Population ponzi boosts ACT Budget

By Leith van Onselen

The ACT Government has joined its NSW/VIC peers and cashed-in on the population ponzi, using its monopoly on land sales to halve the Territory’s Budget deficit. From The Canberra Times:

Population growth and the territory government’s aggressive land sales agenda has boosted the ACT’s coffers by $82 million this financial year, helping halve the 2017-18 budget deficit to $41 million.

The territory government’s mid-year budget review, due to be released publicly on Tuesday, has shown a $45 million increase in Commonwealth GST revenue this year, thanks to updated 2016 Census quantifying population growth at about 7000 extra ACT residents.

But the government’s bottom line was also boosted by an extra $20.7 million in dividends and income tax equivalent payments linked to land sales in the Jacka 2 subdivision, Kingston and the Hume industrial estate.

Across the board, the boost to territory coffers has brought down the $83.4 million deficit this year, as estimated in last year’s budget, to $41.5 million, with the latest estimates predicting an $11 million surplus in 2018-19, compared to the $9.7 million predicted last year.

The review also suggests the government’s land sales agenda – often criticised as prioritising revenue over housing affordability – will not be slowing down any time soon.

It estimates a further $26.2 million in land sales related revenue for 2018-19, before falling to $9.4 million in 2019-20 and up again to $80.4 million in 2020-21…

It’s like a perpetual motion machine, isn’t it? Just bring in more people, sell land to them at inflated prices and collect more GST revenue from the federal government. Sweet as.

Of course, if you don’t reinvest in infrastructure to keep pace with the population growth, then residents’ living standards are eroded as roads, schools and hospitals become crush-loaded. We have already witnessed this in Gungahlin in Canberra’s north (read here).

Moreover, what happens when the ACT Government runs out of land to sell?

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  1. They can sell tourist packages to see all the sights of diversity and fast food restaurants from around the world.

  2. ACT govt won’t run out of land to sell – there is a huge potential amount of it. The problem is very definitely that they drip it onto the market slowly in order to keep prices high (standard operating procedure by any state govt of course). They could conceivably run out of people who want to live here, if the public service gets slashed at some point in the future – can’t see it this year though.

    ACT has also introduced the world’s tiniest tax on foreign buyers (0.75 per cent!) this month. Clearly calculated to raise a bit of money but make fark-all difference to sales. (http://www.canberratimes.com.au/act-news/act-government-to-increase-land-tax-for-foreign-investors-to-rebalance-market-20180202-h0sgjb.html ).

    On the plus side, the ACT govt is still doing the right thing on stamp duty (gradual phase out in favour of land tax) and has introduced extra tax on unoccupied properties (no idea how they tell – the cynic in me says they will have copied the Vic govt’s worse-than-useless “self-reporting by owners” mechanism).

    • Frederic Bastiat

      You are right to point out that austerity to the public service is the main threat to this Ponzi growth model, but I would argue that this is a massive vulnerability and this could become clear over the next 12 months.

      While the drive to lower budget deficits has lessened and therefore you are not hearing calls for austerity just yet, the residents of Syd and Melb will not take kindly to seeing their property prices fall, which bullet proof Canberra continues to climb.

      So those that think Canberra is protected due to government largesse must believe:
      1) Government debt doesn’t matter and so Canberra incomes will continue to grow
      2) Government debt is now under control and so public service jobs are safe
      3) If public service cuts do come, then the private sector in Canberra will be enough to support prices

      None of those are likely in my opinion, so I think Canberra is a bubbly as any city in Australia to be honest. And to make it worse, people in Canberra are paying over a million for standard homes that are in “great location” but are still 2 hours to nearest beach and 3 hours to a proper city with commercial opportunities…

      • Canberra prices are a bit less bubbly than elsewhere because wages are still rising here (sort of), and house prices have not risen QUITE as fast as in other places. But yes, they are definitely horribly overpriced and often lower quality than houses in other cities (ex-govt construction! – urgh).

        If a shock hits Melb and Syd markets, the Aus economy will go into the toilet soon enough, the budget will be cactus and the public service will be cut after that. So if there is a crash elsewhere, it might lag a bit, but Canberra markets will also go down heavily. If there is a crash.


    • Frederic Bastiat

      Yep totally agree. There will be a lag in terms of when it hits Canberra.

