Perhaps our Christian Prime Minister has been reading Luke 8:18. I suppose we’re lucky that those who have little won’t find even the little they have taken away from them, but Andrew Leigh and Peter Martin are surely justified in asking why a fairly dodgy election promise to start with is being implemented in such a way as to disproportionately reward those who are already well off.
The redesigned scheme, due to come into effect on July 1, works like this: Every dollar that first home savers put into an account - up to a maximum of $5,000 - will be matched by a government contribution of 15 cents.
Except for Australians earning more than $80,000 per annum. They will get a government co-contribution of 25 cents for every dollar they invest. Really. …
Unless they earn more than $180,000 per annum in which case they will be blessed with a government contribution of 30 cents per dollar they invest.
That’s right.
Wayne Swan’s made much of creating incentives to save. I can’t for the life of me see why high income earners need public incentives. I thought we’d had enough middle class welfare under Howard. Now it seems we’re to get upper class welfare under Rudd.
Peter Martin cites some examples of some other awful policy which similarly rewards those already advantaged, and concludes thus:
We will learn a lot about Wayne Swan and the Rudd Labor government on Budget night by examining exactly who they are generous to.
It’ll be instructive.
Indeed.
I can’t quite get my mind round why this is happening. On one interpretation, it’s possible that Rudd is trying to build the strongest possible coalition to wipe out the Coalition for a long time - somewhat after the manner of Tony Blair’s first term goal of consolidating his landslide majority to marginalise the Tories into the far right corner. But this sort of thing, and the continued lavishing of public benefits on well heeled people through all sorts of non means-tested allowances and tax benefits, surely has the potential to rebound politically - how will the “working families” feel? It might be all very well to denounce the “politics of envy”, but then it was never about that in my view - it was about a correct perception that the distributional and welfare aspects of public spending were skewed. The other reason might just be the inane rigidity with which every jot and tittle of election policy is being “delivered”. But while I can recognise that rebuilding faith with the electorate is a good thing, I can’t for the life of me see why taking a few risks to actually do the right thing while sitting on a mass of political capital is worthwhile.
One commentator, I forget who, suggested Rudd was still behaving like an opposition leader. Maybe there’s something to that. Maybe he does think he has to minimise the space for any possible Liberal comeback. But in the process of so doing, he risks perpetuating the cycle of middle class welfare expectations that John Howard created. I’d really hoped for something better than that.
Cross-posted at PollieGraph.
Hasn’t this occurred because the scheme was modelled around superannuation which has a similar problem? The more you earn, the larger the tax break - a strange inequity that was also introduced by a Labor government.
I’m not sure, but surely it’s not beyond their ability to redress it or model it differently!
In any case, the technical reason leaves the question of the political reasoning (if any) unanswered.
Kim - well I’d guess they chose to copy the superannuation model because people already understand that and it also brings the appearance of encouraging responsible saving. Though I think the scheme itself will do little but increase house prices further.
As for superannuation, I don’t think that the compulsory part of the superannuation should attract any tax discount at all - its not like people have any choice over that component. Its really just more middle class welfare, and worse the rich do even better out of it. But I don’t expect to see any changes here - would be too unpopular.
Why though? People copped real wage cuts in the 80s under Labor. Surely they’re in a good position to sell it with a narrative about focusing welfare to those who need it and common sacrifices in steering us through rocky international economic waters? Even if the last bit is bullshit, they’d get away with it, I reckon.
If Rudd’s smart, and I assume he is - you don’t get to lead a G20 country by accident - I reckon he’ll tell you whatever you want to hear while working through two key issues.
A) The biggest fear of any Labor Governments these days is being tarnished as financially irresponsible (Except for NSW Labor who’s biggest fear is confronting themselves. Kinda like The Portrait of Dorian Gray in reverse.); and
B) Then on the other hand, the global economy, into which we’re all tied now, is throwing a bit of a whoopsie that will be beyond the control of any single government. And it will keep throwing more woopsies because that’s just the nature of a large, chaotic and ever evolving system. Stability is history.
