Hacker News Reader

> But we didn't do this because we're idiots.

Because the highly profitable mining industry campaigned against it AND we're idiots.

Theory: Immigration is a main "export". It's a very nice place to live: democracy, rule of law, media and the geographical reasons etc. Immigration helps supports demand for housing and the bubble.

We're basically a hole in the ground - but a very nice one.

Also should be mentioned it was an incredibly sensible taxation policy to cope with the boom bust cycles of mining, we have a progressive income tax system, a progressive corporate tax policy isn't far fetched

Sadly it only came into effect after the boom and raised very little money before the mining industry ad campaign shut it down.

Something that seems to be regularly missed in this analysis is that 9.5% of everyone in the country's wage is poured into investment funds each quarter and it needs to find a home. That's over $2T in assets under management last time I looked, and a heck of a lot coming in regularly that can help keep a lot of bubbles simultaneously inflated.

Superannuation is an interesting issue.

I don't think the problem is that there's too much investment sloshing around, but rather it's that investment incentives in Australia are horribly distorted by the tax system (and in two cases, IMHO, by the lack of a certain tax [0] / price on a negative externality [1]). So the money gets funnelled into unproductive investment (or socially/globally harmful activity).

I get even more concerned when people float ideas like mandating that x% of super must be invested in infrastructure projects, or allowing super to be withdrawn early to pay for a house deposit (shudder). The tax treatment of super itself is also completely messed up: it's regressive and completely at odds with its own policy aim (i.e. to reduce future age pension outlays). You can thank Kevin Rudd for squibbing an opportunity to address this, because he wanted a nice headline instead.

The government really has to level with the population and let them in on the big secret about super: it's not "extra money" that you get in addition to your wage, it's an additional income tax where the revenues are locked away in managed investment funds (making it harder for politicians to get their grubby little hands on the revenue).

[0] Land-value tax, which corrects an inherent investment distortion (i.e. privatisation of land-rents).

[1] Carbon pricing.

Yeah, the option of allowing super to be withdrawn as a house deposit seems very much like stopping a fire by shovelling coal on top of it.

This is just like the first home owners grant, which only made barely-affordable houses that much more expensive and didn't actually make houses more affordable for young people.

I would add to that the generally venture-hostile environment (relatively small population, high overheads, few institutional VCs) has created a static economy typified by the options available to young people even after tertiary education: work for a big established company to get by in a large city (though even with a professional partner you'll never afford a house in 30 years), go overseas, or go broke.

(Full disclosure: I left 20 years ago)

Yeah, it's a serious problem. If you left 20 years ago, I've got bad new for you: it's worse than you remember. Most of the economy now consists of ticket clippers and rent seekers. It's a shame we lack the structural support for new ventures in Australia, as Australians have historically had some good ideas.

But when you look at stuff like this (http://i.imgur.com/g7a9QDL.png), it makes you realise that there's no chance of generating a start-up culture in Australia (except maybe in the financial sector, especially if the business has something to do with property loans).

10 years here. It's nice to move to San Francisco and think, wow this is cheap as!

HA! I did the same thing.

Hi mate, fellow Aussie here. I see you're currently living in China. I'm considering a move there in the next few years. Any chance I could ask you a couple of questions over email?

Sure, email in profile. Currently relocating to Shenzhen. Have previously lived in many places in Yunnan, Shanghai and Qingdao. Could maybe hook up some remote work - re: your experience in mobile banking.

10 years here. I moved to London, where housing is pretty awful (but not quite as bad) but an attitude to tech that's comfortably between the cynicism of "tech is a scam used to separate idiots from their wallets" (Australia) and the wild enthusiasm of "Snapchat IPO" (US).

Surprised that you think London housing is not as bad as Australia. Prices here are quite a bit higher in London, and from what I understand, London salaries are also often not as high.

I've lived in London for 10 years, and my partner is Australian. We've considered moving to Australia recently, so the above is from my research.

I moved to London from Sydney a year ago and I couldn't agree more. Unless you are prepared to live in a damp cupboard, prices are way higher and salaries are lower.

I think the lack of venture is more complex than that; a mix of culture and regulation.

There are only 23 million odd Australians, but there is well north of $2 trillion AUD in our superannuation accounts.

Assuming they applied 0.5% of that towards VC, you'd be looking at $10bn AUD of available capital. At least one order of magnitude more than is currently present.

Also, last I checked, stock-based comp in Australia is tax-disadvantageous. I can't recall if it was FBT or something else.

I'd say that from a pure opportunity cost perspective the performance of property & mining alone is justification for the lack of VC in Australia.

If simple well understood businesses (dig up rocks or buy land and build) can return > 10% YoY, why would any intelligent investor poor money into an asset class that has underperformed that in the same period?

