinely think we need a big bust to shock people’s frame of reference on housing. It’ll hurt but it will help in the medium term (as I’m sure we’ll get another housing bubble eventually)

        • That is just it Jimbo there is no negative frame of reference, people have only heard how their friends and oldies have made a fortune on property.

          For example I was discussing property prices with a family friend who is a tradie. He was saying to me that my girlfriend and I should get into the market ASAP because “you have to be in it to win it”.

          I then asked him how much he paid for his previous home and how much his income was. He said it cost $89k and his income was $28k, I did the math on it for him a price to income ratio of 3.18. Then I did the calculation on their current home which he could afford to buy outright because of selling their previous home. He earns about 65k a year now and the house cost 900k (both homes roughly the same area), so a price to income ratio 13.8. When I went through the math with him his head nearly exploded and he realised that now is the worst time to buy a property.

          Only when someone takes the time to explain the current situation with cold hard facts and figures do the “sheeple” even stand a chance of understanding and changing their ways.

          • I will admit that I have severely freaked out a few fellow workers when presenting them with the actual numbers etc lol. They then ask what should I do then? my answer sell now while you actually can. you think they listen? nope

          • Jumping jack flash

            For sure. My young tradie friend was 22 when he signed up for his own personal debt mountain – a whopping 330K.

            He would have been lucky to be making 65K. In any case he was earning less than I was at the time and I would not have been comfortable with that much debt.

            Sure enough, after his wife fell pregnant, they eventually grew tired of working for the bank and walked away.

    • Australians appetite for debt is still huge, but bellies are already full of “pink slime”. People would like to increase debt but they have no money even to service current debt.

      • That is most probably true, I hadn’t thought of the potential pent up demand. Good point

        Given the pressure on margins the banks are facing and assuming that lending rules are not relaxed, this would give the RBA confidence that any decrease in interest rates will not fuel a housing debt spike with the funds flowing into other parts of the economy.

        Would this be a reasonable expectation?

        • I’m not sure the RBA is confident in the banks being prudent with lending. They went out of their way to warn them about loose lending just this week. Where there’s smoke.

          As to interest rate savings flowing into other parts of the economy at the expense of housing, after 20 years, why the change now? In the investor space, the wealth strategy involves leveraging at every possible opportunity and for most, refinancing a portfolio annually to have ready liquidity for more acquisition. I don’t see that changing unless there’s a massive hit e.g. credit crunch, mass realisation that values may not recover/grow within an investment horizon etc. Not to mention all the other pro housing variables/policies.

          • Well if property prices remain flat to decreasing, then there’s no room to continually refinance, right?

        • There is nothing reasonable in property world; it’s all about emotions.
          If mortgage rates fall we could see new round of debt frenzy (especially from upgraders). The good news is that RBA is not anymore in charge of mortgage rates. I think banks cannot support one more wave of debt increases.

  3. Ugh, the stimulus was well implemented? This is a joke right?

    – overpriced school halls
    – free cash
    – pink batts that burned down homes
    – an NBN that wasn’t even built yet

    and I could go on.

    You are showing your bias here, no reasonable person could say that the stimulus was well implemented. In fact it was remarkable in how poorly they implemented it and how worthless and wasteful it was.

    How about next recession they just give everyone $1m? By the logic used here that would ‘save’ us…

    Ironically, you gloss over the one thing that actually helped keep us out of recession, keeping the housing bubble inflated.

    Other than that it’s a decent article. The biggest issue I have with the government hell bent on taking us to a surplus is how they plan on getting us there. That being, raised taxes, because anyone who thinks this government will actually cut spending in any meaningful way is deluding themselves.

    We should be aiming for a surplus, but it should be achieved through lowering taxes, cutting wasteful spending (of which there is a lot), cutting worthless red tape (especially around IR) and letting the economy grow. Simply raising taxes will just hurt us in the short term.

    • Mark HeydonMEMBER

      “overpriced school halls”
      Not according to the independent audit.

      “pink batts that burned down homes”
      The rate of fires caused by newly installed insulation was significantly lower than it has been in the past, it was just more high profile due to the politicisation of the issue and the huge spike in the absolute number of homes with newly installed insulation.

      I didn’t know the NBN was part of any stimulus package.

      You could go on, but it is probably a good idea to get your facts straight first.

      • “Not according to the independent audit.”

        Yeah I guess paying twice as much as you normally would “isn’t overpriced”.

        I doubt the ‘independence’ of an audit that finds something that is plainly not true.

        “The rate of fires caused by newly installed insulation was significantly lower than it has been in the past, it was just more high profile due to the politicisation of the issue and the huge spike in the absolute number of homes with newly installed insulation.”

        Evidence please. I guess that’s why the government paid to have them removed right?

        “I didn’t know the NBN was part of any stimulus package”

        It was announced at the time as part of the governments big spending measures.

        “You could go on, but it is probably a good idea to get your facts straight first.”

        Likewise.

        • Perhaps if Swan was to add the NBN to the budget he would get the nice big deficit that some are arguing for.

          But he can’t because it will achieve a commercial rate of return! 🙂

        • I love how people criticise the NBN.

          I am reminded of Rodney S. Tucker, paper from the University of Melbourne.

          Broadband facts, fiction and Urban Myths.

          http://people.eng.unimelb.edu.au/rtucker/publications/files/tja10043.pdf

          In the beginning of the paper he comments about reading some learner ed economist commenting that the NBN is a white elephant waiting to happen…Mr Tucker the author of the above paper (URL) ” When I read the above comment by an economist in a recent newspaper article I was reminded of a famous comment made in 1876 by Sir William Preece, Chief Engineer of the British Post Office. In response to a report about the commercial deployment of the telephone in the USA, he said: ‘The Americans have need of the telephone, but we do not. We have plenty of messenger boys.’ It also reminded my of Thomas Watson’s famous statement in 1943, as Chairman of IBM: ‘I think there is a world market for maybe five computers.’

