Solutions for the hard tasks in migration, energy an housing

The first step in solving any crisis is to recognise that there is a deep problem and then isolate the causes.

Yesterday John Dahlsen and I tried to isolate the deep causes of the cost of living/inflation crisis.

Today we canvass a much harder task – the solutions. Given the mess we have created by isolating our inflationary blows to 30 per cent of the population using the blunt interest rate weapon, today’s non-interest rate solutions will foster a community focus. But there will be wide disagreement.

What makes non-interest rate solutions tough is that too many of our decision makers, influencers and commentators are remote from those in distress and so interest rates become just a number or pawn on the chess board.

The reality is that the federal, state and local governments are causing a significant proportion of Australia’s inflation and their failure to recognise the impact of their actions is causing huge damage to our low-income earners and mortgagees in distress.

Government expenditure as a percentage of GDP is increasing and GDP per capita is falling. It is the private sector that drives the economy, yet governments are allocating more and more GDP to non-productive activity beyond what is needed in a fair and just society.

We will canvas solutions via housing, energy, migration, the combination of small enterprise and productivity and the community disasters in the industrial relations bill.

Housing

If we are going to solve housing shortage problem we cannot afford to have state and local governments adding 40 per cent to the cost of dwellings.

And if the federal government can’t enforce solutions then we have to debate the current structure of state and local governments.

To reduce dwelling costs by say 20 per cent we start with the taxes and then set up simple and fast mechanisms for determining zoning rules and building permits.

Currently two-year waits are the norm and that explodes costs and deters capital. There are plenty of models overseas to fix it.

Ironically in his final months in office former Victorian premier Daniel Andrews headed down this track and Victoria needs to accelerate his scheme albeit it is already under attack. Andrews isolated areas for clear zoning and vowed that permits would be fast if basic rules were followed.

Any reduction in housing taxes can be partly funded by massive retrenchments in the bureaucracies dedicated to boosting housing costs.

An intricate plan setting up which taxes are best reduced is for others to devise. While cost reduction will help another source of state revenue will be required. The money needs to be raised by the federal government and only handed to states that dismantle their structures are boosting housing costs, including those in regional areas.

Higher GST will come to mind as will abandoning the July tax cuts. The 2019 Bill Shorten-led opposition proposed a franking credits change that was complete lunacy because it protected the mates of the ALP and almost randomly attacked others.

At the time I commented that if Bill Shorten and his then “franking credit” minister Chris Bowen wanted to raise money from franking credits then everyone must be treated equally. Perhaps only a certain percentage of a company’s profits could be to be paid in fully franked dividends.

To lift our productivity, Australian companies need to invest more in their business and for a variety of reasons, including dividend demands from shareholders, they are not investing.

An adjusted franking credit system would help productivity as well as funding the reduction in the cost of dwellings.

Another ”tax” to fund housing tex reduction is to limit the value of a residence to those receiving age pension benefits. None of those moves will be popular which is why it’s easier to keep pulverising the 30 per cent minority.

A clear danger in any move to help housing costs is that banks will increase their lending and the price of dwellings will rise to absorb the concession.

Accordingly banks will need to be curbed probably by via changing the risk-reward ratios to encourage lending to business.

When Paul Keating introduced his magnificent superannuation scheme it was possible for most people on ordinary wages to buy a house so the Keating plan was provide retirement money in addition to the dwelling.

Now people on ordinary incomes simply can’t buy a house and although the price reduction will help there is anger boiling among young people that the savings in superannuation can’t be used for what is clearly the best retirement asset –a dwelling.

In time that anger will be turned on superannuation and the movement will be greatly damaged.

Once superannuation savings can be used to fund the first dwelling the current generation of young people will embrace superannuation in the way of their parents and grandparents.

Such a move will be extremely unpopular among the “Keating” generation trustees.

We also need to tackle the building costs of apartment towers but that’s a huge subject.

When it comes to the rent crisis, states must be required to remove all special taxes on rental properties and adjust the tenancy laws to retain fairness for renters but not be onerous for families renting houses.

Negative gearing for genuine rental properties must be locked in so investors can be assured of the benefit.

If we reduce the cost of land via proper permit and zoning then overseas institutions are ready and willing to build complexes for rent in Australia. NSW is our biggest problem.

Energy

We are embarking on an incredibly high cost process to reduce carbon emissions because we have not taken into account the limited life of solar and wind installations and the enormous costs of erecting cables to deliver their power to populations plus the need for backup when solar and wind don’t produce power .

The new, low-cost, smaller and safe nuclear installations are transforming the rest of the world to add to wind and solar and we have to embrace them. But new power generating technologies are now also coming forward particularly in China.

We can achieve quick carbon reductions via gas power stations close to power lines and replacing coal. But later they will be replaced by the new technologies. Rising power costs are in part a result of bad government.

Migration

Flooding the country with a vast number of migrants when we have nowhere to house them is a disaster. Apart from students the only migrants allowed in large numbers should be those with skills ready to be used particularly in building and health.

Small enterprises and productivity:

Australia’s rapidly declining productivity contributes to enterprises passing cost rises in the prices.

In his submission to the Productivity Commission former share broker Bill Ranken points out that small and medium business employ 7.4 million Australians or two thirds of the private sector workforce but we rank 32nd for global financing of small and medium business.

Bank financing of small and medium enterprises has been slashed in favour of housing and, as discussed earlier, that needs to be reversed.

Unlike other countries we have we have few institutions that make equity capital available to these enterprises.

We need at least one political party to concentrate on policies for small and medium business.

The industrial relations bill

This bill attacks casual employment, contracting, the gig economy and has an plans to slash the powers of the ACCC so there can be a cartel between unions and big transport companies to lift prices. This should be at the top of our list but it’s at the bottom because I have covered it widely.

It will send the 30 per cent of sufferers much deeper into poverty and may in fact trigger the community revolution likely stem from the inflationary reduction burden being increasingly born by a minority of the population.

Footnote: Thanks again to the work of John Dahlsen in helping with these solutions