Six ways to fix Australia's finances without cuts

[clive milne]

The following article is from the Guardian:

It can be viewed in full here:

http://www.theguardian.com/commentisfree/2014/may/09/six-ways-to-fix-australias-finances-without-cuts


The great political scientist Harold Lasswell saw politics as the business of "who gets what, when, and how”. Governments have the power to make grand schemes happen, and their budgets indicate their priorities. The question for prime minister Tony Abbott and treasurer Hockey this budget is who will get what, when and how?

In the lead up to the budget the public has been told that cuts are necessary. The commission of audit and the government have made some very spurious arguments to justify the cuts, which Greg Jericho described as "ideology over evidence".*

So what might a fairer budget look like? Here's six ways we can find more money without cuts.

1. End the great superannuation concession rort – save $10.5bn

Here's a popular cut: end the huge cash giveaways to the wealthy throughsuperannuation tax concessions. For every $1bn we spend on concessions, we save only $200m on the old age pension. This is a massive net loss for the government and a redistribution of wealth from the state to the already well off, because 30%*of concessionsgo to the top 5%. The top 1% receives more than three times as much as the old age pension – the programme it was intended to replace. Ending the concessions for the top 5% alone would save $10.5bn annually; a more radical restructuring would save a lot more.

2. Actually tax the mining industry – add $50bn

Mining operations in Australia arecomparatively undertaxed. The effective taxation on resources in Australia is*13%, while in Norway it's*78%. In 2010-11, the value of mining exports was*$135.6bn, meaning the total tax was approximately $17.6bn. If the effective tax increased to Norwegian rates, it would accrue $105.8bn.

Perhaps that’s too radical for Australians, who are used to being exploited by majority foreign owned mining companies. How about a 50% tax rate for our Crown-owned minerals? We could pocket a neat $67.8bn. The difference would more than cover the$47bn*deficit.

3. Abolish fossil fuel subsidies – save $11bn

In 2013-14 there were over*$11bn*of subsidies given to the fossil fuel sector. This includes $6bn for fuel tax credits, $1bn for aviation fuel, and lots of smaller subsides, like $0.5bn for mining exploration. This is a wealth transfer to polluting companies which should be cut.*

4. Defund private schools – save $9bn

In*2013-14*the Commonwealth spent $4.5bn on public schools and $9bn on private schools. I've*argued before*that private schools shouldn't receive federal funding, as those students have opted out of the public provision of education provided by the states. Cutting that $9bn spent on private schools – or transferring that money to public schools – would end the wasteful elite private school*"arms race"*where unfathomable amounts have been spent on gyms, pools and the like.

That aside,*private schools are less efficientincreasing their costs per student by 3.4% per annum compared to 2.4% per annum for public schools – with*no improvement to academic results. Any neoliberal would tell you that such spending is wasteful and inefficient, because the input costs are greater for the same academic return - studies found that NAPLAN scores didn't improve for students who attended*private or Catholic schools.

5. More progressive income taxes – add $41bn

The real causes of the deficit are cuts to income tax and the disappearance of a more progressive taxation system. If 2006 taxation rates were still used, there would be an additional*$40bn*of revenue this year - let's restore them. The Greens have also proposed a millionaires’ tax, which would raise*$1bn*by taking an extra 5% from the very richest. Why stop at 50% for millionaires, when in 1985-86 people making what would now be $92,351 were taxed 60%? France recently adopted a*75% tax on millionaires; the Australian Greens are much tamer with their meagre 50% tax.

6. Abolish negative gearing – save $15bn

Australia has a curious loophole in its tax code, which allows an investor to borrow money to buy an asset, even if the income generated by that asset does not initially cover the interest on the loan. Losses from so-called "negatively geared" property is income tax deductible; it is difficult to calculate how much negative gearing costs the budget but it has been estimated to be about*$15bn. This is blatant welfare for those who are already very wealthy and should be ended. It is government policy that does not improve housing affordability, as was its initial aim, but increases wealth inequalities.

The bottom line - $136.5bn improvement

My $136.5bn improvement isn't exhaustive, but it is enough to pay the*$114bn*for a high speed rail network and save jobs at the ABC. I’ve had my fun, now you be the treasurer. What would your budget priorities be? Comment your recommendations to Hockey.

[glend]

Interesting. I would add abolish the ability of self-managed Super funds to borrow money - this is driving house prices crazy as well-healed people use their SMSFs to gain massive property leverage in a tax free environment. First home buyers have to buy with after tax dollars.

And if your going to tax the miners with a super profits tax - why not the banks? Banking is obsencely profitable and only the shareholders benefit from this - probably held in SMSFs and used as leverage to drive property purchases. A bank super profit tax could easily pay for the NDIS.

Politicians are fundamentally lazy and painted into policy corners by their opposition and past statements that are used to beat them later on.

[bobson]

A simple and sound solutions that politicians wont even look at. They will rather hit Medicare and needy people.
The media circus they create just by mentioning taxing mining industry!

[casstony]

#1. No. Individuals save money whereas the govt can't be trusted to save money for our retirement.

#2. Unsure. We still need the businesses to be profitable.

#3. Yes.

#4. No. Parents contribute a lot to private school costs that they would not spend at a public school. Also there's a lot more to student wellbeing than simple academic results show. eg. Sensitive or 'different' kids that might be outcasts in a public school may do better in a private school.

#5. Yes to higher income taxes, particularly the higher bands.

#6. Yes. House prices would be much lower than they currently are if subsidies like negative gearing and first home buyer grants had not been available.

[clive milne]

Yep... I agree and would go further.
Surely it is self evident that irrespective of one's political inclination the current economic system is not serving us. It is not surprising because one of its base premises is a mathematical absurdity.

[multiweb]

The title of this thread sounds like "Lose weight without exercising".
Besides the deficit we have a huge domestic debt. People spend money they don't have on their credit card. This attitude is reflected to every echelon of the government. The money has been spend. Now we have a huge interest bill. So it makes sense to squeeze until we lower that debt and there's only one way to do it. Buckle up. The pain is coming.

