Interest rates and the deficit

What can you do if Australia has the most incompetent central bank in the world? That they have raised interest rates in the midst of an election is the second time it has thrown in its lot with Labor, as it did in 2007.

Of course, the problem really is that it has waited this long to do what has been an essential for quite some time. Let me remind you of this which is in no sense at all unrelated to rising rates of interest: Victorian state budget: Daniel Andrews government spending splurge as debt heads to $167.5bn. Labor steals from every constituency it gets to govern. The article is mostly about how Labor blames the Federal Coalition government, but I blame it on the phenomenal level of economic ignorance, which begins with the economics profession and continues from there across the entire community who are so grateful to see the level of demand being maintained. The level of supply, not so much, but who really cares anyway?

Keynesian stupidity is now so embedded that it would be very rare economist in May who has any sense of the devastation of governments indulging in one unproductive and loss-making project after another.

There was a time when a community would understand that with a more or less fixed resource base, the more the government spends the less available for the rest of us. They would also have understood, perhaps only dimly, that governments cannot manage productive forms of enterprise. This at the very end of the article really sums up what is going on:

Mr Pallas attributed most of this sum to the West Gate Tunnel project, which the government recently revealed would cost an extra $4.1bn and open three years late, in 2025.

Among the responsibilities of the 500 new cops will be helping to raise millions more in speed camera and on-the-spot fine revenue, which is expected to jump 16.4 per cent next financial year alone, from $615m in 2021-22 to $716m in 2022-23, and $829m over the forward estimates.

The government is desperate for money to cover the massive debts it has wracked up. Until they are permitted to sell the State to the Chinese via China’s Road and Belt “initiative” they are going to have to cover their debt from the only source available, from the people who live within the State. However, once we have a Labor government federally, the competition for your money will intensify exponentially. And this, I remind you, is the pre-election budget. Just wait till you see the one next year when they have four years till the next election.

As for the increase in rates of interest, a mere pin prick in the midst of all the rest but it will be the only issue that anyone will pay attention to.

19 thoughts on “Interest rates and the deficit”

  1. Thank you Steve, I missed the speed camera revenue bit. So much for safety cameras saving lives it’s all about bailing out a corrupt government.


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  2. What can you do if Australia has the most incompetent central bank in the world?

    Disagree. It has to be the US Federal Reserve, who oversaw a 37% increase in the money supply (M2) over the last 12 months.

    I am then gaslighted by being told inflation is due to the “war” (aka “minor incursion”) in Ukraine.


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  3. In all fairness you can’t really blame ordinary Australians for not knowing that they don’t know something – knowing that there is something to know is yet another piece of knowledge withheld from them.

    Some people learn jargon at school – they learn more but forget most, like the formula to calculate the volume of a cone. Just as they forget the formula and remember only that there is one, they forget how interest rates work, and how GDP works and so on, and trust the people who talk about it, and to the extent that they use the same language in their disputes. Labor says something about GDP, Liberals say something about GDP, so whatever else is up for grabs GDP is a given.

    Other people were spared learning Keynesian economics by dint of their not studying economics in school at all. But the authoritative pronouncements by people in suits and attached to government organisations is like the white lab coat and stethoscope in an ad for medicine. The trappings of authority.

    And while everyone has multiple stories of the dismal performance of public institutions that they have experienced – the pettiness, the entitlement, the indifference, the byzantine regulations, the encrypted forms, and the outright resentment at having to serve a public so ignorant that they don’t even know why you have to present the pink form and not the green one – people believe this is most at the organisational periphery, sprinkled throughout the suburbs in the form of Services NSW, the Post Office, hospitals, the ATO etc. They believe that an organisation’s centre is filled with simple-hearted boffins who are dazed when brought into the sunlight for TV soundbites and long only to return to their natural element number crunching in obscure dim-lit offices.

    And any bad regulation or decision that emanates from these departments is solely the result of government as the boffins have no interest in doing anything harmful.

    What a lot of bull tish.


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  4. Notice that all the new cops, 000 operators etc. work out to about a cool million per job in the budget.

    Unfortunately Victoria badly needed an infrastructure build, and we got a Labor ego driven one, rather than a proper analysis and costed one.


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  5. The winners and losers in the Victorian budget

    The Victorian Treasurer Tim Pallas has handed down a budget deficit of $17.6 billion, driven by $44 billion in pandemic spending, with debt to balloon out to more than $167 billion within four years.

    But the budget bottom line has been helped by a “spectacular” economic recovery and $15 billion in extra taxes from the booming property market.

    Here are the key winners and losers of the 2022 Victorian budget.

    Winners

    . Energy users: A $250 payment for Victorians who seek out a better energy deal.

    . Victorian regions: $2.6 billion for the Victorian regions to prepare for hosting the Commonwealth Games in 2026.

    . Melbourne arts: $1.7 billion to transform the Melbourne Arts Precinct.

