Recessions are almost always deliberately caused by central banks to control inflation by increasing unemployment and decreasing wages. Occasionally they are caused by financial crises.
Well, I am old enough to remember "The recession we had to have" back in the 80's here in Australia. And yes, that was triggered by the federal government and the reserve bank for what it was worth.
I think interest rates have been too low for too long. Yes, it has encouraged spending, but methinks too much spending as I have seen friends and family totally overextend themselves on huge loans for huge houses just because they could. Even interest rates move up even 1%, they will be pushed against the wall to try and service those loans, and that in itself may trigger massive sell offs and bring housing prices crashing down.
It's basically a tightrope walk across a windy gorge at the moment - everything is precariously balanced, but for how much longer??
I can't understand what motivates people to borrow the highest amount the banks will lend them. What do they think is going to happen when interest rates go up two or three percent? What do the banks think is going to happen?
The banks think they'll be bailed out. Maybe not in a US way with direct cash injection but maybe in an EU way with the government creating a Bad Bank and buying their mistakes at above market rates. Of course they'll lie about it and say it's a good investment to sell it to the public.
The Reserve Bank's legal mandate is inflation-band targeting; though they do keep an eye on exports and employment. It's a tricky act because raising interest pushes down inflation, but it also hurts borrowers, strengthens the dollar and hurts exporters.
The Australian rate is substantially higher than the Federal Reserve's. The Fed has a broader remit and is apparently perfectly happy to run nearly free money for years on end. Compared to the US, Australian monetary policy is quite conservative.
> not as much immigration as the US or West Europe.
I'm pretty sure Australia has a higher immigration rate than the U.S (a quick google supports this) and our net immigration rate is papering over some of the structural issues in our economy in turn helping us avoid a recession.
In particular, read the Notes section next to the US. Our immigration rate, if you counted it the same way, is about the same as Australia. But comparing US immigration to Australia immigration is apples to oranges. Australia has quite strict regulations on who it accepts as immigrants, and doesn't even accept a single refugee. Meanwhile the US has an illegal immigration population that dwarfs the legal one, we basically don't have a Southern border.
I assume you came to this misunderstanding because of our (legally and morally dubious) policy of not settling refugees that arrive by boat. I assure you we do accept refugees.
Other posters have dealt with your other factual misconceptions than I can, but a personal appeal from me to resist posting with a sense of authority on a topic you apparently are so unqualified to make statements about.
The defining feature of an immigrant is the act of immigration. Nobody born an Australian is an immigrant, regardless of whether their ancestors arrived by aeroplane, by boat, or by foot and canoe, unless they've chosen to emigrate. There is no technicality by which they can be considered an immigrant.
Depends what your definition of 'terra nullius' is, and whether you believe that Aboriginal people were 'uncivilised' and if they were uncivilised then can another country claim legal settlement of that land for that reason.
The debate will never cease.
In the thousands of years Aboriginal people had here, it's a pity they didn't unite in greater numbers, and have the foresight to build a few permanent structures as symbols of a united people, both for their own reasons and in anticipation of invaders from across the seas.
Upon seeing obvious signs of a united people, impressions would have been different. But they didn't have a sense of ownership of the land. It never occurred to them that other humans may come and want what they had. They were unprepared.
It puzzles me why they couldn't envision such an invasion, when they would invade each others tribes routinely. They were not strangers to war and conflict including turf wars over hunting grounds. But they failed to unite as one people, probably due to the huge distances in Australia, but still... 40,000 years was plenty of time to get organised.
Moreover, Australia is able, and does, select who migrates to the country and who does not.
The Wikipedia table about net migration to each country isn't the whole truth, however. For instance, it shows a significant negative net migration for Greece (-12.34 per 1000 pop) although in reality there are lots of migrants all over in Greece.
Absolutely. Lots of migrants, however, also come to Greece all the time and can't move on. Nobody seems to know the actual numbers, although the incoming flow has reduced after the EU migrant deal with Turkey.
The mechanism works e.g. so that a family runs a tourist hotel on an island; plenty of migrants arrive and there is a camp next to the hotel; tourists feel that the holiday environment at this hotel isn't nice and they no longer come; the family is without work and emigrates to Germany to work there. And also the people who supplied food, cleaning services etc to the hotel are out of work and emigrate.
The family is not racist, they help the needy migrants that arrive on their shores, but they lose their livelihood and have to become migrants themselves.
The situation may now be helped by souring EU-Turkey relations. There are not many tourists from Germany going to Turkey any more. Therefore the tourist industry in Greece could recover.
Is there any data to support the idea that tourism collapses due to a negative effect on the holiday environment caused by emigrants ...? How was tourism doing during the height of grexit (and before immigration became the global problem du jour ...)
Based on the number of tourist areas that depend on/benefit from cheap labor -- there's not a lot of me that believes this is a real mechanism...
I've just seen what some Greeks wrote about losing their livelihood and then emigrating, but recent statistics are hard to come by. I would think that the overall tourism in Greece is alive and well (particularly with EU tourism to competing Turkey collapsing due to Erdogan's arbitrary and autocratic appearances) but the Aegean islands affected by migration have suffered and people who lived and worked there go elsewhere.
> Australia is able, and does, select who migrates to the country
Australia selects its own immigrants through only one of its two immigration systems (its DIBP). Because they allow all New Zealand citizens (through a reciprocal arrangement) to live and work in Australia, they don't select immigrants who go in that other way. As the Chinese say "新西兰是澳大利亚的后门", i.e. "New Zealand is the back door into Australia".
Typically takes at leat 7 years to get NZ citizenship (except for Peter Thiel) -- 2 for Permanent Residency then another 5 years for citizenship. 6 years of which you have to actually live in NZ . That's a fairly long-winded "back door".
When I lived in New Zealand in the 1990's, I met many Chinese immigrants who lived in NZ for 3 years then after becoming NZ citizens went straight to Australia to become Australian citizens after a further 2 years there. That's where I heard that expression.
That's still quite selective immigration. The cost and visa requirements of travelling to NZ (legally) before immigrating to Australia from there is already a factor that changes the migration pattern completely.
Around 2002, Australia stopped New Zealanders getting automatic Australian citizenship after residency. Also then, New Zealand changed the residency time to become a citizen from 3 years to 5 years. I haven't heard about the extra 2 years mentioned by amatix.
Until then, it was easier to get NZ permanent residency than Australian, and many people, especially from China, took that "back door" to Australian citizenship. During the 1990's, I met many who spent the 3 years in NZ unemployed, learning conversational English. After becoming NZ citizens they'd go to Australia and get a job within months.
Comments like this are why I left Australia: many Australians believe Paul Keating caused the worldwide recession of the early 90s, or the hyperinflation of the 80s, based on Keating pointing out that the recession was a necessary correction. It is a very inward looking country.
> The Hawke Labor Government initially responded to the crisis by asking the Conciliation and Arbitration Commission to defer its national wage case. Treasurer Paul Keating was advised to tighten monetary policy, but, with forthcoming by-elections and a state election in New South Wales, the Government opted to delay the potentially unpopular move, which would raise interest rates. Commodity prices dropped and the Australian dollar sharply declined. The Reserve Bank conducted a $2 billion intervention to hold the dollar at 68c but it crashed to 51c.
So the government delayed what would have been a natural increase in interest rates and slowed the unhealthy consumption of capital. Instead the delay resulted in a sharp decline in prices rather than a more gradual one. All for political 'timing' as the tough medicine would have been unpopular. Lovely.
Monetarist policy is supposed to ease the pain of recessions, not make it worse.
> To court the green vote, environment minister Graham Richardson had placed restrictions on mining (notably uranium mining[5]) and logging which had a detrimental effect on already rising unemployment. David Barnett wrote in 1997 that Labor fiscal policy at this time "self-defeating as "with one hand it was imposing a monetary squeeze, while on the other it was encouraging spending with wage increases and tax cuts".
A recurring trend here of politics trumping the economic livelihood of the people.
The only other OECD developed country which has similar 20+ years period without recession is Poland. Even more impressive Australia population increases, while Poland population stays flat.
Why isn't it easier with population growth? GDP isn't adjusted by population, so even if the amount per person goes down (as it has been recently), so long as the total amount doesn't - no recession!
Excuse me, but I meant what you said. With population growth it's easier to have GDP growth. If population is flat, you actually need to make ppl more productive: wages need to increase, company profits, etc.
With newcomers, even if productivity per person decreases you still can have GDP growth.
Poland had a recession very recently: Q4 2012 and Q1 2013 both had GDP falling down.
Thing is, initially government published inaccurate data, showing no recession, but then, 3 years later they revised that data, showing we actually had recession.
Salaries and housing prices have become completely decoupled. Home ownership is now out of reach of most Australians. More urban sprawl isn't really a solution because traffic will never cope.
Most people haven't seen the benefits of economic growth, so they don't really care if we have a recession, it's mostly going to hit the wealthy investing in housing. A housing market crash will be the biggest redistribution of wealth the countries ever seen.
> More urban sprawl isn't really a solution because traffic will never cope.
I'm suggesting that new business centres be created so that people can live in cheaper areas, and still be close to their jobs. This should reduce traffic since fewer people will need to commute.
But I am not a City Planner. I have no idea what is feasible or not. But there must be lots of industries that don't need to be in the CDB.
Considering the general problem: there has to be a better way to control landlords. Allow them to earn a reasonable living but keep a cap on house and rental prices whilst preventing speculators from inflating prices too. Controls that would keep a lockstep between median wages and house prices without having to rely on a price crash coming and giving a few lower income people a chance.
Is the problem lack of political will to fix this sort of error (capitalism beating socialism)? Or maybe that solutions are applied but are ineffective?
The last one - super for houses - will obviously and explicitly destroy the lower and middle classes. There's a lot of people who will not see this as a bad idea - and then a lot more who'll be forced to dip into it anyway to have a hope of even owning a house, or any property large enough to start a family in.
Basically people will have to drain their super to afford to buy a house, then when retired they will have to sell (or reverse-mortgage) their house to afford to live.
Yeah, if the government adopted a 'super for deposits' policy it would be unconscionable, not to mention idiotic. The failure of the first home-owner grant scheme is ample evidence that a 'super deposits' scheme is not in the public interest. It's not even in the interests of first home buyers: I suspect it would simply bait marginal FHBs into catching falling knives.
Even with the FHOG scheme, I'm fairly sure the government was advised at the time that it was a stupid idea, but they went ahead with it anyway. The reasons why this 'super for deposits' idea has recently been floated are:
a) Someone at Coalition HQ finally figured out how to read demographic statistics (god help us) and realised that Gen Y (18-34) are now the largest voting block in the country (for our American friends: Australia has compulsory voting). Incidentally, I think this is the reason behind the 'surprisingly' close election last time around (Bowen's negative gearing policies addressed some of Gen Y's concerns around home ownership).
b) They also figured out that housing affordability is a serious issue for Gen Y. You might have noticed how everyone is all of a sudden so very concerned about housing affordability.
c) Both sides of politics are terrified of the bubble popping on their watch. They're acutely aware that voters confuse correlation and causation when it comes to economic policy (see: Howard & Costello's budget surpluses) and don't want to be forever branded as 'those guys that ruined the Australian economy'. So they'll do anything to kick the can down the road.
So (a) + (b) means they want to be seen to be doing something to improve housing affordability. However, this presents a problem: something becomes more affordable when that something becomes cheaper (i.e. prices go down). Unfortunately, doing anything that lowers house prices pisses off the second largest voting demographic in the country: the baby-boomers (53-71).