[Larryp]

1-superannuation is a hodge-podge at the moment, and the only people getting rich are the fund management companies. I don't know the answer, but perhaps super should be run by a government established fund manager, every working person pays into it, and everybody gets an aged pension-no concessions for extra contributions.

2-A mining tax needs to allow the miners to make a reasonable profit AND sell their product at a competitive price to their competition. It needs to be thought out a whole lot better than it has been so far.

3-Removing the fossil fuel subsidy will need to be thought out carefully, as it would cause an increase in primary production costs. Increasing food prices would be inflationary.

4-Private school parents pay income tax, too. They are entitled to the same dollar spend on their kids as public school kids-after all, they are paying the private fees for their kids, not the taxpayer. If you take away taxpayer funding in private schools, there would be a huge number of kids leaving the private system and flooding the public system, and it couldn't cope. I think this is best left alone!

5-Raising income tax dramatically for the wealthy will only drive them off-shore-then you get nothing! Better to raise the GST and apply it to everything- low income earners and welfare recipients can be compensated for the increased costs.

6-Yes-abolish negative gearing. It forces the taxpayer to subsidise someone else's wealth acquisition.

[tlgerdes]

Love #6 Abolish negative gearing.

Now I have to put up the rent on my investment property to cover the complete costs of the interest payments, strata levies, water rates, council rates, insurance etc, etc.

So who loses out, the low income earner renting my property, do you really think the investor is going to wear the loss?

Then, how does that also apply to a business making a loss versus an individual making a loss, say selling fruit, where a bad crop doesn't pay for the inputs? Or tenant who trashes a property (4-5 times the value of the bond) and the owner has to replace carpet before he rent it again. Can't have one rule some and different rule for others.

[Renato1]

Typical loony left stuff from the Guardian. I wonder if they cut and paste it from The Issue (which the unemployed sell on street corners).

Take the fossil fuel subsidies. The tax on fuels is meant to go towards road building. But the mining companies build their own roads and run there own vehicles on them. The rebate they get is because they've built the roads and not the government.

Or Income tax - from the ATO, the top 25% of income earners (those taxpayers with an income above $75,650) paid 67.4% of all net income tax. And if the Deficit levy comes in, Australia will have the third highest marginal tax rate in the OECD. The Guardian wants them to pay even more?

Mining taxes - The Guardian compares us to the great mining giant of Norway???? Why not do the comparison to our direct competitors - Canada, Brazil etc, - which is where all mining capital would go to. Plainly part of the Green's agenda to shut down mining in Australia.

Private Schools - ignores State government funding. Somehow, according to the Guardian, it will be cheaper if parents stop paying up to $20,000 or more per student for something they could get for free from the government. The thought "Arithmetically challenged" comes to mind.

Negative gearing - ignores the fact that the government has hundreds of billions in capital gains tax that it is collecting or will collect in the future.

Superannuation - claims concessions saves $200million on old age pensions. Old age pension is around $20,000 pa per single pensioner. Assume all pensioners are single. That's 10,000 pensioners getting $20,000 to make up the $200 million. So our whole superannuation industry and government concessions is geared towards keeping a minuscule 10,000 people off the old age pension? This is a simple nonsense - we know that 20% of the population doesn't go on the old age pension in full or part, and that is a lot more than 10,000 people.

Class warfare is alive and well at the Guardian. Must have been devastated when Gillard was deposed.
Cheers,
Renato

[stanlite]

I take umbrage (as an economist) with the assertions of several of these proposals not because they are bad proposals (for example i dislike negative gearing because it is a distortion on Australian housing market) but because they fail to mention the knock on effects they would have to others (and the federal Budget).

So if I may be allowed to explain my reasons and in the interest of informed discussion hear are the parts i disagree with.

1. End the great superannuation concession rort – save $10.5bn

I agree that something needs to be done to stop the incredibly wealthy from using Super as a tax haven, But for the VAST VAST majority of people with Super with will just be a double take tax (your taxed when you put money in and now when you take it out) hardly fair. Particularly when we are trying to encourage people to save for retirement so we don't have them drawing a pension. The Aged pension was designed at a time when there where 13 tax paying workers to each pensioner and the average pensioner only lived for about 5 years on the pension before passing away. Now it is like 3.5 Tax payers per pensioner and they live for 15years. There is nothing wrong with this and there should be a pension but unless we either raise the pension age, decrease the pension $$$ or get those who can save enough in super (middle income and above) to get off we are going to have a major issue. Remember the Pension is paid by today's workers for yesterdays ones.

2. Actually tax the mining industry – add $50bn
Again a good idea in principle but remember the mining industry is highly volatile. Today's super profits where for much of the time between the 70's til 90's very merger. This makes mining companies skittish about the future and given that mining has a multiplier effect in Australia of about 1:4 (couldn't find correct information but this is the number that comes to me) so each dollar earned by the mining industry multiplies 4 times in the general economy put another way each guy at the coal face supports the jobs of 4 other people. Taxing such an industry (particularly above other industries) will have a far larger effects on Jobs in the broader economy than many imagine.

3. Abolish fossil fuel subsidies – save $11bn
again this is the multiplier effect in reverse, 11billion in subsidies means x number of jobs in mining, freight (truckies) ect.ect that wouldn't be there otherwise. There would be a cost on the otherside of the budget to unemployment benefits and tax revenue (from reduced business taxation of those affected) that could cancel out much of these savings. I don't have access to the forecasting treasury or this article is using so i don't know what sort of flow on effect would be. If they are less then $11bn a year cut the subsidies and wear the job losses, reduced business.

4. Defund private schools – save $9bn
OK as a teacher (in training) this is just ridiculous on a number of levels ... firstly private schools educate around 35% of school age children cutting all funding to them (they receive none from the States where public schools get 90% of their funding from) would force many to either close or jack up school fees massively. The public school system couldn't absorb the sheer amount of students that would move from private to public (i would say about half of private school kids would move). The States would have to build the equivalent of the Victorian education system overnight to be able take them.

I believe someone mentioned that private schools are less efficient than public schools. Again this is incorrect, while cost per students have risen slower at public schools than private schools over the last few years this is because private schools are roling out massive technological improvements (many now require/provided every student with a tablet of PC) this isn't the case at public schools yet or they are using education department economies of scale in purchasing computers. If you look however at enrollments compared to total funding private schools are far more efficient at delivering the same level of educational outcome.
Public School Enrollments = 65% of school age children and receive 78% of government funding.
Private schools = 35% of school age children and receive 22% of funding.

