Our 2009 artificial stimulus package and why it will probably fail.

Our 2009 artificial stimulus package and why it will probably fail.

The penny has dropped (literally) as global economies fight the financial crisis by adopting the theories of British economist John Maynard Keynes who argued that governments should fight the Great Depression in the 1930’s with huge spending allocations and infrastructure as the number one target. How ironic that with ‘Fort Crumble’ (otherwise known as the NSW government) infrastructure spending has been all but non-existent over the last twelve years. Global growth predicted by the International Monetary Fund (IMF) is now just half a per cent – this is a deep seated problem. The question begs – do we put some artificial icing on the problems or fix the problems once and for all. What use are tax cuts if you are unemployed?

For example in NSW, the hospital system is actually sicker than the patients and this prompted our Premier (I use the term lightly) to seek a rescue package of $2.5 billion cash for a system that Fort Crumble sent broke!

Access Economics announced last week that NSW was in recession (a statement that Fort Crumble quickly dismissed) with the other Australian states set to follow. For obvious reasons, unemployment will be the barometer for property prices in 2009 which places the burden on businesses to fly the employment flag which is now ‘flagging’ because state governments continue to increase taxes.

To put this into perspective, I stumbled on an amazing report by the Institute of Public Affairs (IPA’s) which was released in December 2008. This report identified that NSW has the highest taxes on business and Western Australia, the lowest. The level of tax imposed on a business differs significantly according to industry and business size which sees construction and transport as the most heavily taxed by state governments.

So as the Federal Government embarks on its mammoth infrastructure spend, let’s look at key implication findings by the IPA :

• Transaction – based taxes at state levels disproportionately affect small business

• The structure of state government business taxes counteract federal government policies (e.g: infrastructure companies are more heavily taxed than service companies)

• The reliance by state governments on taxes levied on transactions undertaken by companies inhibits economic growth, because such taxes do not take account of business profitability.

• The structure of state business taxes should be reformed to encourage business development in a slowing economy with credit constraints.

Here are the reports should you wish to download

The Business Burden (click to download)

In my twenty three years as a real estate agent, I have never before seen the property rental market decimated as a direct result of the actions of the Carr/Iemma/Rees government policies of tax grabs. With rents now recording their highest increases since 1988, the outlook is dismal as the Australian Bureau of Statistics announced this week that the annual rate of growth in rents across Australia jumped to 8.4 per cent in the year to December. In Sydney, rents increased from 5.4 per cent to 8 per cent. Tax the investors out of the property market and this is the net result.

As at June 30 2008 there were 177,652 Australian households waiting for public rental properties. For obvious reasons this figure would be much higher today.

Next week we can expect either a 75 or 100 basis point reduction when the Reserve Bank of Australia meets for the first time in 2009. Enter Wayne Swan who (embarrassingly) has stopped rubbing his inflation “genie”.

Cast your mind back to February 3 2008 when our Treasurer (I use that term lightly also) stated (this is gold). “The economy is strong but there is an enormous inflation challenge out there, an inflation problem that Peter Costello left us.” Wayne needs an economics lesson as it has now been concluded that record oil prices were the main contributing factor for escalating inflation.

Oops! Our Treasurer struggles to understand the most basic fundamentals of the economy.

The 2009 Mosman property market started slowly but is gradually building momentum. Prices have been corrected and interest rates will come down significantly next week. Without a doubt, the slowest start in decades and why? Because the vendors ‘can’ and of the 4,900 homes in the municipality of Mosman, approximately 140 houses are on the market. This equates to 2.9 per cent.

Maybe John Maynard Keyes summed it up best with this quote “There is nothing so disastrous as a rational investment policy in an irrational world.” Now that’s stimulating!

Cheers ^__^

7 Responses to “Our 2009 artificial stimulus package and why it will probably fail.”

  • Mark says:

    Robert, your appreciation of economics and the principals surrounding it would make your old Economics and Commerce teachers chock with pride, thats if they are still kicking

  • Patricia says:

    Robert…An acknowledgment and analysis of the factors surrounding the high inventory of upper-end homes ($3,000,000+) that have been on the market for 6+ months (some almost a year) would be illuminating.

  • Nick says:

    Roads, Health, Public Transport, Education, Water you name it its broken in NSW and to make matters worse “NSW has the highest taxes on business”.
    March 2011 can’t happen soon enough

  • Patricia,

    I will gladly do that for you in next week’s edition.

  • Robbie Mac says:

    Indeed, March 2011 can’t come soon enough. I remember saying that in 2005 (and 2001, and…), but it seems the maxim that the people get the government they deserve is apt. Time and again we have been duped, and fallen for it. Where do I start? From the beginning – taking the tolls off the M4, a “promise” that apart from being impossible to fulfill, was enough to change a government. I’m not sure we’re any smarter now either – look at the state front bench. Whole electorates should be ashamed of themselves – what a bunch of ———CENSORED———–. Embarrassing to say that I live in this lovely state.

  • Patricia says:

    Hello again…Another disquieting aspect of the current Mosman market is the high volume of single-family homes available for lease for $1,000+/wk.

    In a normal market, domain.com.au ordinarily lists 40-45 Mosman houses for lease. Currently, there are over 90 available with the majority over $1,000/wk. MANY of these have been available for several months. It appears that the corporate leasing market has all but disappeared.

    Thanks for any thoughts on this leasing segment.

  • Mike Garcia says:

    Nice article, I too wish the world was perfect, but perfection itself is a concept. Goverment is not looking out for the little people, they focus on the @ss kissers, the ones with lobbist and money, they are the real politicians. If it was up to me, I would put them in jail for conflict of interest.

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