Combine (c) with the above and the solution becomes obvious: a policy that makes Gen Y feel as though they're in a better position to buy a house, that also pushes prices up (due to increased demand in a market with fixed short-run supply). This has the nice bonus effect of kicking the can just that little bit further down the road. And really, who cares about the distant future?
Although, I'd bet they aren't factoring in how ratings agencies might perceive such a policy. Australia is already on 'credit watch'. This kind of policy could very well be the final straw, resulting in a credit rating downgrade for the Commonwealth. And because the Commonwealth underwrites almost all retail bank deposits (explicitly), a Commonwealth downgrade is almost equivalent to the banks being downgraded.
Were this to happen, overseas lenders would increase their rates on wholesale funding that they lend to our banks (roughly 50% of the banks' cash). In turn, our banks will be forced to raise variable rates on retail housing loans, ironically triggering the bubble pop that the government was trying to avoid in the first place.
In short, it's just awful policy whichever way you look at it. However, I wouldn't want to bet against it happening anyway; this government seems to have an awfully large supply of stupid.
Yeah, it hit me recently that every single measure ever proposed to 'help' housing affordability simply propped the market up even further. Making it easier to for more people to pay larger sums for houses is the last thing that'll bring prices down.
At least they restricted the first homebuyer grant to new properties, so there's that.
I live in Northern Australia, one of the most expensive cities to live in within the country (exceeding even Sydney in a lot of cases), and salaries have absolutely NOT increased to match the rate of real estate pricing.
Sure in some niche jobs (mining sector etc.) there are positions paying massive money ($100K+) to young kids just out of school or an apprenticeship, but overall, in the government sector and small business, the disparity is widening at an alarming rate.
I honestly have no idea how young couples starting out today even are able to afford a small two bedroom unit without BOTH of them being in high paying jobs. I think we will surely see population growth slowing as there is pretty much no way young couples can have a baby and have one parent off work for up to a year to care for the baby, AND own/rent a house/apartment.
Our city is seeing a massive exodus of people, heading south for cheaper pastures - so much so that they (our state government) are holding crisis community meetings to try and ascertain how they can get people to stay. We are talking people who have been here for generations too, not just your average 'fly in fly out' workers.
welcome to the western world, what you describe can be said about most european capitals and many many US cities (and probably rest of world too). not going to change, at least not for the better, anytime soon.
I used to live in Adelaide. There's no way I could afford to buy a house anywhere I actually wanted to live.
Some out of the ordinary life circumstances arose, and I ended up moving to Launceston in Tasmania. I was able to buy a house in an area I wanted to live in here for $215,000. I can't fathom taking on twice that on, even on dual incomes, that sort of loan would make me feel ill.
My job is in metal fabrication, the past 12 months have been much slower than the previous 10 years, things have slowed down a great deal.
Only twice that? In Sydney, median house prices are north of $1,000,000 now, and in my unsexy and until recently very-working-class inner west suburb the median is tickling $2M.
(Yes, it's completely insane, and even more insane is that nobody else seems to find it insane...)
I've visited Tasmania a few times and LOVE Launceston. Would move there in a heartbeat, but the trick is, if things don't work out, we could never, EVER afford to move back here. I have older parents etc. still living here, so can see that we might have to either stay, or work out some sort of cunning plan to try and share time between the two locations.
$215,000 wouldn't even buy you a 1 bedroom squat here. I could probably sell my place and buy a BIG place in Launceston, but like I said, if it ever came that we had to move back here to care for elders, it won't be possible at all.
Hey give it a go renting, I moved to Tassie for a year and that turned into 5. Hobart is awesome and before I bought my place 7 minutes from the CBD for 330K, I used to rent a place for 250 a week.
And now my mortgage payments are still less than what I was paying for a townhouse in Canberra. Locals think its expensive, but play the long game with Tassie and things are looking good.
Really? I would consider Adelaide a much easier place to afford to buy property. It has not really seen as high or as long period of price increase as the eastern state cities.
But I guess that's the case everywhere in Australia. The places where a young person wants to live (young / without children) is not somewhere which they can afford.
Oh yes, they are busy putting up apartments everywhere, but I think a vast majority of them - possibly more than 50% will sit empty for a while when Inpex reaches endgame. Just across the road from us, they started building a 4 storey apartment/shopping complex last year, but the company in charge pulled it a few months ago because they could see the writing on the wall. It's just a 1/4 built concrete framework, and likely to stay that way for years.
We visit the local markets frequently, and almost all the stall holders (some who have been at the markets for 2 or more decades) are struggling. All the local hotels and services apartments are occupied by fly in fly out workers, taking rooms that tourists normally buy in the dry season, and they don't visit markets or spend coin locally. Inpex was touted as a boon for the Northern Territory, but it has been a total bust for us. I really love Darwin, but I fear it will be a ghost town in a few years.
Did you walk down the mall in the CBD when you were here? Notice how many empty shops and 'For Lease' signs were up all over the place?
We used to have a solid public service contingent in this town, which sort of kept things going through the lean times, but even that is under threat. Our newly elected Territory government is looking to axe 100+ jobs over this year via natural attrition. We've already sold off most of our high value assets (the port and our TIO insurance company etc.), and the Federal government have just announced they are slashing $2billion from our GST revenue share over the next few years. There is not much left in the kitty.
But ALL houses have not increased in price, only the ones that were offered up for sale. So, niche salary gains and niche housing price spikes. If all the houses came for sale on the same day, I guarantee the prices would not remain this high, but that's not how it works.
Overseas purchasers willing to pay far above market rates are partly responsible, especially in Sydney and Melbourne. The government department responsible for making sure foreign investment rules are followed are underfunded and quite ineffectual in enforcing said rules. More info here:
http://firb.gov.au/real-estate/
In modern economy, when business is doing well, profits and top salaries grow, but that's it. Salaries never went proportional with productivity or profits and this is another sad example here: despite 25 years of ongoing growth, people are confronted with extreme household debts. Obviously political decision makers became too greedy and lobbyists too influential. You see it anywhere, not only in AUS.
None of the replies really explain why you'd want a recession.
If the value of my property plummeted too far and I was stuck with a massive mortgage, the first thing I would do is stop any discretionary spending until I could figure out what the future looked like.
Imagine that happened to a lot of the middle class.
I agree that prices are too high, but I can't see anything good coming from a crash.
To make the technical (and somewhat cold-hearted) argument: because it will correct a massive mis-allocation of capital in the Australian economy. This mis-allocated capital is being poured into existing residential real estate (80% of property investment is in already existing properties). It's capital that could otherwise be put to some productive purpose, like business loans for example.
The above is basically a stylised description of what has actually been happening in Australia over the past two decades: real estate loans have been crowding out business loans: http://i.imgur.com/g7a9QDL.png . The upper bound for sophisticated public discussion on economic policy is, IMHO, when pollies yammer on about 'productivity' (a depressingly low 'upper bound', and not without its own issues). If we are truly serious about lifting multi-factor productivity, then we should not be distorting capital investment decisions with crazy-expensive tax breaks for property investors.
It would be great if we could correct this problem, without serious macroeconomic upheaval, by gradually phasing in tax reforms. But that opportunity passed us by about a decade ago. The reforms still have to occur, mind you. It's just that now we pretty much have to eat a massive property bust (and possible crisis in the financial sector) first.
As for the reforms, my top 3 would be:
- Change capital gains back to indexation by inflation (rather than a flat 50% discount after 1 year of ownership).
- Get the States to slowly repeal stamp duty on property and insurance, and slowly introduce a tax on the unimproved value of land (say, over a 5 year timeframe).
- Simplify and repeal a whole bunch of zoning and land planning laws and regulations, at both the State and local council level.
One of the big ones should be removing negative gearing on existing non-primary-residence properties. This is a fairly big reason why the boom is continuing.
Not surprising, given that our economy is effectively backed by China. Of course, that means the probability of us getting out of coal is not very high in the short-term (mining is still a huge employer here, and we export >50% of our coal to East Asia).
China is heavily investing in solar, not fission (at least from what I've heard). And I don't think that Australia has a strong edge on the iridium market (it's already super-rare) or the silicon market (we already have problems with beach erosion, so mining silicon = very bad for condos in Sydney).
Just curious - you don't think housing prices are too high in Australia? At least when compared to local wages?
To me it seems like a giant house of cards, waiting for the just little breeze to bring it toppling down. And I am not speaking from a point of chagrin here - I own my own home and am glad that it is valued at what it is now, but I also know that it is crazy, and really, should housing prices be going up at something like $100,000 per year?? Because that is what is happening here...
Every city in the world believe they're in a housing bubble. People can't just fathom the fact that there are many, many people richer than them, and the fact they can't afford a house is just that they don't earn enough compared to their neighbors.
It's especially good to say "housing bubble" because it sounds smart as a market analysis from someone who has a lot of data, and it can only be proven wrong years later (when the comment is long gone) when the bubble is not burst, proving the new housing prices just reflect your neighbors' average wealth. "but the bubble is around the corner", they'll still say. Every city in the world.
Housing prices grow according to people's wealth; there are also more and more people in every city, that increases the pressure on prices and it's rarely a bubble.
Downvoting for the massive sense of entitlement shown, which is high even for HN!
Lots of global cities do have bubbles from foreign investment parking wealth in property, driving up prices and squeezing out locals looking to buy. Here's how it works:
Foreign investors buy luxury properties
Top-tier locals can't buy luxury properties, buy the next highest property class
Second-tier etc.
Lower-rung locals have no properties to buy. Not: they don't have enough money; but the property type they would traditionally occupy isn't available, and no alternatives have been built since it's always in a developer's best interest to aim at the top, in the abscesses of government incentives.
Lots of countries don't allow foreigners do buy property in this way to prevent exactly this sort of Bubble.
What might be happening (I think, seen no evidence yet) is that asset managers in banking have moved "safe" money from treasury debt to real estate, because return from treasury debt has moved to close to 0 since 2008. The result is billions of dollars have moved into real estate across the world, fueling what seems to be an increasingly global real estate crisis.
The bubble pops when property is not as safe/lucrative of an investment as other instruments, and the foreign investors sell up. House prices go down, but no one can move because their mortgages are underwater (proceeds from selling the house don't match the outstanding debt). Developers stop building because no one will buy the new-builds at a price which will leave them with a profit. The situation is as before the bubble pops, but now everyone is poorer since their (inflated) home equity has vanished.
Usually this happens when interest rates go up, because then it's better to keep your wealth in a more liquid investment like cash. Mortgage payments go up as well, turning the (imaginary) loss of equity into concrete loss of income.
The bubble pops once the big development firms start going under. At some point, the highly leveraged property developers will stop being able to clear out the apartment blocks they're putting up presuming $1m+ sale prices. They're the ones who pop the bubble, since a few bankruptcies are very likely to cascade into panic selling.
It is a bubble as it only continues for as long as the government allows - eventually the house owning majority will die, the next generation will be jaded and demand stricter controls. I guess that's what the locals have over the rich internationals, a vote.
Seems to be objective evidence that house prices in Canada, UK and Australia are overvalued, while house prices in US, Germany and Netherlands are not.
I agree with you, I live in sydney. Everyone I know over 30 owns a house, and some bought quite recently. Except me (due to a variety of reasons, finance not one of them)
I moved to Sydney 3 months ago (from interstate) to study and pursue a slightly different line of work. I don't think I'll ever be able to own a house anywhere closer than 20+km to the CBD unless prices come down at least 30%. Rents seem higher than Chicago, comparable to parts of NY, and wages seem to be a lot lower (anecdata though).
