Successive governments have used the building industry to pump up the economy on credit. How so? For decades the tax deduction on negatively geared real estate has made housing a favoured investment. It has been the no-brainer way to make money. You borrow to own a property, and as long as it is your, all the capital gain is yours. So the lesser fraction that you own, the greater the percentage rise in your total assets. And since you save on tax and gain rent, it is far better than shares or other assets. If you ask to borrow 90% to buy shares, no bank would lend you 90%. They would fall about laughing, and you would be taking a big risk. If you wanted to borrow 90% of real estate, no problem- all perceived as low risk. How come? Because Australia’s private debt is rising and is now the highest in the world. This little Ponzi scheme has a cost. We have the best houses, which are the most expensive relative to our incomes, and we have a huge national private debt, which means that we pay interest to foreign banks and have no money to develop and own our own country. Like all Ponzi schemes, it is OK as long as you sell out before the bubble pops. The older generation are doing this, cashing out as the younger generation takes up the huge loans that are now necessary.
The tax department got less money to create this mess, so public housing was not built, and there is a huge shortage of public housing. Because prices are so high there is also a problem in affordable housing as wages in the real world have stagnated as globalisation allows jobs to go offshore to be done more cheaply by third world people. The negative gearing thing amounts to middle class welfare, where those who had one house were able to buy more, and those that did not merely saw rents and prices rise. Labor tried to address this and lost the election.
Now we have a recession, worsened by the COVID-19 crisis and the taxpayer has to step in, making more debt for the future. So what projects to spend the money on? More middle class welfare! Those who already have $150,000 to improve their house get another $25,000 from the future taxpayer, the young people of today.
It is merely another example of the Morrison government’s lack of commitment to a fair go for all. This could be a huge opportunity to build social housing to help those who have been left behind. Is the excuse that the projects are not ‘shovel-ready’? The government could pay for the huge outstanding renovations and repair bill on the public housing, which has been neglected for 30 years. Surely these repair lists on yellowed paper could be found and actioned.
Morrison governs for his voters, not for the country as a whole. His policies increase inequality, which stores discord for the future. This last effort will further the Matthew Effect, named after the biblical quote, ‘For to every one who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away’.