          I suggest people read the above paper.

          Also, OECD Network Deveolopemnts in Support of Innovation and User needs.

          http://www.oecd.org/officialdocuments/displaydocumentpdf/?cote=dsti/iccp/cisp(2009)2/final&doclanguage=en

          From the OECD report. “High-speed communication networks are a platform supporting innovation throughout the economy
          today in much the same way electricity and transportation networks spurred innovation in the past. Future
          innovations in many sectors will be linked to the availability of high-speed, competitive data networks and
          new applications they support. The emergence of many of these innovative services tied to broadband are
          visible today in four key sectors: electricity, health, transportation and education”

          I am also reminded of my mentor, commenting to me whenwe discuss the NBN. How he purchased the first Motorolla mobile phone in the 80s for $10,000 and the constant comments he would receive.

          • No one is arguing that there may come a day when having a fibre to every house is good thing. The question is whether we need fibre to every house now and what other investments will not happen or will be delayed as a consequence.

            Using your post analogy. When the postal system was being established did they place an yellow express post box on every corner? Nope – funny even now they only put them where there is a need for them.

            Yet the NBN will be digging up all the copper and HFC providing adequate internet connections that many people find fine for their purposes.

            The NBN is a sledgehammer cracking a walnut that in many cases is already shelled.

          • The issue isn’t whether it would be a nice thing to have. In fact, it would be a great thing to have. The issue is the cost and the benefit we get for said cost. I’d love to own a Ferrari, I can’t afford one though.

            You actually give the perfect example of why it’s such a bad idea right now:

            “I am also reminded of my mentor, commenting to me whenwe discuss the NBN. How he purchased the first Motorolla mobile phone in the 80s for $10,000 and the constant comments he would receive”

            I purchased my first mobile phone in the year 2000 for $50 and I’ll bet it did more things and had better reception than the one your mentor purchased. Had your mentor simply waited until the mid 90’s he could have saved thousands of dollars.

            This is why the NBN is pointless. In a few years it will almost certainly be obsolete and we will have spent tens of billions on something that we could get for a fraction of the price.

          • drsmithyMEMBER

            I purchased my first mobile phone in the year 2000 for $50 and I’ll bet it did more things and had better reception than the one your mentor purchased. Had your mentor simply waited until the mid 90′s he could have saved thousands of dollars.
            Of course, those thousands of dollars were probably dwarfed by the additional productivity and income enabled by buying a mobile phone before then.

            This is why the NBN is pointless. In a few years it will almost certainly be obsolete and we will have spent tens of billions on something that we could get for a fraction of the price.
            Pray tell why you think optical fibre is going to become “obselete” “in a few years”. What miraculous and as-yet unknown technology are you expecting to not only appear, but be perfected, by the end of the decade to render the entire field of telecommunications obselete ? Because basing your criticism on an event basically unprecedented in human history seems a little… strange.

          • I am on the NBN at my home address, and I love it. I am looking forward to operating my business with it. Not sure on the time frame. It certainly has reduced my phone costs, but again the revenue that it generates is flowing offshore, not sure who owns iinet, but certainly telstra is now 30% foreign owned and Optus etc.

          • Pfh007 – the “Post analogy” was about how the head engineer for the post office criticised the deployment of the telephone, it has nothing to do with placement of post boxes so I have no idea where you’re getting that from.

            Pray tell why you think optical fibre is going to become “obselete” “in a few years”. What miraculous and as-yet unknown technology are you expecting to not only appear, but be perfected, by the end of the decade to render the entire field of telecommunications obselete ? Because basing your criticism on an event basically unprecedented in human history seems a little… strange.

            I too want to know where the people get this “obsolete” nonsense from. Such claims have absolutely no basis in physical reality. The NBN might be expensive, but it’s not going to be obsolete for a long, long time.

          • drsmithyMEMBER

            Using your post analogy. When the postal system was being established did they place an yellow express post box on every corner?
            Have you never noticed that pretty much every house has a mailbox at the front where the postie delivers letters to ?

            Yet the NBN will be digging up all the copper and HFC providing adequate internet connections that many people find fine for their purposes.
            Many people used to find horses fine for their transport purposes, as well, but you may have noticed most of us are now driving cars or motorbikes.

          • drsmithy

            “Of course, those thousands of dollars were probably dwarfed by the additional productivity and income enabled by buying a mobile phone before then.”

            Or more likely it was a poor investment and had he waited a few years it WOULD have been a good one.

            “Pray tell why you think optical fibre is going to become “obselete” “in a few years””

            Wireless is already here and it’s gaining pace in speed and reliability. But I guess assuming nothing will ever be obsolete is great business practice right?

            I mean, humans never develop that would be ‘unprecedented’…

            ” The NBN might be expensive, but it’s not going to be obsolete for a long, long time.”

            So why didn’t business develop it on their own? At the current pace of technological advancement it could be obsolete before it’s even finished. Now THAT would be funny (if I wasn’t paying for it).

          • drsmithyMEMBER

            Or more likely it was a poor investment and had he waited a few years it WOULD have been a good one.
            Right. Because you say so, I assume ?

            Amazing how someone so zealous about the free market doesn’t believe it could have worked in inconvenient circumstances.

            Wireless is already here and it’s gaining pace in speed and reliability.
            Wireless is in no way capable of the speed and reliability of fibre. Not now, not tomorrow, not in any forseeable future. Physics is a harsh mistress.

