A temporary political spin by the sounds of things

A temporary political spin by the sounds of things

Sounds like the latest “add” word in political speak today, is temporary. If this week’s media spin from Ruddy Fantastic is anything to go by – where how temporary is temporary, one might ask?

Speaking at a lunch in Perth this Wednesday, Prime Minister Kevin Rudd said” this global economic recession has also dragged Australia into recession and has also produced the single biggest collapse in tax revenues in post – war Australia.” What Ruddy Fantastic failed to take into consideration was that tax revenues are down because we are all earning less, so it is not just the Federal Government feeling the pinch.

Kevin Rudd said, (here we go) a temporary budget deficit was inevitable given the current economic crisis. “In the current unprecedented global conditions a temporary deficit is not an option it is inevitable.” And, “that is why temporary deficits are necessary and temporary government borrowings are necessary as well, necessary to support businesses and support jobs until the private sector recovers.” Meaning when the private sector recovers government tax receipts then increase – however historically budget deficits in Australia have never before been temporary.

Treasurer Wayne Swan was busy spruiking that the Australia economy will rebound faster than international forecasts predict. Alas, the meaning of temporary. He said “the consequence of that is a higher temporary deficit.” All eyes are now fixed on the May 12; budget to:

A) See just how large our temporary budget deficit is.

B) How many times the word temporary will be used in the explanation of the budget deficit.

On budget night we will also find out how temporary is the First Home Buyers Grant (FHBG) which from a real estate agency perspective has resulted in a surge of lower price range property transactions. The 7.30 Report on March 9, 2009, revealed “Encouraged by the lowest interest rates in decades and the Rudd Government’s decision to double the first home buyers grant, nearly 30,000 people have entered the property market since October. However, at the top end of the market it is a different story, an oversupply of properties for sale is driving down prices.” I would suggest that Mosman does not offer an oversupply of top end properties rather an undersupply, given the anticipated bloodbath of mortgagee sales, simply did not eventuate.

The Housing Industry Association (HIA) is proposing that the First Home Buyers Grant Boost (FHBG Boost) be increased from the current $21,000 to $30,000 for the purchase of a new home and decreased from $14,000 to $7,000 for existing homes. I would be most surprised if such a proposal came to fruition. No doubt the “Boost Package” is driven by the news that new home sales rose to their highest level in 13 months in March thanks to the FHBG (without Boost). Total new home sales rose by 4.2 per cent in March where 8,210 sales were recorded, accelerating the 3.9 per cent growth pace set in February, 2009.

A few months ago, I likened the FHBG as Australia’s mini sub-prime given that again we see identical DNA in that; too many are borrowing too much – too fast! Already in our agency, we are witnessing tenants giving notice to take up the FHBG because that it will be (possibly) removed after June 30. The irony is that before we had tenants competing against one another because of the record low vacancy rates. Now they are competing again against each other to secure a property, because of the FHBG – a legacy of record interest low rates and high rents. What they don’t take into consideration is that interest rates rise much faster than rents which raises the potential of negative equity in years to come. Why?

Access Economics published a report this week which identified that by the time the next election is due there will be close to one million unemployed. While Australia’s recession is unlikely to be as deep as those in comparable countries, the unemployment rate is set to hit 8.5 per cent late next year as the economy reels from the steep collapse in commodity prices. At no stage did Access Economics use the word temporary.

With interest this week, I read an article in The Sydney Morning Herald by Jessica Irvine titled, “It’s bricks and slaughter out there.” A brilliant article in which Irvine wrote, “But it’s not just parents egging young buyers on, it’s politicians. As preparations for this year’s budget enter their final stages, the Rudd Government must decide whether it will extend the deadline for the increased first-home owners grant past June 30. I don’t think they should, but suspect they will.

Labor has undergone an about-face on housing policy. The contrast between pre-election posturing and the reality in government is stark.

On July 27, 2007, the Labor opposition hosted a “housing affordability summit” in the main committee room in Parliament House. About 150 housing experts from all over the country braved Canberra’s winter chill to discuss solutions to the housing affordability crisis.

I was there, there was little agreement on what needed to be done, but summiteers were unanimous in what shouldn’t be done. Everyone agreed that increasing the first-home owners grant would simply result in higher house prices.

Labor seemed convinced and produced a discussion paper quoting the chief economist at ANZ, Saul Eslake, saying: “Anything which puts additional cash in the hands of buyers …results merely in more expensive houses.”

This is certainly the case today, based on the latest figures released by the HIA. The decision by Ruddy Fantastic to increase the FHBG will be judged in history as a brilliant economic decision or, a monumental massacre of young Australians where bankruptcy remains a strong possibility.

Maybe, they should learn from Nathan Rees over at Fort Crumble who recently decided to withdraw financial backing for the AFL’s plans to locate a second team in Western Sydney. The reason why Fort Crumble withdrew? They reportedly decided pumping big money into the AFL’s expansion- right in the heartland of rugby league – would risk a voter backlash. The politics of the decision making process.

I then assume that this explains the sudden surge by politicians to use the word temporary given that if their respective economic policies go pear shaped – in return they can then become the temporary government. Bankruptcy is definitely not temporary – not in Australia anyway.

Let’s hope Ruddy Fantastic changes the word temporary to exemplary. Sugar coating is not the answer in a Global Financial Crisis where unemployment and budget deficits won’t be temporary either.

Cheers ^__^

For this week’s recorded Mosman real estate, Cremorne real estate, Neutral Bay real estate and Cammeray real estate sales http://www.rwm.com.au/news/

4 Responses to “A temporary political spin by the sounds of things”

  • Patricia says:

    Robert – I respectfully submit that there is an undersupply of top-end properties in Mosman. The top-end is moribund; no-one is buying. There are some top-end homes that have been on the market for about a year (Ruby St, Silex Rd, and Bradleys Head Rd immediately come to mind) and some for at least six months (Buena Vista Ave, Burran Ave, Fairfax Rd, Stanley Ave, Tivoli St, Glencarron Ave, Warringah Rd). Prices have spiralled downwards and most could be considered excellent buying opportunities. Yet they sit unsold……

  • Patricia says:

    CORRECTION – I submit there is an OVERSUPPLY (not undersupply) of top-end homes on the market in Mosman.

  • Patricia – you have me on a technicality much like is the glass half full or, half empty? The top-end has hardly changed from the end of last year given that many of the homes offered then are still on the market today. We have not seen an influx of properties hitting the market as is happening in the Eastern Suburbs for example. Based on previous markets I agree the turnover is slow which explains why there is no apparent queue of vendors lining up to participate.

  • Michael says:

    Robert & Patricia,

    With interest rates so low, I think many who would have been forced to sell are able to hang on and if not, they have been to the bank manager to reorganise their repayments. I also think during the good times, many will have hit the mortgage with extra repayments, so there is probably a re-draw ability there as well.

    Avagoodweekend all

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