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Federal

May 18, 2012

Keane's fantasy budget (and how to pay for it)

Removing middle class welfare and tax reform would deliver a health surplus while addressing some key economic problems.

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Yesterday we looked at the major economic challenges facing the country, with the goal of putting together a budget that addressed them, free of political self-interest.

Today we’ve had a go at putting together a series of budget measures aimed at addressing the issues of decarbonisation, housing supply, infrastructure provision and long-term fiscal stability. Let’s go through them.

1. Decarbonisation. As we noted yesterday, with a form of carbon pricing starting from July 1 and a major range of government “direct action” initiatives to support it being introduced, the primary problem we now have in the ask of reducing the Australian economy’s over-dependence on carbon compared to similar economies is the vast range of tax expenditures that encourage fossil fuel use, creating a policy push-me-pull-you that will negate the impact of a carbon price and associated measures.

In its budget submission, the Australian Conservation Foundation has costed the removal of a range of pro-fossil fuel tax concessions. We’ve adopted two of their proposals — removing the diesel fuel rebate from miners and transport (while keeping it for agriculture), and removing concessions for accelerated depreciation for investment in oil and gas assets. This would remove about $10.5 billion worth of pro-carbon subsidies across forward estimates, making a significant first step in eliminating the policy tug-of-war between the carbon pricing package and our tax system. It will also start reversing Treasury’s appalling decision to wimp out on the G20 commitment to eliminate inefficient fossil fuel subsidies.

2. Housing supply. We’ve taken three measures aimed at improving housing supply while trying to avoid the distorting, inflationary effects of the first home owner’s grant. One is to increase the government’s “Building Better Cities” scheme. This was announced in the 2010 election campaign as a program to help local councils provide the basic infrastructure needed for residential development — one of the biggest cost issues between developers and governments. The government quietly halved the program from the announced $200 million to $100 million in last year’s budget, but we’ve added $50 million per annum to it, more than doubling the size of the scheme.

We’ve also adopted Joe Hockey’s proposal to better target housing payments to the states to encourage state governments to make land available more quickly and reduce developer levies. This would have no overall cost because it would tie existing special purpose payments to performance benchmarks. But if done properly there would be some funding costs required for a Commonwealth agency such as FaHCSIA to properly monitor state government performance on the issue, so we’ve allocated some departmental funding for that. Thirdly, we’ve established a permanent additional Commonwealth social housing program to provide funding for public housing to the states — conditional on the states maintaining their overall level of existing public housing funding, or in the case of NSW and Victoria, returning funding to levels from before the financial crisis.

3. Infrastructure provision. We’ve adopted the best policy announced during the 2010 election, Andrew Robb’s infrastructure partnership bonds, a scheme designed to leverage private sector funding into infrastructure investment while (unlike the original Keating-era infrastructure bonds) minimising the risk to taxpayers by capping the scheme liability. We’ve set the scheme at $150 million a year, like the Coalition did, with the goal of reviewing it after four years to determine its effectiveness in leveraging infrastructure investment (the original policy is here).

4. Fiscal stability. We’ve also hacked into spending with the goal of reducing Commonwealth outlays, albeit with a phased approach that means we’re not ripping a significant chunk out of the economy while the growth remains a little below trend and the situation in Europe remains unresolved. But we’ve also increased spending or cut revenue in some other areas as well.

We’ve restored the original 2% corporate tax cut associated with the original Resources Super Profits Tax. The logic of the RSPT was strong — in effect use the superprofits being enjoyed by the mining sector because of an historic resources boom to ease the pressure on the non-mining sectors of the economy through a tax cut. The restoration would reverse the errors made by the government (in halving the tax cut when it cut a deal with the big miners) and the Greens and the Coalition (in blocking the cut this year).

But we’ve extended the idea of a super profits tax to the banking sector. The major banks earned around $24 billion in cash profits in 2010-11 and are on course to pass that this year. This is the direct result of an uncompetitive financial sector that is now dominated by the Big Four banks, enabling them to gouge customers and business through interest rates and fees. In the absence of serious efforts by the government to increase competition in banking or even adopt Hockey’s proposal of a financial services inquiry, a banking super profits tax (implemented via a Tobin Tax-style levy on transactions or banking licence fees) would, like the mining tax, remove some of the windfall profits enjoyed by an industry benefiting from unusual circumstances — in this case, government-engineered lack of competition — for the benefit of the rest of the community.

And we’ve hacked into middle-class welfare: the private health insurance rebate will be phased out altogether over three years, removing one of the worst pieces of public policy in the country. To address state concerns about the possible impact on hospital waiting lists, we’ve allocated additional funding for hospitals — $250 million next year, then $500 million per annum thereafter.

We’ve cut back back access to  Family Tax Benefit A and B. For Family Tax Benefit A we’ve pulled the second income threshold back from $94,316 to $70,000 and reduced the cut-off point for payments to $120,000 (which is still very generous). We’ve also reduced the Family Tax Benefit B cut-off threshold to $100,000 from $150,000. Costing these changes is difficult for anyone outside government; for our purposes we’ve assumed the Family Tax Benefit A changes would reduce the current $14 billion cost of that handout by $1 billion, and reduce the cost of Family Tax Benefit B by about $200 million. Both estimates, we think, are very conservative.

And we’ve taken the scalpel to the War On Terror, which has cost taxpayers over $16 billion since 9/11. We’ve cut ASIO’s funding from its current levels back to its 2005 levels — leaving in place the massive increase in its funding provided by John Howard, and even leaving its grandiose new headquarters intact, but saving about $130 million a year.

We’ve also recognised the dire revenue situation state and territory governments are finding themselves in due to the collapse in GST revenue growth and sluggish growth in traditional state government revenue sources like property taxes. So we’ve removed the GST exemption for food — a strong growth area in retail spending — which will provide over $6 billion in additional revenue to the states (it will also have the benefit of removing the last stain on public policy left by the wretched Meg Lees).

Finally, we made two additional spending decisions: we restored the foreign-aid cut imposed by the government in the recent budget. Australia is one of the richest nations in the world and has the pretty much the best-performing economy. We can afford to continue to be generous with our foreign aid. And we increased Newstart payments by 10% (we can’t model the exact cost of this, which may be greater than 10% depending on take-up rates, so we’ve used 10%).

The additional revenue measures will move the budget into substantial surplus more quickly, but in a measured way — a $3.5 billion surplus next year,  a $4 billion surplus the following year, then larger surpluses as the cuts to middle-class welfare kick in.

The caveat on all this, of course, is that it’s easy for commentators and economists to spell out what they think should be done, but none of us ever stand for election and face the wrath of voters like politicians have to. Many of these measures would elicit fury from voters obsessed with a sense of entitlement, and from industries benefiting from subsidies like the mining and private health insurance sectors. Some of them would be hated no matter how well they were “sold”.

But we think it’s politically do-able — after all, we haven’t even gone near really serious changes like looking for the tens of billions in tax revenue lost from exempting the family home from capital gains tax, or removing the full $10+ billion in pro-carbon subsidies.

There’s lots of fiscal reform out there to pursue. But it takes more political courage than we’ve seen lately.

*We’re engaging some of the smartest economic brains to design their fantasy budgets for Crikey. But the floor is open to amateur treasurers everywhere — email us your thoughts and we’ll compile the best responses.

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87 thoughts on “Keane’s fantasy budget (and how to pay for it)

  1. Recalcitrant.Rick

    Just a comment on Australia largest houses scenario. I’m a bit doubtful, as most houses in northern USA and Canada have large basements which are usuall fitted out very nicely thanks, but when North Americans are quoting floorspace per square ft. in a new home they don’t include the basement because it is usually unfinished. however when finished this can often double their liveable floor space. Unfinished also has the effect of lowering their yearly property taxes, (which by the way can be up to $4,5 or 6000 a year in some cases) but until they declare their improvements they reduce their tax bill. Canada has many “unfinished” properties! and a lot of them are mighty big!