            But I guess assuming nothing will ever be obsolete is great business practice right?
            I am not aware of anyone making any claims about anything ever not becoming obselete.

            I am aware of you making absurd claims that fibre optic cable – already capable of carrying data at terabits per second, is going to be obseleted by some sort of revolution in wireless data transfer capabilities, currently maxing out several orders of magnitude slower even in unrealstically ideal conditions.

            That’s just raw performance, by the way. We haven’t even touched upon the other catastrophic weaknesses in wireless networking like contention, susceptibility to poor atmospheric and environmental conditions and fundamental limitations due to spectrum, topography and distance.

            I mean, humans never develop that would be ‘unprecedented’…
            I can’t think of anything off the top of my head that’s happened before at the kind of scale you’re implying.

            So why didn’t business develop it on their own? At the current pace of technological advancement it could be obsolete before it’s even finished. Now THAT would be funny (if I wasn’t paying for it).
            Once again, if you can offer any insight as to how the NBN could be obselete within the decade, by all means bring it up, because I’m sure everyone else in the telecommunications field would be very, very interested to know about it.

          • Can some one cast any light on the fibre to the premises idea?
            Is it still the plan?
            Coz it is not what I’m seeing here.
            The fibre is going in alright but so are an absolute multitude of towers.
            Whats the guts? Is that the same elsewhere?

          • So why didn’t business develop it on their own?

            Because of Telstra’s monopoly over the wholesale market for services delivered via their copper network.

            In the absence of competition, it is not the first time that monopoly businesses have tried to wring the max out of invested capital and their captive customers.

            (This has been another edition of easy answers to easy questions)

          • “Because of Telstra’s monopoly over the wholesale market for services delivered via their copper network. ”

            So split telstra up for a fraction of the cost and see the same results.

            What was that about easy answers?

            I’d say it hasn’t been done because it’s not viable as an investment more than anything else. Something which is evident by the pitiful returns the venture expects based on even the most optimistic assumptions.

            “Wireless is in no way capable of the speed and reliability of fibre. Not now, not tomorrow, not in any forseeable future. Physics is a harsh mistress.”

            Yet they are developing it even now. Physics might be a harsh mistress, but simply making her up makes you look desperate.

            Besides if you actually bothered to read my posts before commenting you would see that the issue is the cost and the return, not which is better right now.

            The cost is too much, the benefit too little. That’s why the government did it and nobody else would.

            Once again, the issue is the cost, not which is better right now. And no, saying “my mentor bought a mobile for $10,000 therefore it’s OK to spend $60b on the NBN” is absolute nonsense. There is a reason your mentor is one of the only people to own a mobile in the 80s.

          • So split telstra up for a fraction of the cost and see the same results.

            What!! And let Abbott and his bots scream “reckless Labor government interference in private enterprise” ??

            Nothing is easy when mouth breathers exert control over public policy through their simplistic slogans.

          • MattR
            Telstra and Optus spent many billions of dollars in the mid 1990’s installing duplicate HFC networks.

            Yes, not many people could afford the first mobile phone.

            “Had your mentor simply waited until the mid 90′s he could have saved thousands of dollars.”

            He made MILLIONS and MILLIONS in the 90s. (Not through Property…the old fashioned way.)

            I remember reading about the first tolls on the Sydney harbour bridge, Horse and Rider 3 pence, Sheep or Pig 1 penny per head.

            Do we want to be the clever country?
            or
            Do we simply want to be a mine?

            We have to open our eyes as a nation, we have to dare to dream.

            We are now firmly in the digital age, there is no going back.

            The benefits of a nation building network in the Areas of E-health – google – Kaiser Permanente the largest not-for-profit medical organization in the US – and see how they have embraced E-Health.

            Google Telemedicine and see what is coming.

            The NBN will help significantly in looking after all the Baby boomers.

            E-Education – The possibility of clustering small secondary schools to offer clases they would not necessary be able to provide. Online Real time lectures. Increased flexibility and increased access to learning b reducing time and location constraints on receiving learning.

            E-Government Services – we all want smarter more efficient services. (You will be able to pick up your FBT)

            Smart Grids – Digital control of the electricity network, between the customers and the delivery network and the generators.

            Transport, real-time reporting and monitoring and congestion control enabling more effective traffic management.

            Teleworking…

            I have an idea, lets stop all Middle Class Welfare and we will pay for the NBN in two and a half years.

            We could have ALL dole recipients, dig the holes 🙂

          • “What!! And let Abbott and his bots scream “reckless Labor government interference in private enterprise” ??
            Nothing is easy when mouth breathers exert control over public policy through their simplistic slogans.”

            /sigh, if you are reduced to nothing but insults and abuse then you really don’t have much left.

            I’m as pro-free market as they come and I support any well implemented measure to break up monopolies, especially ones like telstra.

            nicolas, as I have said already, my objection is the massive cost involved. I also object to the government setting up a government own monopoly over internet infrastructure. Not sure about you, but I already have pretty fast internet (I can download a full length movie in high quality in about 30 minutes, used to be faster before I downgraded to ADSL 2).

            There is just no need to spend so much money on something that, in all likelyhood, will be out of date or much MUCH cheaper in the next few years.

            “I have an idea, lets stop all Middle Class Welfare and we will pay for the NBN in two and a half years. ”

            Honestly, if they did this I’d change my mind and support it. But they won’t. Oh well.

          • drsmithyMEMBER

            Yet they are developing it even now.
            No, they’re not. Really. If you think there are any possibilities of wireless networks exceeding the performance capabilities of wired networks, then you are either delusional or being seriously misled.
            Physics might be a harsh mistress, but simply making her up makes you look desperate.
            Careful waving irony like that around, you might take someone’s eye out.

