Rent Seeking in Canberra

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A world built on debt does not have a solid foundation. A world built on sound money, secure private property, and a predictable rule of law DOES have a solid foundation (as our new friend Ron Kitching pointed out earlier this week). We do not live a world with solid financial foundations. That’s what makes investing so dangerous today.

Later in today’s Daily Reckoning we’re going to reject the heinous and misguided accusation of doom-mongering levied against us via a profanity laced e-mail tirade. But first, to the markets and the local scene. And there’s some catching up to do on one of those shaky, debt-based pillars of Australian financial life, the housing market.

First up is the news that mortgage lending is falling while house prices continue to rise. “Total mortgage applications fell 15 per cent in March quarter compared with the corresponding period a year earlier, the quarterly consumer credit demand index by consumer credit check company Veda Advantage showed,” according to today’ Age.

Cris Cration of Veda said, “One consequence of a withdrawal in government incentives is a relatively sharp drop off in housing credit demand in 2010.” Those “incentives” are the first home buyer’s grants. Mortgage data provider Australian Finance Group says first home buyers have declined as a percentage of the new mortgage market from 28% last year to 10% this year.

Once you bring forward all that demand…what then? You get now. Let us call it the “demand gap!” People who would have otherwise patiently built up a deposit and bought a home at a time that suited their finances are “brought forward” like reinforcements into the battle line. So who is going to get shot?

Well, let’s say you got yourself a mortgage six months ago when the RBA lowered the cash rate to 3%. The standard variable rate from any of the Big Four banks would have been higher than that. But let’s say you want to refinance today (because you believe rates are rising) into a 15-year fixed rate mortgage. According to the rates at one major bank site we checked, the rate on a 15-year fixed mortgage is about 8.54%.

So, if you’re a first home buyer worried about an interest rate shock from rising rates and you want to lock in some stability, we reckon you’re likely to pay nearly double the rate you got into your mortgage. And that would probably be pretty stressful. Of course if you think interest rates are not going up, then you wouldn’t refinance and lock yourself into a fixed rate.

All of which shows you how Australia’s preference for variable rate loans coupled with central bankers rigging the price of money can turn a whole economy into a giant exercise in speculation. You make the biggest financial decision of your life based on factors that are influenced by unpredictable changes in the cost of money and the rate of inflation. Sounds like how you’d design a system to put people into debt to the bank and keep them there for decades.

But only if rates move up, which they very well may be next week when the Reserve Bank of Australia meets to set the price of money. Based on the consumer price inflation data released yesterday (up 0.9% in the March quarter) annual Aussie inflation is running at the upper end of the RBA’s tolerance/target of 3%. The IMF says in its Asia Pacific Regional Economic Outlook yesterday that the RBA will have to put up rates this year as Aussie GDP rebounds.

Incidentally, we had a quick scan of the report, which you can find here. A couple of charts caught the eye. First, you can see from the IMF chart below that housing credit as a percentage of GDP is higher in Australia and New Zealand than anywhere else on the chart (and probably in the world). And the total amount of credit is dominated by housing in the Anglosphere countries, reflecting… something about their fascination with the idea of getting rich from houses, although to be fair, the banks (the ones that survived the credit crunch) HAVE gotten rich.

The second chart, below, shows that while Aussie banks (mostly the Big Four) have gone on a lending binge, the provision of credit to the corporate sector fell off a cliff. Big listed firms managed to raise equity last year (although not always in ways that boosted shareholder value, given the cost and return on capital). But smaller firms have been cut off by Aussie banks, according to the chart below.

Robert Gottliebsen made this point quite clearly today at Business Spectator when he wrote, “The Australian banking industry, as it is presently structured, is unable to fund the needs of small and medium-sized businesses.” He the quotes from a UBS report we haven’t seen about Australia’s reliance in imported foreign capital (when you’re a debt junkie, any hit will do).