  2. drsmithy

    Firstly, to address the America point: Tax treatment of owner-occupiers in America is more favourable (ie: distortive) than Australia – tax deductibility for mortgage interest and CGT calculations on the family home exclude the first $250,000 (or $500,000 for couples) of capital growth (so in reality, the vast, vast majority of homeowners will never pay any CGT, like Australia).

    The tax-deductibility is how the Americans “encourage” home ownership, and punish renting, by making home ownership artificially cheaper on a day-to-day basis (renters cannot tax deduct the rent they pay, which would make the system more equitable). Home ownership is a *huge* thing in America – If you think people in Australia look at you funny when you’re a renter, you should try living there for a while. I would regularly have people asking me when I was going to buy a house, even though I was quite obviously a foreigner and was on a temporary visa.

    Additionally, the deductibility of mortgage interest for the PPoR breaks the basic principle behind deductibility (as does negative gearing) – that you are only allowed to deduct expenses encountered in the process of generating an income, and against that generated income. Or, more simply, you should get taxed on investment profits, not gross returns. The PPoR does not generate an income (unless an imputed rent is calculated, but that isn’t the case in America)

    The idea that the yanks do it better is bunk.

    A paper for the National Housing Strategy in 1992 on how the tax system encourages over investment in housing

    That paper seems to conflate “investment” in the PPoR (that is, paying off a mortgage) with actual investment in other assets (that is, things that return an income). It appears to completely ignore that the purpose of a PPoR is shelter (eg: by comparing it to commercial properties), and implicitly assumes that it can be liquidated at any time with no consequences (like, say, becoming homeless). In fact the whole paper seems to have been written with this flawed assumption.

    Maybe an example will make the point: If I invest in a (profitable) business or dividend-paying shares for, let’s say, a million dollars, then I will have an income from that investment I can (hopefully) live off. If I “invest” in a house for a million dollars, then I’ll be in the dark, cold, starving and a million dollars poorer (but at least dry when it rains).

    Anyway, if you want to talk about tax incentives for malinvestment in housing, negative gearing is the real villian.

    Investment – overinvestment – in housing fuelled by the tax system is why we now build the largest houses in the world … despite the fact that some 25% of all houses are now single occupier jobs…

    Nothing in that link suggests larger home sizes are due to an “overinvestment” in housing (nor that an “overinvestment” even exists – though I agree that it does) and it in facts makes the point that family sizes have been increasing for a few years now (though this is likely occurring because the bubble has simply priced many buyers out of the market – ie: the “25 years old and still lives at home” effect).

    Real estate data is not an adequate guide to house prices – it reflects the properties offered at any one time. It does not measure overall asset values.

    Real estate data measures what houses actually sell for. Arguing it doesn’t measure “value” when it is explicitly measuring what people are actually paying is ridiculous on its face.

    So for example, when interest rates rise significantly, those property investors who have bought in at the lower end of the market and are just making the payments put them up first… OK. On paper this looks like the property prices of housing in suburb has dropped – it hasn’t – it just means the bottom end of the market is being offered up for sale.

    Interest rates aren’t rising, they’re dropping. The averages are dropping because houses are selling for less today than they did for 3 years ago. Just a week or two ago on Macrobusiness there were some pictures showing houses at the Sunshine Coast with asking prices that have dropped from 1-2 million down to $600k-$1.5m.

    I wonder how the people who actually paid a couple of million for the houses nex door are feeling about their “investment” ?

    And of course you are dead right – investment in housing is purely speculative – based on asset inflation […]

    No. Actual investment in housing is renting it out for a positive return (hopefully higher than you’d receive from a term deposit minus inflation). I know this is a pretty radical idea in a country where the tax system actively encourages you to lose money on owning rental properties, but it’s how real estate investment works in just about every other country in the world.

    […] it is economically a consumption investment and our passion for it – funded by the tax system – is extremely destructive and unproductive. But that’s what it does.

    The tax system in Australia does not favour home ownership over renting. Quite the opposite. It encourages owning loss-making “investment” properties (so you can negatively gear) and renting your PPoR (particularly right now where owning a house costs about half as much as buying the same house, though the difference wasn’t as stark before the bubble).

    See Smithy I used to do this for a living – I was the economic advisor to the Federal Minister for Housing for 8 years.

    Given the catastrophe our fucked housing market is soon going to bring down upon us (though admittedly just as much because of the State and Local Governments), that’s possibly not something you should be advertising.

    Anyway, have you managed to come up with a justification for your argument that if I sell my house on Tuesday, I shouldn’t have enough money to buy it back on Wednesday, yet ?

  3. Mal White

    @PETER ORMONDE

    I agree with you on this one. It would be a better system to treat the family home the same way as other investments (keeps it simple).
    A home should be just a place to live and not a grandiose piece of the next real estate bubble. The distorted tax treatment has just created huge homes, huge mortgages, and some pretty crappy home renovation shows.

  4. Peter Ormonde

    OK Smithy, you’ve done some research but none of the stuff I’ve sent you …

    So here’s a bit more:

    A paper for the National Housing Strategy in 1992 on how the tax system encourages over investment in housing …

    http://cbe.anu.edu.au/research/papers/ceprdpapers/DP272.pdf

    Investment – overinvestment – in housing fuelled by the tax system is why we now build the largest houses in the world … despite the fact that some 25% of all houses are now single occupier jobs…

    http://images.comsec.com.au/ipo/UploadedImages/craigjames3f6189175551497fada1a4769f74d09c.pdf

    Real estate data is not an adequate guide to house prices – it reflects the properties offered at any one time. It does not measure overall asset values. So for example, when interest rates rise significantly, those property investors who have bought in at the lower end of the market and are just making the payments put them up first… OK. On paper this looks like the property prices of housing in suburb has dropped – it hasn’t – it just means the bottom end of the market is being offered up for sale.

    And of course you are dead right – investment in housing is purely speculative – based on asset inflation – aside from jobs in construction and the explosion of renovation (again for capital gain) it is economically a consumption investment and our passion for it – funded by the tax system – is extremely destructive and unproductive. But that’s what it does.

    See Smithy I used to do this for a living – I was the economic advisor to the Federal Minister for Housing for 8 years. That doesn’t mean I know what I’m talking about – or then again it just might.

  5. drsmithy

    Admit it Smithy … the principal place of residence is as much an investment as it is a consumer purchase. That’s how the banks talk about it and always have … the “biggest investment you’ll ever make”. You might be different – but everyone I know with a mortgage regards it as an investment… you end up owning a house and the value will eventually a large portion of the interest costs plus a hefty share of capital gain.

    A PPoR is only an “investment” in the sense it’s had a lot of money dumped into it. Which isn’t really any sort of investment at all. It is a completely unproductive asset and doesn’t create wealth, or generate income. It just holds the same value relative to all the other similar houses. Which can be useful if you’re one of the minority who’s retiring or prepared to downsize, but completely irrelevant to the vast majority of homeowners who want to sell one house to buy another, similar, or slightly better, house.

    Your whole argument hinges on being able to buy into the beginning, and sell out near the peak, of a property bubble. Few have that luxury.

    RP Data says houses in capital cities are down 4.5% over the last 12 months and 6.1% from peak. Specific places being hit hard like Melbourne and Darwin are down 8.1% and 13.5% from peak.
    http://www.macrobusiness.com.au/2012/05/rp-data-describes-a-gloomy-housing-market/

    So on average, no-one who bought a house since mid-2010 has had any capital gain at all, even in unusually resilient cities like Sydney and Canberra. I know two people in Brisbane who have been unable to sell their (slightly flood damaged, but long since repaired) properties for as much as they cost brand new in _2001_ – so no capital gain for them in over a decade.