At least the previous Federal Government seriously underinvested for growth so there’s a lot of spare bucks under the sofa for emergencies while, in Victoria, Kennett laid out and then Brumby has refined out a way forward for running state economies as hard-nosed major corporations with every voter a stakeholder.
It’s no accident that Melbourne is where it’s now - as Australia’s fastest growing major city and the nation’s science, technology, innovation, arts, shopping and drinking and major events capital. Cain planted the seed, Kennett hydroponically accelerated it while ruthlessly pruning away, Bracks deftly changed gear but kept it revving and now Brumby’s shoved the throttle wide open. If anyone’s gonna finally cover over the Joliment railyards, it’ll be JB in full Mitterand mode.
And these guys, and their various mobs and crews, regardless of political affiliation, plot and plan together like no other state or major city in Australia. Regardless of they say about each other in public, I’ve see Cain, Kennett, Stockdale, Bracks and Brumby all huddled together, like a bunch of overgrown private schoolboys, planning an atomic wedgie for SA, a panty raid on QLDS and mooning NSW on the way through.
My overall point. Victoria, and now hopefully Rudd, with a Cabinet and advisor teams riddled with Queenslanders and Victorians, is pioneering a more effective and yet rather less ruthless version of Blair’s technocratic UK. In London, The City now accounts for 20% of the UK’s GDP. An astounding and globally unprecedented figure if you really think about it hard enough. And unlike North Sea oil, the services that make The City work are infinitely renewable.
It’s not about Left and Right anymore. It’s about how we can, city by city, state by state, region by region, country by country, trading bloc by trading bloc can prosper in a globalised world undergoing a massive and increasingly fevered sea change.
And what the smarter OECD pollies of all stripes realise now is that quality of life (eg: good community services, decent infrastructure, funky and tolerant city cores and minimal pollution) will be major assets in attracting the IP generating talent for the long term.
RATP in Paris is planning to spend close to a billion $Aus on “desaturating” le Metro over the next decade, New York has told the Feds to fuck off, it’ll spend around a billion $AUS itself on terrorist-proofing, Hong Kong’s public transport authority is sitting on another $AUS billion in assets and meanwhile in Moscow they’re really putting their hair up. Unlikely? Well, as Bruce Sterling said, ‘Lord Foster is not a ‘fuck around’ kinda guy’. And London will muddle through as always.
It’s the renaissance of the city state and geographically and resources hardened and skills and style enhanced regions. Switzerland worked this out long ago. Except it’s not really that funky, has adequate weather, poor tolerance for those who aren’t natural capitalists and lousy beaches.
Whereas certain Australian regions….
And if it all fucks up anyway, we can still keep flogging iron ore, coking coal,dairy products, sunshine and decent party bands to the rest of the world,regardless of whether it slips back into the Bronze Age or not.
Pfft. What exactly does “running state economies as hard-nosed major corporations with every voter a stakeholder actually mean? It is absolutely an accident that Melbourne is where it is - of the Australian big cities, it is the one best suited (by virtue of its history and its built environment) to the kind of inner-urban living that people have in recent years found so attractive. It has also had the reputation as arts capital etc forever.
London is the same - its history is the reason it is the financial centre it is. Politicians and beaurecrats might like to think that they have a defining role in these things, but they don’t.
I am also quite sceptical of the whole “creative cities” thing..as Nabakov says, the services that make London work are infinetely renewable (as long as people need enormous banks and overpaid armies of accountants), but they are also all capable of being duplicated. As are metro systems, art galleries and good nightlife. Which is great, and all cities should have these things - but there is no real scarcity value there. The next 50 years will instead see the exacerbation of the already apparent trend where resources and primary industry wield increasing economic clout. Hopefully in tandem with funky and tolerent cities.
Those poor rich people, hit so hard by interest rate rises. Why, they might have to do without the family trip to Paris this year. Best to give them a bit more money out of the public purse because tax cuts surely aren’t enough. Better increase the baby bonus while we’re there, we wouldn’t want mum to have to go to work to supplement dad’s meagre salary as an advertising executive or specialist surgeon.