If I want to build a decent nest-egg it's likely going to require spending a considerable amount of time overseas. That said, healthcare and affordable education is pretty cool.
The glib answer is that whatever the buyer pays is the right price.
But I don't own a house because I don't see value in them at current prices.
What's got me curious is the amount of foreign investment in Australian property. Are they so keen because our market looks like value to them, or just because some spruiker showed them a graph of house prices over the last 20 years.
"Australia’s banking regulator further tightened lending curbs Friday to try to cool investor demand for residential property that’s helped drive up prices. Data released hours later showed investor lending increased 6.7 percent in February from a year earlier, the fastest growth in 12 months."
No mention of the ^Elephant in the room^ with respect to real-state and housing: transparency in financing property. [0]
Australia is a commodity driven economy with two neighbors that have had explosive growth and an insatiable lust for commodities over the past 25 years (India and China.)
India has hardly come online as a trade partner, only recently. Before China it was Japan. Before Japan it was the US and UK. Maybe next it's Outer Space?!! There's been some new story, who knows how many more.
We've had recessions, we've had a few in the last decade. It's been masked by immigration though, the economy has grown in absolute terms but that growth has been spread thinner.
This is correct. Unfortunately neither of the two 'mainstream' political parties in Australia want to even say the word 'immigration'. Even though it's a perfectly legitimate concern that the electorate has. End result: Pauline Hanson [0].
[0] For our American friends, Pauline Hanson is a famous racist politician in Australia. She has recently made a political comeback.
Indeed. The great irony there is that their main constituents (i.e. inner-city young professionals) are the ones who are copping the worst effects of high, unending immigration (e.g. congestion, lower public transport availability, lowered housing affordability etc.)
If they don't stop listening to the Sarah-Hanson Youngs in their party, and start listening to the more rational Scott Ludlams, then this issue will lead to their 'democrats' moment very soon.
EDIT: I also can't understand why either Labor or the Greens don't take the very obvious political opportunity right in front of them. They should essentially pull a reverse John Howard by increasing our refugee intake, move processing on-shore (or even start a community release program), and drastically cut 'regular' immigration intake levels while they work with State governments to stabilise infrastructure, energy and education.
Seems like a no-brainer to me. Good policy and good politics combined is a rare thing.
Agree completely, I've been saying this for a while now but the knee jerk reaction is to get labelled racist.
I think Labor are just as beholden to the wealthy though. And can you imagine the Murdoch rags if it did cause a recession?
The big question now is "does anyone, particularly those under 40, care if there's a recession?". I think a growing number of people are hoping for one.
A clear majority of Australians 69% (up 11%) support immigration (of 210,000 in 2013/14) remaining the same 37% (down 10%) or increasing 32% (up 21%) while 26% (down 14%) want immigration levels reduced and 5% (up 3%) can’t say.
Given that the intersection of the groups who want more refugees and lower immigration is likely to be small it's clear that what Australian politicians are doing is pretty close to what Australians, when polled, would like.
Thanks for this. It's always useful to inject some hard data into these conversations. Looking at a more recent Roy Morgan poll (Oct 2016), the numbers appear to have changed a bit, with a few interesting inconsistencies.
1. 66% support asylum seeker immigration vs 25% oppose
2. 40% support immigration levels holding steady (up 3%), 21% support increasing immigration (down 11%), and 34% want immigration levels reduced (up 8%).
3. Confusingly, by 2046, 36% want a population under 30 million, 25% want 30-35m, and 23% want 35m or more.
These numbers suggest to me that the respondents don't quite understand that if we maintain current immigration levels, we will very likely hit or exceed 35m population by 2046 (something which only 23% of respondents want).
The ABS models 3 possible population scenarios (which use differing assumptions about fertility, life expectancy etc.). In the 'High' scenario, by 2046 our population will be 39.7m. In the 'Med' scenario, it will be 36m. In the 'Low' scenario, 33m.
Worth remembering is that Howard's magic stroke was to confuse the issue between refugees and immigration. A lot of people were angry we had 300k "boat people" a year, but never realised it was a handful of boat people and 290k legal immigrants.
I despise the man but it was a political master stroke.
100% agreed. It was a stroke of Machiavellian genius (or 'rat cunning', as others might put it). He managed to sell us down the river with nary a peep of resistance. At the time it seemed that most were actually cheering him on.
I'm one of those inner-city professionals (although at 40 no longer so young) who supports high levels of immigration. Let me try to explain my reasoning:
1. It's true that immigration has increased property prices, but other factors have played a much bigger role. In particular the drop in interest rates since the early 1990s greatly boosted asset prices. To exclude the effect of interest rates it's better to look at rental prices - there we find the cost of housing to be much closer to the inflation rate [1]
2. I have lived in Sydney's Inner West my whole life but am still renting because house prices are simply too high. But that's fine - I have instead invested in US stocks which have achieved a pretty decent return in the last 10 years. If the Sydney property bubble bursts then I will sell some of those shares and buy a house here. But if not, I'll just keep renting - no big deal.
3. Skilled immigration is a fantastic deal. Normally to produce say, a new doctor, society would have to pay for maternity leave, childcare allowance, 6 years of primary education, 6 years of secondary education, 5 years of tertiary education and medical training and 22 years of healthcare costs. But with skilled migration someone else has already paid for all that - we get it for free. We get an educated, skilled, healthy, young doctor with no criminal history who will work and pay taxes for the next 40 years. It's a bargain.
4. I don't feel I'm 'copping' much from greater population density. Yes, there is now more traffic on the roads, but the busses run more frequently. When I was a kid the train to the city would run every half hour - now it's every 15 minutes. The local park has a better playground and a new BBQ area, the local pool has been refurbished - all because there are now more residents paying council rates.
5. To reduce property prices it's much better to increase the supply of homes rather than cut demand. We should be reducing restrictions on extending existing dwellings and building new, tall apartment blocks.
Supply is definitely part of the equation, no doubt about it. Relaxing zoning and land-use regulations is necessary but, IMHO, not sufficient. More radical steps need to be taken, like the introduction of a land-value tax and repeal of stamp duty (Canberra has done this, albeit phased in over the next 15 years or so). This would:
- Stop developers from 'land banking'. They would either have to put the land to use (e.g. build an apartment building, thus increasing supply) or sell the land to someone who will.
- Reduce 'speculative vacancies' (properties that are purchased and then left vacant). Prosper Australia (a Georgist non-profit) estimated vacancies in Melbourne (in 2014) by examining water use data. They found that 1.45% of non-advertised residential stock was demonstrably vacant (0L water use per day). This would mean the actual vacancy rate was 8.3%. They also found that 4.8% were likely vacant (residences with below 50Lpd usage, when the average usage is 160Lpd). Which would equate to a vacancy rate of 18.9%! [1]
- Obviously, an LVT would make vacant possession much more costly, and financially infeasible in some cases (although my assumption is that a decent proportion of these are financed by hot money flows out of China).
And the removal of stamp duty would effectively result in additional supply on the market, as it would remove the disincentive for people to efficiently reallocate to appropriately sized homes.
And fair enough re: immigration. You make perfectly valid points, and if your own experience of it is positive then that's obviously a good thing. Just as an aside: usually people cite "the need to support our ageing population" as their reason for preferring high immigration, even though the Productivity Commission has stated in three separate reports that this view has no real merit (simply put, because immigrants also age).
However, I would still contend that, in aggregate, our current net inwards migration numbers aren't sustainable (and haven't been for a while).[2][3][4] For me, it's nothing against immigrants, and certainly nothing to do with race, religion or creed. It's simply a numbers issue. Not just in terms of housing demand, but also in terms of increasingly constrained infrastructure and education services. I think we need a bit of breathing space so we can catch up (or more competent politicians).
Regardless, on the demand side, I think the bigger issue is our messed up tax system and the (mal)incentives it creates to invest in housing (or, as they say, 'equity maaate').
And I think your financial strategy is extremely sensible (perhaps, dare I say, optimal). It's the exact same strategy that's used by most 'housing bears' that I know. It's what I should be doing too, but I'm sorta lazy :)
EDIT: Oh, and the decoupling of rent and prices is one of the reasons I think there's a bubble in property. People make investments to earn a return. The fact that super low rental yields haven't deterred property investment suggests that people are investing to chase capital gains, under the conventional wisdom that 'house prices never go down'. This is the textbook definition of speculative investment.
There was a spike due to mining and offshore gas in the past decade or two, but the mining sector has pretty much stagnated now.
Also, it was somewhat of a 'false spike' due to mining companies using FIFO (fly in fly out) workers from Asia etc. Those workers would come here, work hard, collect their pay packets and the leave to go back to their home countries and spend there rather than locally.
Our tourism market, which WAS a huge part of our GDP and employment, has suffered. In my town, the FIFO workers book out entire streets of hotels for their work schedules, meaning tourists have no chance getting a room year round. Local shops and markets are shuttering at a fast clip because no tourists are around the spend money with them.
Recent events with the cyclones in Queensland, and the general bleaching of our Great Barrier reef also will have a huge impact on our tourism market, with a reported 100,000 jobs likely to disappear over the coming years across the Eastern seaboard.
There's a few reasons, and most of them don't bode well for the future:
- Since the early 2000s, there has been an unprecedented spike in the price of natural resources like iron ore (http://www.macrobusiness.com.au/wp-content/uploads/2015/11/C...). Australia is a resource rich country and so has enjoyed a significant, but temporary, increase in national income as a result.
- The above has had a number of unfortunate (but avoidable) long-term effects on the Australian economy: high demand for Australian natural resources meant high demand for Australian dollars, so the dollar appreciated. This hollowed out the economy as most non-mining export facing businesses were ruined by this. Australia's car manufacturing industry is dead, for instance. This could have been managed by taxing rents from natural resources and placing that money in a sovereign wealth fund (i.e. a fund that invests in assets denominated in non-Aus currencies). But we didn't do this because we're idiots.
- The government that presided over the majority of this 'mining boom' (i.e. John Howard and co) acted as if those historically unprecedented prices were the 'new normal'. Accordingly, they passed a number of budget measures that placed the Commonwealth budget into permanent structural deficit. The IMF conducted a cross-country study of fiscal spending for the last 200 years in 2013. In Australia's case it found that there have been 3 periods of 'fiscal profligacy': 1 during Whitlam (in the 70s) and 2 during Howard.[0][1] However many Australians continue to buy in to the myth that John Howard was a 'great economic manager'.
- Howard's government also changed how residential real estate is taxed for property investors. Specifically, he made it more concessional for the rich, and created stronger incentives to 'flip' houses after 1 year to maximise the tax benefit.[2]
- So Australians took all this new income, and sweet tax breaks, and poured it all into speculative investment in residential real-estate. [3][4][5] Out housing markets (especially in Sydney, Melbourne and Brisbane) are investment bubbles just waiting for some external shock to pop them. The mining boom is also winding down, so less national income to keep the ponzi going. In terms of private debt, we are now one of the most indebted nations in the world.
- We've also kept the housing / nominal GDP ponzi by having insanely high immigration levels, unprecedented by historical standards. Of course, this had to be sold carefully because Australia is a fairly racist country. So, our previous Prime Minister John Howard made a big show of brutalising refugees, while at the same time quietly opening the immigration floodgates [6][7][8].
