Ceteris paribus, non

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I’m not saying, in the first instance, that Professor Glyn Davis, Chair of Universities Australia, is wrong or right in his assertions about a “market-driven” university industry in Australia. I’m merely gobsmacked by what to me appears to be a certain fanaticism with which he vociferated his agenda at the National Press Club address on March 7, 2012. I do not believe that anybody can be so perfectly right about any issue.

The Whitlam Government’s abolition of university fees for students was premised on the view – not entirely unpopular around the world – that every child has the right to free (for students) education, right up to and including tertiary level. A good mix of some of the poorest with some of the wealthiest nations has such state-funded, definitive education for the young – such as Finland, Sri Lanka, Scotland, Kenya, Denmark, Morocco, etc. If distaste for socialism is behind Professor Davis’ vision of converting our universities into mega-milch cows, he must needs have equally a dislike for the multi-trillion dollar insurance industry around the capitalist world; because insurance, any insurance for anything, is a socialist construct. Within the context of a capitalist society, it is a socialist construct with capitalism parasitically hanging on to its back.

It’s also perversely ironic that Professor Davis’ formative tertiary education at the University of NSW would have occurred between 1974 and 1989, the period in which such education was free to students. I assume he availed himself of the free studies, but he now believes that such education should be paid for by students at the highest possible market price. What a turnaround! This is about as perverse as ‘looking a gift horse in the mouth.’ I presume Professor Davis did not volunteer to pay the market price for his tertiary education at any time between his years of study and the present. If he hasn’t, perhaps he should consider doing so.

I’m somewhat reminded by the way things are done in the great nation of Arsultaia. In the course of privatising all public infrastructures prior to privatising parliament itself, Arsultaia’s president auctioned off the country’s education system. The successful bidder was La Plume De Ma Tante Inc, a multinational company. In turn, primary, secondary, technical and university courses were likewise sold under the hammer. This resulted in some children missing out in receiving even a basic education, however, in his “In Quidditas: Quattuor” (IQ:4) lecture entitled The Beauty of Capitalism during the Industrial Revolution of the 18th & 19th Centuries and its Application to the Third Millennium, Rasultaia’s president cogently argued that if parents did not have the intelligence to earn sufficient money to pay for their children’s education, such children could not possibly have the intelligence to succeed in becoming educated. For these people learning was simply a waste of time. Eventually half of Rasultaia’s population remained illiterate, innumerate and ignorant, and worked in menial, servile and grossly underpaid jobs. This was an enormous boon to the nation’s other half, and when unemployment and disemployment benefits were abolished, everyone in the land of Arsultaia had a job.

Pitted nuts

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As Treasurer, Peter Costello once told the clergy to mind its own business, stick to religion and leave economic matters to him and his government’s expertise. Well, neither Peter Costello, nor for that matter John Howard who as a previous Treasurer and also as Prime Minister was an adherent of “free-market economics” (despite the fact that he doubled the nanny state “wealthfare” stimulus for investors and speculators by halving capital gains tax which resulted in house prices, for first nest aspirants and mortgagees, sky-rocketing to the top of Mt Everest), have a degree in economics.

Not that it matters one iota. As a reward for floating the Dollar and allowing foreign banks into Australia, Paul Keating, who did not pursue tertiary studies, was hailed as “the world’s greatest treasurer” (by vested European interests); so that one doesn’t have to have an economics degree to become a nation’s Treasurer. In fact you don’t need any special qualifications whatever to become a politician per se; you could be nothing more, or less, than, for argument’s sake, a fish & chip shop operator, or a barman. And Costello & Howard themselves relinquished their jobs in legal practice to become mere politicians, which are occupations that fish & chip shop operators and barpersons could aspire to (whereas it’s much less likely that politicians with Law degrees would aspire to becoming fish & chip shop operators or barpersons).