    The last time Australia had a housing bubble of this magnitude was the late 1800s. It took something like 50 years for prices to return back to peak. So anyone who bought at (or near) the peak of that bubble would almost certainly have not seen any capital gain at all within their lifetimes.

    This idea that house prices always go up is deeply, deeply ingrained, but it’s completely wrong. As a couple of generations of debt slaveshomeowners are about to find out. Come back in 20 years and try to tell us that everyone who bought a house since 2007 has had “a hefty capital gain”.

    Now if you don’t agree with that – and you probably won’t – watch how the howling starts IF … not when incidentally … house values actually start to fall rather than just slow down the rate of increase as they have done in Australia so far. I very much doubt that there will be a “market correction” of the sort we’re seeing in the US housing market – there should be, but the tax subsidy will work against that… an artificial stimulus to rising house prices – as it always has been.

    There are zero fundamentals supporting house prices at current levels. There is no structural shortage of housing – new build rates have been consistently exceeding population growth. Wages growth has been vastly outstripped by price increases (so people can’t afford to buy the houses at their current prices), as has rental growth (so landlords can’t afford to even break even with their”investment” properties, let alone make a return off them). Home buyers – particularly first home buyers – are basically on strike. Listings and time on the market are soaring, sales and new loans are tanking.

    66% of property “investors” are negatively geared. *75%* of those have a household income less than $80k.

    The whole ponzi scheme is based on the assumption of endless capital growth, which has not only stopped, but is beginning to reverse. Federal and State Governments (not to mention banks) are desparate for that not to happen, so will probably expend enormous resources trying to hold back the tide, but the reality is inevitable – having to dump 50-75% of a full time wage into shelter is simply unsustainable over any significant timeframe (of the countries with housing bubbles, we lasted the longest – yay Australia !).

    This is the top of the cliff we’re on right now (scroll down to Figure 4):

    http://www.debtdeflation.com/blogs/2012/05/01/australian-house-prices-down-10-from-peak/

    And a large part of the the howl is because it’s an investment … not just a home.

    People will be howling because they’ll be bankrupt after being lied to for over a decade by (completely unregulated) real estate spruikers. On the upside, at least they probably won’t go homeless since all those homes won’t just disappear.

    Now read what I sent you or do some research rather than accuse me of ranting. Or I’ll get annoyed.

    I’ve done plenty of research, thanks.

  6. Peter Ormonde

    Smithy,

    Did you read any of that stuff I sent you at all? That wasn’t a rant… that was some suggested reading.

    This here is a rant:

    Admit it Smithy … the principal place of residence is as much an investment as it is a consumer purchase. That’s how the banks talk about it and always have … the “biggest investment you’ll ever make”. You might be different – but everyone I know with a mortgage regards it as an investment… you end up owning a house and the value will eventually a large portion of the interest costs plus a hefty share of capital gain.

    As such the family home should be treated as an investment under the Tax Act. Like the yanks do. Full capital gains tax. The up side of that is that the interest paid on the mortgage is considered tax deductible … just like any other investment. A level playing field.

    Now if you don’t agree with that – and you probably won’t – watch how the howling starts IF … not when incidentally … house values actually start to fall rather than just slow down the rate of increase as they have done in Australia so far. I very much doubt that there will be a “market correction” of the sort we’re seeing in the US housing market – there should be, but the tax subsidy will work against that… an artificial stimulus to rising house prices – as it always has been.

    But just suppose we do have a “correction” of the sort being experienced in the USA…. you can watch as people find that they owe more than their house is actually worth. Watch while their loan to valuation ratio is called in by the bank for a rethink… till they are called upon to make a special cash payment to reduce the principal to bring the loan back into prudential requirements. Howl? … we haven’t heard a thing yet. Suburbs full of empty houses, unfinished buildings, vacant apartment blocks….

    And a large part of the the howl is because it’s an investment … not just a home.

    And the loudest howlers will be those not affected by these shocks… it will come from those who own their homes outright and are watching their nest eggs fall away underneath them. Not homeless – just not as wealthy as they thought they were.

    All is self-interest, Smithy. Insatiable self-interest. Especially us baby boomers… still infantile after all these years.

    Now read what I sent you or do some research rather than accuse me of ranting. Or I’ll get annoyed.

    What sort of doctor are you anyway… not a PhD in economics I’ll wager?

  7. drsmithy

    You got any data for any of this

    macrobusiness.com.au. The “Unconventional Economist” has written extensively on the topic.

    Now that looks a bit better than inflation doesn’t it?

    Of course it still does. We’re still in the midst of a near unprecedented real estate bubble which everyone who has even the slightest ability to do so is trying to keep inflated. Prices need to – and will – halve (if not more) in real terms to return to the mean.

    This might happen over a few years like it did in America and Ireland. It might happen over 20 years like it did in Japan. It might even happen due to massive inflation. Regardless, it must happen.

    See Smithy it’s not luck – its knowing the market

    No, it’s luck. You have to have been born at the right time to have been in a position to buy a house at the right time. On top of that, you need to have actually bought (*and sold*) at the right times.

    Manly – where I’ve owned a couple of Ppors – the annual y-o-y increase is historically 25%.

    Uh huh. So you’re saying if I’d bought a random $750,000 house in Manly ten years ago it’d be worth $9 million today ? Because that’s what 25%/yr means.

    >It’s easy… nothing to it – once you’ve got a deposit and the income to service the loan. Money for jam. And the tax system facilitates it for the relatively affluent and aspirational.

    The tax system is massively skewed towards property speculation on “investment” properties, not PPoR. Which is one of the reasons why the PPoR as an “investment” is a poor choice.

    The interweb is chockers with useful real estate sites that show you how to do it

    Ah. It’s on the internet, it must be true !

    The interweb is chockers with websites that show me how to make millions on the stock market and consistently win the Lotto, as well. That doesn’t make any of them true.

    Amongst all your ranting, you still haven’t given a reason why people who want to relocate should be disadvantaged in their new abode simply because they chose to buy instead of rent. Plenty of talk about outliers and paper millionaires, not a lot about the common case.

  8. Peter Ormonde

    Excellent Mr M.

    Must admit the caravan parks in the Upper Hunter Valley look pretty gulagish … saddest bit is that they are full of young battler families and young kids. Not much of a way to grow up I’d reckon.

    Still they know that they are helping this great nation of ours by living in a tin shed on the edge of town while dad’s down the mine.

    It’s not that the money is bad – far from it – just that there’s nowhere at all to live.

    Maybe the idea is one gets a stake together and gets out and goes somewhere where there are schools and houses and the like. We’ll see how that works out. I have my doubts.

  9. Groucho

    Comrade Peter,

    You are of course correct. It is comforting to see that the right has move so far to the right it has adopted many of the great labour reforms of the stalinist era.

    I would humbly suggest that you both fail to think outside the square.

    True Soviets would know that only true way to mobilise a work force is through the use of gulags. Turn the Pilbara into a Siberia of sorts. Both are an extreme environment which would ensure a high turnover of labour minimising the risk of organised resistance.

    Introduced alongside mandatory detention and financial insolvency reclassified as criminal there would be no shortage of criminals or political enemies to send off to repay their debt in the mines.

    How was that?

  10. Peter Ormonde

    Mr Marx,

    Your reasoned thoughts are – as always – most welcome… just didn’t want you to think either Gavin or myself would even consider these “mobility measures” as being a rational, socially beneficial or considered option.

    To be honest I think the only response to such hand-wringing concern for the fortunes of Gina and Clive and for “improving the lot” of the poor and unemployed is satire, sarcasm and scorn.