    . Builders: Infrastructure spending to average $21.3 billion a year.

    . Schools: $1.8 billion for 13 new schools and building upgrades.

    . Health: $1.5 billion for COVID-19 catch-up surgery.

    . Renters: $1 billion for low-interest loans and guarantees for up to 6,000 new social and affordable housing.

    . Advanced manufacturers: A $120 million Victorian Industry Fund to promote advanced manufacturing including $20 million to attract companies.

    Losers

    . Crown Casino: More tax on its 2600 poker machines under changes being made to bring in an additional $30 million a year.

    . Property buyers: An extra $15 billion has been raised from land tax and stamp duty.

    . Developers: An extra $58 million a year from July 2023 as a windfall gains tax on decisions to rezone land.

    . Business: Required to pay close to $1 billion a year for a mental health levy, and support a $246 million pilot program to guarantee sick leave and carer’s leave entitlements for eligible casual employees and contract workers.

    . Future taxpayers: Facing over $167 billion in debt.

    . Road users: Uncertainty remains about the plan to partially privatise VicRoads to modernise the state’s registration and licensing system and how road users data will be used.


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  6. Re Labor – Remember in QLD

    Queensland property tax hits interstate investors

    In December 2021, Queensland’s Treasurer handed down the mid-year budget update announcing a proposed change to the land tax regime to include the value of any land owned by an investor in all other states and territories when calculating the duty payable on the investor’s Queensland based property. Real Estate lawyer Luke Hefferan explains the impact of the proposed changes on interstate investors.

    KEY POINTS

    The Queensland government has announced a new property tax which will impact interstate investors.

    The value of an investor’s real estate assets outside Queensland will be included in calculating the land tax liability on their Queensland investments.

    Key industry stakeholders have expressed significant concerns.

    The proposed changes require legislative amendments which are yet to be confirmed.

    CURRENT SYSTEM

    Currently, each state and territory has its own land tax regime, which operates separately from the regimes of the other states and territories.

    This means each regime has its own threshold minimum before land tax liability applies allowing investors with multi-state portfolios to either avoid land tax completely (if the land values of all properties they own stays below each state’s minimum) or have a lesser land tax liability than if they owned the same value of land, but it was concentrated in one state.

    The practical example used in the Treasurer’s budget update was as follows:

    An individual who owns two investment properties, both in Queensland, with land valuations of $600,000 and $400,000 has a total land tax liability of $4,500.

    An individual who owns two investment properties, one in Queensland with a land valuation of $600,000 and the other in NSW with a land valuation of $400,000, has a total land tax liability of $500.

    This is due to the NSW property being under the minimum threshold for land tax in that state and the investor therefore only paying land tax in Queensland (as calculated on the land valuation of their Queensland land only).

    PROPOSED NEW SYSTEM

    Using the second limb from the above example, under the proposed new system, the value of the NSW land would be included in calculating the land tax liability on the Queensland land.

    As indicated above, if both the investor’s properties (with a total valuation of $1,000,000) were based in Queensland, they would have a liability of $4,500 (or 0.45 percent). On this basis, the land tax liability for their Queensland property will be 0.45 percent of the valuation of the Queensland land (ie $600,000), leaving the investor with a liability of $2,700.

    The examples used in the Treasurer’s budget update are fairly modest. However, the discrepancy becomes more pronounced where more significant interstate land holdings are introduced. For example, if the Queensland land value is $600,000 but the interstate land value is $2,400,000, then—

    an individual investor would have a land tax liability in Queensland of $7,500 (as opposed to $500), and
    a company or trustee investor would have a land tax liability in Queensland of $9,000 (as opposed to $5,700).

    COMMENTS FROM THE TREASURER

    When handing down the budget update the Treasurer stated, “At the moment, interstate property speculators can claim the tax-free threshold and take advantage of lower land tax rates in multiple states”. The Treasurer went on to claim, “young families in places like Logan and Ipswich face unfair competition from southern-based speculators who are flipping properties around the country at a furious rate”.

    To be clear, the Treasurer’s proposed changes will not affect investors whose land holdings are solely in Queensland, nor will it affect a landholder’s ability to claim all available exemptions, such as the principal place of residence or primary rural production exemptions.

    RESPONSE FROM THE INDUSTRY

    The industry response to these changes has been primarily negative.

    REIQ chief executive Antonia Mercorella questioned the changes, “How can the government possibly justify slugging property investors with tax for land they own that isn’t even within our state borders? It’s utter nonsense that there’s a loop-hole to close”.

    Jen Williams, Queensland Property Council executive director, was similarly pessimistic in her assessment of the proposal, “With the second highest land tax rates in the country and a penchant for finding new ways to tax the industry, Queensland faces the risk of detracting the core elements it needs to leverage the decade of opportunity ahead”.

    NEXT STEPS?

