Yanis Varoufakis on Australia

There's an interview with Yanis Varoufakis on The Guardian's website,

Varoufakis is an economist, and was the Greek Minister of Finance. He got into a fight with the IMF and EU after the Greeks voted for no more austerity. That didn't go down well given the lack of money to pay for a generous spending programme.

Whilst I'm not a big fan in general, he does make some interesting points in the article. Yes, it does open with an attack on negative gearing, cast as class warfare (Varoufakis is very left wing), but he also argues that the country's debt problem is private, rather than public; and we need to produce more stuff.

That said, his proposed fixes are for more collectivism.

One thing he doesn't pick up on is how much business sets the agenda. The banks were threatening a campaign against Labor's proposal for a Royal Commission into their activities, but that one's gone quiet. And the real estate industry is making a lot of noise about negative gearing. That should surely be grist to a Marxist's mill.

 

I'm sorry and I maybe wrong here, but we have the ex finance minister of one the worst economic countries critiquing the Australian economy which is one of the few who escaped the recent GFC thanks to our highly governed and favorable banking section. Mate, wear your red shirt but I would simmer down. Perhaps negative gearing favours those who choose to offset their high Australian tax ( something that seems to the Greek working economy as a not interested category) and use it to reinvest in the country for their tax benefit and for the Australian economy. It's like asking for advice from Greece how to play rugby league.
Please note - this is no reflection on those who may be of Greek origin who live and work Australia and have prospored from their own hard work and due dilligence.
Rant over.

 

He served 7 months as the Greek finance minister during 2015, I wouldn't blame him for the economic condition of Greece, and don't worry our recession will be here soon enough. We delayed it and minimised it but we cant support the level of spending currently going on. Unless the world wants the only thing Australia can do, sell resources.

We are just lucky we have resources, because we dont back Australia for manufacture, we dont back Australia for education, we dont back Australia for Innovation.

 

He has worked in the future ?

 

The guys a genius!

*Updated, thanks @RedMarty

 

That ****** should try and fix his own country's woes and then he can be taken seriously.

He's probably never even heard of Mt Druitt.

 

No problem @MattADL

I had a bit of a read on this guy (after my rant)and looks like he was put between a rock and a hard place when elected as finance minister. I suppose the only concern I have with some of the statements is that they are not new and have been vocalised by others in the past. I must admit he puts the question more succinct than those before him.

Do others here feel we are living a residential bubble ? Been hearing this for a long time

 

When step out on my back verandah lately I can see no residential bubble although it does look a little hazy.

 

He is spot on about Negative Gearing.

“In Australia we have a scandalous system called negative gearing, the purpose of which is to subsidise the rich.”

“There’s nothing wrong with investing in building new houses,” he says, “but there’s something profoundly wrong with being subsidised by the taxpayer in order to bid prices up for existing housing stock.

“That is inane and that has to end. It shifts money and savings away from productive investments to fixed assets.”

 

Cool. Does he provide a solution or just diagnose the issue?

 

It does not subsidise the "rich" exclusively...and; it is merely giving back some of the money (tax) that everyone who is NG'd has already paid to the Gubb over the last 12 months.

NG is available to every Citizen in this Country - whether rich or poor - who has the resources, inclination, discipline and sacrifice to save enough to buy a property that can then be rented out.

Yes; richer folks get a larger benefit in dollar terms, but so what? They pay way more tax in dollar terms than you or I. The poorer folk still gets a benefit, and the chance to better themselves and not have to rely on a pension in retirement. They are subsidising themselves.

It was put in place to give incentive to everyone to try and better themselves and take the burden off the Gubb (and future taxpayers) to have to look after us in our older age.

Most times; the folks who are at the "rich" end of this whole equation started off with very little, and applied all of the above - and bettered themselves - and became rich later.

The folks before them did the same, and so on.

The Gubb make plenty off the property market from GST, Stamp Duty, etc - if they were running at a loss from NG it would have been scrapped many decades ago.

The trade off for all this NG is the Gubb has a lighter burden - they don't have to provide as much Public Housing or rentals, there are a lot less folks with their hand out at retirement (or getting less put in their hand at retirement).

You could argue (it already has been) that it is a Ponzi scheme - by your take on it - where the previous folks on NG are being subsidised by the folks coming behind them, but that applies to every generation - I subsidised the previous generation, and I will be subsidised by the generations coming after me....

This would be true, if the population stopped tomorrow and we ran out of future humans to keep pouring in their dollars to buy property...this hasn't happened for many tens of thousands of years so far; not likely to change that trend (notwithdstanding a Global Nuclear War).