Yet the VC lifecycle is very much like the mining lifecycle.

Exploration, drilling, construction, exploitation. The early stages cost millions and often lead to failure, with the occasional profitable case and rare super-profitable discoveries. Scaling up costs major capital, after which, prices allowing, a mine can be a cash cow.

I think the current government was looking into that at some point, but I don't know what happened with that.

I remember when I worked at a startup the choice when I got stock options was - pay the tax up front based on the current strike price value - or pay a higher tax when you exercise them and make a profit. If you take the first choice then you'll need to do a lot of paper work to get that money back should the company fail.

Eh, you don't need massive VC to get quality resilient tech companies. You need massive VC for massive bubbles. Sydney has some good startups going now, I would say on a per capita basis Australia does well. It's not Australia's fault that companies become successful and then move to larger markets to be closer to customers and such.

Things have been rapidly changing too with the young generation. Smart people are skipping the investment banks for startups because they see the opportunity.

If YC had "model posts", this would be one of them. Very well researched and informative. Thank you.

As has been said in the article, because Australia avoided the worst hardships of the GFC, it also avoided the cleansing that it provided.

I would whole-heartedly agree that the Governments (both left leaning Labor and right leaning Liberals) have misspent the mining boom windfalls. (Actually mining is only about 16-18% of the Australian economy last I read.) Instead of improving communications infrastructure, or developing new businesses in sectors outside of mining, they are building railways and ports for new mines.

I used to live in Sydney (I've since left Australia altogether) and it made me realise that I would rather rent a place somewhere nice to live, than own a place somewhere where I could afford to do so. I do feel like Australia is a nice place to live, and to raise a family, but I don't know if I would do it in the bigger east coast cities or somewhere where the balance is better.

"Only" 16-18%?

How much of that from exports? Which pumps more money into the economy where it has a lot of follow-up effects. Given that a rise or fall in GDP of a low single-digit percentage point can already mean a big boom or bust the above number is huge.

Yes, despite it being the poster child, the mining sector only comprises 16-18% of the economy. I would say all of it was from exports, since Australia doesn't really do much smelting any more. Aluminium smelters have closed down, no more lead or iron smelters either. We just export red dirt to China.

Out of that percentage, I don't think it would include all of the other mining related industries in that figure, or the effects on rutal mining towns. But just as there are positive flow on effects, once that flow stops then towns and communities die and people have to move elsewhere for work. This was already the case for towns dealing with mine and plant closures from earlier booms, it usually takes decades.

There is also a lot of temporary fly-in-fly-out labour in mining. Where the workers don't settle down in towns near the mines, but back in Perth and other bigger towns and cities. As such Perth has experienced a property bubble of sorts relating to mining, even though its not as popular a place to live as the east coast.

I can't remember exactly but the Banking sector in Australia may be the bigger than mining.

> Yes, despite it being the poster child, the mining sector only comprises 16-18% of the economy.

Uhmm.... I just pointed out that the use of the word "only" is not justified... :-)

> I can't remember exactly but the Banking sector in Australia may be the bigger than mining.

What do you mean by "larger"? Employ more people, pay more wages? Just "having" money (and large numbers in their balance sheets) is kind of a given for that sector.

Besides, the point never was finding the "biggest". Somebody can be a tall person even if they are not the "tallest". So large changes to that sector will have large effects to the overall economy, many of them indirect.

Larger means contribute a bigger percentage to Australia's economy. GDP makes sense but I cannot recall 100%.

What you call cleansing is also a massive loss of wealth by the middle classes and a transfer directly upwards to the wealthy. So sad this has not happened /s

There's no law of physics that says wealth must be destroyed every few years.

Howard's instinct as Prime Minister was the spend like a drunken sailor.

I note that you didn't mention his Treasurer, Peter Costello. The pair of them basically invented the Australian political norm, now dead, that government debt was bad and ought to be paid down as quickly as possible.

No to mention setting aside what is now one of the larger sovereign funds to cover future Commonwealth pension liabilities.

While middle-class welfare has done irreparable structural damage, painting them in a single shade of black or white isn't fair.

Some of the rot or failure to act started under PM Hawke / Treasurer Keating, PM Keating / Treasurer Dawkins, PM Keating / Treasurer Willis and continued under PM Revolving Door / Treasurer Roundabout.

Overall the Hawke-Keating-Howard-Costello years transformed Australia from an economic backwater into a much wealthier and more successful country.

Could there have been better choices? Of course.

Could there have been worse? Oh yes. Australia can't sustain US-style fiscal policy, no matter how politically attractive.

A lot of this sounds just like Canada.