“As UBS research shows,” Gottliebsen writes, ” Australian growth in loans to both the housing and business market have been funded by overseas lenders. According to UBS, Australian banks are getting close to the upper limit of loans that overseas institutions are likely to provide to Australia. And worse still – as ANZ points out – the European crisis could contract the amount of loan money available to Australia and lift its cost.”

Ah yes. Greece and loan losses. ANZ’s Mike Smith got on the front with the issue in the press today, including his own handy new term to describe Greece: “a rogue sovereign.” The ABC reports that Smith said, “Europe is a mess and the sovereign issues have not been addressed with clarity…The uncertainty has continued and that’s probably going to get worse. The contagion issue is now very real.”

The end result, he added, is a higher price for money for Australians. “That’s where it will impact us. In terms of the funding that the Australian banks have, in terms of their wholesale funding, obviously credit spreads are going to be more volatile.” Hmmn.

Pop quiz! How do you kill Australia’s most vital industry, its mining sector? You plunder it, that’s how!

The plunder begins on Sunday when the Rudd government finally unveils the Henry Review of Taxation, which, by all accounts, is likely to include a new federal resource “rent” tax to go alongside the royalties miners must already pay the States. The government could not have chosen a more apt word than rent. The government is the ultimate rent seeker.

Investopedia defines “rent seeking” as, “When a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation.” Frederic Bastiat calls this kind of rent seeking a form of legalised plunder, and rightly so. His description distinguishes how the government raises revenue from how entrepreneurs raise revenue, by making a profit.

Profit-seeking behaviour creates a lot of things: surplus, jobs, incomes, goods, and services. And for a company to produce a profit it must serve its ultimate master: the customer. Profit-seeking serves customers. Rent-seeking is the legally-backed coercive cudgel of Canberra.

But one of our friends out in Perth – a man who works in the mining industry – put the case against resource rents far better than we could in a letter to the editor that we believe was published by the Australian Financial Review. He wrote:

Our WA Premier has said:

“BHPB and Rio fully understand … it is part of their corporate and social responsibility to pay their way.”

“The mining royalty, the $40m that will be collected from this project, is not a tax – it is the price at which the people of Western Australia sell the gold.”

This tired clichés of socialism are also blatant double talk from our Premier.

There is no such thing as an Iron, Gold or any other mine until entrepreneurs explore for it then plan and build a mining operation which separates the mineral or element from the rock. All of this human action organised profitably by the private sector.

Royalties are an additional impediment. They are legalised plunder.

Bastiat wrote in his book The Law: “See whether the [said] Law takes from some persons that which belongs to them, to give to others what does not belong to them” and his further determination was to “abolish this [said] Law”.

All WA people are free to invest and purchase equity in a privately run Mining company if they so desire, before and or after a discovery and thus participate in the wealth creation.

In many cases the legal plunder or “Royalties” render the operation non-viable, and so destroy jobs, production and profits.

This issue of royalty increases makes one ashamed to be an Australian; fancy living off of others hard work.

M.N.

Couldn’t have said it better. This brings us to the final part of today’s Daily Reckoning on who the real heroes of the free market (not the capitalists, not the bankers, and not the regulators). But we’ll preface it with a letter we received yesterday. Apologies in advance for the blue language:

You &^%#ing doom and gloom merchants. I am sick to death of your negative projections whereby daily you drum up bearish sentiment with glee as though your ego would be happy to see a complete financial collapse so then you could say to everyone – see I was right, see look how clever I am. You are *&%#ing stupid that is all you are. You have been waiting for an excuse, any excuse to say see I told you the sky was going to fall in.

What sort of impact does it have when you and other scammers with your $#!&ty little gold positions bang on and on that things are &#@%ed? That’s right the prophecy becomes self fulfilling when a critical mass is reached.

Well done I hope you are proud of the destructive role, as opposed to creative, you have chosen to fill in this great endeavour we call humanity.

Take me off your list, don’t mail me &#it all day every day and get a life you losers.