- With the mining boom ending and the continuation of high immigration, our major cities are reaching crush capacity. Infrastructure and education spending have not come even close to keeping up. This has kept house prices levitating for the moment, but this can't last forever. It has also reduced quality of life and employee wages and share of production surplus [9][10]
So that's how Australia has managed to avoid a nominal recession for the past 25 years: by running the world's most successful ponzi scheme. But as windfall natural resource income dries up, international lenders stop lending to our banks, and high immigration becomes a mass exodus, our enormous property market bubble will explode leaving us with only a bunch of long dead industries (like manufacturing) and piles of debt. Basically a replay of the 1890s recession in Australia, which was one of the main drivers of federation.
I would add to that the generally venture-hostile environment (relatively small population, high overheads, few institutional VCs) has created a static economy typified by the options available to young people even after tertiary education: work for a big established company to get by in a large city (though even with a professional partner you'll never afford a house in 30 years), go overseas, or go broke.
Yeah, it's a serious problem. If you left 20 years ago, I've got bad new for you: it's worse than you remember. Most of the economy now consists of ticket clippers and rent seekers. It's a shame we lack the structural support for new ventures in Australia, as Australians have historically had some good ideas.
But when you look at stuff like this (http://i.imgur.com/g7a9QDL.png), it makes you realise that there's no chance of generating a start-up culture in Australia (except maybe in the financial sector, especially if the business has something to do with property loans).
Hi mate, fellow Aussie here. I see you're currently living in China. I'm considering a move there in the next few years. Any chance I could ask you a couple of questions over email?
Sure, email in profile. Currently relocating to Shenzhen. Have previously lived in many places in Yunnan, Shanghai and Qingdao. Could maybe hook up some remote work - re: your experience in mobile banking.
10 years here. I moved to London, where housing is pretty awful (but not quite as bad) but an attitude to tech that's comfortably between the cynicism of "tech is a scam used to separate idiots from their wallets" (Australia) and the wild enthusiasm of "Snapchat IPO" (US).
Surprised that you think London housing is not as bad as Australia. Prices here are quite a bit higher in London, and from what I understand, London salaries are also often not as high.
I've lived in London for 10 years, and my partner is Australian. We've considered moving to Australia recently, so the above is from my research.
I moved to London from Sydney a year ago and I couldn't agree more. Unless you are prepared to live in a damp cupboard, prices are way higher and salaries are lower.
I think the lack of venture is more complex than that; a mix of culture and regulation.
There are only 23 million odd Australians, but there is well north of $2 trillion AUD in our superannuation accounts.
Assuming they applied 0.5% of that towards VC, you'd be looking at $10bn AUD of available capital. At least one order of magnitude more than is currently present.
Also, last I checked, stock-based comp in Australia is tax-disadvantageous. I can't recall if it was FBT or something else.
I'd say that from a pure opportunity cost perspective the performance of property & mining alone is justification for the lack of VC in Australia.
If simple well understood businesses (dig up rocks or buy land and build) can return > 10% YoY, why would any intelligent investor poor money into an asset class that has underperformed that in the same period?
Yet the VC lifecycle is very much like the mining lifecycle.
Exploration, drilling, construction, exploitation. The early stages cost millions and often lead to failure, with the occasional profitable case and rare super-profitable discoveries. Scaling up costs major capital, after which, prices allowing, a mine can be a cash cow.
I think the current government was looking into that at some point, but I don't know what happened with that.
I remember when I worked at a startup the choice when I got stock options was - pay the tax up front based on the current strike price value - or pay a higher tax when you exercise them and make a profit. If you take the first choice then you'll need to do a lot of paper work to get that money back should the company fail.
Eh, you don't need massive VC to get quality resilient tech companies. You need massive VC for massive bubbles. Sydney has some good startups going now, I would say on a per capita basis Australia does well. It's not Australia's fault that companies become successful and then move to larger markets to be closer to customers and such.
Things have been rapidly changing too with the young generation. Smart people are skipping the investment banks for startups because they see the opportunity.
We did/do, a worryingly large share of government revenue comes from that direction.
Combine that with the fact that a large finance sector is good for over all GDP but pretty much terrible for median GDP per capita (since all the wealth goes to relatively few well off people) and we have a nasty time bomb.
If you factor in the real levels of inflation against salary rises in the last 15 years they are flat for most and down for some.
I find it absurd that anyone is still arguing this is a problem, we've just watched the largest wealth transfer in history from the have-nots to the haves but somehow it's those poor immigrants who are carrying the can for it.
> I find it absurd that anyone is still arguing this is a problem, we've just watched the largest wealth transfer in history from the have-nots to the haves but somehow it's those poor immigrants who are carrying the can for it.
One of my former bosses (a British expat who had moved to Eastern Europe) told me basically the same thing in late 2008 in regards to the then fully developing financial crisis: "This is one of the biggest rip-offs that I've ever witnessed". I remember thinking back then "if no world war starts in the next 10 or so years then I guess we'll be good". There has been no world war, just yet, but we've now got Trump, Brexit and almost all of Western Europe being 10-15% away from electing lunatic leaders.
What infuriates me the most about it isn't that they've hidden the figures or covered it up, the data is there.
It's that no one seems to care, the press isn't covering it (why would they when they are mostly owned by high net worth individuals cough Murdoch cough or funded through them).
It's an absolute scandal and we all just collectively went oh well, "please sir, can I have some more?".
Howard's instinct as Prime Minister was the spend like a drunken sailor.
I note that you didn't mention his Treasurer, Peter Costello. The pair of them basically invented the Australian political norm, now dead, that government debt was bad and ought to be paid down as quickly as possible.
No to mention setting aside what is now one of the larger sovereign funds to cover future Commonwealth pension liabilities.
While middle-class welfare has done irreparable structural damage, painting them in a single shade of black or white isn't fair.
Some of the rot or failure to act started under PM Hawke / Treasurer Keating, PM Keating / Treasurer Dawkins, PM Keating / Treasurer Willis and continued under PM Revolving Door / Treasurer Roundabout.
Overall the Hawke-Keating-Howard-Costello years transformed Australia from an economic backwater into a much wealthier and more successful country.
Could there have been better choices? Of course.
Could there have been worse? Oh yes. Australia can't sustain US-style fiscal policy, no matter how politically attractive.
As has been said in the article, because Australia avoided the worst hardships of the GFC, it also avoided the cleansing that it provided.
I would whole-heartedly agree that the Governments (both left leaning Labor and right leaning Liberals) have misspent the mining boom windfalls. (Actually mining is only about 16-18% of the Australian economy last I read.) Instead of improving communications infrastructure, or developing new businesses in sectors outside of mining, they are building railways and ports for new mines.
I used to live in Sydney (I've since left Australia altogether) and it made me realise that I would rather rent a place somewhere nice to live, than own a place somewhere where I could afford to do so. I do feel like Australia is a nice place to live, and to raise a family, but I don't know if I would do it in the bigger east coast cities or somewhere where the balance is better.
How much of that from exports? Which pumps more money into the economy where it has a lot of follow-up effects. Given that a rise or fall in GDP of a low single-digit percentage point can already mean a big boom or bust the above number is huge.
Yes, despite it being the poster child, the mining sector only comprises 16-18% of the economy. I would say all of it was from exports, since Australia doesn't really do much smelting any more. Aluminium smelters have closed down, no more lead or iron smelters either. We just export red dirt to China.
Out of that percentage, I don't think it would include all of the other mining related industries in that figure, or the effects on rutal mining towns. But just as there are positive flow on effects, once that flow stops then towns and communities die and people have to move elsewhere for work. This was already the case for towns dealing with mine and plant closures from earlier booms, it usually takes decades.
There is also a lot of temporary fly-in-fly-out labour in mining. Where the workers don't settle down in towns near the mines, but back in Perth and other bigger towns and cities. As such Perth has experienced a property bubble of sorts relating to mining, even though its not as popular a place to live as the east coast.
I can't remember exactly but the Banking sector in Australia may be the bigger than mining.
> Yes, despite it being the poster child, the mining sector only comprises 16-18% of the economy.
Uhmm.... I just pointed out that the use of the word "only" is not justified... :-)
> I can't remember exactly but the Banking sector in Australia may be the bigger than mining.
What do you mean by "larger"? Employ more people, pay more wages? Just "having" money (and large numbers in their balance sheets) is kind of a given for that sector.
Besides, the point never was finding the "biggest". Somebody can be a tall person even if they are not the "tallest". So large changes to that sector will have large effects to the overall economy, many of them indirect.
What you call cleansing is also a massive loss of wealth by the middle classes and a transfer directly upwards to the wealthy. So sad this has not happened /s
There's no law of physics that says wealth must be destroyed every few years.
Something that seems to be regularly missed in this analysis is that 9.5% of everyone in the country's wage is poured into investment funds each quarter and it needs to find a home. That's over $2T in assets under management last time I looked, and a heck of a lot coming in regularly that can help keep a lot of bubbles simultaneously inflated.
I don't think the problem is that there's too much investment sloshing around, but rather it's that investment incentives in Australia are horribly distorted by the tax system (and in two cases, IMHO, by the lack of a certain tax [0] / price on a negative externality [1]). So the money gets funnelled into unproductive investment (or socially/globally harmful activity).
I get even more concerned when people float ideas like mandating that x% of super must be invested in infrastructure projects, or allowing super to be withdrawn early to pay for a house deposit (shudder). The tax treatment of super itself is also completely messed up: it's regressive and completely at odds with its own policy aim (i.e. to reduce future age pension outlays). You can thank Kevin Rudd for squibbing an opportunity to address this, because he wanted a nice headline instead.
The government really has to level with the population and let them in on the big secret about super: it's not "extra money" that you get in addition to your wage, it's an additional income tax where the revenues are locked away in managed investment funds (making it harder for politicians to get their grubby little hands on the revenue).
[0] Land-value tax, which corrects an inherent investment distortion (i.e. privatisation of land-rents).
Yeah, the option of allowing super to be withdrawn as a house deposit seems very much like stopping a fire by shovelling coal on top of it.
This is just like the first home owners grant, which only made barely-affordable houses that much more expensive and didn't actually make houses more affordable for young people.
Because the highly profitable mining industry campaigned against it AND we're idiots.
Theory: Immigration is a main "export". It's a very nice place to live: democracy, rule of law, media and the geographical reasons etc. Immigration helps supports demand for housing and the bubble.
We're basically a hole in the ground - but a very nice one.
Also should be mentioned it was an incredibly sensible taxation policy to cope with the boom bust cycles of mining, we have a progressive income tax system, a progressive corporate tax policy isn't far fetched
Sadly it only came into effect after the boom and raised very little money before the mining industry ad campaign shut it down.
- Manufacturing in general in the developed world is in serious trouble. I'm not sure anything could really reverse that;
- I agree about having a sovereign wealth fund. Norway has this. It's such a lost opportunity by pretty much everyone else that allows the looting of natural resources by a wealthy few.
- As for fiscal responsibility, I think your view of the Howard era is somewhat slanted. The spike in resources prices didn't really begin until the mid 2000s [1], the latter days of the Howard government. I tend to largely ignore the Sydney Morning Herald when it comes to criticism of conservatives. It comes off as anything but impartial.
There were definitely attempts at buying votes in the last Howard term but most of the rest was tax reform, paying down debt [2], using asset sales to fund superannuation obligations (ie the Future Fund).
- There was definitely a problem with how the slices of the GST pie were calculated. Western Australia and to a lesser extend Queensland really got the shaft on this one. As resource prices receded, WA is now down to retaining something like 34 cents of every GST dollar collected.
