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Labor’s obsession with surplus prompts a genuine mini-budget

The government has unveiled a raft of savings measures as part of its MYEFO, with revenue falling yet again. There’s more savings than usual from this government — and a few tricks thrown in.

The government’s Mid-Year Economic and Fiscal Outlook was released this morning and, despite a further round of savings and tax increases totalling over $16 billion over four years, the government has had to shave its surplus for this year to a mere $1.1 billion and reduced its forecast surpluses over the forward estimates to cope with a further downgrade in tax revenue.

Treasury has downgraded its forecasts for GDP, employment growth and inflation for this financial year and next, with economic growth predicted to be 3% for both years (down from the budget forecast of 3.25% this year) but expects unemployment to remain as forecast in May.

To meet the revenue shortfall of $4 billion forecast for this year, the government announced a series of savings initiatives, including:

  • Changes to the calculation and indexation of the private health insurance rebate, saving $700 million over forward estimates (FEs)
  • Removal of the private health insurance rebate from lifetime health cover ($386 million over FEs)
  • Increases in visa application charges, with over $500 million over FEs
  • Changes to the treatment of fringe benefits ($445 million over FEs)
  • A change to the treatment of lost superannuation accounts that will deliver an immediate windfall of over $550 million
  • An increase in the tax levy on self-managed superannuation funds worth $319 million over FEs
  • Savings from redirected grants programs, including pushing back some spending into later years
  • Reduction in the Baby Bonus to $3000 for second and later children, saving $500 million over FEs from next financial year.

Against those savings, the government has had to spend $4.2 billion on its new dental scheme, starting next financial year, additional health spending in Tasmania ($325 million), an extra $490 million on its response to the Houston panel report and more on Afghanistan (an extra US$100 million in support for the Afghan government).

The biggest cuts to revenue have come from lower company tax ($2 billion this year), and a $1 billion annual fall (or around one-third!) in MRRT revenue due to declining commodity prices (and perhaps the reality check of the first instalments coming from the big miners). However, the states have had a little luck, with Treasury forecasting around a billion extra dollars in GST revenue over FEs.

While economic growth is generally forecast to be a little softer, for the first time in a while Treasury has lifted its expectations of the crucial housing sector, with growth next year expected to reach 4%, offset by lower-than-forecast levels of non-dwelling construction; forecasts of overall government spending across the economy have also been revised down. Our terms of trade are expected to decline 8% this year rather than 5.75%, and next year has been revised down as well. Treasury has revised down its forecasts for the growth in our region, with China and Japan revised down in growth forecasts, along with India.

Beyond the big savings that will garner attention, the government has presented a long list of additional small savings measures that wouldn’t be out of place in a budget statement. This is a genuine mini-budget, and with more real savings than usual for this government, which has tended to gloss over the difference between actual spending cuts and tax rises. There are, as always, a few tricks, including pushing still more spending into 2013-14. But for all the efforts among some in the commentariat to mount a campaign against its profligacy in areas like the NDIS and Gonski, the fiscal discipline of this government, now into its fifth year, remains strong.

The broader issue, however, is whether this obsession with surplus remains appropriate given the economy is now seen as softer than previously by both Treasury and the RBA. The government has handed full responsibility for maintaining jobs and economic growth to the RBA board, and indeed boasted about it. No longer are fiscal and monetary policy working in tandem, as Wayne Swan once boasted; rather the government emphasises the contractionary nature of its fiscal policy as the basis for further loosening of monetary policy.

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  • 1
    Jimmy
    Posted Monday, 22 October 2012 at 1:33 pm | Permalink

    Pretty solid MYEFO - nothing in the spending cuts/tax increases that will scare the horses too much (the reduction in the baby bonus is the only one that News Ltd stable will paint as an attack on ordinary Aussies).

    The issue of should this budget actually be expansionary rather than contractionary is an interesting one and I would say in any other political circumstance a small deficit would probably be in order but with room to move on interest rates and given “confidence” is the big issue stopping consumer spending a small surplus isn’t going to damage the economy and could prove just as beneficial as a small deficit.