With all due respect, we think the reader misunderstands our intentions with the Daily Reckoning. It’s just a reckoning. Lately, that means reckoning up all the badly allocated capital, human fraud, misguided public policy, and good old fashioned greed. When you reckon all that up, the sensible investment position is to be really, really, really cautions and highly (eternally) sceptical.

But that is not a hereditary disposition. It’s just the position we think makes sense. Hereditarily – or really by choice – we are joyful optimists! Economic and political liberty combined have the power to unleash an astonishing variety of human potential, from the Mona Lisa to the Sham Wow!

That’s why the great heroes of the Austrian School of Economics are the entrepreneurs. They are the creators who bring new things into the world with their energy and skill and dedication. They might do it with other’s capital (the bankers, capitalists, and investors). But it’s the entrepreneurs who are always on the frontier of economic experience, looking for a new way to use resources better, more efficiently, or chase whatever their particular passion or vision is.

But those entrepreneurs have many obstacles to overcome these days, from competition to regulation to the equity markets being hijacked by financial capitalists who pursue financial gain alone rather than the funding of enterprise. We don’t live in a world with free enterprise at all, and perhaps never will.

But we shouldn’t forget that the great achievement of the free enterprise system is that without any centralised direction or organisation – it manages to harness noble and ignoble human passions to produce choice and prosperity for millions of people. And with a fair and stable legal framework, that’s a kind of real justice that the plundering central planners out for social justice can never even come close to delivering.

So no, we’re not trying to be clever and revel in the demise of the financial system. But we do think if you want survive the collapse of this system – a system based on debt, unsustainable finances, and a rotten moral premise of theft – you had better be willing to face facts and then make a plan and then make a life. If you don’t, you’re going to be the real loser.

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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72 Comments on "Rent Seeking in Canberra"

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Ted
Guest

Dan, brilliant as usual. Thank goodness you are shining the light of critical economic analysis into places the mainstream media are unwilling and highlighting misallocation of resources no matter how much profanity is fired at you from people wanting to maintain the status quo for their own benefit. Keep up the good work!

Justin
Guest

Financial aggregates from the RBA out today, shows investor housing credit making a resurgence, overseas borrowings of AFI’s at near record highs & the RBA is once again expanding its balance sheet. Broad money is also showing strong resurgence.

Nobody has learned anything, I don’t know why the irate e-mailer is so positive.

Roy
Guest

“Total mortgage applications to March 31 dropped by eight per cent on the December 2009 quarter”.

http://news.smh.com.au/breaking-news-business/mortgage-applications-plunge-15-20100428-trne.html

Lachlan
Guest

It takes guts to warn investors about pitfalls…if your wrong they often hold a grudge about opportunity lost. If your right and you save their butt they often want to act as though nothing happened. But DR has sound reasons for the warnings. Also its impossible to prop up a market forever with faked/contrived stats and reassuring news stories…history shows.
Keep up good work Dan.

Gullu
Guest
The fool who wrote you that e-mail is stupid and will be sucked into the powerful paws of the BIG MEDIA. If he thinks he can be ‘intelligently’ informed about the economy or any part of it … well only time will tell. I on my part have massively gained from reading DR. Although I stay in India where people regularly buy Gold jewellery I had never invested in Gold. So from 2007 onward when I had zero gold to almost five percent of my assets is a big improvement. And in the meantime the price has jumped from Rs.10000… Read more »
chris
Guest

Don’t listen to that silly ranting abusive email. It was probably written by a real estate agent. You don’t want readers like that anyway. Tell them “you’re fired” as a reader

Phil S
Guest
Dear Dan: As the old sayinbg goes “you can lead a horse to water but you can’t make it drink!” – same applies here – your excellent (and accurately-researched) articles provide essential (and timely) information upon which short to medium term investment decisions may be based: however, if the hoi polloi choose to ingnore this information (maybe to their detriment) then that’s their decision, and one whose consequences they, not us, will have to live with. Australia’s debt obsession WILL lead to long term problems (borrow now & you HAVE to pay back later, WITH INTEREST!), coupled with a National… Read more »
Stillgotshoeson
Guest

Comment by Lachlan on 30 April 2010:

It takes guts to warn investors about pitfalls…if your wrong they often hold a grudge about opportunity lost.