- There was a somewhat complicated system for CGT inflation indexation. This was "reformed" to being a straight gain that was discounted by 50% if held for over a year. Son in the medium term, the effective rate is lower but I'm not sure this leads to the result you claim.
For one thing, flipping properties isn't really a thing in Australia largely due to stamp duty levied by the states (something the GST was meant to replace I might add, which the states largely reneged on).
At the height of the property boom (mid 2000s) it was probably the case that prices were rising so fast that even paying stamp duty it was possible to make a lot of money by holding property only for 1-3 years but this is exceptional. More to the point, I don't think the CGT changes were the cause.
Property prices in the Australia largely stagnated since the recession we had to have (1991). In Perth, for example, it was possible in 2000 to buy a 1970s 3 bedroom house 8 miles from the CBD for <$100k and this hadn't changed in years.
So partly this changed because the market was (still) oversold.
Another factor: the mining boom. Capital projects soaked up a huge amount of supply. The cost of construction in Australia massively increased as a result. This inflation was (IMHO) largely responsible for the 2000s price boom. 20 years ago it was possible to build a house for $100k in 3 months. Now? It's more like $350k and it takes a year.
- As for recent price booms in places like Sydney and Melbourne, this is part of a global trend where foreign money is driving up prices in urban centers in the developed world. I'm not sure immigration has much to do with anything here.
I think many of your points have merit, although there are a few I disagree with. I think you're right about the construction input costs: the 'initial phase' of any mining boom is characterised by lots of capital investment and the construction projects that go with it. So that definitely did bid up the cost of construction project inputs, and also contributed to a (transient) increase in employment and wages in the industry. Unfortunately, mining is a very capital intensive activity.
So now that the capital projects are done and we're transitioning to the 'volume production phase', the effect on employment, wages and costs of construction inputs are receding. And it sounds like we're in agreement on the national interest re: finite resource extraction. Thank goodness we had the foresight to tax some of the rents derived from the extraction of our finite natural resources... no wait...
As for hollowing out of manufacturing, it's definitely a debatable point and I think reasonable people can arrive at different views on this one. Honestly, it's a difficult proposition to prove in either direction. I guess I'm saying I don't have very strong views here, other than we didn't exactly take many (or really any) prudent actions here.
As an interesting aside, multi-factor productivity should naturally rise (particularly now that world commodity prices have come back down a bit, so its no longer profitable to extract marginal deposits). I'm sure whoever happens to be in government at the time will figure out a way to claim the credit.
I can't fault you for ignoring SMH when searching for truthful information. Frankly, anything that comes out of Fairfax (even the AFR) these days is highly suspect. Around 80% of Fairfax's revenues come from Domain property advertising, making SMH the most widely read real-estate agent newsletter in the country. But the IMF study is solid, and I can't see any reason why they'd have a bias one way or the other (especially since Australia was just 1 of about 200 countries studied). If you have a critique of that study, I'd be interested to hear it. Otherwise I stand by my assertion about the structural deficit.
GST distribution is a bit of a vexed issue (some of which is too complicated to go into here, but is comprehensively discussed here: http://gstdistributionreview.gov.au ). The EU is an example of a monetary union without a system of horizontal fiscal equalisation. Hasn't worked out that great for some of their members who have had a 'slower' economy than the average EU member, but nonetheless faced a non-stimulatory central bank cash rate (e.g. Greece). On the other hand, it seems to have worked out pretty good for members like Germany.
WA also seems to have a curiously short memory on this issue. Commonwealth to State fiscal transfers have been going on since federation (as opposed to since the introduction of the GST). I'm pretty sure that, even though recently they've been getting a 'raw deal', on a per capita basis over the life of the Australian federation WA has actually been a net recipient state. Certainly over the past 30 years or so this has been the case (see: https://www.cgc.gov.au/index.php?option=com_docman&view=down...), where WA has been a net recipient in ~53% of the years since 1981. I suppose they can pay the other States back, if they really feel that strongly about it...
As for stamp duty, in fairness to the States, removal was part of the original inter-governmental agreement but was removed after the GST tax base got smaller (thanks to the Democrats, who only passed th...
Yeah someone made a comment about this but unfortunately deleted it before I could respond. I regret putting that in there and wish I could retract it now; I guess I got a little carried away. My parents (an inter-racial couple) copped it a bit, but I guess that was decades ago and things have probably moved on.
Naw mate, you're not wrong. Look there are heaps of examples of certain kinds of people in Australia being a bit backward? People bang on about wogs, poms, abos and decry political correctness ('gone mad I tell you'). Then you have your polis like Pauline bloody Hanson who appeal to that. There is definitely something there but is it really any worse than say the rural UK or just look at who is running the States now? Probably not. I'd be as worried about a widening class divide in Australia.
As long as there's handful of good people that I can find common value with I think really that's all that matters. There's bound to be ignorant and backward people from all walks of life from any part of the world.
Australia benefits enormously from migration from China (and nearby Asian countries) which happens via investment, the job market and the higher education system.
These immigrants are in general well-educated and wealthy.
This is unlike migration to Europe which happens thru the asylum system and for most parts sends the immigrants directly into the welfare system.
Yep, international money in the housing market is forgivable, but there is no way they should have allowed such massive investments in the new coal mines.
If I had $10M I'd move back to Sydney. It's a nicer city. I do data science / machine learning and for work there is no comparison, SF is where it is at. I had to leave SF because I wanted to be a contractor and none of the visa options would allow it. I have recently moved on to a cheap tax haven (Boquete Panama) where I work remotely and get paid the same. My margins are so good here that I only have to work 1-2 days a month. I'm quazi retired at 31 and could never go back to normal working. I get to be very picky about what I work on and spend a lot of my time studying things that I'm interested in. I highly recommend this lifestyle to others.
It's via friends I made in SF. If you want to do something similar I'd recommend doing a long stint in SF first. Get any job you can and then switch once you know some people. I try to keep anonomous in general so no portfolio.
The simplest reason is that Australia has a higher inflation target and is willing to average that target over the business cycle. Whereas the US has a lower inflation target and treats that target as an upper bound. So in the 2007 recession for example, the Fed was trying to figure out how to push against the zero lower bound, and then despite a period of very low inflation, has refused to allow any catch-up growth that might take the inflation rate temporarily over 2%.
"So what is it that has kept Australia's economy from shrinking? ...It's that Australia has been able to cut interest rates when it has needed to. Other countries haven't, you see, because their interest rates are already as low as they can go at zero or even slightly negative territory. ...[Australia] doesn't have a 2 percent inflation target. It has a 2 to 3 percent inflation target averaged over the business cycle. ...The result is that interest rates have been much higher in Australia than in almost any other rich country."
https://www.washingtonpost.com/news/wonk/wp/2016/09/15/how-a...
Surprised no one has noticed this: Australia' "boom" has less to do with mining and organic growth and more to do with its falling currency . When growth is converted back into US dollars, it shows contraction beginning in 2013 and again in 2009
I don't know much about Aussie politics but I found it interesting as someone who reads a lot about economics.
The 80s/90s were a very interesting time for capitalism as globalism was just beginning and the large role of the state in the economy was being solidified.
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[ 3.3 ms ] story [ 239 ms ] threadI think interest rates have been too low for too long. Yes, it has encouraged spending, but methinks too much spending as I have seen friends and family totally overextend themselves on huge loans for huge houses just because they could. Even interest rates move up even 1%, they will be pushed against the wall to try and service those loans, and that in itself may trigger massive sell offs and bring housing prices crashing down.
It's basically a tightrope walk across a windy gorge at the moment - everything is precariously balanced, but for how much longer??
Everyone who has money is beholden to the banks.
The Australian rate is substantially higher than the Federal Reserve's. The Fed has a broader remit and is apparently perfectly happy to run nearly free money for years on end. Compared to the US, Australian monetary policy is quite conservative.
I'm pretty sure Australia has a higher immigration rate than the U.S (a quick google supports this) and our net immigration rate is papering over some of the structural issues in our economy in turn helping us avoid a recession.
In particular, read the Notes section next to the US. Our immigration rate, if you counted it the same way, is about the same as Australia. But comparing US immigration to Australia immigration is apples to oranges. Australia has quite strict regulations on who it accepts as immigrants, and doesn't even accept a single refugee. Meanwhile the US has an illegal immigration population that dwarfs the legal one, we basically don't have a Southern border.
"Australia’s humanitarian refugee intake will be set at 18,750 people per year, making it the third largest humanitarian programme in the world."
https://www.businessinsider.com.au/australias-refugee-intake...
I assume you came to this misunderstanding because of our (legally and morally dubious) policy of not settling refugees that arrive by boat. I assure you we do accept refugees.
Other posters have dealt with your other factual misconceptions than I can, but a personal appeal from me to resist posting with a sense of authority on a topic you apparently are so unqualified to make statements about.
Lets not forget that all Australians except for Aboriginal people are technically immigrants.
By your standards even the Aborigines are immigrants, having arrived some 60000 years ago.
By your standards even the Aborigines are immigrants, having arrived some 60000 years ago.
The debate will never cease.
In the thousands of years Aboriginal people had here, it's a pity they didn't unite in greater numbers, and have the foresight to build a few permanent structures as symbols of a united people, both for their own reasons and in anticipation of invaders from across the seas.
Upon seeing obvious signs of a united people, impressions would have been different. But they didn't have a sense of ownership of the land. It never occurred to them that other humans may come and want what they had. They were unprepared.
It puzzles me why they couldn't envision such an invasion, when they would invade each others tribes routinely. They were not strangers to war and conflict including turf wars over hunting grounds. But they failed to unite as one people, probably due to the huge distances in Australia, but still... 40,000 years was plenty of time to get organised.
Perhaps it would be more accurate to say you didn't have a southern border. From 2005 net immigration from Mexico has been negative:
http://www.pewhispanic.org/2015/11/19/more-mexicans-leaving-...
in 2012, Australia had one of the highest net immigration rates, more than twice that of the US. https://en.wikipedia.org/wiki/List_of_countries_by_net_migra...
Here's an entire article on how Australia's high immigration may mask a recession: http://www.abc.net.au/news/2017-01-19/high-immigration-masks...
The Wikipedia table about net migration to each country isn't the whole truth, however. For instance, it shows a significant negative net migration for Greece (-12.34 per 1000 pop) although in reality there are lots of migrants all over in Greece.
The mechanism works e.g. so that a family runs a tourist hotel on an island; plenty of migrants arrive and there is a camp next to the hotel; tourists feel that the holiday environment at this hotel isn't nice and they no longer come; the family is without work and emigrates to Germany to work there. And also the people who supplied food, cleaning services etc to the hotel are out of work and emigrate.
The family is not racist, they help the needy migrants that arrive on their shores, but they lose their livelihood and have to become migrants themselves.
The situation may now be helped by souring EU-Turkey relations. There are not many tourists from Germany going to Turkey any more. Therefore the tourist industry in Greece could recover.
Based on the number of tourist areas that depend on/benefit from cheap labor -- there's not a lot of me that believes this is a real mechanism...
Australia selects its own immigrants through only one of its two immigration systems (its DIBP). Because they allow all New Zealand citizens (through a reciprocal arrangement) to live and work in Australia, they don't select immigrants who go in that other way. As the Chinese say "新西兰是澳大利亚的后门", i.e. "New Zealand is the back door into Australia".
Until then, it was easier to get NZ permanent residency than Australian, and many people, especially from China, took that "back door" to Australian citizenship. During the 1990's, I met many who spent the 3 years in NZ unemployed, learning conversational English. After becoming NZ citizens they'd go to Australia and get a job within months.