    The proposed changes to the land tax regime will require the passage of appropriate legislative amendments. At this stage, the government has not announced any proposed legislation, so a proposed commencement date for the changes has not been confirmed. However, we will continue to provide further updates on the proposal once draft legislation is released.


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  7. It occurs to me that certain myths have been allowed to take root and are never challenged, errors so manifest but which the public has been taught to ignore.

    Politicians and economists have long and patiently woven a spell over the population, a charm to make them believe the nonsense in front of them is the most elevated wisdom. “Here is a shite sandwich. I made it just for you, because of how much I love you. It is delicious, isn’t it. If you eat every last crumb I will give you a steaming warm cup of piss and mucus.”

    The most obvious is that while ordinary people know they have to live within their means they have been told governments don’t have to. People know paying off debt with their credit card still leaves you in debt but when the government does it they have somehow produced additional income. Ordinary people know that if you pour $100 into a poker machine and ‘won’ $10 back you have been stupid, but when the government blows $100 million with maybe $10 million to show for it afterward the $100 million spent and the $10 million asset is ‘growth’!

    I would like to see these myths tackled one by one in public in a very public space. Could be a page ad in the Oz. Sky, for all its reach, is still a fringe. Its appeal wide, but not deep. Every day up until the election. There will be accusations of partisanship and ad homs – such and such is connected to the IPA! But keep hammering the message: Just look at it. Does it make sense?

    One myth tackled at a time, with references to history that people are familiar with and to commonsense they can relate to. Keep it simple and clear, not an economic treatise but enough to distinguish good ideas from bad.

    Among the points addressed could be:

    > Wealth creation. Who produces it and how. Value add.
    > GDP – What does it really measure, and what does it conceal.
    > Government spending – Where is it going
    > Real levels of taxation and imposts – how much are we charged. How much more could we keep.

    And there is doubtless shedloads more people might come up with.


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  8. We have been preparing for some time for what is to come in the next year. It is going to be beyond grim.

    But you can’t convince people who have never known anything but good times. Our own family did all the right things during their careers & paid off their mortgage – only to borrow to buy an extravagant property of their dreams last year when house prices exploded. They will be OK as it is manageable, but the extravagant lifestyle will be no doubt have to be curtailed.


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  9. They will be OK as it is manageable, but the extravagant lifestyle will be no doubt have to be curtailed.

    ABC radio interviewed a couple yesterday who said they will have to cut back on take away food, on which they spend $100 per week (!).

    $5200+ per year (as most people underestimate their spending) which they could have been putting into their mortgage.


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  10. Everyone forgets that a government in itself doesn’t have a brass razoo, they get it from those of us who are loosely termed the taxpayer. Governments of all stripes couldn’t run a penny in the slot outhouse and in the main they don’t care because it’s not their money they are spending, it’s ours. Any suburban housewife could balance the budget better than these so called economists, and they generally do.
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  11. There was a time when a community would understand that with a more or less fixed resource base, the more the government spends the less available for the rest of us.

    All of those raving left fascists are quite clear on the subject of a fixed size cake when profits vs salaries are under discussion. Yet surely the contra argument to that would discredit the “fixed resource base” argument?


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  12. Scott, your frustration and contempt for the debilitated halfwit from Delaware is clear, and is echoed by me and countless others. Keep up the good work!

    Democrats have been pandering to women for years, not knowing that the word “man” also includes all mankind. Has anyone ever heard Rev. Congressman Emmanuel Cleaver end a prayer? He says “Amen and Awomen”. Evidently, he never learned in reverend school that “amen” is ancient Hebrew for “so be it”.


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  13. “I would like to see these myths tackled one by one in public in a very public space.”

    “…they don’t care because it’s not their money they are spending…”

    Freidman’s “Four Ways to Spend Money” is easy to understand and might be a good place to start.

    These are:

    * spend you own money on yourself. Price and quality both matter because you are paying and you are using the purchased item. Example: you buy yourself a new car.

    * spend your money on someone else. Price matters, but quality not so much – you don’t have to use the purchased item, only buy it. Example: a Christmas or birthday gift.

    * Spend someone else’s money on yourself. Quality matters because you are using the item, but price is secondary because you aren’t paying for it. Example: a company lunch.

    * Spend someone else’s money on someone else. Neither price nor quality matters because you aren’t paying for nor consuming the item. Example: using charitable donations to help the needy (ie running the charity).

    ALL government spending is spending other people’s money on other people, therefore in ALL government spending, neither price nor quality matter, except in so much as you can justify it politically.


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  14. Our debt is alarming and Joe Public wants to be in a socialist paradise where the fantasy of MMT works.

    When the public debt to GDP ratio exceeds 120% and sovereign bond rates exceed 5%, we could be ruined as a nation – literally, not figuratively.

    Debts we cannot ever pay back, the cost of debt servicing more than double any realistic GDP growth.


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