            The cost is too much, the benefit too little. That’s why the government did it and nobody else would.
            Your argument is circular. What is it with Libertarians and logical fallacies ? Is there a daily quota or something ?

          • drsmithyMEMBER

            There is just no need to spend so much money on something that, in all likelyhood, will be out of date or much MUCH cheaper in the next few years.

            You say this over and over again, but have not provided the slightest shred of evidence – nor even a vaguely coherent argument – to support it.

            Just where do you think the bulk of the money involved in the NBN is being spent ?

          • MattR, apologies about the FBT reference. Low blow.

            I know enough to know that I do not know anything…Really truly.

            I do know, we need as a nation initiatives that will help my future kids, grand kids compete.

            The NBN is a worthy initiative.
            MattR, I have the fastest internet connection money can buy. I live in a suburb with a medium house price of 2.2 million…I own my primary property outright…I am 35 years old…Honestly…it is not about me…It is about this country…and yes…I am lucky…I am fortunate…I just wish the rest of the country has the opportunities I have had.

            And yes MattR I received an invitation…to The Hon Tony Abbott MHR open discussion meeting….on the 18th of April..along with his Pollie Pedal 2012 donation form.

            We have to overcome this BS about politics, it is about politics…unfortunately the NBN in my opinion…is the only national building network…infrastructure on the horizon…Yes I want more…Yes expect more…Yes…the business community want more.
            MattR believe ME…the business community WANTS the NBN. They really do.

            Once again apologies about the FBT reference.=

          • Telstra capex has been about $5billion per year. How is spending $40 billion over 8 years on the NBN a huge expensive white elephant? Telecommunications was possibly the Howard Governments biggest stuff up. The NBN is fixing up the mess from privatising a virtual monopoly. I live too far from the exchange for ADSL2, the copper wires here are on their last legs and any one who thinks wireless internet is a good idea should try it. Despite that we will probably be the ones who get connected last or as this is a safe Labor seat, won’t get it at all when the Libs get in.

        • Mark HeydonMEMBER

          Source on the fires due to insulation:
          http://blogs.crikey.com.au/pollytics/2010/10/19/insulation-fire-risk-%E2%80%93-the-data-is-in/

          You say of the BER program that the government was “paying twice as much as you normally would” and that the audit by the ANAO “finds something that is plainly not true”. If the waste is so significant and plainly untrue, you should be able to point to data to back this up – and not just the anecdotes reported in blog comments or the Murdoch press. I notice you don’t point to any evidence…

          • Your ‘independent’ data from Crikey is not independent.

            Crikey are pro-ALP all the way.

          • MattR, their data comes from Senate Estimates hearings – unless you’re saying there’s lying going on there…?

          • Just various news reports at the time. But I guess it’s the Murdoch press so they are just out to ‘get’ the ALP.

            Karen, look at the numbers they are using, 1 fire for every 750 odd installations? There is absolutely no way that’s accurate. The industry wouldn’t survive.

            So yes, I would say that there are some porkies being pushed here.

            Still yet to get a counter to the basic question, how did all this ‘stimulate’ the economy?

        • Evidence please. I guess that’s why the government paid to have them removed right?
          – The fires were caused by faulty installation by private contractors, mostly with non-pink batts – systems where foil was used as a reflector, and bad installation with a conductive insulation meant problems. The government ordered an audit of the 40,000 homes with this method of insulation installed, and the amount fixed were in the neighbourhood of 10,000. I don’t have a source URL to point you to but this is my recollection of the time.

          It was announced at the time as part of the governments big spending measures.
          The NBN was policy at the 2007 election, before any of the stimulus was even relevant. Leading up to the decision to build it directly through a government entity was a tender process that failed to get a response for the Australia-wide network (other than a 4 page letter from Telstra not deigning to respond to the tender but to keep their foot in the door of the process)

          • “The fires were caused by faulty installation by private contractors”

            Yes I’m aware of the details. How did it stimulate the economy though?

            “It was announced at the time as part of the governments big spending measures.”

            Still not getting how the government ‘saved’ us from recession.

        • According to info on Background Briefing much of the insulation was poorly installed – gaps were left, whole sections of roof not done (where installer thought nobody would notice), sometimes incorrect R rating insulation was installed.

          Energy Efficiency: How does your home rate?
          http://www.abc.net.au/radionational/programs/backgroundbriefing/2012-04-01/3917616

          Long-time contractors (in the insulation business) now have no work because so much work was brought forward into that frenetic period of activity.

          Outcome seems to be – many more homes with poorly installed insulation, and a once stable section of building/service industry now on its knees.
          A fine caper (while it lasted), followed by a mess that no one wants to clean up.

          In this age of individualism (or greed?) any freebie seems to be abused to the extreme.

      • By the way, you didn’t answer the basic premise. Please explain how these things ‘stimulated’ the economy.

        Several other countries implemented the same programs, even spent more on them and arguable implemented them more efficiently that our government did. Yet they went in to recession. If our stimulus ‘saved’ us from recession then stimulus should have ‘saved’ other countries as well.

        Science needs to be repeatable. If one country went in to recession and another didn’t, yet both had ‘stimulus’ then you can be pretty sure the ‘stimulus’ is irrelevant.

          • No, it’s a perfectly acceptable comparison.

            If two countries use fiscal stimulus yet only one avoids recession then clearly stimulus isn’t the determining factor when it comes to recessions.

            A better way to look at it is, which countries didn’t go in to recession, and look for comparisons with them. Ie, Canada. Now what do they have that’s the same as us? A mining boom and a housing bubble.

          • Unfortunately, probably in both cases, the mining boom is not large enough to counter the debt-financed housing boom. It has been a terrific cushion although now it is beginning to look like the forces of credit unwind are about to be unleashed.