And as has once been said by a well-known economist that if ‘all the world’s economists were lined up and held hands around the Earth’s circumference, they would not be capable of reaching a conclusion’, then what hope is there for Costello, Howard, Keating, Swan, etc, and also those august economists who are caught giving economic advice on the media? In those circumstances you might as well allow the clergy, or billionaires, to run the country. Apparently there is evidence which shows that throughout history the clergy is not unknown to have a special interest in the economy of a nation, because kings and the wealthy were much too busy leading a hedonistic life. Not that the clergy themselves were, are, not guilty of excesses but in the scheme of things, religion arose not without at least realising the need for a certain humanism and rationalism in the world; perhaps as part of a quest to merely try and make sense of man and the universe. And billionaires actually appear to be capable of running things, or so it seems; otherwise they wouldn’t have achieved billionairedom.

This brings me to the sovereign country of Arsultaia. In its quest to completely eliminate taxes, this nation privatised all public infrastructures and, finally also, parliament itself. First they abolished the Upper House and substituted the expression ‘parliament’ with profiterment. Thereunder, the president became the nation’s Supreme Profiterian and preselection for profitermentary office was auctioned off and awarded to those who owned the most shares in Consolidated Portfolio Holdings Ltd, the nation’s largest corporation with financial interests in every Arsultaian commercial enterprise. Only the wealthiest individuals and others nominated by them had the right to vote at elections which, to ensure stability, were held every 20 years. In office, a profiterian’s role – his or her “profiterole” – was to ensure that the nation’s businesses were running at maximum profitability and to explore new ways in which to further the science and philosophy of pure monetary profiterism.

All Arsultanian public services and the business of government having so been placed in the hands of private enterprise, taxes had finally and happily become completely redundant. Everybody became a client under the ‘user pays’ system and no citizen had to ever pay a single sou of tax again.

To hell with 1st home buyers

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by John Tomor

It’s hard to think of any government policies that have been pursued for so long, in the face of such incontrovertible evidence that they are manifestly wrong, than policies of preferring, and preferring so outrageously, the interests of those who already own a first home over those who do not, in the belief that this is good economics. John Stuart Mill, who economists sometimes mention to make themselves sound intelligent, must be turning in his grave.

In 1886, Leo Tolstoy published a book called ‘How Much Real Estate Does a Man Need?’ Exactly 100 years later, in 1986, the Labor government’s Paul Keating decided to resurrect negative gearing, purportedly because of a shortage of rental accommodation. Is there still a demand for such accommodation? There certainly is. Is this still for the same supposed reason which existed a quarter of a century ago? Absolutely not! The demand for rental accommodation now is due to a record number of people being unable to afford to buy a first home, because of record high house prices and record high rentals.

In his Fairfax article of March 17, 2011 entitled “Billions of dollars wasted on grants to first home buyers”, Saul Eslake, then of the Grattan Institute, which calls itself a “Think Tank”, criticised people for not having taken sufficient advantage of first home buyer grants. Mr Eslake says “for the first 9 years of the first home owner grant scheme’s operation, expenditure on those grants exceeded $10 billion” and that this has, “spectacularly failed to achieve the objective of increasing home ownership rates.” Why should this be a surprise Mr Eslake? In Australia, a median house costs more than 500,000 dollars, the median income is $40,000 a year, and the median rental is $20,000 a year. And how about your statement, Mr Eslake, that 1st home owner grant payouts totalled $10 billion in 9 years when, according to the ATO, as per the Fairfax’s Chris Zappone article of October 3, 2011, $6.5 billion was rebated into the pockets of negative gearers in the financial year 2008/9. On this reckoning, in 9 years, $60 billion went to negative gearers compared with a mere $9 billion going to 1st home buyers! And in your lengthy article, Mr Eslake, in which you nano-dissected the history of 1st home owner grants, you never even whispered the words ‘negative gearing’. Are these words a shibboleth that burn lips if uttered? The article is a monumental insult to aspiring first nesters and 1st home mortgagees. And you cannot, Mr Eslake, divorce yourself from the relationship between, on the one hand, record high house prices due to the effects of this nanny state “wealth-fare” tax break for those who already own their home, and on the other hand, the issue of 1st home buyer grants, as per your article. The two are not separate issues – they are incontrovertibly connected.

