Fairfax’s Tim Colebatch has written another thoughtful article today arguing that the new Coalition Government faces three issues that need resolution: housing, infrastructure and the future of the car industry:
In the June quarter, APRA reports that 33 per cent of all home loans were for between 80 and 100 per cent of the purchase price… and 39 per cent were interest-only loans.
It’s the sort of risky lending that fuels booms, which then end in busts…
The reason Australians invest so much in housing, of course, is that the tax system pays them to. There are no official estimates of the cost of tax breaks to negatively geared landlords. My last estimate was that, on reasonable assumptions, it costs revenue roughly $5 billion a year. Subsidies to the car industry, by contrast, cost about $400 million a year.
OK, one in eight taxpayers is now negatively geared, so this government will not remove that tax break. But if Hockey wants to help the Reserve keep interest rates low, he should contribute something to help it head off the housing price boom that could force it to raise rates before it wants to.
One option would be simply to reiterate that when the government’s tax inquiry gets to work, all options will be on the table, including a fresh look at negative gearing. It’s just a warning shot that would help restrain the ”irrational exuberance” of home buyers.
Hockey is right to target infrastructure investment as the best form of stimulus. But we need to invest where it brings the biggest return. An urgent priority should be a well-resourced inquiry into which types of projects bring the biggest return in reducing congestion, speeding freight flows and giving value for money.
The Coalition has selected showpiece projects for political reasons, regardless of merit, without cost-benefit analysis, when economic studies suggest that a host of smaller projects would have a far bigger impact in improving traffic flows…
Then there is the car industry. It is probably now beyond saving, yet at last count it employed close to 50,000 workers and produced $5 billion of net output a year. You don’t throw that away lightly.
This will be a tough negotiation. But if the car industry and the mining investment boom end together, we will be in trouble.
Too right. As noted previously, governments of all persuasions have for too long abrogated their responsibilities for housing policy to the RBA – allowing affordability concerns to be addressed via continuous lowering of interest rates, rather than addressing the underlying causes of poor affordability and corresponding low levels of dwelling construction through supply-side and taxation reform. This must change. And the strong parliamentary majority of the Coalition allows it significant scope to undertake necessary reforms, in turn relieving pressure on the RBA and trade exposed sectors of the economy. The conservative National Government in New Zealand is moving in this direction. And so too should the Coalition.
It’s also hard to fault Colebatch’s views on infrastructure. Handled correctly, the Government can ensure a more gentle unwind of employment and growth as mining investment unwinds, whilst also setting the country up for a more productive and prosperous future. Handled incorrectly, however, and the Australian people could be left with an array of costly and underutilised projects, little uplift to productivity and living standards, and huge debt bills that need to be repaid.
Finally, as stated by Colebatch, assistance to the car industry needs to be managed carefully so that a large number of workers don’t end up losing their jobs all at once, just as the mining boom is unwinding.