            Then again, we might muddle through, recessionish for a couple of quarters, boom rolls on – viola – back in black (well not exactly black) again!

          • General Disarray

            “No, it’s a perfectly acceptable comparison.”

            sigh…

            Here are just a couple of reasons why your argument doesn’t hold water,

            1. Size of stimulus differed in every country

            2. Macroeconomic conditions differed in each country – majority worse off than AUS

            Those two examples alone would trash any scientific study. Black and white thinking is easy, unfortunately the world is colour.

          • “1. Size of stimulus differed in every country”

            Yep, in the US and Europe it was bigger.

            “2. Macroeconomic conditions differed in each country – majority worse off than AUS”

            Yep, their housing bubbles popped, ours didn’t.

            By black and white do you mean “government spent money, we didn’t go into full recession, therefore government saved us from recession”?

            If four cars won’t start, but one does, do you say “thank goodness we got new tires!”?

        • Oh dear, thats rather simplifying things don’t you think?

          /face palm on this line of thinking…

          • And, ‘gummint spend money, australia no recession, so gummint save australia’ is Einstein level of thought?

      • To be fair, I think a proportion of school halls were either inadequate for purpose designed and/or over priced – but not all school halls. Alas now the money is spent the debt accrued – little chance of staving off the inevitable in the eyes of many.

        As far as the NBN goes (someone correct if I’m wrong) I’m pretty sure that even now as the rollout strides ahead the $60+ billion will not appear as a factor in the forthcoming budget and has not appeared as a direct cost to government to date – the NBN although effectively a government enterprise is borrowing required funding (offshore?). Another convenient omission from direct government budgetry costs but a concomitant increase in debt, as Flawse says, somewhere.

        As I said, this was via Latham or Richo, some political talking head.

        • I think a proportion of school halls were either inadequate for purpose designed and/or over priced

          I’d love to know how you come to that conclusion when it glares so much bias.

          The program didn’t endear to build nothing but school halls. ‘School halls’ was the media buzzword.

          Things in my area built were libraries, having decrepit demountables replaced with solid structures, computer and science labs and canteens.

          I’d gather a very small percentage were actually assembley halls.

          But base don this small percentage that were actually school halls, please inform us so we can ascertain how many of these were inadequate for purpose.

          Surely you’re just not parroting glib, idealogical lines?

        • RP it’s you that needs a new ideological horse. You jump on to these threads spitting venom at every turn. Tone it down a little.

          Read. Slowly. Pay. Attention. I used the word proportion. I did not say ‘all’ or ‘every’. Essentially, some projects fell short on either design or cost. Simple. Capiche?

          If you had been old enough to read at the time you would have been better informed.

          • I don’t need to tone down anything, if anything I police ideological lunacy. If you notice a trend in my postings as such, there may be a signal there for you.

            Now, as far as your plea to grammatical authority with the patronising.periods.between.words, your message was quite clear.

            The downside is that it displayed pathological ignorance.

            You are not qualified to say “I think a proportion of school halls…” followed by anything.

            You are completely obtuse to the subject matter at hand.

            You have no understanding of any of the developments, nor any or the outcomes.

            You posted a slur that was anti-ALP containing the usual coalition cliches.

            You’re better off not saying anything than throwing your toys out of the cot.

          • Another try. Too verbose. When you get excited you lose the thread and become shrill. Remember, tone it down.

      • I’ve got some facts Mark. A small town I’ve got close links to had some school infrastructure built as part of the BER. The local, quality trades put in a bid that was one tenth of the value of the final contract awarded to some big city mob. These guys have done some work for me and are as honest and good quality as any I’ve used anywhere.

        It’s hard to conclude that program was nothing more than a corrupt, coordinated wealth transfer from the Government to its building mates. And we wonder why the country’s whinging about the cost of living with inflation supposedly at the bottom end of the range.

      • “overpriced school halls”
        Not according to the independent audit.

        There were few cost over runs to audit as the base prices were so absurdly high to start with. A significant portion of the Audit was “complaints” or “value for money” results of an online survey directed to principles where they could box tick “stongly agree, agree, neutral…”.

        Back in the real world, Google “BER administration costs” and have a light a read of the first 50 or so hits. Comparisons of “building administration costs/m2” showed huge anomalies between private and public schools as well as across states.

        The Price waterhouse coopers Independent Audit avoided comparison to established building cost sheduals, but it was very big on Vibe “did you enjoy spending other peoples money”?. The only Midnight Oil burnt conducting that audit was the bald headed fellow.

    • Don’t mean to be too picky but it wasn’t the pink batts that burnt down homes, it was the metal ones that caused electrical shorts.

      • and even then it wasn’t the insulation but the dodgy contractors sapling electrical wires to metal sheets

      • Yeah littleguy but that’s too many words to fit into a headline, or too complex for the average punter to comprehend 😛

      • The devil is always in the detail.

        Now convert that statement of fact into a sound byte for TV in order to get that across into the minds of flat earthers who listen to Abbott’s “wasteful pink-batts” sloganeering.

  4. The recipe is simple but the cake may not be sweet.

    1. Interest rates must not be lowered – they are already very low and developing the habit of generating capital domestically is a must

    2. There a distiction between automatic stabilisers and picking winners with fiscal policy.

    3. There are plenty of things that need doing that require workers. Fixing dumb policies would allow many to happen without govt involvement. Regs affecting new housing is one example among many.

    4. Limit disincentives to people working harder for longer

    5. The idea of raising money with bonds to give to people to ‘consume’ works but is short termism to 3rd degree we have time and brains to do better

    6. If we do any fiscal winner picking it must be valid from a cost benefit perspective. – no more NBN decisions that have more to do with pollies ego cat fights with telstra than an economically efficient plan to improve internet access to those who dont have it.