    The other question is given the Libs constant calls of how will you pay for it, now that MYEFO is in will they tell us how they would pay for theirs?

    Oh and if Geewizz is out there, are you still predicting 44-56 in tomorrows newspoll given todays NEilsen and last weeks Essential figures?

  • 2
    John64
    Posted Monday, 22 October 2012 at 2:04 pm | Permalink

    I think the focus on a surplus is good. Most of economics is more psychology anyway than anything else. Lowering interest rates from bupkiss to bupkiss less 25 basis points is only a psychological factor in borrowing now.

    I think a Government that can send a strong message about being able to manage its own finances is going to do more good for the economy than splashing cash around like a drunken sailor in the hopes we’ll all just close our eyes and pretend what’s happening in Europe isn’t actually happening.

  • 3
    Jimmy
    Posted Monday, 22 October 2012 at 2:09 pm | Permalink

    John64 - “I think a Government that can send a strong message about being able to manage its own finances is going to do more good for the economy than splashing cash around like a drunken sailor in the hopes we’ll all just close our eyes and pretend what’s happening in Europe isn’t actually happening.”

    I agree in Australia’s current situation restoring confidence through a getting a surplus and lowering interest rates will be better than large scale stimulous, in europe large scale targeted stimulous would be in order, and if the global economy gloom drags Australia down much further in the near future Australia would be wise to repeat their efforts of 2008.

  • 4
    NeoTheFatCat
    Posted Monday, 22 October 2012 at 2:12 pm | Permalink

    Interesting to see Wallace from the ACL brand the reduction in the Baby Bonus as a disincentive for having children.

    Is he suggesting that Christians don’t have children out of some spiritual beliefs but to just trouser the cash. “Go forth and multiple (but only if there’s some cash in it for you).”

  • 5
    Nick Heidl
    Posted Monday, 22 October 2012 at 2:23 pm | Permalink

    Labor are dropping trump cards knowing full well Liberals will bash the “spend thrift” Labor party rhetoric. The problem is the “It’s all about me” swinging voters will be soothed by this budget surplus rather than accepting the fact being in the red is not a corporate failing when it means building infrastructure when long term gains are visionary. Emperor Colin Barnett got into power at the peak of the mining boom and did a 3% cut across the board and is again cutting the budgets further all because he sees the average worker his tax windfall rather than super profits. When fed Liberals get into power the issues you see in WA and Qld will become a federal issue, and as conservative as we are, the cuts are deranged as more people are unemployed burdening the budget and the most heavily taxed people, the average worker and their family. Neither have any rationale in their policies for growth when we sell raw goods to then import it as high priced processed goods.

  • 6
    Steve777
    Posted Monday, 22 October 2012 at 2:50 pm | Permalink

    I’m just waiting for the shrieks of agony from anyone or any interest adversely affected by the MYFEO, no matter how slightly, cry that this is the greatest injustice in the history of the universe, egged on by the Opposition and their media allies. That plus accusations that it’s all fake. Consistency was never the Opposition’s strong suit.

  • 7
    shepherdmarilyn
    Posted Monday, 22 October 2012 at 3:06 pm | Permalink

    So they raise the cost of a few visas, but they are still going to waste $2 billion a year jailing refugees for no reason other than appealing to the racist bogans among us.

    And the baby bonus should have been scrapped years ago.

  • 8
    shepherdmarilyn
    Posted Monday, 22 October 2012 at 3:08 pm | Permalink

    But there is no constitutional provision for a surplus, they are only allowed by law to raise those taxes required for services provided.

    Wars and criminal behaviour are not services required.

  • 9
    Scott
    Posted Monday, 22 October 2012 at 3:10 pm | Permalink

    Anyone else concerned that the Government is helping itself to a 6 month, $550 million, interest free loan through the compulsary transfer of small, inactive super accounts to the ATO? (the definition of small, inactive super has been changed to a balance of under $2000 that hasn’t been touched in 1 year from the previous rule of a balance of under $200 that hasn’t been touched in 5 years). Nice one Swanny!