  11. Groucho

    @Peter & Gavin

    No my comments weren’t specifically aimed at you two although my hammer might have woken up on the wrong side of the sickle this morning. While being slow witted is one of my strong traits I at least picked up some of the sarcasm although unfortunately at least one of our major parties has flagged 5k payments to shift people to the Pilbara as serious policy.

    I must admit I found it hard to take serious people who accused this “socialist” government of wealth redistribution while simultaneously bitterly complaining about the end of some middle class welfare.

    Whilst you both indulged in obvious sarcasm the sad fact is much of the political debate these days, which you would think was employing sarcasm and irony, is anything but.

    It sometimes feels like bizarro world where up is really down and left is really right.

    I’m sorry for spoiling your mocking of the illiterati and will try and refrain from disrupting with reasoned thought in the future.

  12. Peter Ormonde

    Smithy,

    You got any data for any of this….let’s see:

    “A house is an illiquid asset. It earns no income and pays no dividend. Outside of bubbles, and over the long term, its value will increase at the same rate as inflation. …A PPoR is a store of wealth. As an investment for profit – outside of luck – it’s an atrociously poor choice. You’d do better with a term deposit.”

    Post GFC property prices have “slumped”, yes? Well not not quite:

    “Last year(2010), there was an amazing 20% surge of house prices y-o-y to March 2010, triggering the RBA’s interest rate rises. Since then, house price rises have moderated. The house price index for 8 capital cities rose 5.8% y-o-y to Q4 2010 (3.1% in real terms), after annual increases of 10.8% and 16% respectively (7.8% and 12.6% in inflation-adjusted terms) the previous two quarters.” http://www.globalpropertyguide.com/Pacific/Australia/Price-History

    Now that looks a bit better than inflation doesn’t it? And this is in a slump Smithy.

    If you want to look a bit deeper there are a couple of charts on this page http://www.aussiestockforums.com/forums/showthread.php?t=4473&page=1 showing the inexorable rise of house prices across eight cities in Australia … surging ahead of inflation.

    Of course timing plays a part -as with all investments. Here’s a neat little study of Australia-wide housing prices between 1970 and 2003. … so the booms in housing prices in hot spots like Sydney, Melbourne, Perth and Brisbane and dampened by the sluggish markets of say East Gippsland, Roma or Broken Hill, but you’ll get the drift.

    This study shows a 180% increase over the period and identifies a series of “booms” or asset inflation bubbles to be more precise: 1971-74, 1979-81, 1987-91, 1996-2003.

    http://www.econ.mq.edu.au/website_administration/economics_studies_macquarie_university/Econ_docs/research_papers2/2004_research_papers/Abelson_9_04.pdf

    See Smithy it’s not luck – its knowing the market …. buy near Sydney Harbour – can’t go wrong. Manly – where I’ve owned a couple of Ppors – the annual y-o-y increase is historically 25%. It’s easy… nothing to it – once you’ve got a deposit and the income to service the loan. Money for jam. And the tax system facilitates it for the relatively affluent and aspirational.

    The interweb is chockers with useful real estate sites that show you how to do it …. how to spot suburbs and areas that have historically boomed even during “collapsing” housing markets. But the best bet is to actually look at where the rich live. Simple really … just follow the money.

    As you say Smithy ” A PPoR is a store of wealth.” and that store is cossetted by the tax system and the benefits accrue to those in the middle and top of the income scale … just like superannuation … encouraging overconsumption in housing expensiture and providing Australian banks with a licence to print money from a risk-free investment.

  13. Peter Ormonde

    Geez Groucho… you marxists are a humorless lot aren’tcha?

    Of course both Gavin and I agree with you several hundred percent. But I am concerned that people of otherwise good heart will succumb to this enthusiasm for oiling the wheels of capitalism (by feeding others into it) in much the same way that Gillard et al are falling for this sorry tale being spun by the mining magnates.

    So I reckon a bit of spirited discussion of the real barriers to hitting the road chasing work make it onto the agenda… makes the rather abstract discussion of “labour mobility” a bit more concrete and realistic.

    Anyway keep up the good work – I thought your Manifesto was even better than Horse Feathers.

  14. Matt Hardin

    I know it is late but thanks for the link Dr Smithy. Mine was a genuine question (not being in the rental market when it all happened).

  15. Gavin Moodie

    @ Groucho

    I hope your comments aren’t directed at the exchange between Peter Ormonde and me because if they are I must apologise for not making my sarcasm sufficiently obvious. As Peter wrote in another post, people ‘own houses, the kids go to school, the spouse has a job … there are all these barriers to a truly mobile workforce’, and removing people from their social networks is destructive and expensive, as you wrote in an earlier post.

  16. drsmithy

    But they don’t do they … that’s the problem … they own houses, the kids go to school, the spouse has a job … there are all these barriers to a truly mobile workforce.

    This is not about forcing – or even encouraging – people to pull up stumps and move. It’s about not punishing them when they do. Before you went off on one of your usual straw man massacres, the point was why removing CGT on the PPoR would have negative repercussions and act as a strong deterrent to people to relocate when they want or need to (and additionally as a disincentive to buy).

    Stamp duty has the same effect, with an even more significant impact, which is why it should similarly be abolished.

    Home ownership is a tax free sheltered investment that distorts both our financial system and the economy as a whole. It is superannuation and speculation rolled into one.

    How ? A house is an illiquid asset. It earns no income and pays no dividend. Outside of bubbles, and over the long term, its value will increase at the same rate as inflation.

    And as people become more “mobile” – the strategic selection of a “family home” is more and more an investment decision rather than a permanent home with roots into the community… the “family home” has become a temporary phase – they trade up and out, they move on…. and they want a decent return on their investment … bigger the better.

    The real irony here is that a CGT on the PPoR would act against the situation you want to encourage – it would be a disincentive for people to buy a home.

    And then when the kids have gone and they think about retiring the family home bankrolls the great shift to Noosa or the Gold Coast … a yes heaven on a stick and all tax-free.

    Sure, it really does sound wonderful, unless you’re one of the majority of people who isn’t trying to retire and simply wants to move from one city (or even suburb) to another and now – if CGT is applied to the “profits” – have to deal with the fact your new home is going to either a) be a step down from your previous home or b) cost you more than you have.

    Renters, of course, don’t face this problem.

    And for those who have the wherewithall to invest in a family home – property bubbles are just beaut …. they all become – as Suzanne Bleak puts it – millionaires. The fact that they do so by pricing their kids or someone else’s kids out of the housing market is a sign of the failure of government not a sign of their unchecked greed.

    While it is true the Baby Boomers have facilitated a huge wealth transfer from the younger generations to themselves, this was an extremely anomalous situation, the drivers of which are relatively easy (if politically unpopular) to rectify. Why should future generations of homeowners be punished because of the actions of one ?

    A PPoR is a store of wealth. As an investment for profit – outside of luck – it’s an atrociously poor choice. You’d do better with a term deposit. This will again become true once the real estate bubble has popped and prices return to the mean, which is why a) creating generic policy based on outliers is stupid and b) it’s just going to be closing the barn door after the horses have already bolted (and, worse, discouraging them from coming back in).

  17. Groucho

    I wonder if all those who see a quick fix for the unemployed to ship them off to the Pilbara actually have any knowledge of what they speak or are just regurgitating the latest shock jock talking points.

    First of all most of the labour shortages are for skilled workers. Next unless you are going to increase newstart allowance by several thousand dollars a week, yes that is thousands a week, where are they going to live?

    Even in place like Port Headland you can’t get accomodation even if you had thousands a week to spend let alone with a sudden influx of residents.

    Most of the workers are FIFO for good reason. You think they do that for the fun of it? A lot of the work is as a result of massive expansion. What happens when all the building projects are finished the current growth rate is not going to continue long term.