    • Oh and

      7. Keep reminding ourselves that there is nothing easy about weaning ourselves of a credit boom and the lazy policy reform agenda that was the result.

      How about Keating for the next Senate vacancy – should be some ALP deadwood that has reached pension qualification.

    • I tried your recipe, but the results were more like pancakes, and really bland and chewy. Perhaps I’m not following it correctly. Can you just clear up some of the ingredients …

      What are the dumb policies I should fix to get the plenty of things that require workers happening ?

      What were the disincentives I had to remove get people working harder and longer ?

      I couldn’t find a struggling sector or nation boosting infrastructure project that actually met the criteria of a cost-benefit analysis. Can I just pretend it does and see how it works out ?

      Also, I can’t seem to get the oven up high enough. I think it’s one of those reverse induction things where you actually do need lower interest rates. Will that spoil that recipe ?

      • Pleased that you have tried the recipe even if you found it hard work to get right!

        I assume it was in a simulator because it hasn’t been tried any time recently down under.

        Housing and development policies are an example of dumb policies that gives us the choice of expensive new housing or none at all. Less need for all the tradies to be flocking to the north west if the new housing bottle necks were unplugged.

        Disincentives to work hard and longer? Try progressive taxation and a tax system titled towards capital gains.

        If you think cost benefit analysis doesn’t work for infrastructure you must have bought the line about the NBN – can’t put a price on blue sky. Well you can – you just have to be upfront how much you are willing to pay for blue sky as against practical solutions to current requirements that allow for reasonable growth. The NBN cost is clear its benefits are largely the province of science fantasy – “we cannot even imagine what we will do with it” doh.

        And finally – lower interest rates – the magic pudding that solves everything. The cost less lever that just needs cranky and happy days are here again.

        • Thanks

          I’ve amended things based on your feedback. It’s still not rising properly, and it’s really quite heavy. The lower ratio of capital gains is souring the flavour. I can’t even get my drover’s dog to eat it.

        • drsmithyMEMBER

          Disincentives to work hard and longer? Try progressive taxation […]
          I’ve neither met, nor ever heard of, anyone who turned down a raise or a higher-paying job because of progressive taxation.

          Taking home X% of each additional dollar earned rather than y% is still more than not taking home any additional dollars at all.

          • I know quite a few people that walked away from full-time work (myself included) because i was sick of working for the government and i didn’t think sheltering my income behind over-priced property was a good bet.

            In the money vs time equation marginal rates matter.

            Turned out i was right…who would have thunk.

          • I should add that high marginal rates have all sorts of consequences for business in Australia that people just don’t realise. One of these is that head offices are gradually being relocated to Asia by stealth because the senior execs would rather get non-resident tax rates.

            Australia has a big problem with giving huge concessions to existing capital and flogging those that work… it’s a disincentive for sure.

          • drsmithyMEMBER

            I know quite a few people that walked away from full-time work (myself included) because i was sick of working for the government and i didn’t think sheltering my income behind over-priced property was a good bet.
            Right. So you’re clearly independently wealthy enough that you don’t have to work to live. You don’t think that makes your position just a wee bit irrelevant to the typical person ?

          • Not quite DS – at the time I was working long hours and just couldn’t bring myself to work that hard just to give 50 percent of every extra buck I earned to some jackass politician to [email protected] against a wall.

            Neither did I wish to avail myself of the standard bogan tax shelter of a rental property or two (the planet being mid way through the greatest liquidity induced asset boom ever).

            Just happy to work less, earn less and have more free time.

          • Sorry if this doubles up but last comment seems to have failed…

            DS – I just got sick of giving 50c of every extra dollar earned to the pollies to waste so I just worked less – went part-time.

            Less money but more time. Money always comes at a time price and with the government taking half of it – it wasn’t worth the effort.

          • drsmithyMEMBER

            I just got sick of giving 50c of every extra dollar earned to the pollies to waste so I just worked less – went part-time.

            So you were earning well in excess of $180k/yr, putting you into probably the highest 1% of income earners in the country.

            Presumably, even “part time”, your income is still a large fraction of that, and you have substantial assets (eg: own your home outright).

            Again, I’ll make the point that trying to compare yourself to the other 99% of people out there is just a touch invalid. Very, very, *very* few people have the luxury of being able to only work part-time and still maintain a comfortable lifestyle. I’m sure most of them would jump at the opportunity if they had it, but not because of anything related to progressive taxation.

            Australia has amongst the lowest tax rates in the OECD. The fact that millions of people not only choose to live in all those other countries, but consistently have amongst the highest quality of life levels in the world, not to mention some of the most prosperous periods of Australian history happened with much higher tax rates, suggests that your implication progressive taxation is some sort of monster is bunk, at best.

          • Why so hung up about what people earn? They just spend it on yachts and nice cars, bigger bathrooms etc (many of which they have no time to use – well maybe the bathrooms) and keep the economy ticking over.

            Want better services? tax the middle a bit more because they are the ones that use it and that is where the biggest pile of cash that can actually make a difference lives.

            Then we might have a few more job creators and a few less public servants.

    • Nobody seems to mention it here but marginal tax rates on income are too high. Forces you into tax-relieved investment. So the government, not the individual, decides where to invest. A major component of the housing bubble that synergised nastily with the BB demographic.

      • Mark HeydonMEMBER

        Yeah, I’m sure all the economic problems of the world would be solved if marginal rates of income tax were lowered. And tax revenue would probably rise too.

        Don’t make me Laff.