  • 10
    Scott
    Posted Monday, 22 October 2012 at 3:35 pm | Permalink

    The Government have done the same thing in regards to unclaimed bank accounts and life insurance policies transferred to ASIC (changed the rules from unclaimed being defined as not touched in 7 years to not touched in 3 years) delivering $109 million in revenue in 2012/13. Sure it’s at call, but still an interest free loan provided by the lazy and dead citizens of Australia.
    Also unclaimed company monies now go straight into the Government coffers (previously they went into a trust account for 6 years before going to ASIC) providing another 98 million in 2012/13.
    Why isn’t this the story?

  • 11
    Suzanne Blake
    Posted Monday, 22 October 2012 at 3:37 pm | Permalink

    Bernard,

    Everyone knows that Swan is incapable of getting a surplus. He knows his credibility is zero with his shocking track record. So this spin frenzy is seen as such

  • 12
    tinman_au
    Posted Monday, 22 October 2012 at 3:38 pm | Permalink

    I’d rather the ATO have them Scott, than the retail funds…

  • 13
    Jimmy
    Posted Monday, 22 October 2012 at 3:54 pm | Permalink

    Scott - “Anyone else concerned that the Government is helping itself to a 6 month, $550 million, interest free loan through the compulsary transfer of small, inactive super accounts to the ATO?” Not at all, for a start it isn’t interest free, the govt are paying interest at the inflation rate, just investing it and keeping the higher returns. Second how long do you think $2k would last in the average retail fund?

    And third the govt can’t use the “unclaimed money” they just get the earnings above inflation on it.

  • 14
    Scott
    Posted Monday, 22 October 2012 at 3:59 pm | Permalink

    It is interest free for 6 months Jimmy. They only start paying interest from July 2013.
    And it’s not just retail funds that are affected…it’s industry funds.
    As for your third point, of course they can use the monies. They just need to have it at call (like retail bank deposits..banks operate under the assumption that not everyone will require their money at the same time and so are able to use the majority of it for other purposes)

  • 15
    Jim Wills
    Posted Monday, 22 October 2012 at 4:10 pm | Permalink

    Excellent points all of you, my main concern is dinging those with self managed supers, take on the individual who wont have time or money to fight as opposed to hitting the financial institutions who are the real money makers in the scam of super. I say shrink gov and pollies and their pensions, nail the excess bs work performed on weekends by unions at dbl time, that would save at least a billion. Quit funding Afganistan, another American lie

  • 16
    Jimmy
    Posted Monday, 22 October 2012 at 4:10 pm | Permalink

    Scott - On the third point it was probalby a poor use of words, I meant that it’s not like they just take the unclaimed money, it is there to be claimed.

    On the second point, yes it is all funds but that doesn’t answer the question, if you had $2k in unclaimed money in a retail fund would you prefer to leave it in the retail fund or have the govt keep it on your behalf.

    And really where is the harm, how much benefit would even the best industry fund give you on $2k in the next 6 months? $100? And after that what would you be missing out on every year in the best performing fund?

    And if an individual is remotely concerned about it they could go to the effort of actually claiming their super!!!

  • 17
    Jimmy
    Posted Monday, 22 October 2012 at 4:13 pm | Permalink

    SB - “Everyone knows that Swan is incapable of getting a surplus. He knows his credibility is zero with his shocking track record. So this spin frenzy is seen as such” Yeah such a shocking track record he is treasurer of the year.

    Remember SB it isn’t deficit bad, surplus good.

    And how are your predictions of Gillards demise going? And do you still think essential’s 47-53 was only because it is a biased union run thing? do the unions run Neilsen as well?

  • 18
    Jimmy
    Posted Monday, 22 October 2012 at 4:18 pm | Permalink

    Steve777 - “cry that this is the greatest injustice in the history of the universe, egged on by the Opposition and their media allies.” Speaking of media allies, you didn’t catch Hinch and some 2gb pleb on sunrise this morning discussing Gillards poll preformance and the relationship to her speech, both continued to bag out the speech as a terrible and inaccurate attack on poor old Tony - talk about denial.