Just look at how much Biker Pete derides Keen. If the property drops below the value he sold it for, then his decision to sell is vindicated. If it does not drop in value to below the price he got when he sold the property, then he was wrong. Time will tell.

Biker Pete
Guest

“”Total mortgage applications to March 31 dropped by eight per cent on the December 2009 quarter”.

I suspect that tens of thousands of us are waiting to see whether the government intends to continue to fully support construction, Roy. We may know more this Sunday.

We have an application to build a new rental ready for Monday morning.
If the KHR is friendly to property investors, we’ll proceed. If not, we won’t. Simple as that. Friends are in the same holding pattern. If there are any unpleasant changes, they won’t bother.

We’ll still vote, of course… :)

woof
Guest

Don’t worry! Malcolm has announced that he is going to run again so he can do a Don Chip and get a new party up. He says he will be taking all the rent seekers with him and that means significant support in today’s liberal party. He’ll have his Wentworth HQ big government and free franchises for special mates platform. Good thing too. Maybe then we can get a real small government “fair go” political party to sell to youth.

Stillgotshoeson
Guest
“I suspect that tens of thousands of us are waiting to see whether the government intends to continue to fully support construction, Roy. We may know more this Sunday. ” I suspect tens of thousands that would of bought this year bought last year with the carrot of the increased FHOG.. Without the carrot tens of thousands of FHB feel they can’t afford to buy the house they want. Rising interest rates and changes to LVR’s have discouraged as well. When China pops and our dollar drops and petrol goes to $1.70 things are going to get messy.. messier than… Read more »
Bruce
Guest
Mining does not create wealth, it liberates it. Sure, it requires risk capital for which there must be just return but the wealth inherent in the stuff being mined is not the property of the miner, it belongs to the nation. This wealth is what resource taxes and royalties capture for the benefit of the nation. You might quibble with who really owns the stuff (the nation or state), the size of the tax, how it’s spent or for the benefit of whom, but there is no question that the stuff itself is not the exclusive property of the miners… Read more »
Biker Pete
Guest
“I suspect tens of thousands who would have bought this year bought last year with the carrot of the increased FHOG…” Possibly. We had an enquiry yesterday from a $21K FHB who is looking for the right block (which we own). Try to figure that one out… . China may falter… fuel will rise. Every cloud, etc… “Just look at how much Biker Pete derides Keen. If the property drops below the value he sold it for, then his decision to sell is vindicated. If it does not drop in value to below the price he got when he sold… Read more »
Roy
Guest

We all know that when Paul Keating got rid of negative gearing in 1985 this proved disastrous for the rental market and he was forced to restore it.

We all know this because the politicians – from John Howard to Simon Crean – keep reminding us of it.

There’s just one small problem: it’s not true. It’s remarkable how bad we are at remembering events – and how easily history can be rewritten by people with an axe to grind.

http://www.smh.com.au/articles/2003/08/24/1061663676588.html

Biker Pete
Guest
Removal of negative gearing was a very time-limited event. You’d need five years to really see the effects. One of those results would be that people like us would simply stop building. When the FHOGs really started to bloom, we saw the rental queues disappear. They’re back. We had a vacancy Monday, four applicants by Friday. New tenants are in… three families missed out. There really aren’t enough people out there who understand the _niceties_ of property investment. And many of those who do, would never lower themselves to clear a block with a shovel and trailer, dig their own… Read more »
Stillgotshoeson
Guest
“Keen sold his home. Sydney property rose dramatically in value. Time told fairly quickly. Money talked. BS walked” You can not time the market… As long as his property falls below the price he sold it for then he has not lost… He bought it for x dollars and sold it for y dollars making a profit… unrealised profit that may have been made in the future is irrelavant. Many people have realised paper profits on their properties since then yes.. The problem for them may well be not being able to sell it if/when they need to and retain… Read more »
Biker Pete
Guest

“…He bought it for x dollars and sold it for y dollars making a profit… ”

Why, yes, that’s the pattern. It’s all we expect.

