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  • » Bullion Baron: Who's to Blame for Australia's Expensive Property?

#51 2015-07-26 20:32:08

Big A.D.
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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

The CGT discount is iffy at best because its a concession for something that a lot of people would be doing anyway.

With a certain amount of capital behind you, you're in a position to avoid being a wage slave and trade high value assets for a living. Nice game to be in if you've got the cash to play, but someone who gives up their day job to make $90k/p.a. flipping houses isn't necessarily working harder or being more productive than the colleagues they left behind earning $90k/p.a. salaries.


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#52 2015-07-26 22:12:35

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

@Big AD, be practical, how much capital would you require in order to flip houses and earn $90 000/year after taking into account all fees, charges and taxes? So your point about productivity is moot because it is ........... pointless.  roll

@BB, so your opposition to CGT is simply based upon a comparison with income tax? If there was no income tax at all, I presume you wouldn't have a problem with the CGT discount then?


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#53 2015-07-26 22:35:45

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

mmm....shiney! wrote:

@Big AD, be practical, how much capital would you require in order to flip houses and earn $90 000/year after taking into account all fees, charges and taxes? So your point about productivity is moot because it is ........... pointless.  roll

It doesn't need to be houses, it can be any asset that attracts the CGT discount.

$90,000 p.a. is 9% of $1 million and 9% is a little bit less than the long term average annual return on Australian listed shares.

So for a million dollars or so, you can buy the ASX All Ords at the beginning of the financial year, sell at the end and take the profit and then buy back in again. You get your $90k spending money and pay half the tax that some other guy who actually goes to work every day pays.

Now, that's using averages and obviously markets go up and down, but that's what you could theoretically get - on average - without having to do a day's work that year.

If you had a million bucks in cash sitting in the bank (at 3%) to tide you over during down years and another million bucks to cycle through the ASX annually for another 9%, would you need a tax incentive to do it, or would sitting on your arse drinking beer and surfing the web be enough of an incentive itself?


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#54 2015-07-26 22:42:40

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

Investing $1million/year on the ASX provides working capital to all the companies in which you own shares. Now that sounds productive to me.


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#55 2015-07-26 22:57:33

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

mmm....shiney! wrote:

Investing $1million/year on the ASX provides working capital to all the companies in which you own shares. Now that sounds productive to me.

Nope. A person buying a $1million bucks in shares is not applying capital to a business, unless purchasing in an IPO.  The ASX is a mainly secondary market. None of the capital goes to the business, only the seller.

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#56 2015-07-26 23:01:26

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

The Black Ram wrote:
mmm....shiney! wrote:

Investing $1million/year on the ASX provides working capital to all the companies in which you own shares. Now that sounds productive to me.

Nope. A person buying a $1million bucks in shares is not applying capital to a business, unless purchasing in an IPO.  The ASX is a mainly secondary market. None of the capital goes to the business, only the seller.

Edit to add: I get it.

Last edited by mmm....shiney! (2015-07-26 23:08:02)


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#57 2015-07-27 00:40:06

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

mmm....shiney! wrote:

@BB, so your opposition to CGT is simply based upon a comparison with income tax? If there was no income tax at all, I presume you wouldn't have a problem with the CGT discount then?

If there was no income tax there would be no capital gains tax to discount (assuming the current structure remained the same where capital gains [- discount where applicable] form part of your income before applying the tax rate).

But yes my issue with the discount is primarily because it seems an unfair advantage over income accrued in other ways.

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#58 2015-07-27 00:46:33

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

Of course, any independent person with half a brain would look at Australia's over-inflated house prices and give negative gearing the boot. Guess that counts out the vast majority of our politicians…

High house prices might make existing home owners feel good, and property investors feel smart (they are not — they simply got lucky), but they suck billions and billions of dollars out of the economy. Instead of hitting the shops and investing in businesses, Australians are hitting the mortgage. Or saving for a deposit. Banks have been the beneficiaries. The Australian economy the loser. You can't spend property appreciation.

http://www.fool.com.au/2015/05/12/why-j … -the-boot/


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#59 2015-07-27 00:53:28

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

smk762 wrote:

Of course, any independent person with half a brain would look at Australia's over-inflated house prices and give negative gearing the boot. Guess that counts out the vast majority of our politicians…

High house prices might make existing home owners feel good, and property investors feel smart (they are not — they simply got lucky), but they suck billions and billions of dollars out of the economy. Instead of hitting the shops and investing in businesses, Australians are hitting the mortgage. Or saving for a deposit. Banks have been the beneficiaries. The Australian economy the loser. You can't spend property appreciation.

http://www.fool.com.au/2015/05/12/why-j … -the-boot/


Well I guess I don't even have half a brain.  lol

But then I suppose this is why he goes by the moniker "The Fool":

Instead of hitting the shops

Maybe it's because he's only got half a brain and can't work out that spending on consumer goods destroys capital.

Edit to add: and I'll be taking a portion of my SMSF and investing in property so that by the time I'm of retirement age I hopefully won't have to bludge off the productive members of society. I can then leave all you socialists to decide how best to spend other people's money without hopefully not touching mine.  cool

Last edited by mmm....shiney! (2015-07-27 00:58:44)


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#60 2015-07-27 01:12:22

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

Bullion Baron wrote:

But yes my issue with the discount is primarily because it seems an unfair advantage over income accrued in other ways.