One of the problems is that people, who may or may not have an economics degree, and who work for a bank, or for a Think Tank, or for a financial institution, are serving two masters when called upon by the media to give their opinion on the national economy. Another problem is of course that those same people may have a vested interest in the very subject they are asked to give advice. Not one of these people, except for Michael Pascoe in his Fairfax article of October 11, 2011, admitted owning negatively geared property.

But negative gearing is only half the story. The ’7th Annual Demographia International Housing Affordability Survey of 2010′ shows, on page 15, graphs from 1981 to 2010 of housing affordability movements for each of Australia’s 7 capital cities, where some 70% of Australians live. The graphs show a distinct increase in unaffordability when negative gearing was reinstated, followed by another, steeper increase from 1996 when John Howard took office and then yet another, even sharper increase in unaffordability from 2001, when Mr Howard halved capital gains tax for investors and speculators. So that over and above the benefits acquired through negative gearing, Mr Howard gave those who already own a first home, an additional leg up to that of Mr Keating’s.

There is a contradiction here, involving our former Prime Minister. After being awarded an honorary doctorate at Bond University in 2009, Mr Howard was reported as saying that governments “play a support role, a regulatory role, but fundamentally it is the judgement of individual men and women that generates the wealth of nations.” What rubbish. If what the honourable Dr Howard says is correct, how is it that he, after Keating brought back negative gearing, gave investors and speculators an additional helping hand-out by halving their capital gains tax, thereby further leaving aspiring first nesters in the lurch?

Thus property changed hands even more quickly in order to profit from the halving of capital gains tax as well, this causing prices to rise with even greater, what can be called Ponzi-like frenzy, from 2001. The Fairfax press on December 8, 2010, for example, reported that in the month of October, 15% of all loans for residential properties went to first home buyers. In other words 85% of loans went to investors and speculators.

It’s appropriate to point out something which those with vested interests never do, namely that the expression “house prices” is misleading. Of the house and land package – whether new or established – the price of the land component is, in Australia, out of all earthly proportions, having risen to all-time, record heights; which is supremely perverse because Australia is the least densely populated nation surveyed in the international Demographia. In fact out of the entire world’s 240 or so nations, Australia is the 3rd least densely populated after Namibia and Mongolia. Even the African Saharan desert-nations have a denser population than Australia. Yet we tend to build ever more upward into the sky. The main advantage is of course that the price of each apartment includes the price of the plot of land directly underneath it, on terra firma, no matter how many storeys there are in such high rise building. This, surely, must be the ultimate Australian chook-raffle caper.

Residential land is basically a non-manufactured and therefore a non-productive commodity when viewed in the context of its dollar-value rising, particularly when it rises far in excess of inflation generally. In Sydney, the median unimproved value of land in, for example, the municipalities of Kogarah and Hurstville as at July 1, 2010 was, according to the Valuer’s department, $548,000. That’s for the land only; and the suburbs of Double Bay and Vaucluse are not even rubbing shoulders with these municipalities; so much for Ross Gittins’ article of September 5, 2011, in which he wrote about Australia’s lack of productivity. Personally, I find Mr Gittins’s articles tiringly patronising, particularly when he tries to colour his writings with a philosophical slant.

Apart from the 1st home buyer grants, there is a raft of further, fiscal ramifications costing taxpayers billions more each year because of the effects of these tax breaks. Some of these are:-
* Child Care Subsidy: to assist with mortgage payments or high rents, mothers, like it or not, must work outside the home as well and kids are placed into part-time orphanages called child-minding centres, even from too early an age (I mean, why have kids if you can’t have them?). Apparently, raising children isn’t called ‘work’.
* Paid Parental Leave Subsidy: since the beginning of 2011, already worth 2 billion dollars.
* First Home Savers Account Subsidy: 1.2 billion dollars over 4 years.
* National Rental Affordability Scheme.
* Housing Affordability Fund Subsidy.
Etc. And more people are joining public housing queues, more are becoming homeless, and more are defaulting on their home loan; all this because governments prefer, and prefer with such shameless magnanimity, the interests of those who already own a first home over those who do not. What a way to run this most important, most basic element, of a nation’s economy.