      I suppose where I see Canberra being particularly vulnerable, is that it really is just a big town in the middle of nowhere (p.s. I lived there for 32 years, so a big fan of the place). People have moved there for work and work alone. People will leave just as easily and then you will have a whole host of people that think they have bought “in a fantastic location” just because is near a lake….and Bradon…

      Whatever you say about Syd and Melbs prices…there are still whole suburbs that offer something that is irreplaceable (beach views, proximity to global CBDs etc…)…whereas Canberra property owners could soon find people buying up blocks of land 10 minutes drive from the ACT border at 1/4th the price they paid for their blocks of land.

      • Yes indeed. For this reason I don’t expect CBR will ever feature heavily on foreign buyers’ radar.

  3. My parents bought a block of land in Canberra back in 1976. It was around 1200 sq m, as we are a farming family, and my Dad loved his vege gardening. It cost $10K, which I think was about $50% of Dad’s annual income as a mid-level public servant.

    I just had a quick squiz, and a 600 sq m block in one of the new suburbs in Canberra costs over $500K, which is…I dunno…about 6 times the salary of an APS 6 today. https://www.realestate.com.au/property-residential+land-act-denman+prospect-201940058

    So conditions have gone from spending half a years salary to buy a big block, to spending 6 years salary to buy a tiny block. 6 fcuking years salary, not for a home, but just for a piece of bloody dirt.

    We’re all going backwards and getting poorer while drowning in a sea of debt. Our children will be the first Australian generation whose lives will be worse than their parents.

    • “Our children will be the first Australian generation whose lives will be worse than their parents.”

      It’s inter-generational theft – and a breach of the inter-generational compact.


      Are the Baby Boomers the greediest generation ever?

      The Baby Boomers should not expect future generations to pay for their current benefits. The brilliant Harvard professor, Niall Ferguson, describes the traditional intergenerational compact as our most important social contract and one that is being broken in Western economies.

      Our deficit in 2016 is estimated at $37.1 billion. Our net debt has risen from zero in 2007 to some $279 billion in 2016. If the Senate continues to block expenditure reform and Treasury assumptions on growth, unemployment, terms of trade, productivity and inflation are not realised, national debt will continue to rise. Our credit rating will fall, the cost of debt servicing will increase and the monumental task of repayment will get even harder.

      This week the secretaries of the Treasury and the Department of Finance have spoken on expenditure restraint in unusually blunt terms.

      We have an ageing population, increasing life expectancy, an aged pension benchmarked to average male weekly earnings (the highest possible index) and the family home excluded from the asset test. The aged pension costs us $42 billion a year and is estimated to grow at 6 per cent a year over the next 10 years – far higher than any predictions of inflation, GDP growth and real wage growth.

      A person earning $80,000 who cannot afford a home pays taxes to support an aged pensioner in a $3 million family home . That home eventually passes tax free to the descendants. Hardly fair.

      As we age our health care demands increase significantly. We provide a Senior’s Health Card, which excludes from its means test any untaxed income from superannuation.

      The cost of aged care and ageing is more than $13 billion a year and is estimated to increase at 7.5 per cent a year over the next 10 years. The means test for aged care does not include the full value of the family home.

      Gen X and Y while being left with the bill have not complained, yet

      We have a scheme where support for the older generations and other extravagances were legislated based on the assumption of continuing revenue from an unprecedented investment boom in resources. The boom is over and the government is now forced to borrow to cover the ever growing shortfall.

      The dole, refugees, single parents and foreign aid are not the problem. Support for those most in need is threatened by support for those who are more able to look after themselves.

      Of course we should ensure people and business pay their taxes. The over generous super provisions are another wealth transfer from the young to the old and should be tightened while not discouraging thrift and self-sufficiency (two words slipping from our lexicon). The potential revenue from these additional tax raisings are swamped by the growing budget deficit.

      On cue, the left says simply raise more taxes from business and the rich to pay for the unaffordable. This is the European model, which has been a massive failure. Countries such as Sweden have rolled back company and personal taxes to encourage investment and jobs in an economy that was going backwards. The euro area has 16.5 million unemployed and an unemployment rate of 10.5 per cent.

      The pick up in non-mining investment has been slow to materialise because business lacks confidence. No matter what happens to the official interest rate business continues to sit on its cheque book. Business employs 80 per cent of the workforce and is the only true generator of wealth and jobs.

      There is no growth in real wages and inflation is at record lows. The average Australian feels they are treading water or going backwards.

      Higher taxes are not the answer as they will threaten the very investment and jobs growth we so desperately need and disadvantage the young. We must bite the bullet and rein in expenditure, focusing our support on those who cannot look after themselves. The Baby Boomers should tighten their belts in the interests of their children and grandchildren.

