Unimpressed with Labor

From the department of wrong-move:
Federal cabinet today approved a scheme offering an effective tax break for aspiring first home owners, giving them incentives to save a deposit.

Treasurer Wayne Swan said cabinet had agreed on the first home saver account, first flagged during the election campaign.

"This is a modest long-term measure to assist more young Australians to achieve their dream of home ownership," he told reporters following a cabinet meeting.

"Young Australians saving for their first home will attract a government contribution equivalent to 15 per cent discount on their marginal tax rate."

The scheme will start in the second half of this year.
The housing bubble has blown up all over the world. There are various reasons for this, but here in Australia the housing market has become overheated due to two bits of government legislation: The first homebuyers grant and negative gearing.

These two policies, designed to supposedly "help" the housing industry, have only made house prices higher. In other words, the stated reason for their existence - helping people to own homes - has made it more difficult. There's an irony there to be sure.

I believe that government can and should intervene in the normal functions of the marketplace if it can be shown clearly that such an intervention would benefit all (government, buyers, sellers, stakeholders). At this present moment in time I do not believe that the government should have any say at all in the housing market (except, of course, ensuring that houses are built according to the rules). The government should basically butt out of the market altogether. The Coalition helped to overheat the housing market because of the first homebuyers grant and negative gearing. Now the ALP is continuing this overheating by giving first home buyers a "tax break".

In order for the property market to act properly, it needs to cool down. House prices have to decrease to more sustainable levels. This act by the ALP will do nothing to help the market cool down - in fact it will simply inflate the bubble and stoke inflation. It may provide a short term "boost" to house prices - which are completely unsustainable as it stands already - but will end up hurting everyone in the end.

By enacting this policy, the ALP have essentially shown themselves to be either a) ignorant of economic facts, b) overly political, or c) both.

Not happy Kev.


apodeictic said...

I don't think the first home owner's grant "created" the housing bubble in Australia, but it no doubt exacerbated it. The chief cause of the Australian housing bubble was the cultural pressure to own one's own home in league with economic prosperity, cheap credit and (more tellingly) a very lax attitude on the part of lenders. The first home owner's grant merely added fuel to the fire.

Reuben Kincaid said...

From memory there was a period of time where the Federal government disallowed Negative Gearing as a tax break – the result was a huge increase in Rents. It was eventually re-instated.