Peter Dutton makes Labor’s case, Labor reluctant to take on banks, advertising that tugs at your heartstrings, and other things I've been writing and reading

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Hello again! Once again, it’s been a while since I’ve written, and I’m really sorry. We’ve even had the budget. I’ve been busy, but I (always) expect to be less busy.

See: hyperbolic discounting, my curse.

The budget itself did what it should have done (I reckon). Yes, it poured money into the economy (mainly through the Stage 3 tax cuts, despite all you’ve heard about electricity rebates). Yes, it used subsidies to mechanically reduce prices. But high prices are causing pain, and the economy is weak.

As Treasurer Jim Chalmers said on Wednesday after the national accounts showed the economy exceedingly weak (growth of just 0.1% in the quarter, 1.1% over the year):

All of these people who were advising us to cut much harder in the budget or to provide no cost-of-living relief to people, they have been proven to be dead wrong.

He is right. A fair question to these people – you know who you are – is what would you have done in the budget and what would have happened as a result?

It reminds me of a story Ross Gittins tells from the days when he and fellow journalist Alan Mitchell were younger, in the early 1980s.

He had published a standard piece in the Sydney Morning Herald about how the budget lacked discipline, then he hopped into a car with Mitchell to drive to Canberra for a regular catchup with Prime Minister Malcolm Fraser’s economic advisors.

Gittins wondered why they seemed standoffish, offended about something.

Finally, one of the advisors opened up:

The economy’s f**ked, so we’re running a deficit.

Then Gittins got it. Economic management is real, it isn’t a rhetorical game.

Naturally, Opposition Leader Peter Dutton used his budget reply to complain about government spending. (It’s easy to do if it’s not your responsibility to stave off a recession). Labor had left us “in an inflationary hole and is still digging.”

Yet the inflationary hole is hard to find.

Inflation is deflating. It’s coming down. The quarterly inflation figure (in red below) is the signal – it’s the full survey, the one that is built from 900,000 prices per quarter.

The less-comprehensive monthly index (in black) is the noise. It bounces around in a way that at the moment is consistent with the quarterly index continuing to fall.

Wages growth has slowed (yes, slowed) and Wednesday’s national accounts reported that the wages bill (“compensation of employees” which is hours worked multiplied by rates paid) grew by less than 1% in the March quarter, the least since September 2021.

HT: Shane Oliver.

It is true that Monday’s national wage increase that will flow through to about one-quarter of the workforce from July. But it is unlikely to boost overall wages growth. Overall wages growth is lower than award wages growth in a way that is, frankly, embarrassing.

Only one in ten of us (12%) are members trades unions these days. What do we expect?

It is also true that inflation in the prices of services is higher than inflation in the prices of goods:

But the keen-eyed reader will note that services inflation is coming down in line with (but a bit later than) goods inflation.

Treasury Secretary Stephen Kennedy treated lingering higher services inflation as unexceptional when asked about it in Senate Estimates on Monday.

He said inflation took off as economies ran short of goods when they restarted after closing down in the first wave of COVID. Then Russia invaded Ukraine, pushing up the prices of oil and food.

Inflation in the prices of those goods has receded, but goods are an input to services. Kennedy says what’s happening to the price of services is an echo of what happened earlier to the price of goods.

It will take a while for that to flow through, and for services inflation to follow goods inflation down.

Services inflation isn’t high because of a wages explosion (I’m looking at you Eric Abetz). It is coming down because households are shutting their wallets.

The RBA checks in with the 230 businesses and authorities every few weeks as part of its liaison program. Last month it said:

Firms are reporting that it is becoming more difficult to pass cost increases through to prices and have increased their focus on cost discipline and/or improving productivity. Growth in wages and prices is expected to moderate further over the year ahead.

That’s what’s actually happening. We are restraining prices. It is happening in Canada, which has just cut interest rates, it is happening in the European Union, which has just cut interest rates, and it is happening in the UK, which is edging closer to cutting rates.

I know Governor Michele Bullock talks about maybe raising rates, but, absent enormous surprises, the next move will be down. Inflation is close to target, and another hike in interest rates would almost certainly bring on a recession.

Now let’s look at what Dutton did offer in his budget reply.

Dutton reckons immigration is too high. Maybe. And he wants to stop foreigners buying existing Australian homes.

