Following their Batman debacle, the Greens appear determined to abandon their remaining economic credibility by embracing nonsensical housing and welfare policies: today at the National Press Club, leader Richard Di Natale will announce new policies on the Reserve Bank offering discounted housing mortgages and a universal basic income.
Both policies are the kind of magic pudding stuff that the Greens abandoned years ago in favour of more rational economic policies, including some eventually embraced by the major parties.
The RBA policy conflates two distinct issues: the lack of competition in banking, and housing affordability. The idea of a new “people’s bank” to disrupt the banking oligopoly, has merit. An ideologically diverse group of “six economists” (including Nicholas Gruen) featured an “Aussiebank” idea in their call for financial reform nearly a decade ago. But the Greens have shoehorned it into housing finance, and propose that the Reserve Bank play that role and offer discounted mortgages for 60% of the price of a property purchased by first home buyers.
Like other demand-side subsidies, such as the notorious first home buyer grants of recent decades, providing taxpayer-funded discounted mortgages will pump more money into the housing market, which in the absence of additional supply will simply push housing prices up. As a political party almost definitionally NIMBYist, the Greens are a priori opposed to additional housing supply in established suburbs. With lower interest bills over the life of a mortgage, home buyers will be able to bid higher for the same pool of properties. At a time when a major party has finally backed curbs on negative gearing and capital gains tax exemptions (a policy originally championed by the Greens), the last thing we need is another mechanism to pump more taxpayer money into house prices.
And like most handout mechanisms, this would be rorted by the wealthy. Who can afford a 40% deposit on a property? They’re the ones who’ll be knocking on the door at Martin Place to demand a cheap mortgage for the other 60%. The rest will have to go another bank for the remainder of the mortgage, and pay extra for the privilege of being given a second mortgage.
There’s good reasons why the Reserve Bank was hived off from the Commonwealth Bank in 1959. Governments realised the then-Commonwealth Bank couldn’t both be a participant in the market and exercise the regulatory and prudential functions of a central bank. The Greens’ plan would undo the 1959 Reserve Bank Act and have the Reserve Bank both competing with, and regulating, other banks. This would wreck the relationship between the RBA and other key financial regulators and compromise the independence of monetary policy setting. And who would vet the RBA’s lending standards? Who would be the lender of last resort if the RBA’s mortgage arm failed? Rival banks would face higher costs from foreign lenders concerned about the implications for stability of a return to the pre-1959 system. We’d need to set up a new, separate central bank to play the RBA’s role, which it couldn’t once it became a competitor to other banks.
Then there’s UBI. If you advocate UBI — paying everyone an non-means-tested basic income — you’re either a fool, or you have an interest in undercutting wages. That’s why some tech billionaires advocate UBI; it would enable them to slash the wages of their workers without worrying that their employees will starve to death or (more importantly) not be able to buy their products and services.
The problem of UBI advocates from the left though is that they can’t do the maths. To give even a minority of Australians — say, those in the lowest two income quintiles — a basic income would require tens of billions of dollars extra beyond the current cost of all welfare — far more than you’d save from sacking every Social Services bureaucrat. And what about people with special needs, or carers? Do people living in cities get more than people living in country towns? Oh wait, you sacked all the bureaucrats, so even if you wanted some nuance in UBI to reflect different needs, you can’t do it.
And what if the best way to fix poverty isn’t the small-government, individual responsibility approach of UBI (just hand people money and let them do what they want) but through quality education and training or a better health service?
Oh yeah, didn’t think about that.