“It’s not about Left and Right anymore. It’s about how we can, city by city, state by state, region by region, country by country, trading bloc by trading bloc can prosper in a globalised world undergoing a massive and increasingly fevered sea change.”
- extract from Nabakov at 5.05am
Crikey mate, how did Robin Hood and his Merry Men do without your services as spin-meister?? Well, because they robbed the Rich to assist the Poor. A simple concept. Easily comprehended by both Rich and Poor. No need for spin. No need for OECD reports or IMF guidance.
Poverty = crap.
So I think the above extract, and the rest of your disquisition cannot hide the basic UNFAIRNESS that Mark has pointed to.
Someone says, “Oh well, it’s like superannuation”. Indeed.
Likewise we can say “A burglary is robbery and a bank hold-up is robbery.” That’s not much consolation for the woman whose house was burgled. She calls the cops and they say, “Hmmm, same modus operandi as we saw over in Gallipoli Street two weeks ago when those guys held up the bank! People taking something that didn’t belong to them. Madam, we police call it theft.”
One doesn’t excuse or explain the other: both are theft.
So if the rich were given a higher incentive to be “home savers”, through the tax system, the rich would be robbing all those home savers on lower incomes PLUS all those citizens who are not home savers at all. Courtesy of the Federal Government. Fan-bloody-tastic.
None dare call it daylinght robbery.
Terrific post, Mark.
cheerio
The policy outlined above seems ludicrous and backward, shouldn’t those making less money be rewarded more highly of saving? As someone said above, all this is going to achieve in an increase in house prices? Or at the very least prevent the inevitable stagnation in the housing market that seems to be looming
Can’t say I’m surptised.
Strikes me as weird, and Im a righty by inclination. A flat rate, or one weighted the other way makes more sense to me.
Then there’s this…
http://www.theaustralian.news.com.au/story/0,25197,23620705-601,00.html
The ‘rich’ start tightening their belts a bit (well, stop buying luxury boats) - and 200 people now become poor.
A strong vibrant economy benefits everybody. The fact that boom conditions often widen the gap between rich and poor is of no consequence if it means there are less poor, and the poor are better off.
That doesn’t mean that we shouldn’t have genuine safety nets for those who are unable to participate in the boom conditions (for whatever reason).
If redistribute even more wealth from ‘rich’ to ‘poor’ - then we’re in danger of flat-lining the economy, eliminating incentives to succeed and excel, and ultimately killing the golden goose.
If the upshot of Nabs’ comments is that the funky kids or whoever need this policy to continue to attract them to Melbourne or wherever rather than London or wherever, I don’t see that at all. Cf. Nick Gruen’s research on whether lower taxes made any difference to attracting and retaining highly paid people. Answer - they don’t. In the Creative Cities literature, anyway, our old mate Richard Florida keeps emphasising “location, location, location” not whether the gubbermint will kick in to help you save a deposit for an apartment.
Looks like I had better try to get my salary up to 180K. Back to work.
Ps - Gruen’s argument was against - having looked at the empirical evidence - the claim that high income earners won’t stay in Australia and won’t continue to work and strive without “incentives to succeed and excel” if what that means is inordinately generous treatment from the taxation system and government welfare.
Then there’s the question as to whether all these high flyers are all doing something which actually creates wealth…
There’s a bigger problem at work here to do with inflation and wages. My guess is your grandparents and parents paid their house off more thanks to inflation than anything else. Respectively, they might have bought a house worth $1500 or $15000. Over time, the amount became paltry as wages rose.
What’s happened over the last 20 years? Houses went up, wages did not. The idea that inflation can help you out of debt is now gone and the biggest indicator that houses are too expensive is that nobody can afford to buy one from scratch on the poverty level wages that young people are expected to live on.
