Not this Houses and Holes, who is flourishing. The houses and holes economy is cooked, says Adrian Blundell-Wignall, former director of the OECD, an adjunct professor at Sydney University and author of Globalisation and Finance at the Crossroads, via the AFR:
“A plan” is not about government policy overreach exposed as flawed in the 1970s. A greater role for markets and openness followed the chaos of that period. One inevitable result was the shrinkage of manufacturing in high-labour-cost economies – in Australia’s case from around 16 per cent of GDP in 1975 to 6 per cent today. Enormous. The infamous decline in US manufacturing was less (16 per cent to 11 per cent of GDP), and this was offset across a broad industrial spectrum.
Australia made up the gap via finance and mining. This made us contented and complacent…Mining and finance both face headwinds. In mining, it is because China’s massive investment-focused strategy has resulted in diminishing returns. Investments need to earn good returns if rising debt is to be paid for. China is on the classic path for financial crises..For finance it is because house prices and debt levels are too high and must unwind in the years to come.
…Having a plan means setting an environment for more diversified and higher value-added growth…The Treasurer’s recent interest in tax incentives for R&D is fair enough. More generally, the “plan” should be a framework that provides a research-and-innovation culture and policy certainty. The plan should recognise that better education output is central to future productivity growth. It should support an equity culture for risk taking (imputation and a low capital-gains tax). It must remove barriers to domestic and cross-border M&A…. We have to reform corporate governance… We must create carbon-price certainty. The plan must also resolve the problem that while economies of scale depend on foreign sales, tax avoidance by firms also relies on cross-border activity…) And, the plan must introduce a resource rent tax…
I applaud Mr Blundell-Wignall for his plan. Sadly, its truth is only matched in scale by its calamitous naivety.
It’s pretty much the same plan that MB has lobbied for for ten years as everything has gone to shit in the opposite direction with no change of direction apparent anywhere.
ScoMo’s new “plan” is to double down on this squashed lemon for all it is worth: cut taxes using cyclical mining revenues into immigration crush-loaded cities to restore house price growth.
End of story.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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