He wants not only to stop them buying existing homes to live in (something they are able to do temporarily while here temporarily), he also wants a two-year ban on them buying homes to let out to renters.

He wants to stop them being landlords. Not because landlords deprive us of homes to live in (they don’t) but because they deprive us of homes to own.

Every existing home that is owned by a landlord is a home that isn’t owned by an owner-occupier. It’s maths.

It was, Dutton said, pretty unfair to be at an auction “bidding against somebody who has very deep pockets and somebody who’s not an Australian citizen”.

Stopping foreign investors would help restore the “dream of home ownership”.

Yet, as I wrote, Dutton has pointed out something that’s true for all investors.

By bidding against people who want to buy existing homes to live in, investors are pushing up the price of those homes. When they succeed in buying an extra home, they ensure an owner-occupier does not.

If Dutton really wants to ensure would-be owner-occupiers don’t find themselves at auctions “bidding against somebody who has very deep pockets”, he would keep the people with deep pockets away. They are investors. He would keep investors away. And he sort-of gets it.

No one objects to investors who build new homes, increasing supply – certainly not Dutton. The two-year ban he put forward in his budget reply speech would have only stopped foreign investors buying existing properties. There would be nothing to stop them building and letting out new ones.

That’s how you would design a grander Dutton-style plan that applied to all investors. Labor put one forward at the 2016 and 2019 elections.

Under Labor’s 2019 plan, negative gearing – the tax break that allows investors to write off losses they make from renters against their wage income – would no longer be available to new investors, except those who actually provided new homes.

Dutton has made Labor’s case. We’ve got to do something to stop would-be landlords outbidding would-be owner-occupiers.

In the census before the capital gains tax concession for investors was supercharged in 1999, 25.5% of households headed by someone aged 35-54 rented. In the latest census it was 33.7%.

If we want to stop the proportion of renters growing – if we want to stop more and more Australians from never owning the homes in which they live, we’ve got to wind back the proportion owned of homes by landlords.

Note that this has little to do with the overall supply of homes. It has to do with the allocation of that supply to either investors or owner occupiers.

An extraordinary 2.2 million taxpayers own investment properties – one in every six.

Yes, they provide places for rent, but every time an investor buys an extra property, that investor deprives a renter of a place to own (unless the investor builds and rents out a new property, adding to supply).

But what about the argument that if investors exited the market, it would create a shortage of rental housing and drive up rents?

Tim Colebatch dealt with that one a decade or so ago:

This is a basic misunderstanding of something that is quite simple. If a house is not sold to a landlord, it will be sold to someone buying their own home. There will be one less home for rent, and one less household looking for rental accommodation. Supply will fall by one, demand will fall by one. There will be no change in the balance of supply and demand, hence no shortage, and hence no rent rises on this score. It would be different if investors stopped building new housing. But 91 per cent of lending to investors is for purchase of existing homes. One option for reform is to restrict the tax break to construction of new homes.

Labor used to get it, and Dutton gets it conceptually.

This is a plea from former Treasury boss Ken Henry, accompanied by a confession.

Launching the book Mixed Fortunes, about the history of tax reform in Australia by former treasury official Paul Tilley, Henry said ahead of this year’s budget that he hated the way it would be reported – in terms of winners and losers.

Here’s Henry’s confession. Shortly after he joined the Treasury as a tax expert in the lead-up to the 1985 tax summit, he was taken aside and told that arguments about making Australia better weren’t going to fly.

His bosses told him:

all anybody would want to know is what was in it for them, how many dollars they were going to get – and that’s also all the newspapers would want to know, that’s what they would be printing on their front pages.

What would matter would be the immediate “overnight” estimates of who would win and who would lose. Beyond not costing the government money, nothing else would matter – not how the changes would affect society by funnelling people into doing some things and not others, and not what they would do over time to the people who won or lost on the night.

So, presumably with a heavy heart, Henry developed a computer model that spat out nothing more than immediate winners and losers and ignored what the changes would do to Australia over the longer term.

Henry says looking back it is easy to understand “why we did what we did”.

“But I can’t escape the sense that, in developing the tools that facilitated squabbles over the distribution of gains and losses among the households of Australia in 1985, we were participating in a conspiracy against future Australian households.”