The whole “low inflation is good for you” mantra turned out to be a big load of bollocks unless you’re a baby boomer and about to retire. Stomping inflation has basically shut an entire generation out of the game, resulting in this kind of destructive edge fiddling that simply ensures the rich stay that way.
As for superannuation - the old government pensions might have been projected as being unaffordable, but judging by the performance of my super over the last year the idea of retiring in the same way as the last generation did is basically impossible. I think the compulsory part should be shifted to 40, under that you can bet young families would rather have the cash to try to set themselves up.
Next time you hear bulldust about “a wages breakout we’ll all be rooned” - it’s coming from the same f*cktards to made out like crazy simply because wages broke out. They have to, otherwise large debts never get paid down.
I don’t think its fair to judge superannuation returns based on the previous year’s performance. How about looking at the average return you’ve got over say the last 10 years instead?
Also I don’t see how allowing people to use money previously going to super to spend on housing instead would help - giving everyone more money is just going to raise house prices even further. Overall we need more housing in places where people want to live (which probably means higher density living)
Chris (a different one) wrote:
Think about compound interest for (oh, say) 5 seconds.
At the start of a mortgage, you’re far better off paying as much as you can, otherwise over the term of the mortgage the bank wins as you pay for the principal over a longer term.
But, instead, we have compulsory super that takes the ability to pay extra on the principal part of the mortgage away from the very people who could benefit the most (the young starting out). Add to that the anti-inflation bollocks that means wages can never quite catch up with house prices.
Money markets always work the same way - it costs more to borrow than to lend. It’s obvious why.
If you’re lending (i.e. paying into super) you get less interest than the borrowing rate. Basically, we’ve guaranteed that the only winner will be financial institutions - notice the record profits they’ve made over the last 20 years? What’s the reason? They’re guaranteed a far fatter slice of the spread thanks to the stupidity of compulsory super for those under 40.
We’ve been sold a pup. The whole financial system is now so rigged in favour of banks that your grandkids will be living in tents.
At 9.59am Andrew wrote:
“If redistribute even more wealth from ‘rich’ to ‘poor’ - then we’re in danger of flat-lining the economy,”
Well, Andrew, you might want to make a case concerning that kind of redistribution, but I fancy that the redistribution Mark has wriiten about is quite the opposite:
a redistribution TO the rich, FROM the poor; and (incidentally) from the moderately well off.
Do you think this suggested redistribution is fair, or justified by some arcane economic theory? Please explain.
It sounds like daylight robbery to me.
Is the PM chasing votes in the posh suburbs? Is he hoping to win back Higgins if $weetie resigns?
cheerio
Except that those buying into the market will be paying even more - everyone has effectively a higher income and will be willing to pay a higher price for the property. So whilst you might end up paying off more each month, you’re also paying off a higher amount in the first place.
Well they also bought much smaller houses which cost less to build and run. Our expectations of what is required in a house (eg ensuites, a separate bedroom for each child etc) have increased significantly.
In retrospect (ie: sober now), I think my last comment here ended up not just on the wrong thread but on the wrong site as well. Sorry, it was dark and I misstook LP for Club Troppo.
Also, has anyone seen my trousers?
Chris (a different one) wrote:
Nope. The current situation is a historical anomaly. Have a look at the percentage of wages vs. mortgage payments now vs. 20 years or 40 years ago. In the past, it was unusual to be paying 30% of a (single) wage into a mortgage. Now, it’s 50% of two wages. People aren’t stupid, they’ll spend the least they can, not the most.
Bigger yes. Cheaper, no. The work that went into an 80 year old weatherboard house was far higher - think horsehair plaster walls, picture rails, cedar trim, china blacked wooden floors and lead or copper soldered plumbing, metal sheathed and fabric covered wiring. Plus, the cost of building materials has gotten relatively cheaper because cheaper materials are used. Gyprock plaster board, pine frames and concrete block foundations are all far quicker, cheaper and easier to build than your grandfathers house ever was. They all might have two bathrooms, but those two bathrooms are much cheaper and have plastic plumbing with mass produced toilets. The idea that a McMansion is somehow some kind of indulgence is a furphy anyway - there’s bugger all else on the market for new homes.