      The Audit Commission recommended a single asset test for the aged pension including the value of the family home above $750,000 for couples to be phased in over 15 years giving time to plan and adjust. We recommended that the benchmark for the aged pension be tied to average weekly earnings again with the adjustment being phased in over 15 years. In aged care we recommended including the full value of the family home in the means test. For the Seniors Health Card we recommended that untaxed superannuation income be included in adjusted taxable income to determine eligibility.

      We recommended the superannuation preservation age and the age pension age be adjusted in line with greater life expectancy. We suggested that the superannuation tax concessions be tightened because they did not appear to be working to encourage more people to be self-funded.

      In July, Baby Boomers should vote for posterity and not for themselves.

      Tony Shepherd is a businessman and a former head of the Commission of Audit.

      • Stomper, don’t blame the baby boomers. The baby boomers have simply benefited from years of government policies which have enriched the baby boomers and put the younger generations behind. Most baby boomers could never have predicted the gold mines their ordinary houses (because that’s what they could afford at the time) have become. They never expected to win the lottery just by buying a home.

        Blame the government; both sides; with all their ponzi policies. But nothing will change until the younger generations (who don’t even realise how much they’ve been shafted) march in the streets and demand change.

      • @MD – Those same baby boomers are the ones who are not prepared to give up their “entitlements”
        They have voted, time and time again, for policies that have enriched themselves against others. Look no further than the superannuation give aways, CGT and negative gearing. Meanwhile expecting unfunded pensions and health care benefits.

      • But Stomper, both sides of politics have policies which benefit the baby boomers. And not just baby boomers, but anyone who already has property, super, or other assets gain from policies put in place by both ALP and LNP. All these policies keep the housing bubble going, whether it be massive immigration, allowing super to be leveraged into property, halving CGT, etc. etc.

        The resultant locking potential FHBs out of home ownership is what the younger generations should be protesting about. If they don’t, and if we continue on our merry way, only those born to rich parents will be able to buy a house. Everyone else will be relegated to dogbox apartments, or have to move further out. A long way further out, and the more they try to achieve home ownership near the city, the faster those inner suburban prices will keep rising due to massive immigration, foreign investment, investors neg gearing whilst buying their 10th and 20th properties etc.

        Don’t expect baby boomers to back down. They are needed to help their kids and grandkids onto the property ladder whilst competing with SMSF investors, foreign investors and other first time buyers using THEIR parents’ money. It all points to a government sponsored housing bubble which has swallowed up everything in its wake, and it’s up to the young to make the government change. Of course, young people have been more concerned about same sex marriage, and soon their attention will be drawn to a republic and changing the flag, instead of the issues that are impacting most of them right now.

      • You are assuming that average baby boomers have agency. Our political system is actually an oligarchy with a thin veneer of democracy on top to give the masses the illusion of choice. The public is only consulted on symbolic issues like gay marriage; the policies that really matter are bipartisan and decided behind closed doors. The oligarchs own the mass media, so that they can shape public opinion and convince people that there is no alternative, as in the article you quoted above, or that your problems are due to some old duffer down the road and not them. They also own the politicians, because they can give them election funding, good coverage in the media, and a very comfortable future after they leave politics. Sure, we can (and should) refuse to vote for the major parties, but minor party politicians can be corrupted, too.

        This idea that most baby boomers are rich or need to be a huge burden is ridiculous. Only 19% of baby boomers own an investment property, as opposed to 20% of Gen X and 22% of Gen Y. According to ASFA, the median superannuation balance on retirement (as of 2015) was $100,000 for men and $28,000 for women. This is because they didn’t receive superannuation (or very little) for much of their working lives. Around 20% of baby boomers are facing retirement without a house (divorce, job loss, etc.) and in dire poverty. In some cases, the land under ordinary people’s houses has become valuable due to government immigration, urban planning, and other policies, so that they are asset rich and income poor, but there is no reason that the government could not recover money spent on pensions when the house is sold or passed on. What is unconscionable is forcing them to take out a reverse mortgage with an extortionate interest rate. The superannuation preservation age and retirement age (with humane treatment of people too disabled to work) could also be raised if the government took steps to tighten the labour market (which would help young people as well). In 1881 before the aged pension, the British government found that 71% of the men over 65 were still working.

    • Thanks for that mind blowing insight! $500k is indeed 5-6x the salary of an APS level 6 worker!

      Even if your father paid 50% income tax – that would still mean the land cost no more than 1 year of his salary.