Steve
Guest

Steve’s quote of the day

“The correct thing for the government to do tomorrow which is in the best interest of our nation will be to take the advice of the tax review and to remove the tax rort”

Biker Pete
Guest

“Steve’s quote of the day”

The really nice thing about this forum is that you not ony get to _quote yourself_ ; but you get to _clap yourself_ with a Thumbs-Up… and five gold stars, Steve.

Good luck tomorrow!~ :)

Roy
Guest

LOL housing investment only exists in countries that allow negative gearing. You heard it here first folks thanks BP.

Steve
Guest

It is not me who is doing that biker
I bet its you so then you get to say that hahaha

thor
Guest
Biker: re removal of negative gearing and effects on new construction: “One of those results would be that people like us would simply stop bsilding.” Seems to me problem with NG is that it is allowed for secondhand property also. For new construction, the loan interest deduction offset that can be applied against other income is fair enough. During the construction phase there is no income from the property as no property exists – NG is a kind of ‘carrot’ to encourage much needed building activity. 2nd hand homes, that is another thing altogether. One big fat rort. An investor… Read more »
Biker Pete
Guest

Thor: “…the investor is effectively subsidized to…”

…subsidise tenants… actually…

NG doesn’t worry us all that much. Some of our homes are owned outright, others positively-geared, or neutrally buoyant. As interest rates rise,
some of the latter will be affected negatively.

Love the consiracy stuff, BTW…

Biker Pete
Guest

Steve: “I bet its you so then you get to say that hahaha”

Dream on, son… . Go thru’ the posts above… I’m generally -1 and you’re generally +1. You’re our little gold star fairy… . :)

Biker Pete
Guest

Roy: “LOL housing investment only exists in countries that allow negative gearing.”

Take a look at the extreme excrement the others are in, Roy.
Yes, I know you hope that Australians will be in the same stuff. Doubt it will happen, but I know you goldbugs only want the best for Aussies… . :)

Biker Pete
Guest
Stillgotshoeson
Guest

“The use of super funds is coming at the expense of the sharemarket, said accountancy firm Chan & Naylor.”

Looks more like an advertisment than an article…. more lambs to the slaughter.
Diversification would be better don’t you think? Property, Shares, Super and Cash
When China falls over, and it WILL fall over, WA property is the last place you would want to have all your money tied up in.

Biker Pete
Guest
“WA property is the last place you would want to have all your money tied up in…” Yeah, I know. We’ll all revert to trees and caves, Shoes… . In fact our Super will all be in offsets, with our other cash. Shares? Why risk our capital? Now if I was a _really_ smart, highly-ejucated bloke like you, I’d go the ASX route. Should have gone to uni, I guess… . Shares present a low risk to you, I know. And you’ll be retired by the time China goes belly-up next year… . You’ll be entirely unaffected by the high… Read more »
Biker Pete
Guest

Maybe there’s hope yet, Steve:

“The review proposes a 40 per cent discount on all income from savings, as well as on all residential rental income and losses, and capital gains.”

Crikey, it looks like rentals and cash-in-the-bank _may_ be a winning combination after all, Steve. Now if those recommendations go through, we’ll party!~ :)

Stillgotshoeson
Guest
“The review proposes a 40 per cent discount on all income from savings, as well as on all residential rental income and losses, and capital gains.” The pending collapse of China will see to your 40% discount to all your income from rentals and capital gains….. don’t need a review for that… A discount to the tax you would have paid, but if you meant that you would have mentioned tax, as you are our esteemed contributor to the forum with the full understanding of the English language… lord knows you highlight others mistakes.. so you obviously would never make… Read more »
Pete
Guest

You are a jerk Biker Pete. Bitter and old. Can’t help yourself. May time be unkind to you, as you are to others.