This is the only point i completely disagree on only thing i agree with is making sure elite private schools don't get porked barreled. However, many private school are not elite and not wealthy.

5. More progressive income taxes – add $41bn
Again things went to far in 2006 on the tax cut front ... but at the time i didn't see people complaining. income tax is also got a negative aspect to it in that normally the richest of the rich can afford to avoid it. Likewise, their is a multiplier effect on jobs, given the wealthiest amongst us can afford the luxury goods that underpin many retail jobs raising their taxes usually impact on the poorest more then the rich. Rather than raising the top rate to 50% we should make it harder to avoid paying tax for the wealth (means testing deductions for example).

6. Abolish negative gearing – save $15bn
This one sound great on paper and i would support it in a flash if not for one reason. It has distorted the housing market for nearly 30 years already and removing it suddenly or at all will be very painful to the following groups.
Retires, low income earners, middle income earners, people who rent, anyone with a mortgage.
Firstly the values of homes in Australia is inflated by about 30% because of negative gearing. You remove it the poor, retired and middle income people will be worst affected. this is because although they don't benefit directly from negative gearing (they only own one house) a lot of their wealth is in their home. Removing negative gearing would deflate house prices in Australia for at least 10 years. Many people would not be able to move because of mortgage commitment to a house now worth less than the mortgage.
Secondly, renters would be affected you might think they would benefit from lower house prices but rents are now tied to mortgage repayments and since a person in a negatively geared property doesn't want to go broke over it they will either have to sell (at a loss) or jack up rents to cover their mortgage repayments (remembering that negative gearing worked on the premise that your income from the property is less than the cost of owning it.) So while negative gearing inflated real estate prices it also kept rents lower than what should have been the case for that market.
Finally anyone wanting a mortgage or with one will suddenly find it very hard to get one. Banks have calculated the risk of lending in Australia on the premise that house prices will continue on a upward journey. If you remove a major contributor to upward pressure of house prices and the market corrects (like it should if you remove negative gearing, remember 30% overpriced) banks will tighten their lending criteria thus not just making it harder to buy a house but to change to a different bank. Likewise this will feed into a downward pressure on house prices as people struggle to get access to funds to buy property.
Abolish Negative gearing at your own risk and preferably with lots of lead in time to prepare the market.

I am all for finding other ways to balance the budget but you have to remember that every action you take will have a reaction somewhere else in the budget or economy. Often times this will affecting the very people you where trying not to affect by avoiding cutting a service and sometime affect them more than the cutting of that service would have.

[tlgerdes]

Yes, like someone I knew, who complained about housing prices and that they couldn't afford to buy because they couldn't afford deposit, yet didn't think twice about blowing $500 in weekend on drinking, dining and having a good time, had to BMW/AUDI/"insert Luxury car brand", had to have the name brand goods for themselves and their 3 yo child.

We had the Party, now we have the hangover.

[Astro_Bot]

Neither are the politicians, but I'll get to that in another post.

I agree with Tony's assessment with a couple of minor amendments and comments:

#1. Super was structured to encourage self-funded retirement, hence tax concessions traded against availability of funds (preservation age). Employee contributions (mostly) are voluntary so encouragement/concessions of some sort remain necessary, but a sliding scale or means test as to the degree of concession would be valuable as some people would save/invest anyway (due to high disposable income) and would never qualify for a pension based on assets - to these few, super tax concessions are just a free gift - remove them and they'll simply invest elsewhere.

#4. No, but for a slightly different reason. I like the model of dollars per child per school grade, regardless of whether public or private - it's the child that is funded, but the funds are handed to the institution. If parents wish to pay fees over and above that, then they can - treat wealth inequality with taxes, not distorted school funding, which is far less discriminate. Sure, there's an argument about "base level" funding - e.g. schools need to be maintained regardless of how many students there are. At the moment, public schools are receiving more funding per capita than private schools (which may well be appropriate), and Gonski (I think?) increased funding proportionately to public schools, so I don't see that there's any relative public school funding problem at the moment. Let's just go with Gonski and re-evaluate in a few years.

#7. I'd add another one: Spooks - we have too many. Spook numbers have increased 4-fold since 2001 and the their budget 8-fold over the same period. If we're all going to share the pain, then slash the spook budget. (Then maybe, they'll prioritise their efforts and stop analysing what music you link to on facebook, and that movie you texted your girlfriend about).

[Astro_Bot]

I think the general idea is that a proportion of investors, perhaps including yourself, would be forced to divest themselves of investment property/ies. More properties for sale would cause property prices to fall and invite lower income earners into the market as buyers. There may well be other effects, not all of them positive, but this is the one people are thinking of when they suggest ending negative gearing.


Well, actually, you can - rules vary across market segments throughout the economy. More to the point, though, is that residential property is a bit unique. Whereas you can choose to have or to go without a great many things, everyone needs somewhere to live and housing is enormously expensive. There are already 100,000 homeless people in Australia, and many more that, under current arrangements, will rent for life, so I have little sympathy for those using taxpayer funds to improve their personal wealth portfolio at the expense of low income earners and the homeless. That doesn't mean I don't support your right to own assets and build wealth, but I'd rather you didn't use taxpayer funds in the process.

[PCH]

Here here :thumbsup:

[PCH]

By way of a response to the aforementioned suggestions, I'd like to quote the British ex MP Tony Ben who said....

"Government works best if it can keep people poor, demoralised and afraid. It's far easier to govern people who are uneducated, poor, afraid and demoralised than it is to govern people who are well educated, well off and optimistic about a bright future.

People who are poor, demoralised and uneducated tend to 'do as they are told', think 'hope for the best' and that 'everything will turn out alright in the end'."

I'm not saying these are his own political philosophies, rather he was just commenting on his experience of the way Governments seem to work, at least in the western world.

So there you go. It doesn't matter how good your suggestions are because you're thinking from the point of view of benefiting the end user, meaning us. Whereas the pollies' agender is to feather their own nests whilst keeping us peasants up to our necks in sh1t!

