By Leith van Onselen — Published with kind permission from Macrobusiness.
After his shoddy effort yesterday defending Australia’s giant superannuation rort, Dad’s Army’s Robert Gottliebsen (“Gotti”), has backed Treasurer Hockey’s proposal to allow young home buyers to raid their superannuation accounts to purchase their first home:
Joe Hockey’s idea to allow first home buyers to use their superannuation to break into the housing market is not stupid…
Most young people in Australia are finding it impossible to gain a first home… we are watching a fundamental shift in the Australian landscape with huge implications for the intergenerational problem…
[Last weekend]…I found myself in the company of a typical first home buyer in today’s market… They can just manage a house or larger apartment but they are saddled with a huge mortgage…
So why would we not say to that couple: “you can invest up to $50,000 of your superannuation in your first home…
A whole generation of Australians could retire without a house because they are unable to get into the market…
A question, Gotti: What do you think the extra demand from first home buyers (FHBs) accessing their super would do to house prices? That’s right, it would raise them, making the scheme self-defeating, much like FHB grants did.
Meanwhile, young people’s retirement nest eggs would be put at risk, potentially increasing their reliance on the Aged Pension (increasing the burden on future taxpayers).
Thankfully, Business Spectator’s young gun, Callam Pickering, understands these issues, penning the following rebuke today:
Australia’s approach to housing is full of misguided policies and dumb ideas…
Australian housing policy can best be viewed as a remarkably successful anti-Robin Hood scheme. We take from the poor (usually those under 40) and give it to the wealthy (often but not always ‘baby boomers’).
Over the years we have introduced all sorts of dodgy schemes to continue this rort…
Allowing younger Australians to use their superannuation for a housing deposit would have a similar effect to the FHOG… It certainly did nothing to boost home ownership…
Exactly. How about policy address the root causes of unaffordable housing – tax lurks, supply constraints, loose capital rules, and over-investment by super funds – rather than applying a band aid solution that will impoverish young people further and fill the coffers of Gotti’s rent-class?
Colin’s Comment: In 1850 Frédéric Bastiat wrote an essay Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Unseen) which describes the common mistake of politicians, economists and the general public when devising or assessing economic policy. They focus on the immediate, visible benefit and fail to consider the unseen, hidden costs.
Here is a simple video by Sam Selikoff that explains Bastiat’s Broken Window fallacy:
Yes, the tax rorts probably are part of the problem, and it surely irks me that governments are so stupid as to allow them to exist. BUT HANG ON!, tax rorts put more dosh into private hands don’t they? The message of the Broken Window Fallacy says money in private hands is always better than in government hands. Which is worse (or better): The hooligan smashing everyone’s windows to create false wealth, or no one paying any tax at all to keep wealth in private hands in the belief that good old free enterprise will come to the rescue? Both sides of this argument seem to ignore the cost of laissez-faire anarchy.
Hi Frank,
“The message of the Broken Window Fallacy says money in private hands is always better than in government hands.”
Not exactly. The message is that we need to identify the unseen, hidden consequences of government policy and not just focus on the immediate, visible effect.
Krugman’s example of WWII is clearly a Broken Window fallacy. Instead of millions of dead soldiers (and civilians) and $trillions of assets (ships and buildings) destroyed, the community would have had new suits, surfboards, refrigerators, etc…..and new assets. They are clearly worse off.
If we tax person A and hand the money to person B as a welfare payment, or employ B to dig holes in the ground and then fill them in, simply to create employment, the community is no worse off. Only A. B will spend the money on food and clothing (if you are on the left*), or drugs, alcohol and pokies (if you are on the right*) instead of A.
When there is a shortage of investment in the economy, we can actually do even better. We tax A and employ B to build productive infrastructure assets (note I said “productive” and not social infrastructure). In fact Politics 101 teaches that you don’t tax A because he/she will get upset with you and vote for the opposition. Instead you borrow the money to employ B. Call it a stealth tax because A doesn’t even realize he/she has been taxed (the government just borrowed your credit card). Income from the productive assets will reduce A’s future tax burden (if you believe in the tooth fairy) or give politicians more money to buy votes at the next election. But at least we have a productive asset that can be sold to repay public debt.
*The truth lies somewhere in the middle.
Thanks Colin,
Without a detailed understanding of an issue (remember I’ve never claimed to understand economics) the best I can do is test the extremes in the hope of glimpsing where the middle should be. But returning to the Joe Hockey problem, the things that stand out for a layman like me are:
1. Young home buyers who are struggling to afford a house probably won’t have much Super anyway.
2. Real Estate agents will simply encourage home sellers to add the allowable Super drawdown (whatever it turns out to be) to the price of the house, making them richer and the home buyer still competing with other buyers for slightly dearer houses.
3. From a Broken Window perspective, I don’t know if houses are considered to be productive assets or not, so I can’t decide if the proposed scheme would help the economy or simply raise the self esteem of young people who now don’t have to rent(which is not a trivial thing of course).
4. Joe doesn’t seem to have any plan to fix the root cause of housing unaffordability. Economists chant supply and demand like a catechism as being the great leveller of the market, but I don’t see anything like a free market in land development.
It looks to me like today’s government is distracted with fighting spot-fires instead of dealing with the encroaching fire front lit by previous governments.
Perhaps I’m just getting old and grumpy.
Keating borrowed the idea of super from the Singaporean CPF system.
Now Hockey has used the Singaporeans approach to home ownership as well!
Is actually not a bad idea when it keeps the squirrels on the employment treadmill for life.
I’m absolutely staggered that Joe thinks he can pull the wool over or eyes with something like this.
While it’s well known there is a desperate supply problem we also should be looking at reducing demand. A temporary halt or at least a dramatic reduction in immigration would help.
over “our” eyes
🙂