High immigration levels: Check

Housing Bubble: Check

Commodity boom / Bust: Check

A few counter points:

- Manufacturing in general in the developed world is in serious trouble. I'm not sure anything could really reverse that;

- I agree about having a sovereign wealth fund. Norway has this. It's such a lost opportunity by pretty much everyone else that allows the looting of natural resources by a wealthy few.

- As for fiscal responsibility, I think your view of the Howard era is somewhat slanted. The spike in resources prices didn't really begin until the mid 2000s [1], the latter days of the Howard government. I tend to largely ignore the Sydney Morning Herald when it comes to criticism of conservatives. It comes off as anything but impartial.

There were definitely attempts at buying votes in the last Howard term but most of the rest was tax reform, paying down debt [2], using asset sales to fund superannuation obligations (ie the Future Fund).

- There was definitely a problem with how the slices of the GST pie were calculated. Western Australia and to a lesser extend Queensland really got the shaft on this one. As resource prices receded, WA is now down to retaining something like 34 cents of every GST dollar collected.

- There was a somewhat complicated system for CGT inflation indexation. This was "reformed" to being a straight gain that was discounted by 50% if held for over a year. Son in the medium term, the effective rate is lower but I'm not sure this leads to the result you claim.

For one thing, flipping properties isn't really a thing in Australia largely due to stamp duty levied by the states (something the GST was meant to replace I might add, which the states largely reneged on).

At the height of the property boom (mid 2000s) it was probably the case that prices were rising so fast that even paying stamp duty it was possible to make a lot of money by holding property only for 1-3 years but this is exceptional. More to the point, I don't think the CGT changes were the cause.

Property prices in the Australia largely stagnated since the recession we had to have (1991). In Perth, for example, it was possible in 2000 to buy a 1970s 3 bedroom house 8 miles from the CBD for <$100k and this hadn't changed in years.

So partly this changed because the market was (still) oversold.

Another factor: the mining boom. Capital projects soaked up a huge amount of supply. The cost of construction in Australia massively increased as a result. This inflation was (IMHO) largely responsible for the 2000s price boom. 20 years ago it was possible to build a house for $100k in 3 months. Now? It's more like $350k and it takes a year.

- As for recent price booms in places like Sydney and Melbourne, this is part of a global trend where foreign money is driving up prices in urban centers in the developed world. I'm not sure immigration has much to do with anything here.

[1] http://www.indexmundi.com/commodities/?commodity=iron-ore&mo...

[2] http://www.tradingeconomics.com/australia/government-debt-to...

I think many of your points have merit, although there are a few I disagree with. I think you're right about the construction input costs: the 'initial phase' of any mining boom is characterised by lots of capital investment and the construction projects that go with it. So that definitely did bid up the cost of construction project inputs, and also contributed to a (transient) increase in employment and wages in the industry. Unfortunately, mining is a very capital intensive activity.

So now that the capital projects are done and we're transitioning to the 'volume production phase', the effect on employment, wages and costs of construction inputs are receding. And it sounds like we're in agreement on the national interest re: finite resource extraction. Thank goodness we had the foresight to tax some of the rents derived from the extraction of our finite natural resources... no wait...

As for hollowing out of manufacturing, it's definitely a debatable point and I think reasonable people can arrive at different views on this one. Honestly, it's a difficult proposition to prove in either direction. I guess I'm saying I don't have very strong views here, other than we didn't exactly take many (or really any) prudent actions here.

As an interesting aside, multi-factor productivity should naturally rise (particularly now that world commodity prices have come back down a bit, so its no longer profitable to extract marginal deposits). I'm sure whoever happens to be in government at the time will figure out a way to claim the credit.

I can't fault you for ignoring SMH when searching for truthful information. Frankly, anything that comes out of Fairfax (even the AFR) these days is highly suspect. Around 80% of Fairfax's revenues come from Domain property advertising, making SMH the most widely read real-estate agent newsletter in the country. But the IMF study is solid, and I can't see any reason why they'd have a bias one way or the other (especially since Australia was just 1 of about 200 countries studied). If you have a critique of that study, I'd be interested to hear it. Otherwise I stand by my assertion about the structural deficit.

GST distribution is a bit of a vexed issue (some of which is too complicated to go into here, but is comprehensively discussed here: http://gstdistributionreview.gov.au ). The EU is an example of a monetary union without a system of horizontal fiscal equalisation. Hasn't worked out that great for some of their members who have had a 'slower' economy than the average EU member, but nonetheless faced a non-stimulatory central bank cash rate (e.g. Greece). On the other hand, it seems to have worked out pretty good for members like Germany.