Just my 2c ;)

[tlgerdes]

See, there's an incorrect assumption.
Choice 1) liquidate property, at probably a loss due to excess supply.
Choice 2) increase rent to cover costs, retain investment due to drop in supply keeping rental market tight.

I certainly know which one I would be doing.

[clive milne]

Some interesting points of view on both sides of the fence.... I'm also pleased to see some thought go into a thread (even if the conclusions are not ones I share)

As the op of this thread, can I please remind everyone to remain civil, respectful and polite.

Cheers.
c

[stanlite]

The most likely outcome would be that both would happen. Rising rents and falling prices.

rising rents because people with investment property are passing along the true cost of the property to the market.

falling prices because many people (who are not particularly wealthy) have made investment choices based solely on the tax exemption would find themselves in an impossible situation haveing to pay the mortgage and raising the rents but loosing tenets ect ect and falling behind.

If the modeling i saw in uni was public knowledge people wouldn't even be mentioning getting rid of negative gearing as a solution (at least not without a long lead time with protections for those already with negative geared homes)

[Larryp]

The prospect of ending negative gearing would not necessarily affect investors already using the scheme.
It could be made unavailable after a specified date-no new negative gearing investments-but allow existing ones to continue. This would be similar to when Keating introduced capital gains tax-if the asset was owned prior to a certain year (1983?), then it was exempt from CGT.
As I said previously, I am opposed to taxpayers funding someone else's wealth creation

[Stardrifter_WA]

I wasn't going to weigh in, on this debate, but I just couldn't help myself. Sadly :sadeyes:

So, instead of the private market providing housing and getting a subsidy, of sorts, you would rather see the creation of fully subsided public housing (or indeed, just throwing people onto the streets), which will cost considerably more, and, as we already know, governments are not efficient in providing services. It may also result in more ghetto style areas of high density housing.

Removal of negative gearing would not, necessarily, drop house prices, particularly to the point where everyone could afford them. And if that did happen, many people would have a much lower standard of living, and still leave them out of the housing market. I have lived in a poor country, for a short time, so have seen the effects of poverty first hand; I don't recommend it. :sadeyes: These people cannot lift themselves out of poverty, without the help of the government, and that particular government lacks the will to improve the peoples standard of living, as they simply want the people cowered.

Therefore, someone has to provide the housing for those that can never afford to buy a house, either private investors or government.

Investors will not invest in housing if they are not going to see a decent ROI. Just as there needs to be an incentive for people to contribute to superannuation.

Government providing mass housing, for those that cannot afford them, has been tried, it is called communism. And, that didn't work either! What is being suggested, it seems, is that governments should stop the manipulation of the market, and reduce us all to the lowest common denominator. Have a closer look to why there is a civil war in Syria.

If Government doesn't aid wealth creation, it isn't going to happen, at least, for the average man.

Removing negative gearing has previously been tried before (by Keating, if I remember correctly) and it was a disaster.

Removing negative gearing and forcing house price down dramatically will not work. Devaluing the wealth created isn't the answer either. You simply don't make an economy strong by making people poorer.

This is only my opinion, as I am not pretending to be an economist, with all the asnwers, as I know jack sh*t!

However, I do know that the answer isn't as simple as every one seems to think.

Cheers Pete

PS: For the record, I am not an investor in property, apart from owning my own home. My home is my super, so any fall in house prices would affect me greatly. You can't build a strong economy by making people poorer, as I said above.

[Astro_Bot]

There'd be no drop in supply, all other things being equal - it's the same number of people and the same number of properties/beds - just a conversion (to what degree is arguable) from renters to owners.

One argument used against changes to negative gearing is that it would reduce stimulation of new residential construction, but I believe it's been shown that other factors are overwhelmingly more important, such as interest rates and land release. Besides, there are already "pointed" distortions in residential property markets such as foreign investors being limited to newly-constructed dwellings, so I don't see an issue with extending that to domestic investors (i.e. not owner occupiers). There could also be some small financial concession (e.g. halving or waiving stamp duty) if-and-only-if rent is pegged at some government-recommended level for a fixed period ... or something like that (there's already something like that in NSW, IIRC ... "affordable rent scheme"?). The main point is negative gearing is a sledgehammer where a scalpel is required.

[Stardrifter_WA]

Not exactly true Astro Bot, although I agree that it is currently the case.

The population projections for Australia are staggering. The ABS shows that Australia's population is projected to reach, on current trends, 46 million by 2075.

House ownership (owned or buying) in Australia is currently around 70% of the population. Assuming that current trends remain the same, which it won't (due to housing affordability), that will mean that 30% of the projected growth will not be able to buy their own home. That is a staggering extra 7 million (around 14 million in total, including those that currently rent) people will require either fully subsided government housing or privately provided rental accommodation.

If government remove negative gearing, it will mean one of three things, I think.

Either the government has to directly provide the housing, at a tremendous cost, including the maintenance cost of these properties (which is much more than what they are paying for negative gearing), or give incentives for private investors to provide this housing, through negative gearing or some other form.

The third alternative, which is the more likely, will be to jack up rents to cover the full cost of buying an investment property. And don't forget, you still have to factor in the interest costs, as that will also be passed on to the tenant.

If this percentage of people cannot afford to buy their own home, then they certainly won't be able to pay rent.

Unfortunately, as I see it, it is a viscous circle. The government will have to pay, one way or the other, so it comes down to what is cheapest. Currently, in helping people create wealth, makes the nation wealthier as a whole. Unfortunately, there will always be losers.

Whether we, or the government, like it or not, they are going to help people create wealth. The only other alternative is to end up a poor, third world like, country, unless we just end up with a dictatorship.

Hockey may be right when he says the 'age of entitlement' is over, however, history shows us that never ends up being pretty.

[Astro_Bot]

You completely misunderstand me, Pete, so I'll make it clearer: At any given point in time, "it's the same number of people and the same number of properties/beds".

