The theatre of politics has the economy failing to smile

The theatre of politics has the economy failing to smile

The stage is set, but we can’t perform while our economy remains convoluted with excessive and indulgent taxation restraints. Today, the “lucky country” is failing miserably as far as the property industry is concerned.

It appears that our economy does not have a script, where a 0.25 basis point reduction in interest rates is as useful as a wet band-aid on a gaping, haemorrhaging wound. What most fail to recognise (politicians in particular) is that the Australian property market rule – of – thumb is that one third rent, a third have a mortgage and the remaining third are mortgage free. Whilst the decision by the Reserve Bank of Australia last Tuesday to cut rates is welcome, the banks following suit is nothing more than a ‘thirty something’ decision.

Back stage, the next thirty something who rent find that they are being hammered with average rents increasing by 10 to 15 per cent annually. Sydney is presently recording its lowest ever vacancy rates and the market theatre heralded by elected politicians who stampede for every available media microphone, illustrates their shallow understanding of basic economics. Only hours before the RBA announcement, the Housing Industry Australia (HIA) revealed that new home sales declined 7.2 per cent, detached houses fell 7.5 per cent, and multi – unit sales dropped 5.2 per cent in July. NSW posted an 11.7 per cent drop and this means that jobs in the building industry will continue to decline. On a brighter note, Queensland sales rose 13.4 per cent which simply identifies that it continues to provide an exit strategy for young families who remain financially disillusioned in other states.

Further confirmation of the ongoing declines in NSW were revealed this week when it was announced that NSW was the only state or territory to record negative growth in the June quarter, a legacy of escalating petrol prices, high interest rates and ongoing rent hikes. Household spending declined for the first time since 1993 (we all know what was happening then) …. The R word!

The final and most important thirty somethings are mortgage free, have disposable income and provide the much needed oxygen to our property markets. They are the market investors, previously the strongest investors in property. Thanks to the greed and bungling of the Carr/Iemma (both gone now) government they left the market in droves and transferred their disposable income to the share market. Technology assisted them greatly and enabled them to track share market movements within minutes of trades. Stamp Duty on shares is much more attractive than property, because government duties and taxes are indexed to property values.

The previous Howard government introduced GST and stuffed it up. The Rudd government simply doesn’t understand. State governments keep increasing taxes when they are supposed to be decreasing them. Well that was what we were told when the GST platform was being sold eight years ago.

The British economy is shot to pieces and their Treasury chief announced this week, that the country was suffering its worst economic crisis in 60 years. In response, the British government announced that it will exempt property sales taxes for homes worth up to AUD $366,000. I rest my case. This announcement sends a clear message which is too often forgotten – property is the largest employer in the economy. Governments tax the living daylights out of it and when the economy turns sour, try to sweeten it. The only problem with this, is that property investors significantly change investment portfolios. Once bitten – twice shy and tax formulas for real estate are no longer attractive to investors.

Whilst our economy continues to slow (it was revealed this week that Australia’s economic growth has eased to its slowest pace in nearly four years) interest rate reductions are not all that is required, as some would have us believe.

The most economically confused politician in Australia “Wayne’s World” Swan, attributes the slowing of our economy to the global credit crunch and a run of interest rate increases since late 2001. Whilst partially correct, given the sequence of events that led to “breaking the camel’s back”, the real reason is that investors are no longer investing in our property markets.

In all probability Wayne Swan and Kevin Rudd, the “Dynamic Duo”, were mystified with Ross Gittins’ article in The Sydney Morning Herald on September 3 – “Rudd’s big idea: change nothing. Kevin Rudd fought the election by promising “fresh leadership” that would make our lives better without involving unpopular change. Indeed, he promised to retain vast swathes of John Howard’s policies. In short, he promised change without change.” No truth in the saying “that a change is as good as a holiday.”

The “Dynamic Duo”, gifted with the largest financial inheritance in Australia’s political history were referred to as “fresh leadership”! And I am not speaking Mandarin which can have a habit of turning sour as is the case with our economy today.

On the thirty something rule, just thirty somethings are doing well – time to address the sixty somethings! It has to start locally, not globally Wayne. We can control local but as we all know, global is beyond control. Cheers ^__^

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