  • 19
    Jimmy
    Posted Monday, 22 October 2012 at 4:19 pm | Permalink

    Steve777 - “cry that this is the greatest injustice in the history of the universe, egged on by the Opposition and their media al l ies.” Speaking of media al l ies, you didn’t catch Hinch and some 2gb pleb on sunrise this morning discussing Gillards poll preformance and the relationship to her speech, both continued to bag out the speech as a terrible and inaccurate attack on poor old Tony - talk about denial.

  • 20
    Chess C
    Posted Monday, 22 October 2012 at 4:21 pm | Permalink

    I agree that the unclaimed super transfer is a smart move, and is win-win for both the govt and people who have no interest in updating their super details. The only losers are the super funds themselves.

    That it’s just accepted that super evapourates over time, just goes to show what a farce retail super is though. 9% of wages go into super so that it can be slowly transferred to the financial industry through management fees.

  • 21
    Suzanne Blake
    Posted Monday, 22 October 2012 at 4:25 pm | Permalink

    @ Jimmy … frrm the ALP Spin Office Jimmy McTernan?

    Look at the polls, Greens is faster retreat than an Italian Tank during WW2. Bad for ALP as preferences will weaken.

    People have gone into shell on Gorvernment, with the McTernan / Gillard s_xist rant, and misogyne. I have not met any man in Australia that hates women, have you?

    Just wait, baseball bats will be out in 2013, just like they may well come out in US elections.

    ALP increased vote in Public Service (tradionally ALP) ACT cause of collapse in Green vote.

    So as to Swan, World’s Greatest Flop and certainly Australias worst Treasurer since Jim Cairns in Whitlan ere, Yes he is wrose that Keating.

  • 22
    Jimmy
    Posted Monday, 22 October 2012 at 4:36 pm | Permalink

    SB - “Look at the polls, Greens is faster retreat than an Italian Tank during WW2. Bad for ALP as preferences will weaken.” I did look at the polls, Gillard extending her lead as preferred pm (50-40), the Greens up a point to 11%, the ALP continuing the upward trend and on this most recent poll it’s 48-52 on last election preferences but 49-51 on current voting intention. So you are wrong their on all counts.

    People have gone into shell on Gorvernment, with the McTernan / Gillard s_xist rant, and misogyne. I have not met any man in Australia that hates women, have you?” The meaning isn’t “hatred on men” look it up in either the oxford or the macquarie. And Gillard’s support has gone up with both men and women since the speech how do explain that?

    And wouldn’t Howard be the worst treasurer in recent history?

  • 23
    Filth Dimension
    Posted Monday, 22 October 2012 at 4:40 pm | Permalink

    SB if you took some care and proofed your rants perhaps you would have some credibility. The kind of care and attention to detail that it takes to grasp such matters, as it stands, is well out of your grasp.

  • 24
    Zeb Haddlee
    Posted Monday, 22 October 2012 at 4:41 pm | Permalink

    No @Suzzanne, Swan dosn’t listen to the Murdoch press,he believes he is doing a good job in tough times, as many others would agree. Unlike Costello,he hasn’t sold the family jewels to balance the books and produce a fake surplass. Im thinking of the 92tonnes of treasury gold that was sold for 200US$/per oz (now worth 1800US$ oz),flogging off of Commonwealth Railways,Qantas, Airports ect. And that was when Commonwealth tax reciepts where rising, not contracting as they are now, and the proceeds where wasted on middle class welfare…..

  • 25
    izatso?
    Posted Monday, 22 October 2012 at 5:10 pm | Permalink

    Howard, yup Howard, that’d be him, worst freakin’ treasurer ever, after that moronic near ex pm costello, what a mongrel that one was too …. (from the SB school o’ criticism) …. Woof !

  • 26
    GeeWizz
    Posted Monday, 22 October 2012 at 5:57 pm | Permalink

    So Labor are going to be stealing peoples super.

    If I find out that Labor have stolen my superannuation to use for their own benefit, what action can I take to get my stolen money back? Report it to the police?

    THIS. IS. LABOR.

