Bob Day and David Leyonhjelm
Australian Financial Review, 1 March 2021
As everyone knows, the government has borrowed a lot of money to stimulate the economy in order to recover from its COVID-19 control measures. Gross debt is expected to exceed a trillion dollars this financial year. Getting the budget back under control is vital if workers are to avoid paying exorbitant taxes for generations.
There are various ways this could be achieved. Here are three obvious areas in which the government could make a start without risking even more harm through inflation and the erosion of savings.
As we are regularly reminded, the best form of welfare is a job. Gaining a job would be vastly easier if people were allowed to escape the workplace regulation prison. Neither the government nor the bureaucrats could possibly know what suits each individual worker and their family. It is a fatal conceit for the government to assume it knows what is best for any individual.
Hundreds of millions of dollars goes on social security and welfare to people who could otherwise be working and financially independent. That includes not only those on Newstart and JobSeeker but also recipients of disability and age pensions, many of whom would welcome the opportunity to earn some extra money.
The disruption economy clearly shows what happens when people are free to work as they prefer; Uber allows people to run their own taxi service as and when it suits them, for which there is huge public support; AirBnB has enabled people to make money from their own homes or holiday houses; TaskRabbit and similar services allow people to offer their labour to do almost anything on terms and conditions that suit them.
The second saving area is to end the duplication between the Commonwealth and states, particularly on health and education. These are state responsibilities, yet the Commonwealth employs over 6000 public servants in the health portfolio and over 4000 in education while running no hospitals or schools. That’s on top of the billions it distributes to the states for these functions.
To take this argument further, there is no need for any government, state or Commonwealth, to run any schools. There is sufficient knowhow and capacity in our community for schools to be run by non-government bodies. Students who need support can be funded directly, leaving their families to decide where to send them.
The third saving suggestion is to remove barriers to home ownership. While the Commonwealth and state governments boost demand for housing through the HomeBuilder and first home owner schemes, as does the Reserve Bank’s ultra-low interest rates, nothing is being done to boost the supply of housing.
As anyone contemplating building a new house discovers, the actual cost of building a house is relatively low and hasn’t changed much in 30 years. It is the price of land that has skyrocketed. Traditionally, the median house price was around three times the median income, allowing young home buyers easy entry into the market. State governments then stepped in to make huge profits by stifling the release of land and drip-feeding it out at massively inflated prices. House prices rose to more than six times the median income.
The ramifications of this, both social and economic, have been disastrous. Hundreds of thousands of additional dollars are paid on mortgage payments which cannot be spent on other things – clothes, cars, furniture, appliances, travel, movies, restaurants, the theatre, children’s education, charities and many other discretionary purchase options.
While competition for properties in desirable locations will always result in price inflation, it is the regulated scarcity on the fringes of our cities that is at the heart of the problem. The outer suburbs are where first home buyers have traditionally got their start as land in these areas has been plentiful and affordable. Now it is neither, and first home buyers of moderate means have no place to start.
The inequity may not be all that evident at the moment but in time it certainly will be. As we all know, if you don’t own your home by the time you retire you will struggle.
The Commonwealth could save hundreds of millions of dollars a year by reducing grants to those states that engage in price-gouging of residential land holdings through their land management corporations. It could also immediately sell off its own surplus land. The resulting lower prices would have a multiplier effect: more housing activity, more employment, more income tax paid, more building materials made and sold, more whitegoods, appliances and soft furnishings.
Bringing the massive deficit under control is not something that can be kicked down the road. It requires political courage, something sorely lacking in Australian politics at the moment.
Bob Day and David Leyonhjelm are former senators.