Biker Pete
Guest
You’re a nice guy, Pete. From your first contribution I read, I recognised that your care for others, expressed in the need for a major Australian crash, marked you as an outstanding example of that good old Aussie principle: “She’ll be right, mate!~” And she will be, y’know, no matter how many pins you’re sticking in voodoo dolls in your rage… . :) Bitter, moi?! Reread my posts and yours, son. Darned if I understand the point you’ve made, Shoes. Tried to figure out, but English is my first language. Sorry, I just don’t get it. As you know, I’m… Read more »
Biker Pete
Guest

Oh, and explain it very s-l-o-w-ly please. Like my young mate here, I left school at 15, don’t have much going for me up there… and I take a long time to digest the really difficult stuff you bears put up.

Deeply hurt that I’m getting Thumbs-Down, One-Star ratings, BTW. I had figured that Property Bears, who fear-no-evil, would be stacking up my Thumbs-Ups and five shiny gold stars. Steve, m-a-a-a-t-e, where are ya when I need ya?!~ ;)

Steve
Guest

Steve: “I bet its you so then you get to say that hahaha”

Dream on, son… . Go thru’ the posts above… I’m generally -1 and you’re generally +1. You’re our little gold star fairy… .

Yeh thats what I am saying its you doing it so then you can blame me for it

Biker Pete
Guest
Uh, let me see if I get your drift, Steve. I’m responsible for giving you Thumbs-Ups and five stars (and myself Thumbs Downs and one star) for the last two years?! Surely that would encourage your admirable practice of self-quoting? (Type self-quoting into Google and you’ll see it’s a sub-cult of Onanism.) But in honour of your experience and wisdom, I’ve decided to select one of your many daily or weakly self-quotes as Steve’s ‘Quote of the Month’, each month. There’s a school of thought which argues that this will increase your fame, but it’s a small price to pay… Read more »
Biker Pete
Guest

The Shoes Plan: OK, Steve Keen’s defunct, the KHR’s defunct, but we can still doom China. If we all form a circle and simultaneously stamp our feet and chant “China must fail!~” eight Chinese provinces will crack off the continent and sink into the East China Sea. All together now: “China must go… ning jai po… into the sea… Shanghai must go!!~”

Webby
Guest
I disagree that mining royalties are unfair. Unlike most every other industry, mining is 100% non-renewable and unsustainable in the far long term compared to farming, forestry, tourism, etc. For many years I’ve considered volume based mining royalties to be too low. Why? To discourage rapid depletion of the resource. No government can be trusted to save the windfall benefits for the long term future of the nation. Even if they did, democratic voters would vote themselves tax cuts and handouts until it was gone in a generation. Long term mining means steadier employment and delays the inevitable unemployment that… Read more »
David Bode
Guest
What an idiot who wrote that email. He can’t even spell the four letter words he blandishes about with reckless abandon. Australia is headed for a brick wall. Anyone but that galah can see the amount of personal debt we have – especially housing – higher that any country which have experienced housing crashes in the past 2-3 years. The only thing keeping our bubble inflating is China. If China pops we are done. This may not be a bad thing – we have literally gutted our indigenous manufacturing industry to a paltry 9% of GDP. Much of that is… Read more »
Biker Pete
Guest

But Dan’s response sums us up well, David: “…we are joyful optimists!”

We’re optimistic about Australia, the political scene, the rising Asian giants… but most of all, the future of working families. The very language we use to describe our optimistic mindset, our faith in what really glitters, uh, I mean matters, reaffirms Dan’s joyfulness and conviction that it all bodes well for the majority of his adopted countrymen.

Let us pray. “She’ll be right, mate!~” Amen.