  • 27
    GeeWizz
    Posted Monday, 22 October 2012 at 6:08 pm | Permalink

    On the second point, yes it is all funds but that doesn’t answer the question, if you had $2k in unclaimed money in a retail fund would you prefer to leave it in the retail fund or have the govt keep it on your behalf.”

    LOL have the government “keep it on your behalf”

    I’ll tell the bank that the next time I walk in there that I want to keep all the money in the vault on “their behalf”.

    It’s theft Jim.. pure and simple THEFT

  • 28
    Steve777
    Posted Monday, 22 October 2012 at 7:19 pm | Permalink

    Good evening Suzanne. I sometimes wish that I could be right wing so I didn’t have to worry about pesky things like facts, logic and consistency. Swan the world’s worst Treasurer, presiding over an economy that is the envy of the developed world? 3% growth, 5% unemployment, 2% inflation, tiny government debt as a proportion of GDP. And don’t you sometimes feel embarrassed by some of your ideological colleagues like Cori Bernadi, Alan Jones & Scott Morrison? Maybe you should consider abandoning the Right and embracing the Dark Side.

  • 29
    Matt Hardin
    Posted Monday, 22 October 2012 at 7:59 pm | Permalink

    I can’t see why unclaimed money can’t be returned through the tax system. The tax file number is required for all accounts.

  • 30
    Filth Dimension
    Posted Monday, 22 October 2012 at 8:09 pm | Permalink

    Geewizzbang! the d@#khead returns!

  • 31
    Scott
    Posted Monday, 22 October 2012 at 8:18 pm | Permalink

    Stealing 6 months worth of interest from the poor and financially illiterate is not cool in my opinion. Hardly core Labor values.

  • 32
    GeeWizz
    Posted Monday, 22 October 2012 at 8:30 pm | Permalink

    I can’t see why unclaimed money can’t be returned through the tax system. The tax file number is required for all accounts.”

    Good time to start a superannuation recovery business and get $1 Billion dollars back to those who own it(aka not the government)

    Charging a 10% recovery fee that’s $100 Mill just for looking up phone numbers in the whitepages and tracking down the rightful owners.

    I’m sure the government wouldn’t let anyone do this however claiming privacy reasons, while systematically stealing peoples money.

  • 33
    GeeWizz
    Posted Monday, 22 October 2012 at 9:02 pm | Permalink

    Scott

    And Labor haven’t told us what happens with the individuals super when the stupid/poor/elderly person who didn’t know how to track their super pass away.

    Does the family get their money back? Or does the government keep it for “good keeping” as Jim puts it?

  • 34
    Hamis Hill
    Posted Monday, 22 October 2012 at 9:12 pm | Permalink

    JI-UH-IZ, a jihadi who fought in Europe against the Serbs, alongside the former Axis partners of Herr Shicklegruber?
    And now operating in OZ?
    How many of you are there?
    Come on JI-UH-IZ spill the beans!
    You do have everyone here terrorised.

  • 35
    geomac62
    Posted Monday, 22 October 2012 at 11:01 pm | Permalink

    SB
    I have not met any man in Australia that hates women, have you?
    I think you may be fortunate in your meetings with men , no lewd connotations there I hasten to add . I would think that having a chat with you would be most unpleasant and have emotions ranging from revulsion to intense dislike . Hate can also be described as intense dislike or just plain dislike . After all it was Abbott that labelled Slipper a mysogynist yet there was nothing in the Ashby/Slipper texts to display dislike of women . So I take it you disagree with Abbotts use of the term ?

  • 36
    geomac62
    Posted Monday, 22 October 2012 at 11:10 pm | Permalink

    Wizz
    Has anyone explained to you yet the difference between a 15 minute video of a political speech and dog playing the piano ? 3 million hits and for a speech ? Thats really something and strangely enough the polls contradict your low estimation of the PMs video . You live by the polls , when favourable that is , so it must be galling to see Abbotts equal record low . Right down there with Gough after the dismissal .

