Quiggin’s Razor

John Quiggin put his mouth where our money is a couple of days ago, and blogged a list of potential spending areas/waste that Mark Latham could attack to raise the money for substantial Labor spending initiatives and tax cuts.

JQ’s list looks eminently sensible to me. Unfortunately, Latham so far shows no sign of grasping the nettle and making any such announcements. If Howard really is positioning the Coalition for an August election (which looks increasingly likely), time is getting very short to announce Labor’s detailed policies and expect the electorate to absorb them.

BTW Some readers may be surprised that I’m not reacting adversely to JQ’s suggestion that negative gearing losses from residential rental property investments should be quarantined (i.e. tax deductions only permitted against profits made in the same area of endeavour). My family currently makes quite substantial negative gearing losses on rental properties. We have a deliberate strategy of undertaking as many expensive repairs, maintenance and renovations as possible before Jenny takes early retirement in the next couple of years. That’s one of the reasons why I don’t have a problem with JQ’s proposal. We’ll be selling some assets to clear existing debt on rental properties as soon as Jenny retires, and they’ll then be making substantial profits against which accumulated losses could be deducted. JQ’s proposal would certainly make negatively-geared residential rental property investment somewhat less attractive for investors still many years away from retirement, but it will remain a viable retirement strategy for many. Moreover, taking some of the long-term heat out of the property investment market would be no bad thing of itself, quite apart from revenue savings. As Paul Watson incessantly points out, many younger Australians (aagh! GenX) are being priced out of the housing market by a range of factors, of which the current CGT regime is probably the most significant. JQ’s proposal would help to improve housing affordability in a moderate, controlled way.

PS – I should also note that I’ve already lost an election date bet with Michael Jennings (I bet on an early election by April at latest). If Michael would like to email me his street address, I’ll send him a couple of bottles of reasonable oz vino next time the Parish bank account is in the black.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Jacques Chester
Jacques Chester
2022 years ago

Ken, I actually wrote a report on house prices for David Tollner, which was submitted to the Productivity Commission. It’s online here as a PDF.

What I left out was my personal opinion that a banking system built around central bank inflation and fractional reserve banking is bound to generate undue inflation. I worked with some gents in DPL to produce some indices of “true” inflation, where non-consumption items are included. It turns out to be much higher than CPI and lags the creation of new money by the RBA and banks by around 6-12 months.

I also did a “predation ratio”, a la Rothbard, which showed that the Federal Government’s rate of predation has been steadily falling since ’96, from around 53% to 48%. Which is a fancy way of saying that while total taxes are up, the ratio of government spending to GDP is down.

What a fun job it was bringing these obtuse statistics to David’s attention.

Dave Ricardo
Dave Ricardo
2022 years ago

Ken , if you’ve been making deductions for your renovations, then you’d better hope that no one from tax office is reading this blog. Renovations are a capital item and are not allowed to be deducted.

Homer  Paxton
Homer Paxton
2022 years ago

M’lud ken,
I believe that Iron Mark has stated in his budget reply speech to reduce government expenditure as a % of GDP. Moreover he further promised to pay for any increased services by making savings in other areas in other words no increase in expenditure.

Further their ‘Razor’ gang of Crean, McMullan and Cox has identified substantial areas where they can cut spending.
I expect these cuts to be verified by Access Economics as too their new spending.

so exactly what were you on about?

Ken Parish
Ken Parish
2022 years ago

Dave,

No, only repairs and maintenance, although in some cases aspects of renovations can be depreciated over a short period of time, which is in practical terms almost indistinguishable from a tax deduction. We’re very careful about what deductions we claim, apart from anything else because we end up with fairly significant negative gearing without even trying.

Ken Parish
Ken Parish
2022 years ago

Homer,

I would have thought that’s fairly obvious. Latham has told us what he aims to achieve in global bottom-line terms, but not how he intends to get there. You may be perfectly happy to vote Labor without knowing what expenditure or tax cuts they propose making, but I seriously doubt that most voters would take such a sanguine view.

Dave Ricardo
Dave Ricardo
2022 years ago

Ken, glad to hear it. What happens to your retirement strategy if Darwin house prices crash and burn?

