LDP budget

LDP senator elect David Leyonhjelm sets out a proposed LDP budget in the AFR this morning.

There are three steps necessary to bring the Australian economy back to health: (1) tax reform and deregulation to boost economic growth; (2) cut government over-spending to immediately bring the budget back to surplus and start paying down the national debt; and (3) structural reforms that ensures government spending is sustainable in the long run.

All good – of course the devil is in the detail. The picture below sums it all up quite nicely (Terje emails a correction: the line labelled ‘government budget’ should read ‘MYEFO’).

LDP budget 1

I have two quibbles: first the use of the phrase ‘so the rich pay their share’ is very problematic and demonstrates entirely the wrong mind set. The LDP needs to lose that attitude.

My second quibble will generate a lot of controversy in the comments. Including the family home in an assets test is not a good idea.

This keeps coming up time and time again. Apparently there are millionaires living in their own homes who get the age pension. Okay. But let’s think this through. I suspect an actual audit (as opposed to anecdote) of these ‘millionaires’ will uncover a lot of little old ladies – probably widows – who have lived in their family home all their married lives and the suburb around them has gentrified driving up the value of their home. No doubt if these little old ladies were to leave their homes, the house itself could be knocked down and several townhouses erected.

For statists and social planners a policy of removing the elderly from their homes has a lot of benefits; more efficient land use, better allocation of public spending, and so on. Millionaires don’t get welfare. Social planners must find the elderly so annoying in so many ways. On the demand side they under-consume, and on the supply they don’t work and so are unproductive. Not to mention that they often occupy prime real estate in what are now good suburbs.

So as you can tell I’m a bit suspicious of policy recommendations that result in people being removed from their homes because a bureaucrat or politician imagines a better usage of their property.

On the other hand there may well be a policy problem. A reverse mortgage market could solve some problems here.

Overall, however, the LDP budget has much to recommend it.

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253 Responses to LDP budget

  1. johanna

    Yobbo, people didn’t buy these properties as investments. They bought them to live in and bring up their families in, based on what they could afford decades ago.

    I just had a look at what is for sale in Sydney suburbs like Tempe, Mascot (yep, where the airport is) and Marrickville. These adjacent suburbs were considered to be among the least desirable in Sydney when I was growing up, and the people who bought there were battlers. The houses from that period were modest – not a mansion to be seen. Yet, there are quite a few properties on the market today there for $1m+.

    Where I grew up, in the Sutherland Shire, once you got away from the waterfront there were plenty of fibro shacks which were bought by working class families. You don’t get much change from $1m for a lot of those today either. I went back there recently and talked to old friends who still live there. The problem their parents have if they sell is that there is nowhere affordable and suitable in the area to “downsize” to. They need level spaces and access, and the ability to use wheelchairs and walking aids, which few units and townhouses provide.

    A lot of them would jump at the chance to get a reverse mortgage, if it weren’t for the effect of compound interest which could see them lose their only asset and be left homeless before they die. Bear in mind that they need more than just an income stream to pay for rates, food and utilities. They also need to maintain their old houses, replace appliances and furniture, pay for home insurance, run a modest car etc. In 10 years they will have lost more than half of their equity under the current commercial schemes on offer, assuming a property is worth $1m and a couple needs $40,000 a year to stay in their home in reasonable comfort. Plus, with no pension they get to pay full freight for all the associated fringe benefits.

    It is not an attractive prospect, and is financially a lousy deal. Having spent decades saving for and paying off their home, they stand to lose everything fairly quickly, as well as having limited chances of affording a decent nursing home if they eventually need one.

    Much better to be a public housing tenant, where taxpayers cover all your costs, right? That’s “social equity” at work.

  2. .

    Johanna if I wanted the dole and had a million dollar home you’d tell me to go jump.

    I’ve had to pay into compulsory super and pay income taxes and indirect taxes oldies never paid and pay for huge property taxes through brutal levels of rent for modest homes and I can never expect the OAP.

    In some ways, you’re patronising our elders.

  3. Combine_Dave

    Shorter Johanno; ‘elderly pensioners sitting on millions of dollars worth of assets didn’t intend to be asset rich and therefore deserve the OAP’.

    Their intention is irrelevant. If they are in need and struggling without family support or provisions for their own retirement then by all means give them a OAP, that’s just enough to get by on (plus generous ‘free’ public health).

    If however they are well endowed with assets; be it cash, property or shares then I see no reason for them to qualify for the OAP. Especially as so few people pay as much in taxes as they consume (well the ones who never receive the taxpayer’s largess are very unlikely to end up on the OAP).

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