  • 37
    Suzanne Blake
    Posted Tuesday, 23 October 2012 at 7:01 am | Permalink

    @ geomac62

    I am sure some men ‘hate’ women and some women ‘hate’ men, but it could be one or each, not the entire population of men or women. Its too often seen around family breakdowns etc.

    BUT, misogyne is hatred of ALL women. I have never seen that, except in some well known Middle Eastern cultures overseas.

  • 38
    Jimmy
    Posted Tuesday, 23 October 2012 at 9:12 am | Permalink

    Geewizz - If someone “steals” your money can you simply write to them and get them to return it plus interest?

    And would you prefer the govt to take the money pay you interest and return it upon request or the retail fund slowly whittle it away in fees until there is noting left for you to get back?

    Which of these scenarios fits theft better?

    And still predicting a 44-56 newspoll this week? Is Neilsen just a biased union stooge as well? Last week you said for every woman Gillard won over with her speech she would lose 2 men, but polls are showing the opposite - do you ever get tired of being so completely wrong?

    Scott - “Stealing 6 months worth of interest from the poor and financially illiterate is not cool in my opinion. Hardly core Labor values.” Again how much interest are we talking about here? The best performing industry fund of the past 12 months returned about 6.75% - on the maximum of $2k we are talking about $67, if we were to discuss a retail fund a 0% return would see the policy holder significantly better off.

    And if the policy holder doesn’t like the govt taking their money - simply ask for it back.

    SB - “BUT, misogyne is hatred of ALL women.” No it isn’t - look at the dictionary.

  • 39
    Scott
    Posted Tuesday, 23 October 2012 at 10:25 am | Permalink

    @Jimmy

    Rubbish. A retail fund charges around 2.1% in fees (an industry fund around 1%). Retail funds earned a rolling average of 3.56% a year over the last 10 years (compared to industry fund of 5.86% a year)

    So assuming the average holds true, Labor is basically stealing 0.73% return (from retail fund customers) and a 2.43% return (from industry fund customers)

    Now you might argue that $48 dollars (or $14.60 from the retails) isn’t a lot, and that is your perogative. But I think even you would be upset if someone stole $50 (or even $20) out of your wallet. That is effectively what the government is doing.

  • 40
    Jimmy
    Posted Tuesday, 23 October 2012 at 10:40 am | Permalink

    Scott - “So assuming the average holds true” Big assumption there Scott, you are using a 10 year average which goes all the way back to 2002 and between 2002 and 2007/08 super funds were making very big returns. And also some funds have done significantly better than others.

    We are talking about the next 6 months here where things aren’t exactly rosie.

    And even if we use the last 10 year average, for retail funds the govt will charge me a $15 fee in the next 6 months in order for me to get paid roughly 1-2% per annum more until I claim my super.

    And again if someone is that concerned about losing somewhere between $0 and $50 (which isn’t significant money) in the next 6 months, simply claim their super.

  • 41
    Jimmy
    Posted Tuesday, 23 October 2012 at 10:45 am | Permalink

    Ohh and Scott - now my lost super is in an environment where it will make more than the 10 year average of a retail fund risk free - surely that is worth a one off $15 fee.

  • 42
    Jimmy
    Posted Tuesday, 23 October 2012 at 10:58 am | Permalink

    Scott - Just for the sake of completeness the average inflation rate for the last 10 years is 2.9%, compared with a retail fund return of 1.55% after fees - so how is the retail fund holder worse off?

    Admittedly the Industry fund member is worse off but it is risk free and again they could always ask for the money back.

  • 43
    Laura
    Posted Tuesday, 23 October 2012 at 1:03 pm | Permalink

    Not convinced that economic policy inspired by political rhetoric rather than what the country’s economy needs is the best path to travel. The chest-thumping opportunity that a surplus might provide, surely, does not automatically outweigh those provided by an economy that is thriving, responding to and overcoming the potential ‘hits’ of booms that slow down? I’d be happier if I saw a plan addressing those issues…

  • 44
    Jimmy
    Posted Tuesday, 23 October 2012 at 1:12 pm | Permalink

    Laura - Any indication as to what that plan would include - how about winding back middle class welfare to ease the stress on the budget as tax revenues fall? How a way of better capturing the benefits of the boom? How about creating an economic environment where interest rates will remain low into the forseeable future? How about transitioning the economy into a less carbon reliant one?