“The idea that a McMansion is somehow some kind of indulgence is a furphy anyway - there’s bugger all else on the market for new homes.”
True that. Let’s see what they look like in 15 years.
Nabakov, maaaate !!
Have you been out drinking with the old Mal Fraser, AGAIN?
Learn from your mistakes, maaate!!
That’s disgraceful policy. Give more to those who already earn it? How can the politicians justify that? Mention this policy to anyone that says Labor is left-wing.
Watching the first few months of the Rudd Government there has been a slightly unreal feeling. With the exception of everything touched by Garrett they’ve actually been doing good things. Having watched the parade of disasters from state governments where every progressive action has been matched by at least two that were either designed to help mates, designed to increase wealth inequality, trashing the planet or simply plain stupid I kept wondering “I these guys the same party?”
Now we know the answer is yes.
Where people are building in new estates on empty blocks they are choosing to build mcmansions rather than smaller houses.
I disagree - many (not all) people out there work out how much they can afford and then work out what the best place they can get for that amount. If they believe they can afford more, many will buy a bigger place or a place in an area which is more expensive that they believe is better for them (eg closer to work, closer to shops etc).
Back 40 years ago the banks simply wouldn’t lend you an amount such that you’d be paying 50% of your income in mortgage repayments and also there’s a lot more two income families around these days. I’m continually amazed that people are willing to take such a big risk. Much better to be cramped into a small appartment than deliberately put yourself under that much stress.
Where people are building in new estates on empty blocks they are choosing to build mcmansions rather than smaller houses.
I disagree - many (not all) people out there work out how much they can afford and then work out what the best place they can get for that amount. If they believe they can afford more, many will buy a bigger place or a place in an area which is more expensive that they believe is better for them (eg closer to work, closer to shops etc).
Back 40 years ago the banks simply wouldn’t lend you an amount such that you’d be paying 50% of your income in mortgage repayments and also there’s a lot more two income families around these days. I’m continually amazed that people are willing to take such a big risk. Much better to be cramped into a small appartment than deliberately put yourself under that much stress.
I’m going into a mortgage of $330, 000.
Lucky I’m not from yesteryear!
Chris at 29, this is why I live in a tiny house in an undesirable, but well located suburb of Newcastle, it was what we could afford. But I don’t think everyone works out what they can afford, loan and mortgage brokers work it out for them and they aren’t always given the wisest advice. Husband and I were told we were eligible for $80K more than we have borrowed, but we declined to get ourselves into that much more debt.
Financial advice has changed over the past few decades too. My grandparents were told debt is ‘bad’, but now people believe that debt is good, or at the very least ok.
Lawyer and writer Dr Mirko Bargaric states in an essay in the Courier mail today that the answer to the housing affordability crisis is to allow first home buyers to use their superannuation to purchase a house.
What do other posters think of this?
Rayedish - agreed that many people don’t actually work out what they can afford, but just believe the banks or mortgage brokers calculate what they can afford. Whereas in reality the banks are just working out what level of risk they are willing to take when loaning out money and don’t consider the lifestyle that the borrowers want or are used to. You’d have to be a pretty big risk taker to borrow as much as the banks are willing to lend these days.
Re debt - well due to the tax system I think it depends on the type of debt, but as we’ve seen recently even good debt has its risks.
Boy from Flynn @ 32. I think there are pros and cons to using super to buy a home.
On the con sided I also have a feeling that if anything once people start doing it they will be willing to pay more (in total) for a house and possibly push up the price of houses. Also super allows a diversity of investment while just having a property is like the old clique of ‘all your eggs in one basket’.
On the pro side of the argument, if superannuation accounts were only earning say 5% a year while a mortgage repayment is about 10% then it would make sense to transfer money from super into paying off the mortgage. Also, from a libertarian viewpoint, there’s nothing wrong with people being able to do what they want with their super rather than having it locked away for 40 years.