I don't see it that way at all about NG subsidising the rich; I see it as everyone getting the opportunity to use the system to get ahead and not be a subsidised burden on the community in retirement.

If we delete NG, then something has to give - if we still want private citizens to even bother going through the grief associated with buying (and holding) IP's - the rents would have to cover the expenses.

The vast majority of IP owners - who of which only own one or maybe two IP's - only do so because the cost to hold them is very small...the short term gain is not there, so if there is significant short term pain to their cashflow; they won't do it....

And; they are not going to be able to offset it against other investment income other than their PAYE because most Mum and Dad investors don't have any investments outside their Super at work; so that is a weak argument.

Hence; the rents will need to eventually increase to cover the shortfall; or no-one would bother other than the seriously high income earners who can throw a few hundred per week at a neg cashflow property with no real hit to their lifestyle.

Yes; the Mums and Dads can NG on new properties under the new scheme, but as I've explained earlier; all you will see is a glut of IP's in the outer-lying new estates where the Jennings tract homes are being built....the result will be loads of vacancies, loads of dropped rents and no CG as a result of the poor returns scaring away investors, and investors who are too tight in their cashflow to carry a prolonged rent vacancy; who would have to offload their new IP cheaply - dragging the values of the other nearby homes down with them in the process....a la the gluts of apartments bought up by investors as we have seen in the past...

Or; there could be a short-term spike in demand and prices as the investors flood in to take advantage of the new build tract home NG - which then sets off another round of forcing out the FHB from the market - which these tract homes are built to house.

 

^^^^^^ what @Bayview said.

I've banged on severa times about why I invest in property. It is to self-fund a better retirement than the one painted by a future where at 60 or 70 I am reliant on a paltry pension check each fortnight. One that sees me scrimp and scrape just to get by and pay my groceries + leave the lights on. No thanks.

In fact, the current pension as it stands likely on't even continue into the future in line with inflation. It'll probably reduce even further. Why? We as a country are spending too much at a time when we need to reign it in, due to a waning economy as mentioned above.

In fact, just this morning I caught this scary piece in the SMH in regards to the economic future of my home state of NSW in the next 30 years or so:

Ageing NSW facing a $17b hole in its finances | smh.com.au

Sure the article is alarmist and headline/click-bating (hey, its the SMH, what do you expect hehe), but it does offer a valid point.

Seriously, how the eff are we to pay for all the oldies' medical and services bills in 30 years time (at a time when yours truly will be one of them - I'll be 64 then), with the overspending going on right now?

NG is a strategy that most using it only hope to need for a few (perhaps around 5?) Of their finest salary-earning years of their lives. Those who have a buy-and-hold property strategy (which is many of your investors) will progress through to neutral and then creep into expotential positive gearing in around 3-5 years for most properties anyway.

Since most lenders tend to have a max I/O period of 5 years, investors can only do the re-finance dance so many times from say their 30's to their 50's before banks either cease lending to them (after 50 it gets much harder, after 60 you get offered 10y mortgages, not 30y ones, after 70 it is virtually impossible), or they cease re-financing meaning they start to end their I/O periods. When this occurs, principal starts being paid whilst rents typically start going up. It is at this nexus that NG properties expotentially start shifting to neutral, and then even more rapidly, into varying degrees of positive thereafter.

So, why criticise a little government 'helping hand' on these investors during their portfolio establishment years, if this little 'investment' by the government into investors initially, will help to provide a financially independent human being in say 20 years thereafter? One who doesnt need to leech as much off of the gov very year, from their 60's to 90's?

 

He is an Australian citizen. Worked as an economics lecturer at Sydney Uni for about 10 years in the 90's.

 

He has definitely not heard of Mt Druitt then

 

Well, there you go.

I'll eat my hat.

Then I'll have a souvlaki with a few shots of ouzo.

Hey, the Greeks aren't that bad afterall ! lol.

 

My shout for being such a sport.

 

He was my economics lecturer at Sydney University back in the 90s.. Loves the limelight, loves the sound of his own voice. He should go choose a hobby. He had to resign his post as Finance Minister for 6 seconds because the other European Finance Ministers didn't want to deal with him.

 

AC, did you learn anything?

Did he have any perspective on the results of how individual tax avoidance can be a problematic issue, but the collective indulgence in the same can be a systemic revenue black hole?

Or was the servicing costs on his Harley a bit more front of mind?

 

Not in this context, no. His semester was about Microeconomics 101, marginal utility, heavy theory, and so on. He had a full set of hair, full crop of black hair and a tight turtle neck that appealed to 50% of the attendees

 

What next... the Pope criticising negative gearing?