Aah yes, the recession we had to have. [1]
[1] https://en.wikipedia.org/wiki/Early_1990s_recession_in_Austr...
Keating being right, and Keating phrasing it as he did, are different things.
So the government delayed what would have been a natural increase in interest rates and slowed the unhealthy consumption of capital. Instead the delay resulted in a sharp decline in prices rather than a more gradual one. All for political 'timing' as the tough medicine would have been unpopular. Lovely.
Monetarist policy is supposed to ease the pain of recessions, not make it worse.
> To court the green vote, environment minister Graham Richardson had placed restrictions on mining (notably uranium mining[5]) and logging which had a detrimental effect on already rising unemployment. David Barnett wrote in 1997 that Labor fiscal policy at this time "self-defeating as "with one hand it was imposing a monetary squeeze, while on the other it was encouraging spending with wage increases and tax cuts".
A recurring trend here of politics trumping the economic livelihood of the people.
With newcomers, even if productivity per person decreases you still can have GDP growth.
Thing is, initially government published inaccurate data, showing no recession, but then, 3 years later they revised that data, showing we actually had recession.
If the economy keeps doing well, wouldn't salaries increase?
Couldn't the government invest more in less populated areas around the capital cities so that living in those areas becomes more feasible?
Why have a recession?
Most people haven't seen the benefits of economic growth, so they don't really care if we have a recession, it's mostly going to hit the wealthy investing in housing. A housing market crash will be the biggest redistribution of wealth the countries ever seen.
I'm suggesting that new business centres be created so that people can live in cheaper areas, and still be close to their jobs. This should reduce traffic since fewer people will need to commute.
But I am not a City Planner. I have no idea what is feasible or not. But there must be lots of industries that don't need to be in the CDB.
Is the problem lack of political will to fix this sort of error (capitalism beating socialism)? Or maybe that solutions are applied but are ineffective?
> Negative gearing.
> 1st house exempt from pension assessment. ie, 2 billion dollar house, but can collect pension. Have 100k(?) cash in bank? No pension.
> First home buyer grant. Originally intended to encourage more housing, instead is used to buy existing properties.
Proposed policies in parliament:
> Using super for houses. Yes, people could put their retirement savings in a house in a market that could collapse and lose a lot of money.
Even with the FHOG scheme, I'm fairly sure the government was advised at the time that it was a stupid idea, but they went ahead with it anyway. The reasons why this 'super for deposits' idea has recently been floated are:
a) Someone at Coalition HQ finally figured out how to read demographic statistics (god help us) and realised that Gen Y (18-34) are now the largest voting block in the country (for our American friends: Australia has compulsory voting). Incidentally, I think this is the reason behind the 'surprisingly' close election last time around (Bowen's negative gearing policies addressed some of Gen Y's concerns around home ownership).
b) They also figured out that housing affordability is a serious issue for Gen Y. You might have noticed how everyone is all of a sudden so very concerned about housing affordability.
c) Both sides of politics are terrified of the bubble popping on their watch. They're acutely aware that voters confuse correlation and causation when it comes to economic policy (see: Howard & Costello's budget surpluses) and don't want to be forever branded as 'those guys that ruined the Australian economy'. So they'll do anything to kick the can down the road.
So (a) + (b) means they want to be seen to be doing something to improve housing affordability. However, this presents a problem: something becomes more affordable when that something becomes cheaper (i.e. prices go down). Unfortunately, doing anything that lowers house prices pisses off the second largest voting demographic in the country: the baby-boomers (53-71).
Combine (c) with the above and the solution becomes obvious: a policy that makes Gen Y feel as though they're in a better position to buy a house, that also pushes prices up (due to increased demand in a market with fixed short-run supply). This has the nice bonus effect of kicking the can just that little bit further down the road. And really, who cares about the distant future?
Although, I'd bet they aren't factoring in how ratings agencies might perceive such a policy. Australia is already on 'credit watch'. This kind of policy could very well be the final straw, resulting in a credit rating downgrade for the Commonwealth. And because the Commonwealth underwrites almost all retail bank deposits (explicitly), a Commonwealth downgrade is almost equivalent to the banks being downgraded.
Were this to happen, overseas lenders would increase their rates on wholesale funding that they lend to our banks (roughly 50% of the banks' cash). In turn, our banks will be forced to raise variable rates on retail housing loans, ironically triggering the bubble pop that the government was trying to avoid in the first place.
In short, it's just awful policy whichever way you look at it. However, I wouldn't want to bet against it happening anyway; this government seems to have an awfully large supply of stupid.
At least they restricted the first homebuyer grant to new properties, so there's that.
It's the boomers a recession will hurt. People on minimum wage actually do shit for a living.
Sure in some niche jobs (mining sector etc.) there are positions paying massive money ($100K+) to young kids just out of school or an apprenticeship, but overall, in the government sector and small business, the disparity is widening at an alarming rate.
I honestly have no idea how young couples starting out today even are able to afford a small two bedroom unit without BOTH of them being in high paying jobs. I think we will surely see population growth slowing as there is pretty much no way young couples can have a baby and have one parent off work for up to a year to care for the baby, AND own/rent a house/apartment.
Our city is seeing a massive exodus of people, heading south for cheaper pastures - so much so that they (our state government) are holding crisis community meetings to try and ascertain how they can get people to stay. We are talking people who have been here for generations too, not just your average 'fly in fly out' workers.
Some out of the ordinary life circumstances arose, and I ended up moving to Launceston in Tasmania. I was able to buy a house in an area I wanted to live in here for $215,000. I can't fathom taking on twice that on, even on dual incomes, that sort of loan would make me feel ill.
My job is in metal fabrication, the past 12 months have been much slower than the previous 10 years, things have slowed down a great deal.
(Yes, it's completely insane, and even more insane is that nobody else seems to find it insane...)
$215,000 wouldn't even buy you a 1 bedroom squat here. I could probably sell my place and buy a BIG place in Launceston, but like I said, if it ever came that we had to move back here to care for elders, it won't be possible at all.
But I guess that's the case everywhere in Australia. The places where a young person wants to live (young / without children) is not somewhere which they can afford.
It's entering a bust now because Inpex is wrapping up. I expect unit prices will fall sharply, now that there's a glut.
I was there a few weeks ago for the first time in several years and was basically amazed by how many new apartment buildings had been stamped out.
We visit the local markets frequently, and almost all the stall holders (some who have been at the markets for 2 or more decades) are struggling. All the local hotels and services apartments are occupied by fly in fly out workers, taking rooms that tourists normally buy in the dry season, and they don't visit markets or spend coin locally. Inpex was touted as a boon for the Northern Territory, but it has been a total bust for us. I really love Darwin, but I fear it will be a ghost town in a few years.
Did you walk down the mall in the CBD when you were here? Notice how many empty shops and 'For Lease' signs were up all over the place?
We used to have a solid public service contingent in this town, which sort of kept things going through the lean times, but even that is under threat. Our newly elected Territory government is looking to axe 100+ jobs over this year via natural attrition. We've already sold off most of our high value assets (the port and our TIO insurance company etc.), and the Federal government have just announced they are slashing $2billion from our GST revenue share over the next few years. There is not much left in the kitty.
The banking system is not using excess capital to create or generate business. Instead it is being poured into land speculation. Dumb money.
If the value of my property plummeted too far and I was stuck with a massive mortgage, the first thing I would do is stop any discretionary spending until I could figure out what the future looked like.
Imagine that happened to a lot of the middle class.
I agree that prices are too high, but I can't see anything good coming from a crash.
Depends on your perspective. For many (possibly most) people, lower house prices are good.
Among households headed by Australians aged under 35 an extraordinary 63.4 per cent rent.[http://www.smh.com.au/federal-politics/political-opinion/no-...]
The above is basically a stylised description of what has actually been happening in Australia over the past two decades: real estate loans have been crowding out business loans: http://i.imgur.com/g7a9QDL.png . The upper bound for sophisticated public discussion on economic policy is, IMHO, when pollies yammer on about 'productivity' (a depressingly low 'upper bound', and not without its own issues). If we are truly serious about lifting multi-factor productivity, then we should not be distorting capital investment decisions with crazy-expensive tax breaks for property investors.
It would be great if we could correct this problem, without serious macroeconomic upheaval, by gradually phasing in tax reforms. But that opportunity passed us by about a decade ago. The reforms still have to occur, mind you. It's just that now we pretty much have to eat a massive property bust (and possible crisis in the financial sector) first.
As for the reforms, my top 3 would be:
- Change capital gains back to indexation by inflation (rather than a flat 50% discount after 1 year of ownership).
- Get the States to slowly repeal stamp duty on property and insurance, and slowly introduce a tax on the unimproved value of land (say, over a 5 year timeframe).
- Simplify and repeal a whole bunch of zoning and land planning laws and regulations, at both the State and local council level.
Would like to know if that was from their own reading of the numbers or just repeating one of the story's local sources.
To me it seems like a giant house of cards, waiting for the just little breeze to bring it toppling down. And I am not speaking from a point of chagrin here - I own my own home and am glad that it is valued at what it is now, but I also know that it is crazy, and really, should housing prices be going up at something like $100,000 per year?? Because that is what is happening here...
It's especially good to say "housing bubble" because it sounds smart as a market analysis from someone who has a lot of data, and it can only be proven wrong years later (when the comment is long gone) when the bubble is not burst, proving the new housing prices just reflect your neighbors' average wealth. "but the bubble is around the corner", they'll still say. Every city in the world.
Housing prices grow according to people's wealth; there are also more and more people in every city, that increases the pressure on prices and it's rarely a bubble.
Lots of global cities do have bubbles from foreign investment parking wealth in property, driving up prices and squeezing out locals looking to buy. Here's how it works:
Foreign investors buy luxury properties
Top-tier locals can't buy luxury properties, buy the next highest property class
Second-tier etc.
Lower-rung locals have no properties to buy. Not: they don't have enough money; but the property type they would traditionally occupy isn't available, and no alternatives have been built since it's always in a developer's best interest to aim at the top, in the abscesses of government incentives.
What you describe doesn't sound like a bubble to me: It's not something that blows then bursts. That's just that foreigners are richer than locals.
What might be happening (I think, seen no evidence yet) is that asset managers in banking have moved "safe" money from treasury debt to real estate, because return from treasury debt has moved to close to 0 since 2008. The result is billions of dollars have moved into real estate across the world, fueling what seems to be an increasingly global real estate crisis.
Usually this happens when interest rates go up, because then it's better to keep your wealth in a more liquid investment like cash. Mortgage payments go up as well, turning the (imaginary) loss of equity into concrete loss of income.
Nice typo. (And nice image.)
Seems to be objective evidence that house prices in Canada, UK and Australia are overvalued, while house prices in US, Germany and Netherlands are not.
Oh no wait, "Australia is different". Lol.
[1] https://static1.squarespace.com/static/524e8cb8e4b0bd80688f4...
[2] https://www.macrobusiness.com.au/wp-content/uploads/2017/03/...
[3] http://www.whocrashedtheeconomy.com/graphs/housepricetoincom...
[4] http://www.whocrashedtheeconomy.com/graphs/DwellingsUnderCon...
[5] https://edge.alluremedia.com.au/uploads/businessinsider/2017...
[6] https://2.bp.blogspot.com/-R8UWx7QRj-c/WNoXKoRaeMI/AAAAAAAAi...
If I want to build a decent nest-egg it's likely going to require spending a considerable amount of time overseas. That said, healthcare and affordable education is pretty cool.
