Australia’s treasurer for the Property Council, Scott Morrison, has gone on a spruiking roadshow to American businesses and ratings agencies, playing down concerns about Australia’s world-beating household debt and a property bubble. From The AFR:
Mr Morrison told a lunch audience at Citibank in New York that… stable banks helped Australia survive international financial shocks and were the key channel for foreign capital to be pumped into the economy to cover a domestic savings shortfall, he said…
The Treasurer took the opportunity in New York to “put in context” the domestic housing market and current account deficit that, he said, funded “productive” investment and had been a feature of the economy for 150 years.
“The current account deficit is there because of the surplus of investment opportunities over domestic capital,” he said.
“It’s not going into speculative real estate development in overheated markets”…
Nice try Scott. Blind Freddy can see that Australia’s banks have borrowed huge sums from offshore, thus expanding Australia’s external debt:
And these offshore borrowings have been a key ingredient behind the banks’ growing loan books – mostly mortgages – which stood at a record 209.3% of GDP as at June 2016:
Which has also driven Australia’s mortgage and household debt to all-time highs, and the highest level in the world:
As for Morrison’s claim that Australia’s record debt is being used to fund “productive” investment, the data clearly suggests otherwise:
The key risk is that the banks’ ability to continue borrowing from offshore and supporting housing rests with foreigners’ willingness to continue extending them credit. This is why Scott Morrison is spruiking so loudly.
The Federal Budget, too, is now hostage to the banks’ offshore borrowing binge as it cannot borrow to spend on infrastructure or other initiatives for fear that Australia will lose its AAA credit rating, potentially leading to an unraveling of the private debt bubble created by Australia’s banks.
If Scott Morrison is so confident of the fundamental strength of the housing market, then why did he claim that Labor’s proposed minor changes to negative gearing and the capital gains tax discount would “crash” the economy:
“If you want to crash confidence in the economy, go and play around with the value of the family home, which is what Labor’s proposal, their housing tax proposal, does”…
“The problem is that household consumption is driving our economy… A big housing tax will undermine consumer confidence, undermine people’s own home values, and have all sorts of disruptive impacts on the economy”…
Hardly sounds like a ringing endorsement, does it?
The reality is that Morrison knows he is managing a bubble, not an economy. And this requires channelling even more of the nation’s resources into maintaining the ponzi, regardless of the longer-term costs economically, socially, and inter-generationally, as well as maintaining the confidence of (and funding from) foreign investors.