Ken Parish
Ken Parish
2022 years ago

Dave,

Jenny is fairly close to early retirement now, and current predictions are that darwin property prices will remain buoyant for the next few years (because of construction of the gas projects, spinoffs from the railway, new convention centre and various other major projects already in the pipeline. Darwin didn’t experience the huge price rises of Sydney and Melbourne over the last few years, so there’s a sense in which this is just bringing us in line with other parts of Australia. In any even, we’re pretty much OK in terms of being able to clear debt through strategic asset sales even if property prices begin to stagnate now. It’s one of the advantages of pursuing an investment strategy over a fairly long period. Once the debt is cleared, we don’t give a stuff what happens to property prices in the short term. The remaining rental properties are our semi-permanent retirement nest egg, and what will be important then is rental income returns not capital gains on sale. Darwin rents have always been pretty good (from a landlord’s viewpoint), because the transience of much of the population means that home ownership rates are significantly lower than elsewhere.

woodsy
woodsy
2022 years ago

Jaques may have brought some obscure stats to the attention of Dave Tollner but I bet the member for Solomon couldn’t understand them The man would have difficulty understanding a MacDonalds menu, even with the pictures. Too many polysyllabic words Jaques, not enough references to crocodiles, aborigines, dole-bludgers, drink-driving, fights on planes etc. etc.

BTW, on a more serious note, I suggest that the availability of credit may have had something to do with the increase in demand and subsequent rise in prices.

Jacques Chester
Jacques Chester
2022 years ago

In David’s defence, he’s a lot smarter than people give him credit for. The blokey matesy thing is his central queensland upbringing. I assure you that even my rampant polysyllabism didn’t faze him.

woodsy
woodsy
2022 years ago

Sorry for misspelling your name Jacques, we rednecks in the Top End have difficulty spelling orstralian let alone anything more exotic. I have met David several times, both before he became a mp (when he was the ARF rep here) and since. And my impression of his intellect and his behaviour has deteriorated after every meeting, regardless of the awful press he has received.

James Hamilton
James Hamilton
2022 years ago

What would the effect on rents be if neg gearing got canned? Any opinions out there?

Dave Ricardo
Dave Ricardo
2022 years ago

James, we’ve just gone through the biggest housing boom ever. Vacancies are at an all high time high and rents are dropping like a greased brick. Renters have never had it so good. Now is the perfect time to can negative gearing.

Ron Mead
Ron Mead
2022 years ago

Hey Ken, have I missed something? Are you and Jenny back together or have you had an exceptionally amicable separation that doesn’t involve selling up assets and settling? Sorry if I’m being intrusive. Perhaps I should just mind my own business!

Ken Parish
Ken Parish
2022 years ago

Ron,

Yes, it’s a reasonably amicable breakup most of the time. And it doesn’t make sense to sell everything and start all over again from scratch at`our age.

Homer Paxton
Homer Paxton
2022 years ago

M’Lud Ken,

So your beef is that you want to look at the policy now and Iron Mark will release it later.

Hmm, having to choose between whose poilitcal judgement is better is a no show!

Be patient.

Ken Parish
Ken Parish
2022 years ago

Homer,

As far as I’m concerned, it isn’t just a matter of “political judgment”; it’s an aspect of basic democratic accountability. Voters should be informed about major party policies sufficiently in advance of an election as to be able to assess them and so exercise their votes meaningfully. I equally criticise Beazley for the same tactic before the last election, and Howard for doing it in 1996. Whether it’s “smart politics” is largely beside the point. It’s dishonest and makes a joke of democratic accountability.

Announcing core economic policies during the heat of an election campaign proper tends to ensure that those policies don’t receive adequate public scrutiny, because the intensity of campaign coverage makes the issue rapidly disappear from front pages. Usually that’s a significant part of the motivation for a small target policy: you make a small target and keep moving fast. One suspects Latham is doing it because (a) he knows that the broader tax cuts he promised in his budget reply to reveal later can only be piddling (a sandwich without a milkshake?), and he doesn’t want any more focus on them than absolutely necessary; and
(b) he wants to minimise scrutiny of the $8 billion of expenditure cuts he says will be made to fund Labor promises.
They’re understandable desires, but democratically illegitimate ones, and they deserve to be exposed as such.

Homer Paxton
Homer Paxton
2022 years ago

M’Lud Ken,

Whenever they are released they will be scrutinised by more skilled people than either you or I ( in my case that is a very easy call) so the essence of your argument doesn’t stack up.

If the Election is held later on as I suspect then you will have another set of forward estimates to pore over for Messrs Crean, Cox and McMullan and Access Economics.

If I was Iron Mark I would release them in the campaign when Treasury can’t pore over them and only Costello’s staff can. Then Costello can look as silly as he did in the last election.