But I don't own a house because I don't see value in them at current prices.
What's got me curious is the amount of foreign investment in Australian property. Are they so keen because our market looks like value to them, or just because some spruiker showed them a graph of house prices over the last 20 years.
No mention of the ^Elephant in the room^ with respect to real-state and housing: transparency in financing property. [0]
Reference
[0] "Corruption and Property Laundering" https://www.prosper.org.au/2017/03/30/corruption-and-propert...
https://www.macrobusiness.com.au/2017/03/report-australia-wo...
[0] For our American friends, Pauline Hanson is a famous racist politician in Australia. She has recently made a political comeback.
If they don't stop listening to the Sarah-Hanson Youngs in their party, and start listening to the more rational Scott Ludlams, then this issue will lead to their 'democrats' moment very soon.
EDIT: I also can't understand why either Labor or the Greens don't take the very obvious political opportunity right in front of them. They should essentially pull a reverse John Howard by increasing our refugee intake, move processing on-shore (or even start a community release program), and drastically cut 'regular' immigration intake levels while they work with State governments to stabilise infrastructure, energy and education.
Seems like a no-brainer to me. Good policy and good politics combined is a rare thing.
I think Labor are just as beholden to the wealthy though. And can you imagine the Murdoch rags if it did cause a recession?
The big question now is "does anyone, particularly those under 40, care if there's a recession?". I think a growing number of people are hoping for one.
Only 28% of Australians want more refugees:
http://www.sbs.com.au/news/article/2016/05/17/most-australia...
A clear majority of Australians 69% (up 11%) support immigration (of 210,000 in 2013/14) remaining the same 37% (down 10%) or increasing 32% (up 21%) while 26% (down 14%) want immigration levels reduced and 5% (up 3%) can’t say.
http://www.roymorgan.com/findings/6507-australian-immigratio...
Given that the intersection of the groups who want more refugees and lower immigration is likely to be small it's clear that what Australian politicians are doing is pretty close to what Australians, when polled, would like.
1. 66% support asylum seeker immigration vs 25% oppose
2. 40% support immigration levels holding steady (up 3%), 21% support increasing immigration (down 11%), and 34% want immigration levels reduced (up 8%).
3. Confusingly, by 2046, 36% want a population under 30 million, 25% want 30-35m, and 23% want 35m or more.
These numbers suggest to me that the respondents don't quite understand that if we maintain current immigration levels, we will very likely hit or exceed 35m population by 2046 (something which only 23% of respondents want).
The ABS models 3 possible population scenarios (which use differing assumptions about fertility, life expectancy etc.). In the 'High' scenario, by 2046 our population will be 39.7m. In the 'Med' scenario, it will be 36m. In the 'Low' scenario, 33m.
Source with assumptions and permutations: http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+fe...
RM Poll: http://www.roymorgan.com.au/findings/7017-australian-views-o...
I despise the man but it was a political master stroke.
1. It's true that immigration has increased property prices, but other factors have played a much bigger role. In particular the drop in interest rates since the early 1990s greatly boosted asset prices. To exclude the effect of interest rates it's better to look at rental prices - there we find the cost of housing to be much closer to the inflation rate [1]
2. I have lived in Sydney's Inner West my whole life but am still renting because house prices are simply too high. But that's fine - I have instead invested in US stocks which have achieved a pretty decent return in the last 10 years. If the Sydney property bubble bursts then I will sell some of those shares and buy a house here. But if not, I'll just keep renting - no big deal.
3. Skilled immigration is a fantastic deal. Normally to produce say, a new doctor, society would have to pay for maternity leave, childcare allowance, 6 years of primary education, 6 years of secondary education, 5 years of tertiary education and medical training and 22 years of healthcare costs. But with skilled migration someone else has already paid for all that - we get it for free. We get an educated, skilled, healthy, young doctor with no criminal history who will work and pay taxes for the next 40 years. It's a bargain.
4. I don't feel I'm 'copping' much from greater population density. Yes, there is now more traffic on the roads, but the busses run more frequently. When I was a kid the train to the city would run every half hour - now it's every 15 minutes. The local park has a better playground and a new BBQ area, the local pool has been refurbished - all because there are now more residents paying council rates.
5. To reduce property prices it's much better to increase the supply of homes rather than cut demand. We should be reducing restrictions on extending existing dwellings and building new, tall apartment blocks.
[1] House price and rent index graph on http://imgur.com/4VUGfPz
- Stop developers from 'land banking'. They would either have to put the land to use (e.g. build an apartment building, thus increasing supply) or sell the land to someone who will.
- Reduce 'speculative vacancies' (properties that are purchased and then left vacant). Prosper Australia (a Georgist non-profit) estimated vacancies in Melbourne (in 2014) by examining water use data. They found that 1.45% of non-advertised residential stock was demonstrably vacant (0L water use per day). This would mean the actual vacancy rate was 8.3%. They also found that 4.8% were likely vacant (residences with below 50Lpd usage, when the average usage is 160Lpd). Which would equate to a vacancy rate of 18.9%! [1]
- Obviously, an LVT would make vacant possession much more costly, and financially infeasible in some cases (although my assumption is that a decent proportion of these are financed by hot money flows out of China).
And the removal of stamp duty would effectively result in additional supply on the market, as it would remove the disincentive for people to efficiently reallocate to appropriately sized homes.
And fair enough re: immigration. You make perfectly valid points, and if your own experience of it is positive then that's obviously a good thing. Just as an aside: usually people cite "the need to support our ageing population" as their reason for preferring high immigration, even though the Productivity Commission has stated in three separate reports that this view has no real merit (simply put, because immigrants also age).
However, I would still contend that, in aggregate, our current net inwards migration numbers aren't sustainable (and haven't been for a while).[2][3][4] For me, it's nothing against immigrants, and certainly nothing to do with race, religion or creed. It's simply a numbers issue. Not just in terms of housing demand, but also in terms of increasingly constrained infrastructure and education services. I think we need a bit of breathing space so we can catch up (or more competent politicians).
Regardless, on the demand side, I think the bigger issue is our messed up tax system and the (mal)incentives it creates to invest in housing (or, as they say, 'equity maaate').
And I think your financial strategy is extremely sensible (perhaps, dare I say, optimal). It's the exact same strategy that's used by most 'housing bears' that I know. It's what I should be doing too, but I'm sorta lazy :)
EDIT: Oh, and the decoupling of rent and prices is one of the reasons I think there's a bubble in property. People make investments to earn a return. The fact that super low rental yields haven't deterred property investment suggests that people are investing to chase capital gains, under the conventional wisdom that 'house prices never go down'. This is the textbook definition of speculative investment.
[1] https://www.prosper.org.au/wp-content/uploads/2015/12/11Fina...
[2] http://www.macrobusiness.com.au/wp-content/uploads/2017/02/S...
[3] https://www.macrobusiness.com.au/wp-content/uploads/2017...
Also, it was somewhat of a 'false spike' due to mining companies using FIFO (fly in fly out) workers from Asia etc. Those workers would come here, work hard, collect their pay packets and the leave to go back to their home countries and spend there rather than locally.
Our tourism market, which WAS a huge part of our GDP and employment, has suffered. In my town, the FIFO workers book out entire streets of hotels for their work schedules, meaning tourists have no chance getting a room year round. Local shops and markets are shuttering at a fast clip because no tourists are around the spend money with them.
Recent events with the cyclones in Queensland, and the general bleaching of our Great Barrier reef also will have a huge impact on our tourism market, with a reported 100,000 jobs likely to disappear over the coming years across the Eastern seaboard.
- Since the early 2000s, there has been an unprecedented spike in the price of natural resources like iron ore (http://www.macrobusiness.com.au/wp-content/uploads/2015/11/C...). Australia is a resource rich country and so has enjoyed a significant, but temporary, increase in national income as a result.
- The above has had a number of unfortunate (but avoidable) long-term effects on the Australian economy: high demand for Australian natural resources meant high demand for Australian dollars, so the dollar appreciated. This hollowed out the economy as most non-mining export facing businesses were ruined by this. Australia's car manufacturing industry is dead, for instance. This could have been managed by taxing rents from natural resources and placing that money in a sovereign wealth fund (i.e. a fund that invests in assets denominated in non-Aus currencies). But we didn't do this because we're idiots.
- The government that presided over the majority of this 'mining boom' (i.e. John Howard and co) acted as if those historically unprecedented prices were the 'new normal'. Accordingly, they passed a number of budget measures that placed the Commonwealth budget into permanent structural deficit. The IMF conducted a cross-country study of fiscal spending for the last 200 years in 2013. In Australia's case it found that there have been 3 periods of 'fiscal profligacy': 1 during Whitlam (in the 70s) and 2 during Howard.[0][1] However many Australians continue to buy in to the myth that John Howard was a 'great economic manager'.
- Howard's government also changed how residential real estate is taxed for property investors. Specifically, he made it more concessional for the rich, and created stronger incentives to 'flip' houses after 1 year to maximise the tax benefit.[2]
- So Australians took all this new income, and sweet tax breaks, and poured it all into speculative investment in residential real-estate. [3][4][5] Out housing markets (especially in Sydney, Melbourne and Brisbane) are investment bubbles just waiting for some external shock to pop them. The mining boom is also winding down, so less national income to keep the ponzi going. In terms of private debt, we are now one of the most indebted nations in the world.
- We've also kept the housing / nominal GDP ponzi by having insanely high immigration levels, unprecedented by historical standards. Of course, this had to be sold carefully because Australia is a fairly racist country. So, our previous Prime Minister John Howard made a big show of brutalising refugees, while at the same time quietly opening the immigration floodgates [6][7][8].
- With the mining boom ending and the continuation of high immigration, our major cities are reaching crush capacity. Infrastructure and education spending have not come even close to keeping up. This has kept house prices levitating for the moment, but this can't last forever. It has also reduced quality of life and employee wages and share of production surplus [9][10]
So that's how Australia has managed to avoid a nominal recession for the past 25 years: by running the world's most successful ponzi scheme. But as windfall natural resource income dries up, international lenders stop lending to our banks, and high immigration becomes a mass exodus, our enormous property market bubble will explode leaving us with only a bunch of long dead industries (like manufacturing) and piles of debt. Basically a replay of the 1890s recession in Australia, which was one of the main drivers of federation.
So I guess we'll be invading New Zealand soon.
[0] htt...
(Full disclosure: I left 20 years ago)
But when you look at stuff like this (http://i.imgur.com/g7a9QDL.png), it makes you realise that there's no chance of generating a start-up culture in Australia (except maybe in the financial sector, especially if the business has something to do with property loans).
I've lived in London for 10 years, and my partner is Australian. We've considered moving to Australia recently, so the above is from my research.
There are only 23 million odd Australians, but there is well north of $2 trillion AUD in our superannuation accounts.
Assuming they applied 0.5% of that towards VC, you'd be looking at $10bn AUD of available capital. At least one order of magnitude more than is currently present.
Also, last I checked, stock-based comp in Australia is tax-disadvantageous. I can't recall if it was FBT or something else.
If simple well understood businesses (dig up rocks or buy land and build) can return > 10% YoY, why would any intelligent investor poor money into an asset class that has underperformed that in the same period?
Exploration, drilling, construction, exploitation. The early stages cost millions and often lead to failure, with the occasional profitable case and rare super-profitable discoveries. Scaling up costs major capital, after which, prices allowing, a mine can be a cash cow.