    Finally have any of you actually been to these places? 40+ in the shade in summer except the relief from the regular category 3+ cyclone. Who is going to spend the billions to build the infrastructure to support all these people? Hospitals plus doctors nurses and orderlies all paid enough to want to live there and enough to be able to live a mediocre lifestyle away from family.

    As usual a poorly though out idea that belongs more to a stalinist regime that would require BILLIONS additional government funding to satisfy the idealogical hatred of anyone who actually needs the welfare they receive.

    I could go on how monumental idiocy of such a plan but it would probablybe pointless. To get to the point of suggesting it demonstrates its proponents have an amazing ability to ignore reality to such an extent that a reasoned argument would be dismissed as some CIA plot.

  18. Peter Ormonde

    Smithy,

    “But a PPoR is not an investment, it’s a home.”

    No it’s both.

    Home ownership is a tax free sheltered investment that distorts both our financial system and the economy as a whole. It is superannuation and speculation rolled into one.

    And as people become more “mobile” – the strategic selection of a “family home” is more and more an investment decision rather than a permanent home with roots into the community… the “family home” has become a temporary phase – they trade up and out, they move on…. and they want a decent return on their investment … bigger the better.

    And then when the kids have gone and they think about retiring the family home bankrolls the great shift to Noosa or the Gold Coast … a yes heaven on a stick and all tax-free. Gina Rinehart should have it so good.

    And for those who have the wherewithall to invest in a family home – property bubbles are just beaut …. they all become – as Suzanne Bleak puts it – millionaires. The fact that they do so by pricing their kids or someone else’s kids out of the housing market is a sign of the failure of government not a sign of their unchecked greed.

    But sacred… so deeply sacred …. The Australian Dream. All our dreams should be tax-free.

  19. AR

    The old cry of the NuRite is that paying workers too much is a disincentive for them to work even harder whereas NOT paying their ilk too much is a disincentive to their innate desire to create jobs and entrepreneur the country back to the future.
    Nothing like a spot of starvation to get the forelock tugging going well and it also strengthens the trigger finger. Not sure about the kow-towing however at that tends to leave smudged flat spot of =n the forehead.

  20. Peter Ormonde

    Gavin…

    Now you’re talking.

    Although in my defence I did make an allusion to the sort of tough love you describe with my suggestion of swags.

    But yep having Newstart only available in the Pilbara etc is an excellent suggestion – I hope the suits are listening. Mobile? They’d be running up there … them and the kids.

    People just have to realise that they are the servants of the economy. That they only get a life to the extent they are willing to bow before the needs of Clive Palmer and Gina Rinehart.

    That’s the way to get this country back on its feet – by getting the poor back on their knees. Or on the wallaby.

  21. Peter Ormonde

    Spot on Dr Smithy …

    “They relocate for lifestyle and employment reasons when the opportunities arise.”

    But they don’t do they … that’s the problem … they own houses, the kids go to school, the spouse has a job … there are all these barriers to a truly mobile workforce.

    If you want to see a truly mobile workforce have a look at the trailer parks around me here in the Hunter Valley … or try the USA’s southern states like Tennessee or South Carolina …

    Yes let’s all spend our weekends working out how we can get people and their families moving around to meet the demands of a restructuring economy. Of course the employers could just pay them more. That might do it. Nah… that’d be too simple.

    But thanks for the suggestion Smithy … I’ll have a crack at growing up one day – I promise.

    Now how can we get everyone else to work harder and longer? Looks like the way forward looks like a re-run of the past doesn’t it?

  22. drsmithy

    Gee it gets complex this business need for labour mobility doesn’t it? Others should be mobile – not me though.

    Grow up, Peter.

    It’s not the 1950s anymore. Younger generations don’t settle down in one place and the same job for their entire lives now. They relocate for lifestyle and employment reasons when the opportunities arise.

    I cannot think of a single person I know under 40 who hasn’t packed up and moved[0] at least twice in their adult lives. Probably a quarter have changed _countries_ at least once.

    [0] And I don’t just mean across town.

  23. drsmithy

    CGT is only applied to profit after inflation, […]

    It may have escaped your notice, but we’re in one of the biggest real estate bubbles in history. House prices increases have vastly outstripped inflation for most of the last 15 years.

    By all means, argue that capital gains on investments should be taxed as normal income. But a PPoR is not an investment, it’s a home. Why should people who were unlucky enough to have lived through a real estate bubble have to take a step backwards in quality of shelter just because they happened to own instead of rent ?

    On average there was a huge increase in rents when Paul Keating restricted negative gearing. That is the reason he reversed his policies. It was not because he was scared of the real estate industry, he was a stronger man than that.

    This is demonstrably false. As explained here: http://www.macrobusiness.com.au/2010/12/negative-gearing-revisited/ when negative gearing was removed prices only increased in Sydney and Perth. They decreased in Brisbane and remained unchanged in Melbourne and Adelaide.

    The continual suggestion that without negative gearing our rental market would be unaffordable doesn’t even pass a cursory examination. Negative Gearing is a phenomenon almost entirely unique to Australia, yet there are dozens of countries out there with rental housing markets that are not only affordable, but are vastly superior to Australia’s.

    Something like 2/3 of “investment” (I use the term loosely) properties are negatively geared. Of those, something like 3/4 are owned by people earning under $80k/yr.

    As house prices continue to fall, and when unemployment starts to hit, all those people who aren’t even making enough from their rental income to break even are going to start hurting. Badly. They won’t be able to service their loans and even if they are somehow able to sell their house in a crashing market, it won’t be for enough to cover the mortgage. Negative Gearing is going to be Australia’s sub-prime catastrophe, and that’s without even considering how much tax revenue is being foregone.

  24. davidk

    @ LILAC
    Thank you so much for that link, it explains much of what has puzzled me ever since Kathy Jackson first appeared on my screen. I wonder if some of this material will make it into Mr Thompson’s statement to parliament. No wonder the Libs don’t want any documents tabled.

  25. Peter Ormonde

    No no no it’s not about housing – it’s about working …. owning a house – or even renting one on a long term lease is an onerous impost on enterprise.

    See Mr Rick under my simple suggestion you’d be entitled to a caravan or trailer allowance and be encouraged to move out of tired old declining Melbourne and head off with the wife and kids to the exploding economies of the Pilara or the Bowen Basin. The whole idea would be to reduce lease terms to a week or a fortnight at best.

    But wives and kids raise other problems of course… this whole notion of kids going to school needs serious re-examination by the likes of the Institute of Public Affairs or Judith Sloan. It’s just lead in the saddlebags of a dynamic modern workforce. Day by day enrolment might work … so they could just up and off whenever dad had to shoulder the family swag again…. get a date stamp at the next town, the next school.

    And of course wives shouldn’t be working at all … at least not doing anything important that might impede the shifting of the family to where the jobs are. Sewing, taking in washing that sort of thing…. living in a caravan will help a lot.

    Gee it gets complex this business need for labour mobility doesn’t it? Others should be mobile – not me though.

  26. Recalcitrant.Rick

    What about offering different negative gearing treatment to those that are prepared to offer greater rental security to renters. I.e. make it an advantage to offer long term leases to those that want one. re workplace mobility, that is a two edged sword, as some one who has found himself in the rental market in Melbourne I have had to move twice in two years because the owner has wanted to move a family member in. His right, I know, but stability not mobility is a cornerstone of a successful society.

  27. Apollo

    Interesting discussion about mobile work force. My old neighbour used to travel anywhere around Australia for work, that’s how it was. These days we take stronger consideration on family, friends and social network into account. One of the negative of this is the cause of shortage of doctors in regional areas. There is a dilemma either way I guess.

  28. Gavin Moodie

    @ Peter Ormonde

    I am disappointed in you, really I am. You *profess* to want to help the unemployed and the economy but wilfully ignore the measure that was so successful in reducing the sedentary indigent during the Great Depression: limit the time the unemployed can receive the dole in each town to 6 months. This would encourage them to get on the wallaby when they will surely find a job.