Property investors mostly buy existing properties (as do owner occupiers). Whilst negative gearing is a sledgehammer that supports enhanced wealth creation for investors regardless of the type of property, we want to increase affordability of whatever stock there is for owner-occupiers. If any investment re-direction is going to occur, IMHO, we want to direct investment purchasing towards new construction (and, yes, I realise land release, zoning and corresponding infastructure investments are vital parts of that solution). This requires more of a "scalpel" approach to policy.

Although I would have thought it goes without saying, population growth is a factor that affects demand, not supply.

I'd like to address a few of your other points, in both posts, but I'm afraid they're layed out in such a way that I can't follow your argument. Perhaps it's for the best, as I should let others have their say. ;)

----------

If negative gearing were to be removed, I agree that a step change could be quite harmful. It would need to be carefully phased-in, as others have suggested.

Here's a related question (to which I don't know the answer):

Do all those in favour of retaining negative gearing own* an investment property, have a plan to purchase one, or otherwise benefit from keeping property prices high (e.g. part of their retirement funding will come from a property sale**)?

* Or through a family member, property trust, etc.
** Keep in mind, people who trade a property on moving (sell one, buy another) are fairly well immunised against price movements, except for "downsizers" who may convert some equity to other assets or cash.

[multiweb]

There's no big secret about managing your finance. Don't get in a debt you can't afford to cover. Save your money over time to secure a home of the size you can afford then build on that later. If you want health exercise and eat reasonably. If you want to invest don't borrow the money. If you want to maintain your life standard in retirement do it yourself with a SMSF. Look after yourself. It's your responsibility, not the government's. We are "the system". Spend the money you save, don't expect a hand over.

[Stardrifter_WA]

Agreed. :)

Demand and supply are interrelated anyway Astro. It's all well and good to say that investors are only buying established properties, but that isn't correct. The last figure that I saw, mid last year, from the ABS, was that around 45% of new starts were for investors, at that time, although owner occupiers had risen as well, annually around 13% last year, as far as I am aware. If you remove that 45% from the building industry, what happens to employment? It all has a flow on affect.

But, as I have said, I am no economist, so what the hell would I know? All I can say for certain is that I am glad that I am not just starting out, as it would be tough.

Full comments withdrawn. I withdraw from all further comment on IIS.

[Kunama]

Some of the ideas above are interesting but rather simplistic in that they fail to take the 'follow on' effect into consideration. When you change one thing you affect many things down the line, if businesses aren't profitable they aren't going to employ people, who then will be on welfare etc etc.....

The views about property investors always amuse me. Seems to me that some people have an unrealistic idea of the actual return a property owner gets from a rental property. Realistically, sometimes I feel I would get a better return from my $$$ if I sold the properties and donated the money to charity.

Unfortunately I find that "tenants" sometimes aren't an asset. These days they won't even replace lightbulbs or smoke detector batteries, instead they call the agent who sends a repairman and bills me for each such callout. Most recently I was billed $110 for an electrician to repair a ceiling fan, turns out the tenants children had removed the batteries from the remote control for their toys, did the tenant apologise or offer to reimburse me for the callout?

Perhaps I lack sympathy for some of the people always looking to blame others for their lot in life, for the cost of houses etc but in my experience those that were most vocal were also the least likely to want to do overtime I offered them choosing to go to the beach instead.

[el_draco]

The six ways to fix the economy are all sensible in the short term.... which is precisely why they wont be implemented.

Politicians are not interested in doing what is right for the country, they are only interested in maintaining power and trying to inflict their particular dogma on the rest of us.. These cretinous morons play their power games with scant regard for the impact it has on the public, our environment or the future. They waste OUR money, destroy OUR environment and retire on fat benefits WE pay for.

Pollies work to maintain the status quo... the rich get richer, the poor get poorer. When "busted", the legal profession protects them. Rarely does a Polly do time, yet the stench of corruption at all levels of government is palpable. Disgraced pollies almost always pop up again in some power position. The Royal Commisions plastered all over the media will doubtlessly lead to NOTHING.

Those in the major parties demonise anyone who attempts to break their power. Greens are labelled as "fringe", dangerous and incompetent yet they are the only party who make an attempt to stand up for our environment..., you know that thing we all rely on for survival... Liberals rip everything labour does to pieces, and vice verse. Both sidea LIE blatantly and the rest of us pay for it over and over again.

Longer term, even the "6 ways" wont fix the economy, our economy cant be fixed because it is predicated on constant growth and that is completely impossible on a single planet... "Fixing" the economy requires a new way of thinking and I am sorry to say, I don't believe we are capable of doing it at this point in time. The planets systems will need to substantially collapse before "self-interest" stops being our motivation.

I've come to the conclusion that Western "democracy", like all other systems of government, is a complete failure. Those who "lead" us are not qualified to do so and those that vote them in are, for the most part, idiots. Pollies threaten us with fines if we don't vote, but don't provide a "none of the above" option on the ballet paper. That aint free, nor is it democratic.

We call it a rat race for a good reason. Anyone care to stop running? :question:

[Hans Tucker]

And likewise Landlords do not carry out necessary repairs. I have been a tenant in the same property for 5 years, I paid for the security system and window locks to be installed when the break-in occurred, I paid for the electrician to replace the faulty light switch and the plumber to fix a leaking mixer tap and repairs to the water tank/rain bank unit. As for batteries in a Smoke Alarm, if it is written in the lease agreement then they must replace the batteries every year then that is what they should be forced to do...it's in my lease and that is what I do. Not all tenants are bad and not all landlords are great.

[casstony]

Friends got a call from their tenants to remove an orb weaver and it's web from near the front door; I wonder how much a repairman would charge for that?

[Stardrifter_WA]

Hi Steve,

You make it sound as if it is all the banks fault. :sadeyes:

Comments withdrawn. Apparently, I am incorrect for sharing my opinion and withdraw from all further comment on IIS.

[casstony]

Inflated house values and consequently inflated rents place extra pressure on the relationship I imagine. House prices are near double the long term trend value.

[casstony]

One bank or another is ultimately responsible for most of society's ills.
They manipulate us in ways unnoticed by most and are the architects of the current sad state of world finances.

[Astro_Bot]

Actually, I didn't say that.

I was going to address the stats you quote, but as they don't refute what I was saying, and in fact support it to some degree, I think there's little point*. If anything, you're making my argument. :)

* Well, probably no point at all, since who the heck in authority is listening to us?