WA also seems to have a curiously short memory on this issue. Commonwealth to State fiscal transfers have been going on since federation (as opposed to since the introduction of the GST). I'm pretty sure that, even though recently they've been getting a 'raw deal', on a per capita basis over the life of the Australian federation WA has actually been a net recipient state. Certainly over the past 30 years or so this has been the case (see: https://www.cgc.gov.au/index.php?option=com_docman&view=down...), where WA has been a net recipient in ~53% of the years since 1981. I suppose they can pay the other States back, if they really feel that strongly about it...

As for stamp duty, in fairness to the States, removal was part of the original inter-governmental agreement but was removed after the GST tax base got smaller (thanks to the Democrats, who only passed the GST legislation after negotiating with Howard to exclude certain goods and services from the consumption tax base, reducing the efficiency of the tax in the process). Although they might have had good intentions, there are more efficient ways to offset the regressive effects of a broad-based consumption tax (e.g. reduce low income earner income tax, increase 'hardship' transfer payment amounts etc.).

Whether things like the Future Fund were paid for from the 'rivers of gold' (i.e. general tax revenue) or asset sales is really neither here nor there since it's all just 'one big bucket' from government's perspective. There are only a few situations where it might make sense to hypothecate revenue to a particular expenditure (note: the medicare levy is not one of these; the revenue from this additional income tax just goes in to the 'big bucket'). At a basic level, it only makes sense to sell an asset if you can earn a higher rate of return on the proceeds. It gets a bit more complicated when talking in the context of government, as 'rate of return' should factor in things like public/consumer welfare (i.e. it's usually a bad idea for governments to privatise natural monopolies like Telstra, as the subsequent monopolist price gouging effectively functions as an inefficient tax). The fact still remains that they squandered an enormous but temporary increase in government revenues on permanent middle-class welfare outlays and tax reductions.

And I agree with you on the influence of foreign money (hell, let's come right out and say it: Chinese money). Canada appear to have had similar issues. And the Commonwealth has been outright negligent in enforcing its own laws regarding foreign purchase of residential real estate. And FIRB are goddamn useless to the point where one has to wonder if it's incompetence, or incompetence like a fox...

As for the effect of tax policy on house prices, they appear to have shot up right around here: http://i.imgur.com/4VUGfPz.png

what makes you say Australia is an openly racist country?

I've heard anecdotes from Asian Australians but not really sure how true it is.

but anyways, it made me grateful for being in Canada.

Yeah someone made a comment about this but unfortunately deleted it before I could respond. I regret putting that in there and wish I could retract it now; I guess I got a little carried away. My parents (an inter-racial couple) copped it a bit, but I guess that was decades ago and things have probably moved on.

Naw mate, you're not wrong. Look there are heaps of examples of certain kinds of people in Australia being a bit backward? People bang on about wogs, poms, abos and decry political correctness ('gone mad I tell you'). Then you have your polis like Pauline bloody Hanson who appeal to that. There is definitely something there but is it really any worse than say the rural UK or just look at who is running the States now? Probably not. I'd be as worried about a widening class divide in Australia.

As long as there's handful of good people that I can find common value with I think really that's all that matters. There's bound to be ignorant and backward people from all walks of life from any part of the world.

So Australia is basically the UK circa early 2000's?

didn't the uk have an insanely large finance sector for the last few decades? I don't think australia has one.

We did/do, a worryingly large share of government revenue comes from that direction.

Combine that with the fact that a large finance sector is good for over all GDP but pretty much terrible for median GDP per capita (since all the wealth goes to relatively few well off people) and we have a nasty time bomb.

If you factor in the real levels of inflation against salary rises in the last 15 years they are flat for most and down for some.

I find it absurd that anyone is still arguing this is a problem, we've just watched the largest wealth transfer in history from the have-nots to the haves but somehow it's those poor immigrants who are carrying the can for it.

> I find it absurd that anyone is still arguing this is a problem, we've just watched the largest wealth transfer in history from the have-nots to the haves but somehow it's those poor immigrants who are carrying the can for it.

One of my former bosses (a British expat who had moved to Eastern Europe) told me basically the same thing in late 2008 in regards to the then fully developing financial crisis: "This is one of the biggest rip-offs that I've ever witnessed". I remember thinking back then "if no world war starts in the next 10 or so years then I guess we'll be good". There has been no world war, just yet, but we've now got Trump, Brexit and almost all of Western Europe being 10-15% away from electing lunatic leaders.

What infuriates me the most about it isn't that they've hidden the figures or covered it up, the data is there.

It's that no one seems to care, the press isn't covering it (why would they when they are mostly owned by high net worth individuals cough Murdoch cough or funded through them).

It's an absolute scandal and we all just collectively went oh well, "please sir, can I have some more?".

This was cuttingly compared to watching an episode of Columbo with an elderly relative with alzhimers by comedian Frankie Boyle (NSFW):

https://www.youtube.com/watch?v=GtWA3jQN1Pg