To paraphrase Ross Gittins’ statement of November 2010, when he said the notion that there’s something immoral or illegitimate about banks increasing mortgage interest rates in excess of Reserve Bank rises has no basis in law or economics, I ask Mr Gittins this: for aspiring first nesters, and at least on the basis in economics, is there something immoral about rises in house prices in excess of what they would be, had it not been for the gross distortion of the Australian housing market through negative gearing and halved capital gains tax for those who already have a first home?

On November 18, 2010, Alan Kohler, Finance reporter on ABC TV news, mentioned Communist China’s rising CPI problem of which food prices happened to be the principal culprit. Mr Kohler ended up saying, “…the good thing about having a communist dictatorship is that the government can just tell shopkeepers to stop putting prices up … which is what they’re doing.” Our own federal governments too, have been interfering in, and thereby grossly distorting, OUR market place, that of housing; which is contrary to a First World, developed nation’s practice of conducting a competitive ‘free, fair and open market place’.

There’s nothing wrong with investing. But government assistance by way of these “wealth-fare” tax breaks together with all the fiscal ramifications arising therefrom, and the damaging effect this is having on aspiring first nesters and first nest mortgagees, is way over the top. Exactly how does Wayne Swan equitably balance the budget in those circumstances? I can just imagine him divvying up the national account: 1 for you and 2 for me; 3 for you and 4 for me, etc. Talk about pissant politicians.

The focus should be on, especially young Australians, to buy a home instead of having to rent. Tax breaks for those who already own their own home have had the exact opposite effect to this end. What’s the point of this; I mean, what is the logic of putting the economic cart, and putting it so grossly, before the horse?

Politicians of whatever smell are conspicuously silent about these two “wealthfare” stimuli, and the effects they have wrought. Regarding a carbon tax for instance, our so-called parliamentarians pretend to be concerned about burdening the family budget with things like higher food and energy costs. But they avoid mentioning the one great big elephant in the room – in the house – in Canberra’s House of Representatives, which is the ultra-burdensome household expense of mortgage repayments and highest-ever rentals – the result of record high house prices due to tax breaks for investors and speculators. Do the politicians keep their traps shut on this issue because they themselves directly or indirectly benefit from these tax rorts which they have legislated into existence?

Others, with vested interests, are likewise dumb-silent as to the fundamental reasons why Australian housing is so ueber-expensive and blame everything else; including, I believe, sunspots. There’s even the adding of insults to injury, which are numerous. Apart from certain Fairfax online blog-articles which are obviously nothing more than advertisements for residential property investors and speculators, one unique insult appeared in that press on January 15, 2011, entitled “A landlord to call my own”, by Paul Edwards. What venality! Not ‘a HOME to call my own’ but a LANDLORD to call my own; so that you’re entitled to have your very own, personal, landlord instead of your very own home; the idea of course being, to get people used to renting rather than owning. This arrogantly implies that only landlords are entitled to own their own home. Others, in order to live somewhere, must rent and pay high rentals to our ‘very own landlords’. How stupid does Paul Edwards, and for that matter also Fairfax, that member of the Fourth “Real” Estate, think people are?

To sustain life the three most necessary requirements are food, housing and clothing; in that order. For our governments to allow life’s second most important necessity, of housing, to be so dastardly exploited to the detriment of, especially, our youngest Australians, is outrageously irresponsible. It’s worse than unfair-go, it’s worse than unaustralian. In principle, it’s reminiscent of the way things are done in a corrupt, Third World country governed by self-serving leaders.