I remember when I worked at a startup the choice when I got stock options was - pay the tax up front based on the current strike price value - or pay a higher tax when you exercise them and make a profit. If you take the first choice then you'll need to do a lot of paper work to get that money back should the company fail.
Things have been rapidly changing too with the young generation. Smart people are skipping the investment banks for startups because they see the opportunity.
Combine that with the fact that a large finance sector is good for over all GDP but pretty much terrible for median GDP per capita (since all the wealth goes to relatively few well off people) and we have a nasty time bomb.
If you factor in the real levels of inflation against salary rises in the last 15 years they are flat for most and down for some.
I find it absurd that anyone is still arguing this is a problem, we've just watched the largest wealth transfer in history from the have-nots to the haves but somehow it's those poor immigrants who are carrying the can for it.
One of my former bosses (a British expat who had moved to Eastern Europe) told me basically the same thing in late 2008 in regards to the then fully developing financial crisis: "This is one of the biggest rip-offs that I've ever witnessed". I remember thinking back then "if no world war starts in the next 10 or so years then I guess we'll be good". There has been no world war, just yet, but we've now got Trump, Brexit and almost all of Western Europe being 10-15% away from electing lunatic leaders.
It's that no one seems to care, the press isn't covering it (why would they when they are mostly owned by high net worth individuals cough Murdoch cough or funded through them).
It's an absolute scandal and we all just collectively went oh well, "please sir, can I have some more?".
https://www.youtube.com/watch?v=GtWA3jQN1Pg
I note that you didn't mention his Treasurer, Peter Costello. The pair of them basically invented the Australian political norm, now dead, that government debt was bad and ought to be paid down as quickly as possible.
No to mention setting aside what is now one of the larger sovereign funds to cover future Commonwealth pension liabilities.
While middle-class welfare has done irreparable structural damage, painting them in a single shade of black or white isn't fair.
Some of the rot or failure to act started under PM Hawke / Treasurer Keating, PM Keating / Treasurer Dawkins, PM Keating / Treasurer Willis and continued under PM Revolving Door / Treasurer Roundabout.
Overall the Hawke-Keating-Howard-Costello years transformed Australia from an economic backwater into a much wealthier and more successful country.
Could there have been better choices? Of course.
Could there have been worse? Oh yes. Australia can't sustain US-style fiscal policy, no matter how politically attractive.
I would whole-heartedly agree that the Governments (both left leaning Labor and right leaning Liberals) have misspent the mining boom windfalls. (Actually mining is only about 16-18% of the Australian economy last I read.) Instead of improving communications infrastructure, or developing new businesses in sectors outside of mining, they are building railways and ports for new mines.
I used to live in Sydney (I've since left Australia altogether) and it made me realise that I would rather rent a place somewhere nice to live, than own a place somewhere where I could afford to do so. I do feel like Australia is a nice place to live, and to raise a family, but I don't know if I would do it in the bigger east coast cities or somewhere where the balance is better.
How much of that from exports? Which pumps more money into the economy where it has a lot of follow-up effects. Given that a rise or fall in GDP of a low single-digit percentage point can already mean a big boom or bust the above number is huge.
Out of that percentage, I don't think it would include all of the other mining related industries in that figure, or the effects on rutal mining towns. But just as there are positive flow on effects, once that flow stops then towns and communities die and people have to move elsewhere for work. This was already the case for towns dealing with mine and plant closures from earlier booms, it usually takes decades.
There is also a lot of temporary fly-in-fly-out labour in mining. Where the workers don't settle down in towns near the mines, but back in Perth and other bigger towns and cities. As such Perth has experienced a property bubble of sorts relating to mining, even though its not as popular a place to live as the east coast.
I can't remember exactly but the Banking sector in Australia may be the bigger than mining.
Uhmm.... I just pointed out that the use of the word "only" is not justified... :-)
> I can't remember exactly but the Banking sector in Australia may be the bigger than mining.
What do you mean by "larger"? Employ more people, pay more wages? Just "having" money (and large numbers in their balance sheets) is kind of a given for that sector.
Besides, the point never was finding the "biggest". Somebody can be a tall person even if they are not the "tallest". So large changes to that sector will have large effects to the overall economy, many of them indirect.
There's no law of physics that says wealth must be destroyed every few years.
I don't think the problem is that there's too much investment sloshing around, but rather it's that investment incentives in Australia are horribly distorted by the tax system (and in two cases, IMHO, by the lack of a certain tax [0] / price on a negative externality [1]). So the money gets funnelled into unproductive investment (or socially/globally harmful activity).
I get even more concerned when people float ideas like mandating that x% of super must be invested in infrastructure projects, or allowing super to be withdrawn early to pay for a house deposit (shudder). The tax treatment of super itself is also completely messed up: it's regressive and completely at odds with its own policy aim (i.e. to reduce future age pension outlays). You can thank Kevin Rudd for squibbing an opportunity to address this, because he wanted a nice headline instead.
The government really has to level with the population and let them in on the big secret about super: it's not "extra money" that you get in addition to your wage, it's an additional income tax where the revenues are locked away in managed investment funds (making it harder for politicians to get their grubby little hands on the revenue).
[0] Land-value tax, which corrects an inherent investment distortion (i.e. privatisation of land-rents).
[1] Carbon pricing.
This is just like the first home owners grant, which only made barely-affordable houses that much more expensive and didn't actually make houses more affordable for young people.
Because the highly profitable mining industry campaigned against it AND we're idiots.
Theory: Immigration is a main "export". It's a very nice place to live: democracy, rule of law, media and the geographical reasons etc. Immigration helps supports demand for housing and the bubble.
We're basically a hole in the ground - but a very nice one.
Sadly it only came into effect after the boom and raised very little money before the mining industry ad campaign shut it down.
- Manufacturing in general in the developed world is in serious trouble. I'm not sure anything could really reverse that;
- I agree about having a sovereign wealth fund. Norway has this. It's such a lost opportunity by pretty much everyone else that allows the looting of natural resources by a wealthy few.
- As for fiscal responsibility, I think your view of the Howard era is somewhat slanted. The spike in resources prices didn't really begin until the mid 2000s [1], the latter days of the Howard government. I tend to largely ignore the Sydney Morning Herald when it comes to criticism of conservatives. It comes off as anything but impartial.
There were definitely attempts at buying votes in the last Howard term but most of the rest was tax reform, paying down debt [2], using asset sales to fund superannuation obligations (ie the Future Fund).
- There was definitely a problem with how the slices of the GST pie were calculated. Western Australia and to a lesser extend Queensland really got the shaft on this one. As resource prices receded, WA is now down to retaining something like 34 cents of every GST dollar collected.
- There was a somewhat complicated system for CGT inflation indexation. This was "reformed" to being a straight gain that was discounted by 50% if held for over a year. Son in the medium term, the effective rate is lower but I'm not sure this leads to the result you claim.
For one thing, flipping properties isn't really a thing in Australia largely due to stamp duty levied by the states (something the GST was meant to replace I might add, which the states largely reneged on).
At the height of the property boom (mid 2000s) it was probably the case that prices were rising so fast that even paying stamp duty it was possible to make a lot of money by holding property only for 1-3 years but this is exceptional. More to the point, I don't think the CGT changes were the cause.
Property prices in the Australia largely stagnated since the recession we had to have (1991). In Perth, for example, it was possible in 2000 to buy a 1970s 3 bedroom house 8 miles from the CBD for <$100k and this hadn't changed in years.
So partly this changed because the market was (still) oversold.
Another factor: the mining boom. Capital projects soaked up a huge amount of supply. The cost of construction in Australia massively increased as a result. This inflation was (IMHO) largely responsible for the 2000s price boom. 20 years ago it was possible to build a house for $100k in 3 months. Now? It's more like $350k and it takes a year.
- As for recent price booms in places like Sydney and Melbourne, this is part of a global trend where foreign money is driving up prices in urban centers in the developed world. I'm not sure immigration has much to do with anything here.
[1] http://www.indexmundi.com/commodities/?commodity=iron-ore&mo...
[2] http://www.tradingeconomics.com/australia/government-debt-to...
So now that the capital projects are done and we're transitioning to the 'volume production phase', the effect on employment, wages and costs of construction inputs are receding. And it sounds like we're in agreement on the national interest re: finite resource extraction. Thank goodness we had the foresight to tax some of the rents derived from the extraction of our finite natural resources... no wait...
As for hollowing out of manufacturing, it's definitely a debatable point and I think reasonable people can arrive at different views on this one. Honestly, it's a difficult proposition to prove in either direction. I guess I'm saying I don't have very strong views here, other than we didn't exactly take many (or really any) prudent actions here.
As an interesting aside, multi-factor productivity should naturally rise (particularly now that world commodity prices have come back down a bit, so its no longer profitable to extract marginal deposits). I'm sure whoever happens to be in government at the time will figure out a way to claim the credit.
I can't fault you for ignoring SMH when searching for truthful information. Frankly, anything that comes out of Fairfax (even the AFR) these days is highly suspect. Around 80% of Fairfax's revenues come from Domain property advertising, making SMH the most widely read real-estate agent newsletter in the country. But the IMF study is solid, and I can't see any reason why they'd have a bias one way or the other (especially since Australia was just 1 of about 200 countries studied). If you have a critique of that study, I'd be interested to hear it. Otherwise I stand by my assertion about the structural deficit.
GST distribution is a bit of a vexed issue (some of which is too complicated to go into here, but is comprehensively discussed here: http://gstdistributionreview.gov.au ). The EU is an example of a monetary union without a system of horizontal fiscal equalisation. Hasn't worked out that great for some of their members who have had a 'slower' economy than the average EU member, but nonetheless faced a non-stimulatory central bank cash rate (e.g. Greece). On the other hand, it seems to have worked out pretty good for members like Germany.
WA also seems to have a curiously short memory on this issue. Commonwealth to State fiscal transfers have been going on since federation (as opposed to since the introduction of the GST). I'm pretty sure that, even though recently they've been getting a 'raw deal', on a per capita basis over the life of the Australian federation WA has actually been a net recipient state. Certainly over the past 30 years or so this has been the case (see: https://www.cgc.gov.au/index.php?option=com_docman&view=down...), where WA has been a net recipient in ~53% of the years since 1981. I suppose they can pay the other States back, if they really feel that strongly about it...
As for stamp duty, in fairness to the States, removal was part of the original inter-governmental agreement but was removed after the GST tax base got smaller (thanks to the Democrats, who only passed th...
I've heard anecdotes from Asian Australians but not really sure how true it is.
but anyways, it made me grateful for being in Canada.
High immigration levels: Check
Housing Bubble: Check
Commodity boom / Bust: Check
These immigrants are in general well-educated and wealthy.
This is unlike migration to Europe which happens thru the asylum system and for most parts sends the immigrants directly into the welfare system.
"So what is it that has kept Australia's economy from shrinking? ...It's that Australia has been able to cut interest rates when it has needed to. Other countries haven't, you see, because their interest rates are already as low as they can go at zero or even slightly negative territory. ...[Australia] doesn't have a 2 percent inflation target. It has a 2 to 3 percent inflation target averaged over the business cycle. ...The result is that interest rates have been much higher in Australia than in almost any other rich country." https://www.washingtonpost.com/news/wonk/wp/2016/09/15/how-a...
http://www.tradingeconomics.com/australia/gdp
It's the same true for Poland and a few other countries.
I don't know much about Aussie politics but I found it interesting as someone who reads a lot about economics.
The 80s/90s were a very interesting time for capitalism as globalism was just beginning and the large role of the state in the economy was being solidified.