[Stardrifter_WA]

Maybe, I don't know the workings of the financial system, so I cannot comment on that.

I wish I did, I would probably be a lot richer, but then, that would be wrong, wouldn't it? :P

[Stardrifter_WA]

Wasn't disputing your argument, just adding to the commentary......and waiting to be attacked for daring to share my opinion. :lol:

And, if you want up to date and accurate stats, give an hour or so and I will search the ABS. But then, as you say, what is the point....I'd still be wrong! :rofl:

[Kunama]

Hans, if you ever move to the Sunshine Coast and need a nice townhouse to live in you let me know !!!!

[AndrewJ]

Just listening to the news this morning, where the govt is now talking about freezing the bureaucrats pay to help with the "heavy lifting".
Seemed like a good bit of spin, as i remembered that it was only a month or so ago that they got 5% pay rises, simply because thay didnt get a rise the year before????
A 42K pay "rise" should get em through the freeze :shrug:

Andrew

[Hans Tucker]

There is a catch....the independent Remuneration Tribunal must approve the freeze...I will believe it when I see it happen.

[AndrewJ]

Understood.
My point was more that they have just received a 100% iron clad guaranteed pay rise, so coming out and saying they will now accept a freeze
for the next year or so ( and hence imply they are taking some pain along with the rest ), is just insulting our intelligence.

Andrew

[Hans Tucker]

Two important points that seem to have been absent from todays news reports.

[casstony]

Excessive debt is poison to individuals and nations yet banks thrive on creating debt.

The big northern hemisphere banks infiltrate government in order to weaken regulations which are designed to prevent the banks from acting badly. After lending out all available funds, the loans are repackaged into investment products to be sold to unwary investors of all descriptions around the world. After replenishing their funds they lend it all out again, repackage the loans and flog them off to investors, and on and on the cycle goes. The real beauty of this is that once the repackaged loans (securities) are sold off the bank no longer has any responsibility for them, so the bank can confidently make dodgy loans that will never be repaid knowing that it's the end investor who will suffer when the loans go bad.

Normally periodic recessions get rid of malinvestment but so much debt has been created that a depression is required to solve the world's financial problems; having backed us all into this corner governments and central banks are trying to avoid depression by creating even more debt to prop up economies. It's looking like it's going to end badly one way or another and it's a situation created by the banks.

More than one US President has denounced banking institutions as the greatest threat the nation can face.

[multiweb]

Nobody is forcing people to borrow. It is a choice. The problem is not the banks or the government or the marketing agencies. It is us. Supply and demand. There was a discussion not so long ago how bad fast food companies were, "poisoning" people, making them sick, etc... let's tax them some said, let's shame them other would say. Some food companies tried to do the right thing. PEPSI being one of them if I recall correctly. They nearly tanked. They had to re-inject 500 million dollars into advertising over the period of one year to get back up to speed selling sodas. Bottom line, people don't want healthy food. They want fat salty burgers and super sweet drinks. Dying from it is a side effect.
Nowadays everybody wants everything yesterday. The big house, the big car, the big TV, brand clothing. Worry about the bill later. If they want to save and get it a bit later that works too...

[casstony]

The Plebs don't understand market cycles and they don't understand how the financial systems work. The Banks use their knowledge to take advantage of the people's ignorance, create a mountain of debt and make billions of dollars in profit.

To illustrate the point at a local level I'll refer to the recent four corners program on the CBA's deceptive financial advice and insurance practices - who is to blame there, the ignorant customer or the informed but evil bank?

[tlgerdes]

Tony, the same can be said for any sales oriented business, whether it be building, car sales, holidays, IT, TVs, furniture, sunglasses etc etc.

Consumers don't understand enough about what they are doing/buying to fully understand what is happening. They enter into things with emotion rather than reason, and business takes advantage of that.

Think about people buying a car, how often do they do it? On average once every 10 years, the car sales person sells to people how many times per month, 10-20? Who has the negotiation advantage? Certainly not the person spending their money.

[multiweb]

People in trouble always seem to blame someone else or something else as if they were victims, conned into it. If they sign for it then they ought to think twice and make sure they understand the consequences and responsibilities. That's all there is to it and we're all in the same boat. No excuses.

[tlgerdes]

But Marc it really wasn't my fault, honest! The Big Mac called to me and told me buy the BMW and the 65" TV, I just couldnt resist, then as soon as the bank approved my credit increase that I asked for, but that I didn't know I couldn't afford, I was in.

[casstony]

You guys are frying the little fish and missing the big ones, which is exactly what the banks want. I feel you don't comprehend the critical size and nature of the problem created by Wall Street and London bankers.

[BPO]

Be like the people of New Zealand: Put absolutely every cent you have into nothing but residential property. Do not diversify. Tell yourself, "Ya can't lose with houses!" and fantasise about a lavish retirement based on the flimsy assumption of a huge capital gain. Deny the existence of a rapidly-inflating residential property bubble, while repeating the mantra, "Un Zull'n Us Duffrunt!"

What could possibly go wrong?

:lol:

[multiweb]

I used to have shares which I all sold pre April 2000 so I know how the game works. I just don't play it anymore. I know better and more importantly where my money is.

[Kunama]

Don't take this banter too seriously guys ............
I do feel that many find it easier to blame someone else for their lot than see that it is mostly their own doing. I see newlyweds building 5br 3 bathroom mansions all on borrowed monies and then wonder where it all went wrong.

Wealth creation is a case of "hasten slowly... else you'll live to regret".
Big risks end up in big disappointments more often than not.

[el_draco]

Ah mate, I needed that laugh so bad.... best thing that's happened to me today. Also explains why Aussies love Kiwis so much..... especially Richard Hadlee !! :rofl::rofl:

[el_draco]

Here's a new one. ...

Hockey and his cronies spent $50k on lunch the other day. We footed the bill!!:eyepop:

That's your average mugs income for a year; (2000 hours work!), and he pissed it off on lunch. Nough to make your blood boil until you hear that his office considered it an excellent value lunch. :mad2:

I'd like to audit his fat bum off this rock.