    Of course this policy should be updated to modern Australian conditions by making the dole available only in the Kimberlies, Pilbara and the Bowen Basin.

  29. Groucho

    A mobile work force is a false economy apart from defunct small towns. If you start pushing people to move to chase work all you acheive is entrenching a further reliance on government support.

    Removing people from their support network, famiy and friends, and stranding them through one way grants far from home is a recipe for disaster.

    As to NG even if one was accept the only reason ever given for its existance (and I don’t), subsidising housing costs for renters, the current system is flawed and could be tightened quite significantly without having any impact on rentals. Make it only for properties rented under a certain amount a week, or worth under a certain amount, or simply provide rebates for renters which will have the same effect as subsidising landlords but not those who rort the system.

    Although all of the above is pointless because we all know that the arguments are never made out of concern for the plight of renters. It’s just another handout from government to people who don’t need it. Just don’t call it wealth redistribution.

  30. Apollo

    I’ve read comments that Keating never did reduce negative gearing, they abandoned the plan and it never got into legislation.

    I don’t think phasing out negative gearing at a reasonable pace and well executed plan will cause any increase in rental price, negative gearing is the locking many aspiring first home owners out of the market therefore increasing demand for rent and increases rental price.

    I watched Alan Kohler’s show this morning. Apparently the Spanish are feeling more secured about their financial situation than Australians according to a recent survey, and one of the guests told how he was at the hairdresser recently and the barber said to him that Australia is worse than Greece. How did Australians become so negative? This is so disturbing.

  31. Peter Ormonde

    Look if it’s labor mobility you’re all after the answer is obvious: tax houses and exempt caravans and trailers … simple as. Make houses as expensive as all heck.
    See we’re already on track.

    But given that we have a reformist bleeding heart government there should be a few carrots in with the sticks. Give the unemployed a tent allowance. A free swag with every Newstart application.

    We’ve gotta get them kids down the mines one way or another, don’t we?

  32. Mal White

    @DRSMITHY

    “CGT on the PPoR would act as a pretty serious brake on labour mobility.”

    CGT is only applied to profit after inflation, stamp duty however is paid on every house sale. Historically the introduction of CGT has not been made retrospective so it would less of a brake on labour mobility.

    On average there was a huge increase in rents when Paul Keating restricted negative gearing. That is the reason he reversed his policies. It was not because he was scared of the real estate industry, he was a stronger man than that.

  33. drsmithy

    Didn’t cancelling negative gearing by Keating in the 90s lead to massive increases in housing rent prices?

    No, though this is a common fallacy repeated by the greedy piggies in real estate.

    Phasing out negative gearing, along with the 50% CGT discount, would go a long, long way to making housing in this country more affordable.

  34. drsmithy

    I agree that the principal place of residence should not be exempted from capital gains tax.

    CGT on the PPoR would act as a pretty serious brake on labour mobility.

    If I’ve lived for ten years in one place and want/have to pick up and move somewhere else, selling my house in the process to buy a new one, why should I have to take a relative hit in my living standard ?

  35. Groucho

    @STEVE777

    Spot on and exactly my point. I’d really love to know which entitlement attitude Hockey was refering to? Bet your bottom dollar it won’t be family tax benefit B, PHI rebate or any of the other dozens of wealth redistributing handouts that go to the middle class mostly to allow people to buy a bigger hourse, new cars or overseas holidays.

    In fact as a taxpayer who do you think sucks up more of your tax? The dole bludger or the middle class “Howard Battler”?

  36. Steve777

    Australians want governments to do lots of things but they’re not keen on paying for it. Most people favour social security, at least for ‘respectable’ recipients (e.g. age pensioners and themselves). Most think we should spend lots on defence and many, especially conservatives, think we should be spending a lot more. Most want Medicare, most don’t want their children to be faced with higher tertiary education fees. Most say we need better roads and rail. And so on. And of course many people believe we should be subsidising private choices in education, health insurance and child care.

    And everyone thinks they pay too much tax. And ‘everyone’ (or lots of us anyway) thinks the Government spends too much (but on other undeserving people).

    There are probably efficiency gains to be made in the public sector but their effect would be likely to be marginal to the big picture. But to hear Opposition spokespeople, they apparently think we could fix everything in the economy by making politicians and public servants suffer without affecting voters.

    And sacking lots of public servants will create more unemployment and all the problems that entails. I would have no problem with a temporary (say 3 year) surcharge on Company Tax and one on income tax for higher (say 75K+) earners to prevent a slide into excessive debt in hard economic times. After all, no one who isn’t making profits or otherwise doing well is going to have to pay it. Of course before we do that we should have eliminated the absurdly favourable treatment we provide to property speculation (negative gearing) and superannuation for high income earners. Likewise, I simply don’t see the logic in treating capital gains more favourably than income. That to me seems to favour speculation (even if you have to wait a year) and tax avoidance (by disguising income as capital gains).

  37. GocomSys

    @Mushroom (aka SB) Content: “Lefties”, “God”, “Assange”, “Milne Flop”. Great contribution as always!

  38. Suzanne Blake

    Lefties out in force today, than God, Assange will pinch a senate seat from you in 2013 in NSW.

    Milne is a flop.

  39. Apollo

    Thanks for the link to the article guys. Yah I’ve always thought Kathy Jackson is A Liberal Party person whenever I saw her on TV and was surprised she is a Union member in high position. The plot is thicken.

  40. Peter Ormonde

    AR …

    Yes there was a point where Crikey was getting a regular mention in dispatches … breaking the odd story of having some additional bit of useful information that managed to squeeze itself into the public discussion and the mainstream meeja.

    But the last six months has seen a dramatic retreat to the periphery … a loss of contact and even timidity. Perhaps that extra source has just dried up or lost its appeal.

    Instead we get routine regurgitation of Essential’s latest bit of flimsy market research or a commentary on parliamentary events albeit from a left of centre perspective. The Press Gallery in exile.

    I’m sure Cr*key’s journalists are feeling a certain tiredness creeping into their bones … the quiet strangulation of the daily darg. Needs a shake-up… maybe HRT for a fading idea. A tonic.

  41. AR

    PO – I took to CONVERSATION after a previous mention by you and it is so much more cerebral than Crikey that at least the usual trolls can’t cope, with the usual suspects (from the style though somewhat modified for a different readership).
    Unfortunately, like GlobalMail and the two sites set up by Canberra Uni (?), it is not the coal face for that very reason.
    So do we talk amongst the able or try to get down & dirty with the trolls to attempt the impossible, changing those minds sufficiently open?
    That’s been the problem since the Diggers or the Chartists.

  42. Mal White

    @PETER ORMONDE

    I don’t always agree with your posts, however they are always interesting and thoughtful.

    I am only an occasional contributor however like you, I have had enough of the ad hoc moderator which seems to be little more than some kind of electronic roulette wheel.

    I hope you keep posting, even if it’s not on Crik.ey.

  43. Gavin Moodie

    Home ownership in Australia is 70%. Median house prices are about $475,000. So probate duty starting at $480,000 would be imposed on about 35% of estates.

    As I wrote before, Australia is the exception amongst OECD countries in not having probate duty.

  44. Peter Ormonde

    Gavin,

    Seems staying on topic is not regarded as sacrosanct when one has the likes of Ms Bleak and Geewizz/Troofie able to post anything they fantasise.

    No Gavin, it’s the content that frightened the “moderator” … too moderate by half… to the point of being gutless.

    Thanks for the nice words Lilac.

