I notice that the private sector have now decided they’re supporting the public sector who are being described as “parasites” or “wastrels” by some commentators.
The whole private sector supporting the public sector thing is a bit of a crock. In effect both private and public sectors getting loans they couldn’t afford to buy houses that were over-priced and giving the government over a billion in stamp duty a year was a huge part of the problem.We’ve been living on an overdraft often provided by Arab and Chinese investors for the past 15 years.Our public sector didn’t look disastrously expensive to the exchequer when everybody was all spending like there was no tomorrow. Unfortunately, tomorrow came.
So now we’re figuring out who to blame when nobody is spending in an economy reliant on spending and extravagance for tax revenue. Spending has decreased much more than unemployment so it’s not that everyone is on the dole. Are we so much poorer on a monthly income basis than in 2007, excluding asset value from houses? I don’t think so. Spending is depressed as people have actually started to think about saving based on a panic and an inability to get more debt to fund more things they don’t need. This isn’t the fault of public or private sectors. In particular a big chunk of the shortfall is a collapse in the housing market, the biggest sign of our extravagant tiger years. It’s not that nobody can afford to buy houses anymore, it’s that the prices haven’t dropped far enough. The only people who don’t publicly admit this are auctioneers and/or politicians. There’s a lot of overlap between the two 🙂
I’d contend that there’s something worse than mere deflation, it’s long term consistent deflation. It’s depressing and discourages all sorts of investment. David McWilliams suggestion regarding a 20 year moving average for property valuations is one mechanism of drawing a line in the sand regarding the current house prices versus their actual value. Helping developers to cling on to delusional notions of a recovery in property value is actually only harming the situation. Everyone is waiting for the collapse so nobody will buy now. The end result is that the property chain is frozen and stamp duty revenue is being lost.
Now that the builder bank is nationalised, the government could call in NPL’s and put the resulting already developed properties to auction to find their true market value. We’re better off to get people buying at knock down prices now than to perpetuate a bluffing game that’s already gone on for more than 12 months. At worst we’d confirm what the markets believe, that our banks face a huge asset write-down. Remember that perpetuating this is now costing every taxpayer in the state as we’ve guaranteed the interbank loans of these banks. Whatever our investments are used for it shouldn’t be kicking out maturities or allowing interest holidays for breakfast roll men while they wait for pigs to fly and the market to recover.
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