      • drsmithyMEMBER

        Nobody seems to mention it here but marginal tax rates on income are too high. Forces you into tax-relieved investment.
        No, the problem here is the “tax-relieved” investment isn’t taxed appropriately. Australia already has some of the lowest tax rates in the OECD.

      • Correct marginal rates are just too high. And to the ‘let’s just get rid of the tax favored investments’ comments – the 23 billion or so pages of tax act, regs, rulings etc is mainly aimed at just that. Marginal rates are too high and people just go spare looking for shelters.

        My theory is that there is something deeply offensive to the average person about having to work for more than a couple of months a year to support the government.

        • drsmithyMEMBER

          Correct marginal rates are just too high. And to the ‘let’s just get rid of the tax favored investments’ comments – the 23 billion or so pages of tax act, regs, rulings etc is mainly aimed at just that. Marginal rates are too high and people just go spare looking for shelters.
          Even in countries that tax lower than Australia, the well-off still “go spare” looking for tax shelters, because their vast feelings of entitlement cause them to believe they shouldn’t be paying their fair share.

          My theory is that there is something deeply offensive to the average person about having to work for more than a couple of months a year to support the government.
          The average person earns ca. $60k a year and in my experience is pretty happy with things like public healthcare, public education, a functioning legal system, safe foods, a welfare safety net, and all the other things “supporting our Government” results in. Probably because they have the example of America to look at and see where people like you would prefer they be.

          • This is an ideological divide so there is probably not much point arguing it out. But here is an example of the lunacy of the Australian System.

            Kiddo A – goes to uni works hard to keep his/her head above water (couple of jobs etc)and earns almost no money for many years racking up debts. Then finally lands a job, works hard to find that they are smacked with a tax punishment for working hard while he/she tries to build up an asset base. Kiddo A has no access to capital so tax minimisation strategies are limited.

            Middle Age Joe B – owns all his assets (and has a good asset base), he benefited from the asset boom and earns a pretty good wage. Decides he’d rather not pay tax so uses existing assets to leverage away his marginal rates (ie shelters his/her income from tax). Also takes advantage of the trust rules to change the derivation of the income so that at most it is taxed at the corporate rate.

            Marginal rates punish young hard workers with little assets and high debt – everyone else is dodging them with simplicity of walking down the street. They don’t bring in much tax, they cost a bomb to police and they serve the sole purpose of making the ‘chip on the shoulder’ brigade feel better.

  5. Foreign debt effects and foreign ownership of our assets don’t get a mention anywhere in this fanciful mixture we all have.

    Luckily Foreign debt is a free and unlimited source of funding that never has to be repaid.

    What has to be done in this forum to bury this false notion?

  6. “Moreover, the only part of the 2008 stimulus that was profligate were the measures aimed at supporting house prices.”

    Good one. I was being shown around the school my cousin works at here in Adelaide. The principal asked us how much we thought the new stand-alone undercover area would have cost. My uncle, being a builder, estimated that he would have been able to do it for between $60,000 and $70,000. It cost $600,000.

    I sincerely hope next time the government seeks to indulge in “well designed and well executed” ex post facto stimulus, we will witness H&H sermonising on the need for a construction industry rent tax. I would hate for MB’s halo to slip on account of double-standards.

    • Wow, that’s an amazing anecdote. Here’s my own one to balance that out.

      I was being shown around the school my daughter goes to here in Brisbane. I asked how much the new Assembly area had cost. I had recently just had some building work done on our own house, and based on my own experience with the huge variances in builder estimates without any engineering or certification assesment being done, estimated about $580k. It cost $565k.

      I haven’t just made that up lend some whiff of credibility to a partisan political comment. Honestly.

      • Yes but sadly my anecdote is actually true, and in no way unique. Thanks for the contribution all the same.

        • Of the audit of over 20,000 BER installations, 216 were found to be excessive in price.

          Thanks to your anecdote, we only have to sift through another 215.

          +1 from me.

          • Indeed, 19,784 fairly-priced schools halls next to 19,784 fairly-priced old ones.

            😀

            Straight from Andrew Robb’s out-tray of lunacy.

            19k+ assembley halls was the outcome was it? Please try to look past the media buzzwords, the outcome was school infrastructure, and as stated above, most of them actually weren’t assembley halls.

            They included;

            Canteens,
            Libraries,
            Computer labs.

            as well as demountable school rooms replaced with permanent structures.

            The repeated use of ‘20000 school halls’ in a non-sensical red herring to insinuate the whole exercise comprised of superfluous buildings.

    • You didn’t read what I wrote:

      “It’s logically absurd to criticise government for wasted stimulus which is by definition quick and widespread not precise and parsimonious.”

      And did your uncle then spend the money? Or stick it in the bank and rebuild their deposit base allowing them to lend it elsewhere etc…

      • but surely having bought ten of those halls would have been more beneficial to the economy? simply holding the deposit in the bank can’t be as efective (via the velocity of the money) as employing 10x the people parts etc? Just playing devils advocate here

      • I did read that, and fret not, the logical absurdity wasn’t lost on me: You say that because the government intended the stimulus to be wasteful, that makes it ok. Right, would the lethal pink batts insulation scheme be less of a travesty if the government intended to kill people?

        His business is in Darwin, so I can’t say for certain, but I doubt he received any BER contracts owing to his lack of Labor Party connections. Which is a shame, he would have rolled it out as quickly as anyone, for a fraction of the cost. Never mind, a transfer of wealth from people who earned it to rent-seeking builders is good and necessary in the statist mindset.

        • Why must you let your partisan bias ruin a good discussion? Surely we can talk like adults without regurgitating party talking points?