    Peter

  45. Edmund Moriarty

    I for one would strongly support wealth or estate tax. At the moment the governments attempts to tax the rich just end up hurting people with high incomes, who are mostly trying to get rich rather than being rich, by using income tax as the weapon. The rich don’t make money from income.
    If you are serious about equality then a tax on wealth is a great idea. 10% estate duty? And I doubt we would see a flight of wealth overseas. Particularly if all the major Western economies introduced a similar wealth tax simultaneously, wouldn’t that be great!
    Super profit tax on banks??? The size of their profit is small compared to their market cap. They aren’t rolling in it at all. Their share price has halved in three years because their profits are so weak. Return on equity is what 10%??
    And almost every working Australian owns the banks via super. The decline in bank share value would hurt those entering retirement.
    But seriously just get rid of FTB and adopt most of the Henry review. An excellent plan is sitting gathering dust.

  46. GocomSys

    @Gavin Moody. Its difficult not to descend to personal comments in light of ongoing annoying, senseless, useless and plain stupid comments by some. Distracts immensely from insightful and diverse post by others!
    @Mushroom. (alias SB) Nothing to say, don’t! Play somewhere else, why don’t you! Good bye!

  47. Suzanne Blake

    @ Gavin Moodie

    Sorry to interupt ypur inner city Latte, but death duties on family assets over $480k would impact 95% of Australians (ie anyone who owns a house and a few trinkets anywhere) and won’t happen, unless your Communist mates come down here and take us over. Even China does not have this , nor North Korea or Cuba?

  48. Gavin Moodie

    Actually, I believe that probate duty should be 100%, but I’ll settle for the UK’s inheritance tax of 40% on estates above £300,000 ($480,000) if that’s the best that can be offered.

    Unlike some other posters I don’t normally descend to personal comments, but as an exception I’ll state that I’m a socialist, not a communist, a distinction mostly lost on the rabid right.

  49. Suzanne Blake

    @ Gavin Moodie

    A real communist at heart, go and live in the UK and pay your 40% death duties.

    If any Government tried to bring either into Australia, that would have less sets that Labor in Queensland.

  50. Gavin Moodie

    In fairness to the Crikey moderator, the article referred to by Lilac breaches Crikey’s first rule of posting: ‘Please stay on topic’, as Lilac acknowledges.

  51. Gavin Moodie

    I agree that the principal place of residence should not be exempted from capital gains tax. But I’m not sure about having different rates for residential properties of different value when the same rate applies to commercial property of all values. Another possibility would to be to have different rates of tax for different rates of capital gain, which I would apply to all capital gains, not just to those on the principal place of residence.

    But if we’re into real political suicide Australia should stop being just about the only OECD country without probate duty.

  52. lilac

    @ Peter O
    Sadly I think you are correct! I hope you don’t give up on posting here your thoughtful, accurate and insightful posts will be sorely missed by many!
    Yes agreed, The Conversation is a good read.

  53. Groucho

    What’s most interesting about Bernard’s faux budget is just how predictable the response is. For all the shrieking of socialism, wealth redistribution and class warfare pulling the candy from the hands of the “free marketeers” has them squealing like stuck pigs.

    Since when was it up to government to subsidise peoples rents? In fact when one article I saw a few years ago revisted Keating’s removal of NG it found rental prices only went up significantly in Sydney and Perth. In fact NG has the opposite effect because it drives up the price of existing stock and rents.

    If Negative Gearing makes so much fiscal sense as its proponents claim why is it specifically excluded from tax reviews? Why don’t we have a cost/benefit analysis of its operation and who is really complaining? Its not the renters who would cheer its removal so they could finally buy into the market.

    I almost fell off my chair when I heard Joe Hockey criticising the sense of entitlement to welfare in Australia. He was a senior member of a government, and still does so in opposition, who’s sole existance was attributed to entitlement mentality.

  54. Peter Ormonde

    They are scared of lawyers Lilac … and don’t like being scooped by some clever kid I guess.

    Don’t have the smarts to lawyer proof themselves … presumably the company that publishes Crikey actually has assets. And of course assets must be protected. So you protect them by not running stories that might bring down the lawyers on you.

    And – after a few years you end up like Rupert Murdoch.

    I reckon this will be my last effort at Crikey… aside from First Dog, the rest of it is pretty middling to be honest.

    The Conversation is well worth a look for those interested.

  55. lilac

    @Peter Ormonde 4 hours in moderation! What are they scared of? The story has gone viral on Twitter but not ONE mainstream media organisation has run with it!?! I would expect that from News Limited and even Faifax these days but not the ABC and especially not Crikey, the situation reeks!

  56. Recalcitrant.Rick

    So SB, what is affecting business in Australia at the moment? Is it the low interest rates? Maybe it’s the low wage inflation,? Tell me what is causing them the most trouble? The answer of course is a high dollar and negative sentiment. So, what’s causing the high dollar, oh that’s right…..a succesful economy! What’s causing the negative sentiment? Lies by you and your do nothing cronies!
    I’m prepared to admit that this Government has made political mistakes, But on a policy and economic level this has been an excellent Government. Forward thinking, economically responsible and guiding the country through the GFC, the WORST economic crisis since the Great Depression without going into recession! Only an idiot would fail to see that, and that’s why Swan got a gong, and we are considered by nearly all NEUTRAL observers to have one of the worlds best run economies.
    Can anyone try and imagine what life would have been like if Abbott had won the negotiations and had to deal with the independents 🙂 He wouldn’t have a clue! and they’d be crossing the floor every second sitting day because his outrageous promises to them would, of course, have been broken.

    Oh, and I know how to fix the high dollar. WRECK THE ECONOMY! Vote 1 for Abbott and Hockey!

  57. Peter Ormonde

    Tried to post a precis of the article referred to above by Lilac. Moderation for four hours then disappears.

    Top job Crikey … removed a post that was far too scary to run, yes?

    Enough! I can get gutless journalism from the Mainstream Meeja.

  58. Suzanne Blake

    Sorry @ GocomSys

    I have not been to Maccas, except for a Coffee for many many years. Kids dont even eat it.

    Increasing GST on fast food, will just hurt the disadvantaged. Is a salad at Maccas, fast food. Is Subway fast food?

  59. GocomSys

    @SB. Hi mushroom! Still in the dark and thriving on bullsh^t? You shouldn’t have brekky and the Daily Terror at Maccas! It isn’t good for your health, physically and mentally! See what it does to you! Why don’t you listen! Maybe the GST increase on fast food is not such a bad idea. Might even work for someone like you. Or possibly not!

  60. AR

    ..would be..but the MORE it is worked..

  61. AR

    Clytie – re fast food tax, in a manner GST does increase the cost of junk gunk but nowhere near enough. (My monomania about of abolishing ALL other taxation and taxing only energy would catch the Obesity Enablers on their grease stained chins, with downstream benefits of lower medical costs.)
    Wilson, in 60s UK, tried to tax certain activities with the Selective Employment Tax, intended to make service jobs more expensive in order to have those keen, able workers to do something more productive, like make stuff in the erstwhile workshop of the world. Didn’t get a chance to work as it was mercilessly attacked by those who became thatcher’s children of the 80s when she basically abolished british industry.
    So, ‘scuse the digression, basic fresh food should remain tax free but the kore it is worked, the higher the tax until slop sold in tins & joints is too expensive to be used as a lazy substitute for nutrition.

  62. Mal White

    If we are into political suicide then why not go the whole hog and introduce Capital gains tax on the family home. Make it progressive towards expensive homes.
    Use the money to help the States get rid of stamp duty on the family home.

    Stamp duty hits every home owner who wants to move. It reduces the mobility of the workforce to shift to where the work is. This is now quite a problem in Australia and I am not a fan of “fly in fly out” because it is too damaging to families.
    Capital gains tax only needs to be paid if you have made a profit and it may reduce the incentive for Australians to put so much money into the worlds largest houses.