Roy
Guest
BP – I’m not a gold bug, my interest here is one in history. I find history fascinating, almost as much as I find it strange that so many don’t seem to take an interest in past lessons learned. In an attempted to understand what a possible future might look like I look back in time. Everytime I see big debt loads on private or public balance sheets back in time I see a crash. What do you see studying the past?, or is the past irrelevant to you?. Call me old fashion son but if you don’t learn from… Read more »
wow
Guest

What happens to a man surrounded by hungry enemies that sits on a stash of food with only a pop gun to defend himself? Same for a country that rapaciously taxes its resource exports. Henry is just one of the same pack of lazy treasonous dogs that ate our inheritance.

Biker Pete
Guest
Roy, I too am a student of history. Yes, it took nearly two millennia for realty in Rome to recover after the barbarians sacked it. And I guess soothsayers were predicting Rome’s end for two millennia before. Certainly we know that the coming of a great leader* who would bring it all crashing down, was told many centuries before it happened. History is replete with prophets warning that ‘The End is Nigh’. Some of them were correct. Their world really did end. As a child of the Depression, I understand your viewpoint. You’ve weathered some hard times, if you are… Read more »
Don
Guest
As a miner I can tell you that a few of the deposits in our portfolio just went “pop” as a result of that delightful 40% tax. I read in the news that this is a tax on the big miners, well I have read through the review and I didn’t see any differentiation there between big and small, it seemed to be a universal 40% on all. Sure you get some additional rebate for drilling and exploration but the net effect of this change is more money in the government’s pocket and less in ours. Let me see, economics… Read more »
Justin
Guest

Yes Don, I live not so far from Canberra. Things seem to be going swimmingly, why, they are even painting the road curbs white.

Spent the weekend at Bowral, about half way between Sydney & Canberra.
Seems to be full speed ahead with the ‘exclusive’ residential development there too.

Don
Guest

Great news Justin. You can’t expect all those bureaucrats to work work work and no play eh? :)

Joe
Guest
The government should focus all housing subsidies toward new home construction, FHOG, negative gearing and capital gains tax breaks. If the issue is with the supply of new housing, the government should focus all of its resources toward that and away from existing property. Investment, both by occupiers and investors toward existing housing helps no one (real-estate agents and government stamp duties excepted). Free market theorists will make a valid point that this could inevitably create a bubble in new home construction. True, but a bursting home construction bubble would likely only hurt those who are wanting to ride the… Read more »
Biker Pete
Guest
Don: “…economics 101 says that if you tax something more you tend to get less of it…” No, you’re correct IMO, Don. WoW: “What happens to a man surrounded by hungry enemies that sits on a stash of food with only a pop gun to defend himself?” I guess the old adage “You’d be silly to bring a knife to a gunfight” applies. Joe: “The government should focus all housing subsidies toward new home construction…” While it financially suits our plans to agree with that view… and the rules of retrospectivity applied to property traded prior to 2012 would almost… Read more »
Joe
Guest

@Biker
Two issues there:
1. “the loss in government revenue could be appreciable”. Possibly, but having to support just the new construction market is surely cheaper than their current polciy of supporting the entire housing market.

2. Governments amping up a policy that avoids sales tax? “I wonder”. Hmmm, are you suggesting that the government would knowingly engage in a policy that puts more money in their coffers to the detriment of the country as a whole? I don’t doubt it, but that’s a bold call!

Biker Pete
Guest

“Hmmm, are you suggesting that the government would knowingly engage in a policy that puts more money in their coffers to the detriment of the country as a whole?”

No, entirely the opposite, Joe. If the current ‘no sales tax on new homes’ policy was retained, in the scenario you propose, they’d lose tax.

It’s all hypothetical… and as I say, there’s no personal risk to us at all… . Your argument makes sense. Can’t see them giving up a highly lucrative major source of revenue, though.

Steve
Guest

Steve’s quote of the day:

“Steve is looking forward to the interest rate rise tomorrow”

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