Henry did it again in 1991, helping build a much more precise version of the model whose exaggerated precision was used by Keating as prime minister to kill off Opposition Leader John Hewson’s plan for a raft of tax changes including a 15% goods and services tax and to end Hewson’s political career.

But it worried Henry. He says Hewson’s package was a genuine attempt to break out of the winners and losers mindset and argue for changes on the basis they would benefit society.

Then in the late 1990s Henry dusted off the model again and used it in the opposite way – to help the Howard government get its 10% GST over the line.

Henry’s confessions tell us about more than the flexibility needed to serve the government of the day. They tell us that the thing that matters most, making Australia work better, can’t really be spoken about.

Here’s what Henry said.

Sorry, it is depressing. Actually, this is too:

What if the government was doing everything it could to stop thieves making off with our money, except the one thing that could really work?

That’s how it looks when it comes to scams, which are attempts to trick us out of our funds, usually by getting us to hand over our identities or transfer funds.

Last year we lost an astonishing A$2.74 billion to scammers. That’s more than $5,200 per minute – and that’s only the scams we know about from the 601,000 Australians who made reports. Many more would have kept quiet.

If the theft of $5,200 per minute seems over the odds for a country Australia’s size, a comparison with the United Kingdom suggests that’s right. In 2022, people in the UK lost £2,300 per minute, which is about A$4,400. The UK has two and a half times Australia’s population.

It’s as if international scammers, using SMS, phone calls, fake invoices and fake web addresses are targeting Australia because in places such as the UK it’s harder.

What’s the UK doing that we are not? It is working with the banks and placing pressure on the banks to fix things. Banks are used to transfer funds. They are best placed to fix things. Bank customers exercising personal responsibility are not.

Here’s an example of the role played by Australian banks. A woman the Consumer Action Law Centre is calling Amelia tried to sell a breast pump on Gumtree.

The buyer asked for her bank card number and a one-time PIN and used the code to whisk out $9,100, which was sent overseas. The bank wouldn’t help because she had provided the one-time PIN.

In the UK, but not here, it’s about to become compulsory for banks to refund stolen money in all but the rarest of circumstances.

The idea behind the change – pushed through by the Conservative government now led by UK Prime Minister Rishi Sunak – is that if scams are the banks’ problem, if they are costing them millions at a time, they’ll stop them.

New Zealand is looking at doing the same thing, as is Singapore.

But here, Australia’s treasury discussion paper on its mandatory codes mentions reimbursement only once. That’s when it talks about what’s happening in the UK. Neither Treasury nor the relevant federal minister is proposing it here.

The Minister is Stephen Jones. He has listened to the banks. I am reminded of when BP petroleum, under pressure over its role in facilitating global warming, hired the public relations professionals Ogilvy & Mather.

It promoted the idea of a personal “carbon footprint” even getting BP to publish “carbon footprint calculator”. It made it everyone’s problem.

It was “one of the most successful, deceptive PR campaigns maybe ever”.

Music matters

Wednesday June 12 is the 60th anniversary of the first Beatles concert in Australia, at Centennial Hall in Adelaide showgrounds in 1964. I mentioned a while ago that I’d found a cassette tape with a fragment of a broadcast of the Adelaide concert.

I’ve now found the full thing on the internet archive. Enjoy, on Wednesday, and pay special attention to when DJ Bob Francis thanks the band and what happens next. It was a different time.

Also, we all know "We’ve only just begun”. I’d always heard that it was a jingle for a bank. Richard Carpenter saw the ad on TV and asked the writer for extra verses.

I’ve just found the jingle. If you’re like me (you’re probably not) it’ll bring on tears:

And here’s the story behind it, from advertising legend Hal Riney:

I did a campaign in the late sixties for a bank. They were an old fashioned bank with old fashioned customers, all of whom were either dying or about to, and they were trying to replace those people with younger customers.

I decided there wasn't anything to talk about, so I went to the president of the bank and said “what we ought to do is take some of your money, and go out and get a whole bunch songwriters to write a song about young people and their lives and how their lives are changing and things like that”.

They came in in swarms, asking for money and stuff like that, and the bank finally decided it didn't want them there because they didn't have any money or collateral.

But, in the meantime what they did with the campaign is they franchised it to banks all over the country.

Keep reading The Conversation (I edit the pieces on economics) and for that matter keep reading Inside Story, John Menadue’s Blog, and Post, a free 7am weekday email from The Saturday Paper.

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