          • I beg your pardon, but this blog recently saw the posting of a woefully partisan paper from The Australia Institute proposing, among other insanities, that Australia ought to curtail development of coal capacity in order to influence world prices. This Given thermal coal demand is expected to grow at roughly 1.5% annually for the next three decades, outstripping supply, it would be lunacy to restrict our output; any gains would simply accrue to other producers.

            Of course, the point of that paper was to push an ideological anti-coal agenda, dressed up in the garb of economic rationalism. I’ve got no problem with that, but don’t pretend that this site is some wellspring of non-partisan purity.

          • This discussion topic is inherently political – the nature of the response was political and ideological. h&h point was some misses were inevitable given the speed and volume.

            The debate would be better served by asking why during one of the longest booms ever both Coles and Woolworths (oops I mean lib and lab) let our social infrastructure run down so much.

          • drsmithyMEMBER

            The debate would be better served by asking why during one of the longest booms ever both Coles and Woolworths (oops I mean lib and lab) let our social infrastructure run down so much.

            Well in the Liberal’s case it’s pretty obvious: they’re ideologically opposed to maintaining it (except for targeted vote-buying with middle-class welfare).

            In Labor’s case, they’ve had three main problems: a) a shift towards the same ideology as the Liberals in an attempt to win votes; b) the GFC; and c) a hostile public fuelled by overwhelmingly right-wing media.

            If it’s “social infrastructure” you want, you should be voting Greens, or at worst, Labor.

          • DS – that’s a pretty green view of politics (hackish?). As far as i’m concerned both major parties are hopelessly corrupted by their crony-ism/nepotism and slavish corporate toadyism. They are about as far apart ideologically as coles and woolies and riddled with young, green ignorant hacks.

            Politicians of all colours have shown they have very little interest in core services, make very little difference to any-one’s life and so the more they could butt out the better.

  7. I invite you to read the following NYT piece and consider just how many households have had their family balance sheets destroyed to enable the vultures to make a living in this way.

    Sure, we need vultures to clean up. I do not criticise that, but point to the mass wealth destruction in the USA, Europe and Japan.

    Homebuyers thought this could never happen. We still think it cannot happen here.

    http://www.nytimes.com/2012/04/03/business/investors-are-looking-to-buy-homes-by-the-thousands.html?_r=1&ref=motokorich

    Don’t Buy Now!

  8. A little off topic but to the MB guys: is it possible to change the site a little so its like facebook and one can track when people have responded to their comments and comments which they have responded to? would make it much easier to keep track of these comment conversations.

    • Thanks for the input – we are looking – in the future when we have some time…….to update the comments section, including ability to edit etc. Don’t really want to go down the path of a forum, even though we are publishing ca. 400-500 comments a day now.

      I must admit its easier for us at the back-end of WP to view comment threads.

    • +1. An email notification system that directs you to the comment in question would be swell. Unfortunately being tech-illiterate I wouldn’t know how feasible that is.

  9. anonysubscribe

    Good of MB to set AFR straight. Are AFR journalists economists? Or just hacks, capable of stringing together gap -fillers for any purpose, whenever?
    Glib answers from glibber hacks fooled me for years… before I discovered MB [riff on old smirnoff ads when I was young.]
    to prevent banks firing up another round of mortgage mayhem on lower rates we need good governments unbeholden to and fearless of business.
    time frame for return to surplus that balances growth and banking liabilities needs to be determined on public policy grounds, nto having the business tail wagging the government and citizens’ dogs.
    new economic narrative from government to help Australians navigate this trap needs to put citizens first, governments second, and businesses need to recognise that the national interest always must come first.
    current policy of export replacement to contain the mining boom – not across this.
    banks offshore liability risk can be decoupled from national budget by creating citizen’s bank[s] firmly tied to national interests. Banks non-traditional businesses eg ‘merchant banks’ need to be set up as normal businesses under ASIC subject to stricter risk and gearing market perception. Banks reckless business practices must be allowed to fail and not socialised onto citizens and countries which go bankrupt on business power and greed wagging the political dogs who serve them over their electors.
    post-Wallis inquiry? We need a completely new way of looking at economics and businesses in the national interest. Schumpeter’s?
    tax reform should again work in the public interest foremost. mining taxes and investment property concessions like capital gains, as well as negative gearing all need to support rational economic growth, not sectional business interests.
    how can interests be prevented doing what needs to be done in the national interest? This is the problem. Western societies which have failed to promote citizens’ rights against businesses and politicians beholden to power lobbies have made a mockery of democracy. Ethics and morality are not taught in schools or universities so we have no capacity to appreciate their overriding importance in the national interest.
    mediocre leaders and self-serving businesses and tacit media populate all societies, not just ozzie, ozzie ozzie. Oi, oi, oi. But we are a mediocre society to be ruled by them.

  10. I don’t care which way prices go as my adult kids haven’t bought and don’t have mortgages. If prices fall its good for them but bad for me (retired). If they rise, they’ll be OK eventually (assuming I don’t spend it all!)

    I’m in the slow real and maybe even nominal melt for 5 years camp.

  11. I have lived through Lib, ALP, Lib, ALP, Lib and now ALP federally.

    Most of my voting life was Lib orientated and I’ve worked in the Pilbara decades ago and I must say reading the pro LNP and mining waffle here is as embarrassing as the right wing morons that have hijacked the Liberal party.

    The mining waffle is . Meaningless drivel when 70% of the economy is services. Couldn’t care less either way.

    Back to the right wing hijack. The party that facilitated the biggest property bubble in the history of the universe whilst bribing society’s uneducated idiots.

    I hope you idiots enjoy what you will get.

    I’m going to be LMAO. Then, once the meltdown is in full cry with big ears having a Barry Crocker, I’ll f*ck off overseas (again) and leave you to it.