Selasa, 28 Juli 2009

The Great Race

We're now past half-way in the term of the present Federal Parliament, so the race to the next election is on.

(And they're off.)

Team Turnbull, having previously hoped to ride to an early victory on a second-hand Mazda Bravo ute, but which backfired spectacularly and veered off course so dramatically as to go backwards, has now taken the dust sheet off that faithful conveyance, the Debt Truck, which served the Coalition so well in 1996. (It is reported that Labor, in turn, has taken to the streets of Wentworth with its own 'Supporting Jobs' Truck.)

(Malcolm Turnbull, and the Debt Truck.)

The Debt Truck comes streaming charts and graphs, courtesy of Shadow Treasurer Joe Hockey, of the debt incurred by the Government as a result of its stimulus packages and reduced revenues.

If the Brown Couch had a debt truck, it might be festooned with the following charts and graphs. They depict what might be called, only a little unfairly, the Coalition's debt bombshell, from its most recent period in government. The explosive charge of this bombshell, however, is not government debt, but housing debt.

First, here's what Australian owner-occupiers came to owe their banks and other financial institutions over 1996-2007.

(RBA Statistical Tables D02: Lending and Credit Aggregates. Click on the image for a better view.)

Next, what Australian housing investors – or, better, speculators – owed over the period of the Coalition Government.

(RBA Statistical Tables D02: Lending and Credit Aggregates. Click on the image for a better view.)

Finally, let's put them together: here's the debts of owner-occupiers and 'investors' combined.

(RBA Statistical Tables D02: Lending and Credit Aggregates. Click on the image for a better view.)

From March 1996 to November 2007, total housing debt went from $177 billion to $908 billion - the Coalition's 'debt bombshell' of $731 billion.

Now, that's not government debt - it's debt owed by individual persons (and corporations) for the cost of housing. Government debt does not put at risk the roof over your head - at least, not in anything like a direct way. Housing debt, whether you're an owner-occupier or a tenant, does.

As I said, it is a little unfair to lay the blame for Australia's housing debt bombshell with the Coalition only. Individuals borrowed too much. Banks lent too much. The previous Labor Government provided the basic reasons why individuals borrowed too much: the capital gains tax-exempt status of owner-occupied housing encouraged owner-occupiers to throw money at housing; and as for investors, even though they had to pay CGT, negative gearing allowed them to invest not on the basis of the rental income generated, but gambling that an owner-occupier or speculator would throw a larger amount of money at them later.

Apart from the fact that it generally approved of all this, the Coalition's great claim on culpability for the housing debt bombshell comes from its turbo-charging of house-price speculation through changes to CGT – so that if you make your money speculating, you pay only half the tax you would if you make by actually earning it, or through rents, or interest.

(Peter Perfect and the Turbo Terrific.)


Meanwhile, Kevin Rudd has successfully thwarted the designs of blog-writers to shoehorn him into an over-extended Wacky Races metaphor by sitting down and crafting a thoughtful essay on the financial crisis. There's a lot in it with which we agree. As Rudd says of the causes of the crisis:

'in many Western countries the boom was created on a pile of debt held by consumers, corporations and some governments. As the global financier George Soros put it: "For 25 years [the West] has been consuming more than we have been producing and living beyond our means".'

And he continues, with particular reference to housing:

'these debts were racked up on the back of skyrocketing asset prices. In several countries, stock prices and house values soared far above their true long-term worth, creating paper wealth that millions of households used as collateral for their growing debts.'

I think he's onto something. The challenge now is for the Government to dismantle the house-price-bubble-making machine that previous governments have built into our tax and finance systems.