  63. Suzanne Blake

    @ Recalcitrant.Rick

    Really? Not according to just about anyone in the know (ie: businesses who invest and employ).

  64. Recalcitrant.Rick

    Dear Suzanne, the only people damaging this economy are the opposition, consistently talking it down, regardless of the world view, most economists, and the facts & figures themselves. Wreckers with no vision!

  65. Andybob

    SB you presumably mean if Bernard were empowered to implement it, because claiming that result from the article alone would be farfetched, even for you.

    Extending GST to food would be very regressive. Perhaps such extra GST might be subject to decreasing the States dependence on pokie machine revenues.

  66. Suzanne Blake

    This will see an additional flight of confidence and capital from Australia

  67. LJG..............

    I agree that negative gearing needs to be phased out or at least minimised – say adults get to negative gear 1 extra property but no more than that.
    I think it would also have beneficial flow on effects in the property market from an environmental point of view – there is a lot of cheap and nasty, poorly insulated dog boxes going up around Melbourne at the moment to service this market. I think the quality of the product would be a little better if it was aimed at owner-occupiers rather than the rental market.
    Just an idea.
    But it needs to be phased out veeery slowly as it is one of those middle class welfare rackets that a lot of people have bought into and the blood will flow…

  68. Matt Hardin

    Didn’t cancelling negative gearing by Keating in the 90s lead to massive increases in housing rent prices?

  69. Recalcitrant.Rick

    Maybe the super profits tax should be applied across the board. Maybe lowering the current rate substantially but taxing super profits above a certain % ??? say 12%??? No idea how it would work though.

  70. Gavin Moodie

    Like other posters, I agree with most of fantasy treasurer Keane’s proposals.

    Fuel excise is not hypothecated for roads or any other expenditure so there should be no rebate for anyone. Start with miners and move on the farmers later.

    But Keane left the regressive tax expenditures on superannuation untouched, despite fellow Crikey contributor Eva Cox reminding us every so often that it is sexist as well as regressive!

  71. Clytie

    John: tax exemption for self-declared “religious” groups costs us a motza: Scientology is one egregious example. Hubbard said when he created Scientology (having previously run into legal trouble pushing fake health treatments) that if you want to make a lot of money, just create a religion. Lots less oversight, more opportunity to exploit people, and packets of dough.

    Jimmy: the Salvos and Vinnies do a bang-up job which it would cost the government (taxpayer) considerably more to do, since so much of the Salvos’ and Vinnies’ work is done by committed volunteers.

    Peter: if we’re going to lift food prices by 10%, we do need to compensate low-income earners. I’ve been poor and hungry, and with food prices 10% higher at the time, I would have been a lot worse off. Poor people live on a knife-edge margin. I remember going without food for two whole days to buy my toddler a $2 hot-water bottle (we couldn’t afford heating). Going without is a lot harder when you’re not getting much the rest of the time.

    I also suggest double GST on fast food. Make fresh, healthy food more attractive. Subsidize farmer’s markets and community vege gardens. 🙂

  72. Jimmy

    Microseris – I had to read 1984 for year 12 back in 1993 and thought it ridiculous, 20 years on and I keep thinking how true is was.

    As for the perpetual war, once communism fell they had to find some new enemy and terrorism was it. And in true 1984 fashion it didn’t matter that the current enemy was previously our friend.

  73. Microseris

    The war on terror reminds of the perpetual war in Orwell’s 1984.

  74. Jimmy

    John – When doing the calculation don’t foget to factor in the extra welfare costs for the govt doing the work of the salvation army, St Vinnies and the various other “religious” charity organisations.

  75. John Bennetts

    Does anybody have a reliable handle on what tax emptions to religion are costing the rest of us, ie the great majority who are not God-botherers?

    It would take a brave person to take action, though…

  76. tqft

    Why stop at banks? Why not a super profits tax on that other duopoly? Coles & Woolies.

  77. PK93

    “The caveat on all this, of course, is that it’s easy for commentators and economists to spell out what they think should be done, but none of us ever stand for election and face the wrath of voters like politicians have to. ”

    Before I even read the article I was going to post “why don’t you run for parliament…”

    I hope this insight leads to a little more humility in your style in future

  78. lilac

    Off topic I know and I apologise but finally Tony Abbott, Kathy Jackson and Michael Lawler were outed in a brilliant piece of investigative journalism yesterday in the Independent Australia.
    The article also raises questions of the Slipper affair.
    http://www.independentaustralia.net/2012/politics/how-the-hsu-tangled-jackson-lawler-and-thomson-with-abbott/

  79. Jimmy

    Mark Heydon – I acknowledge the “govt guarantee” concept but the tax attacks the issue from the wrong end. We need to make smaller banks and credit unions more attractive.

    Personally I do all my banking through what was the VTU credit union (now mutual bank) and have had much better interest rates than anything the big banks offer.

  80. Mark Heydon

    @ Jimmy
    Logic for a banks super profit tax (in my eyes at least) is that the big banks are effectively backstopped by a government guarantee. The rating agencies have stated that they effectively mark the banks’ credit ratings up a couple of notches as a result, which gives them access to more and cheaper funding. This shouldn’t come cost free. Though I agree in the current uncompetitive banking market any additional tax would likely be mostly passed on to customers.

    On another note, I reckon there are a number of tax issues that could be looked at, for example the 50% discount on capital gains and the use of family and other trust structures to split income.

  81. Mark Duffett

    Yes to Phen. In any case, what’s the rationale for “removing the diesel fuel rebate from miners and transport, while keeping it for agriculture”? People might not need the products of the former quite as much as the latter, but they come a pretty close second.

  82. Jimmy

    Phen – Very true, but how much of the taxes on fuel actually go to roads these days?

  83. Joe Magill

    It’s a great start Bernard.
    I wonder whether a phase out (over say 5 or at a stretch 10 years) of negative gearing would be politically achievable in light of the other measures proposed. A primary objective should be to remove the distortions that the tax regime creates.

    Peter Ormonde, the states do have a real revenue shortfall problem and a rising expenditure obligation. This has to be addressed if we want to maintain reasonable services. The GST removed a raft of inefficient state taxes and if we don’t fix the state problem we will only encourage their replacement. Someone has to pay for the schools, the hospitals, the police.

  84. Phen

    Its just silly populism to claim that the rebate of diesel fuel tax shouldn’t apply to miners. The principle that use of diesel fuel in machinery and in mining equipment shouldn’t be linked to a tax intended to fund public roads is at the heart of this tax.

    Like most of the other ideas though.

  85. Jimmy

    Generally happy with all the suggestions but I can’t see a banking super profits tax working, not only does it not have the logical nexus of “they are using our mineral and need to pay for it” of the MRRT, but as the banks have already broken the link between RBA rates and what they charge the tax will merely be passed on in the form of higher interest ratres on loans and lower rates on deposits.

    As for the courage necessary, well the current govt has brought in a carbon tax and MRRT, means tested private health, restructred FTB and other middle class welfare. initatiated the “builidng better cities” policy and the regional cities program so just because they aren’t doing everything you suggest doesn’t mean they shouldn’t get credit for the courage they have shown, especially when their policies are contrasted with what an Abbott govt is planning to do.

  86. Peter Ormonde

    Yep – wouldn’t it be nice – a technocracy run by pundits … make doing the right thing so simple.

    Some of these suggestions are both economically and socially sensible – lbut some, ike the GST on food, are politically suicidal.

    So one would need to set up some sort of compensation for those on low incomes… so knock a bit off the revenue side there.

    But spread the GST to food just to feed the states???? Because they aren’t hauling in as much in stamp duty and other insane taxes they impose on employment and the like? No BK – let the states eat cake I reckon.

    But all up 8/10

  87. ConnorJ

    Vote #1 Crikey in 2013!

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