      Clearly, the stupid voters want to pay big bucks for a block of dirt – it would be so much better if 30% of that $500k was tax. That would raise oodles of revenue for infrastructure like high speed rail.

    • LSWCHP

      If your father was earning $20,000 pa back in 1976 then he was earning well above the wage of an ASO6 (the equivalent classification back then was known as a clerk class 7 in the Commonwealth Public Service). In 1976 a clerk class 7 was earning around $12-14k, at the most. Wage inflation started to kick in noticeably from around 1974 when I was earning around $5k pa as a clerk class 2/3. My small 720sqm block in Tuggeranong purchased at the end of 1974 cost me $5,600. Inflation probably averaged around 10-12% in the second half of the 1970s and 8% during the1980s until we got the 1990/91 recession, and resulted in much higher nominal wages and made my mortgage repayments a non-issue within a few short years. I got promoted to a clerk class 7 position in late 1982 after completing an economics degree at the ANU and as far as I can recall my new salary would not have been more than about $22-23k.

      • Thanks for the advice.

        Dad was a clerk class 8 at the time, and the $20K figure was my estimate of his salary based on my recollection at the time. I’m happy to be corrected, but I think my point still stands. The large block of land in Wanniassa cost substantially less than a mid-level APS salary at the time, and it now costs around 5-6 times more than an equivalent salary for a block that’s half the size. Without the housing Ponzi, those blocks in Weston would be $25K, not 500K.

        Our children are screwed. Even a late career professional like me is screwed, because I got divorced and now have trouble affording a loan that I can pay off before retirement. Or I suppose I can work until I’m 70.

        It’s a shitty situation for a large percentage of the population. The grim irony is that it looks like it’ll turn out equally badly if not worse for those people with huge mortgages as their equity disappears.

  4. Land tax can probably be used to put in a state-based UBI. If foreigners are excluded from getting the UBI – and they should be – it would be a cash transfer from foreigners to voters. he he he.

    QLD used to rebate the GST on petrol.

  5. > Of course, if you don’t reinvest in infrastructure to keep pace with the population growth

    Well, you were all like “the tram line is a white elephant” and now that it’s built, they’re coming!
    Thus proving their foresight.

    Sounds like time for another line to Queenbeyan!

    • The biggest white elephants are the 12 submarines. Remember, each sub will only last 30 years while a high speed railway will be good for 100 years.

      • @didrakeb I hear you. You’re saying if we want a high speed rail system we should convince government ministers that we can weaponise our trains.

        Maybe build some sick off-ramps and weld machine guys to the side of the train. Then when an enemy ship gets too close to the shore, we charge at it. Only a high speed train could get the lift to make it out into the bay. A slow arse conventional Aussie train would just tumble into the sea.

        And if the tender for the construction is made ‘only available to foxtel’, all the more likelihood of it happening!

  6. didrakeb, the subs can be imported for half the price. And why does AUS need 12. Even Britain does not have 12

    • Britain is like the size of Tasmania [citation needed]. Their shore is stupid easy to defend. Also, pretty sure they already screwed their steel workers, we’re still mid coitus.

  7. Unrelated to the ACT post, but wth:

    I thought it was a simple guarantor situation, but you read on and they convinced this guy to buy his parent’s place off of them, then be gifted the ‘profit’ and use that gift/profit to buy a home for himself.

    I guess we can look forward to the ATO waking up, but goddamn some heads need to roll over that kind of lending practice. its not enough to blame the mortgagees when the friggin banks are backstopped by the rest of us.

    • He is lucky that he was able to sell his property for $1.6M. There’s only a problem because the couple is getting divorced. Still, we can expect to see lots of stories in the media as interest only loans convert to P&i, if interest rates rise, or, horrors, if property prices fall for whatever reason. The fact that people are taking out loans of $650K in the first place should be a worry. I suspect there are many people with higher loans who might never pay them off.

      • If property prices fall? You rang?

        Based on the Corelogic data, Sydney property prices will turn negative YoY on Saturday 24-Feb.

        I’ll probably crack a bottle of champagne in celebration.

      • Prices in Sydney have a looooong way to fall before they become anywhere near what is considered “affordable”.

      • There is a problem if people in the FIRE industry are allowed to accept payment for their ‘expert advice’ and then the advice they give is extremely not-professional. Its good sales to get 2 mortgages out of 1 guy, but to encourage someone to use “profit” that is actually debt as a deposit on another piece of debt is fucked if all that debt is backstopped by the taxpayer.

        They basically convinced him to use a credit card to put down a deposit on a house. I do not ever want people using debt as security for more debt. That is asinine.