Monday, May 11, 2009

Is There Anything That Hasn’t Been Leaked?

Are you sick and tired of the Federal Budget yet? It hasn’t even been announced yet, but already there are signs of “Budget Fatigue” in the wake of an extensive series of leaks to prepare us for the big night tomorrow. It’s not uncommon for a government to let the bad news leak out early so that when the official announcements are made they don’t come as a shock, and possible even as a relief if things turn out to be not as bad as expected. This year there seems to have been a strong case of budget leak fever, with daily headlines for the past week warning us of what to expect.

The private health insurance rebate, the Medicare safety net, the tax concessions on superannuation salary sacrifice, have all been among a number of measures tagged for cutbacks of one kind or another. The latest item to be apparently confirmed, although not officially, is the introduction of a paid parental leave scheme, although not until after the next election. Less ambitious than the model put forward by the Productivity Commission, it is set to cost $260 million a year, but by 2011 when it begins the economy should be moving in the right direction again.

What’s more interesting than the things which have apparently been leaked, are the things that we don’t know. In particular, we still don’t know if the Government might choose to extend the First Home Buyers Grant increase beyond the June 30 cut off date. While there has been speculation that only the money for new construction be continued, we have been warned consistently that the boost will cease on schedule. There is a great deal of pressure coming from the property sector for the scheme to be retained on the grounds that it is working, and that removing it now will weaken the property market and in turn the economy.

However, there are serious problems with extending the program. There is plenty of evidence to suggest that the grant really only helps to inflate prices, especially at the lower end of the market, which effectively cancels out any benefit. At the same time, research shows that 30 percent of people who purchased a home in the past year are experiencing mortgage stress, and 21 percent of new home owners expect to have difficulty making payments. There’s a nasty vicious circle in the making here which could see sizable numbers of people unable to keep their homes, and unable to sell them for what they paid. The catch 22 is that removing the grant money could be a trigger for price falls that feed that spiral.

I have already said previously that rather than simply cutting the money off completely, the government should consider phasing it out. A few weeks ago it appeared that the government was set to retarget the scheme so that the focus is on new construction, thus providing ongoing support to the building industry. Either way, it is better than simply cutting it off abruptly. But in the light of the spate of budget leaks this past week, all of which have related to other policies, I wouldn’t be at all surprised to see the First Home Buyers Grant extension get a reprieve, at least for a while.


Anonymous said...

Hopefully its a reduction in the number of migrants, a scaling down of international aid and renewing workplace productivity in the public sector. Clawing back all we've spent to generate an economy caught in a global financial crisis should factor in removing policies that allowed private enterprise, banks and lending institutions to become so dysfunctional. Whatever strategies were used in the last 15-years should stand as what not to do in government.

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