  • 45
    Hamis Hill
    Posted Tuesday, 23 October 2012 at 3:43 pm | Permalink

    It will be hard to strip off the impervious shell of middle class entitlement grafted on so tightly and for so long during the “Golden Era”.
    The key is Capital Gain which compensates for the interest paid on excessive motgages and so renders the pain insensible.
    The debt peddlers’ party are intent on keeping their debt junkies in thrall.
    The debt peddlers’ MSM are equally impervious to all the good economic indicators, the only thing that matters is whether Capital Gains are rising to drown out the pain of exorbitant interest payments.
    If the housing market starts to recover before the next election then, and only then, will some sort of undrugged lucidity begin to dominate middle class, mortgage world thinking.
    Other wise it is all just single-minded motgage junkie desperation and pain.
    Of course they are all up for a great dose of mortgage cold turkey in the inevitable Abbott Recession.
    But it will be good for them won’t it?

  • 46
    Jimmy
    Posted Tuesday, 23 October 2012 at 3:49 pm | Permalink

    Hamis - “The key is Capital Gain which compensates for the interest paid on excessive mortgages and so renders the pain insensible.” Could you please elaborate on what you mean here?

    The principle place of residency is exempt form capital gains while for any investment property the interest would be claimed against the income generated and wouldn’t effect capital gains.

  • 47
    Hamis Hill
    Posted Tuesday, 23 October 2012 at 6:56 pm | Permalink

    Jimmy, having owned a couple of homes on a mortgage I found myself surprised to have not calculated the total cost over the twenty year repayment period.
    (Just happy to be no longer paying exorbitant rent)
    But perhaps other people were more concerned with speculating, (obsessing?) upon the increase in the value of their homes over the long run.
    As it averaged out the increased value of the property just about equaled the total amount paid in capital and interest for the home.
    It follows that when house prices do not rise to cover the total cost of interest and original capital then the real cost, over the life of the loan, will be much more than the final value of the home.
    People might think twice about taking on such a losing bargain.
    But, again, the “Market” ie the new buyers, willing to pay for the whole expense of the home to the original buyers have to get the money from somewhere, and the banks provide the money by way of new loans.
    In short you might think you are buying a $500,000 house but you are paying perhaps $2.5 million over the life of the loan.
    Fine if there is someone out there willing to take it off your hands for this amount.
    So the Capital Gains balance the interest payments.
    So what? except that the asset does not change but its price is mightily “inflated” which with everything else is supposed to be bad.
    But the personal pain to the Debt Junkies (it has to be a form of addiction)in the absence of capital gain is very real and measurable.
    The ordinary person would have to be very insensitive to ignore the cost of 60% of their disposable income going to the mortgage at the expense of all the other things they might wish to invest in, like a savings account, without enjoying the compensation of ever increasing house prices.
    Take away the ever increasing house prices, as has happened during the post GFC Labor governments, and the sentiment (promoted and selectively directed by the conservatives to this critical middle class voting group of battling aspirationals) that everything has gone to hell is pretty hard for them to ignore.
    Reducing interest rates take some of the pain away but not enough to allow those so affected to even look at the great economic figures.
    A question for Barnaby Joyce might be could Aussies afford to invest in their own mines and Cubbies Stations if they did not owe a startling $1.3 TRILLION on their mortgages?
    This is only a dillema for Labor, who actually care about the nation and its economy, for the speculation in housing is deeply entrenched and deeply emotionally linked to the very identity and social standing of the debt addicts.
    The conservatives only pander to the victims of their Golden Era where house prices rose four times and became the only topic of conversation.
    We are living in the economic aftermath of Howard’s housing incontinence and his battling aspirationals have been rendered beyond reason by their pain and disappointment.
    Perhaps they should not be allowed to vote because they may be just about to take the rest of the economy with them to an inevitable Abbott Recession slash and burn hell.

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