[Hans Tucker]

First a couple of facts. Hockey was hosting a G20 dinner in Washington which was setup by the former labor government. Hockey elected to fly in a Aussie chef to promote Aussie cuisine [barramundi, Victorian Wagyu beef, WA truffles and Tasman honey] He was proud to promote Aussie food and wine...good on him. Either way Australia was the host for this dinner and either way we would foot the bill. The choice...use American products or use this opportunity to promote Australian produce.

It's not the first time politicians (both Labor & Liberal, State & Federal) have done this. For the record I am not supporting Liberal or Labor

[el_draco]

It horrifies me that anyone would contemplate doing such a thing for ANY reason. Its a disgraceful waste of resources and just demonstrates how these mongrels live in a fantasy land of oppulence. They eat cake whilst an ever increasing number of people in their own countries go without the basics of life. Make me want to hurl.

[multiweb]

:lol: Too true. You don't want to look like a cheapskate on a G20 lunch overseas. You're there to sell your product and services. Some people just don't get that...
To put that cost in perspective to the money we currently own on labor's credit card, if the bill was rounded down to 10 million dollars that lunch would have costed the tax payer 83c. The media like their BS stories. That's how you tell it.

[blink138]

ha ha marc you are SO liberal methinks that if it was labors lunch bill we were talking about you would be the first baying for blood!

[multiweb]

Mate, it's not Joe's or Bill's lunch, it's a G20 lunch hosted by Australia. That's it. Doesn't matter which side. Now if you want to read about the long list of 'other' money spent wisely by labor, too long to list here. :lol: When labor makes some money I'll be the first to applaud them.

[AstralTraveller]

Out of all the hot air expended so far this comment is closest to the nub of the issue. Once you understand that our economic system is not stable in the long term, everything else is rearranging the deck chairs. Real progress can will only be made once we accept that our economic system needs to be transformed. We need a system that does not require continuous growth and where quality of life is the goal. Fundamental change is not easy, but the worthwhile things rarely are.




Yes, I suspect I don't understand the problem. However to blame the bankers makes it sound like the problem is an aberration caused by human fallibility. These people are the premier representatives of capitalism. The best and brightest. If they are leading us into a crisis it's because there is no other path under capitalism.

[casstony]

David - I shake my head. The people you think are providing the best leadership are criminals. They intentionally falsify loan documents, they break existing laws, and they infiltrate politics in order to weaken banking regulations, all of this in order to maximize profits.

After the Savings & Loans crisis of the 80's and 90's there were more than 1000 criminal convictions for major fraud. The latest fiasco is much worse yet barely anyone has been jailed - there's a lot wrong with the system.

[el_draco]

Well said mate :thumbsup:

[Hans Tucker]

If you are that passionate regarding the waste of $50K maybe you should see the waste going on in Brazil, host for the 2014 World Cup and the 2016 Olympics.

[el_draco]

Another level of obscenity altogether.... If I had my way, there wouldn't be a cent of public money wasted on sport full stop. Bring in the bucks and you kiss sportsmanship goodbye. The amount of $ pissed down the drain on everything from Olympics to AFL each year is insane and, according to recent reports, Asian crime syndicates are going to target sport which will make it even worse. :screwy:

Money completely wrecked Aussie Football and Cricket a generation ago IMHO. Anyone remember footy in the 60's? You had to have a "real" job during the week....:question:

[AstralTraveller]

They are the best and brightest in the sense that they have risen to the top of a very competitive heap. They have what it takes to succeed under capitalism. If they are also criminals then, your Honour, I rest my case.

It's interesting that, as far as I can see, at the time of the English revolution (which included the English Civil War), the monarchists were a bunch of lazy ignorant so and so's and the incipient capitalists ("the burghers, good and true" to quote Richard Palmer-James) were upright, honest, hard-working citizens. Things have changed.

[casstony]

I did somewhat mistake your meaning in the previous post David, but corrupt people can rise to the top in any system of government. The fact that they have done so under our current system doesn't condemn capitalism compared to other governing systems, though I'm happy to try an improved system whatever that may be.

What's needed is a better feedback control method for the Wall Street bankers and their political associates. I'm thinking of an electronic collar that we can beep when they start going astray or give them a zap for greater reinforcement.

[AndrewJ]

Gday Tony


Its called jail:D, but it just isnt used enough.
Perhaps it costs too much in the capitalist legal system to fight off their lawyers long enough to get a conviction that stands.
Loopholes were invented for a reason ;)

Andrew

[BPO]

But with him out of the picture, who will save NZ when its colossal residential property bubble inevitably bursts? That is the question.

[el_draco]

Us Aussies will come over an buy the joint as payback for all the kiwis on the dole over ere mate... of course :P Haddels will live 4 eva :thumbsup:

[BPO]

Well, of course... Assuming your own residential property bubble doesn't implode before ours does...

:lol:

[clive milne]

Yep...
Permit me to elaborate for those not seeing it yet if you will. Whilst this is a a bit of a maths lesson and implicitly boring by definition, it may just turn out to be the most important of your life.
To truly understand the situation we are in you need to understand how a system behaves that exhibits growth at a constant percentage ie) the exponential function.
You can read the wiki article on the exponential function but good luck parsing it for a clear understanding of the subject:
http://en.wikipedia.org/wiki/Exponential_growth

Here is (what I hope) to be an easily understandable version: Anything that grows exponentially, be it the mould on your bathroom wall or world energy demand (a function of population growth) will keep doubling in a period of time that is easily estimated by dividing 70 by the %age growth.

If a system grows by 3.5% per year then it will double approximately every 20 years (70/3.5) if the growth rate is 2.8% then it will double approximately every 25 years, and so on.

Now here is the sting in the tail of this tale...(basically why we are screwed) Consider how such a system grows over multiple doubling periods; for arguments sake lets say it's the amount of sugar grains that the argentine ant colony in your basement pilfers from your pantry. The ants breed at a rate that results in their population growing at 2.8% per day. After the first 25 days this ant colony has consumed 1 gram of sugar.
At day 50 they have doubled their consumption so the total of sugar snaffled is 3 grams.
At day 75, their consumption rate has gone up to to 4 grams per period so the total consumed since they first arrived is 7 grams. At day 100 the consumption rate has doubled again to 8 grams for the doubling period...

The thing to notice here is that the consumption of sugar required to sustain the colony over any 25 day period is equal to the amount of everything that they have consumed to date +1.

Ergo, if the world economy is growing at 2.8%pa and let's say that over the entire history of the human race we have consumed 50% of the resources available that underpin this economy, then by definition we have enough resources left to keep the show rolling for another 25 years before the cookie jar is empty.
You can apply the same principle to oil reserves, ocean acidity, arable land, water resources, atmospheric GHG's... what ever, and still come to the same conclusion. Basically we are living in the last decade(s) of human civilisation before the planet's people carrying capacity is exceeded. Even if we devoted the entire planet's resources to terraforming Mars and were successful to the extent that it was the equal of earth in all respects, it would buy us only another 25 years before the wheels fell off.

if you are young and imagine that the support structure you see today is going to exist in 50 years time when you need it, well the answer is no, not even in the most optimistic scenario can it possibly be so because it is mathematically impossible.

Anyway, I favour a tessellated placement of deck chairs.
It is slightly more efficient. (and affords a better view of the band)

c

I'm guessing that there is perhaps no more than 5 people on this forum who will actually attempt to understand the information in this post. (please prove me wrong)

[PCH]

Hi Clive,

Thanks for spelling it out for us thickies - lol. With a little thought I was able to follow your maths. Whilst it does seem like a sound argument, I'm thinking to myself, in all the time that folks have been on earth, what's the probability of it all coming crashing down in my trifling life span?

[casstony]

Clive, I think most people understand that perpetual growth with finite resources is a problem.

I think the human race will keep going though and advancing technologically, just with a few bumps along the way (war, famine, plague).

Eventually we'll meet all of our energy needs via renewable energy based on solar. Raw materials can be sourced from recycling or off planet (asteroids, moon?)

[el_draco]

I'm one of them..... I suspect there are more than 5 but the thing that is most worrying is that the louder you shout... the less people listen. The species is populated by self-absorbed-Lemmings :shrug:

Even scarier is that the deadline is not a fixed point in time, its coming towards us as we screw the system. Environmental collapse will trigger the human equivalent of a Mortein bomb... :sadeyes:

[sn1987a]

I like the way 'ol mate here describes it :)

https://www.youtube.com/watch?v=F-QA2rkpBSY

[Astro_Bot]

I just watched this on TED and found it quite illuminating. The crooks appear to be running the country, and perhaps the world ...

How to Rob a Bank - from the inside that is (http://www.ted.com/talks/william_black_how_to_rob_a_bank_fro m_the_inside_that_is)

[casstony]

Good link - should hopefully convince a few doubters that the big banks and their political associates are actually behind the massive debt issues the world is facing.

Bill Black is one of the good guys; there have been a few people screaming bloody murder and laying out the evidence for all to see for a few years now. The police appear to have gone fishing though.

I started educating myself about markets and macro economics from early 2008 since I would shortly have a retirement sum to care for. I read books and blogs for several hours most days for a couple of years.

The corruption in the US goes all the way to the federal reserve and there were a few people warning about what was about to happen in 2008 - fortunately I listened to them. I recall one notable TV personality who didn't see it coming was Alan Kohler, though he was in good company since most of the economic commentators on TV are wildly optimistic.

Nothing has improved, the US and Europe are in deep financial trouble, Japan is a complete basket case and China has it's own social and economic problems. If any one of those major economies collapses we all collapse with it. Historically the solution is a long bleak period of depression and war. But it was a beautiful sunny day here today :)

[BPO]

And yet it's a funny thing: I go to the USA and Japan and both places seem filthy rich, especially Japan. That place is like the Jetsons, with iPads.

People in NZ and Australia talk about the foreign economic crises while ignoring our own rapidly-faltering economies. (NZ in particular is eating itself, and has a shocking residential property bubble the likes of which the world has seldom seen.)

But when our own economies finally "correct" -- and they absolutely will -- we'll all be talking about how good they have it overseas and dusting off the passports.

[Glenhuon]

A very interesting and informative post, enjoyed reading all the opinions, and the way it was conducted. IMHO we are "Going to hell in a handbasket" but most of us seem to be enjoying the trip, sad to say. :screwy:

[Renato1]

I saw on Bloomberg the other day that combined world government debt just went over US$100 Trillion.

John Maynard Keynes said governments should spend big in the bad times to keep the economy ticking and people employed. And that they should save money in the good times to get a reserve up for the bad times.

The problem isn't the banks, but the governments who seemed to keep spending in the bad times, and then went on spending even more in the good times. And with most of that spending going on consumption rather than on investing in the future. I hate it when conservative commentators keep attacking Keynes. They should be attacking the idiotic governments who perverted Keynes.
Regards,
Renato

[casstony]

Wall Street created a mountain of debt via unethical and illegal activities I've outlined in previous posts, then the government and reserve bank borrowed and printed more money to bail out the banks that were deemed too big to fail. A responsible government would have allowed the banks to fail, let their debt default, temporarily nationalized the banks and protected depositors funds with government money. We would have done a few hard years and be on the upswing by now. Instead we're looking down the barrel at depression, social upheaval and war.

The government has essentially saved the banks by transferring their bad debt to the public - privatization of profit and socialization of losses is all part of Wall Street's plan and the same people who run the big banks rotate through jobs in the government. The reserve bank governors, the President's financial team and Wall street all work in concert.

There was great hope that the bankers would be jailed and financial problems solved in Obama's first term; he implied as much in his election campaign and hired Paul Volcker (look him up) as one of his financial advisers. Unfortunately Obama went with the 'too big to fail' team and nothing changed - another useless President.


In Australia government debt is minimal despite the rubbish espoused by Hockey and Abbott. Private debt, in particular housing debt is our problem, and that was created by the banks but facilitated by government via first home buyer grants and low interest rates. The ALP did waste a bunch of money supposedly to avoid the GFC from hitting Australia, but a mild recession would have done us a lot good at that time; the housing bubble would have popped and our kids could look forward to much smaller housing loans and we would have recovered quickly given that the rest of the world were pumping their economies with new money.