Well you'll know what my solution to that little problem would be then don't you? big_smile


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#61 2015-07-27 01:22:49

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

I have the same strategy with my SMSF, mainly because I'd at least like a roof over my head when I'm old.

Investing in business does not necessarily destroy capital, and consumer purchases tend to flow through the economy to resupply stock, pay wages etc. as opposed to paying a mortgage, where the payment made results in capital not doing much at all.

Negative gearing is essentially a form of socialism that favors the landed gentry. How is it equitable that the renting class essentially pays the mortgage, initially through the terms of the lease, and then as taxes collected to make up the negatively geared shortfall?

To be fair, it should also apply to gambling losses and lotto tickets so at least the peasants can get in on the action.


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#62 2015-07-27 02:21:41

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

@smk, nice post.  smile

When I refer to the destruction of capital by consumer spending I mean that any capital that is accumulated and then not spent on earning profit or interest is capital that is destroyed. It can't be recouped - with maybe the exception of housing. tongue It's lost.

Now I'm the first to acknowledge that consumer spending is vital in business and extremely important in the quality of life for all humans. But it is only through saving and then investing wisely that capital grows. If we think that we do our bit for the economy by "hitting the shops", then we are mistaken. Sure, businesses rely on consumer spending, but if the majority of market participants just spent everything they accumulated on consumer goods, then when times are tough and there are no reserves of capital to turn to in order to meet needs, the pressure builds upon those few who have accumulated capital or are successful business operators (and even the not successful ones) to share the proceeds of their foresight, hard work or abstinence. I think we've been in this mindset since the Great Depression. Maybe longer. The South Americans and many European states have perfected this mindset and we in Australia are well down that road. It's a generalisation sure, but it's an apt one.  hmm

Negative gearing is a tax break which I am happy to support, but I support it more from an individual's right to protect property from aggression than one based upon sound economic principles. That said, any policy that a government pursues that reduces the tax burden of an individual is economically sound in my view. CGT and negative gearing are two separate animals and I've been mainly defending CGT in this thread because it comes at no cost to any taxpayer. Unlike negative gearing which offsets any tax bill to be paid, CGT discounts are an arbitrarily arrived at amount that a government decides to waive. If it chooses to set a rate of CGT at 20%, it doesn't receive any funds until a CGT event has occurred. They are funds that do not exist in the government's coffers until the sale of an asset. If it chooses to discount future CGT commitments, then the state of play as we currently understand it to be doesn't change. In other words, because there is no moral claim by any non-related party to a portion of the sale of any property, any discount that may be granted to the arbitrarily arrived at rate at the time of sale is immaterial.

The argument that CGT discounts contribute toward excessive real estate prices is another matter. And one I am not wishing to debate, simply because I see the right of an individual to protect his property as being paramount to any claim from outsiders to it. To me it's a non-issue based upon property rights alone.

You ask how is it equitable that a renting class class essentially pays for the mortgage of a house and supports any tax deductions able to be claimed? My answer is that it is not. But then economic beings ie humans, are not equal in the first place. Some possess the capacity to own property, others do not. As there is demand for housing, those that possess the capacity to own a house can help meet the demand of those who don't, in return, the renting class are expected to pay their way. And as far as the renting class being forced to support those landlords that negatively gear, it's only a problem because the government chooses to take a portion of their income from them in the first place. You are somewhat correct when you say negative gearing is a form of socialism (somewhat), but then a State taxation system is the core of socialism to begin with. smile


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#63 2015-07-27 03:11:42

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

Overall I'm not a huge fan of rampant consumerism, even if it fuels the economy, as it can be a hedonistic waste of resources and productivity. I'll also admit being a little bitter about the challenges I face on the path to land ownership.

Looking at neg gearing in isolation from the rest of the tax system, I'd support it, for the exact same reasons you do. turtle tax, minimise where you can, the bastards taking it don't spend it wisely. In the context of all citizens though, and especially from my perspective of one who does not benefit, it just seems to be a discriminatory regime which results in the cost of property rising faster rate than I can save a deposit. It's an issue that almost has the capacity to get me emotional enough to abandon, or at least reduce, logic.

Being that those who control policy benefit both personally and electorally from the system, I don't see it changing. So how a balance be struck to facilitate the renting class' aspirations of home ownership without resulting in a subprime disaster or another socialist first homebuyer's scheme?

The only decent option I can see at this stage is the Defence Home Ownership Assistance scheme, apart from the fact it requires you to potentially face the prospect of a violent death for a most likely bullshit cause. Regardless, if I was slightly younger, I'd likely sign up. Seems now days if you want a house and/or education without becoming a debt slave, your best bet is to join the military (unless you have enough family support to house and feed you until you're 30).

Meanwhile, my strategy is totally SMSF based, looking rural for productive farmland or commercial real property that might also serve as a residence once my working years are over.


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#64 2015-07-27 03:24:34

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

These all important property rights were magicked into existence 225-odd years ago when a bloke rocked up in a boat and said all the the land belonged to a monarch on the other side of the world because he said so, and bugger the people who were already living here.

Let's not pretend property rights are sacred decrees from the gods above. We create them. We nullify them. We uphold them and limit them to certain extents where it suits a greater purpose.

Your property was created by force in the first place, so don't get all huffy about the prospect of it being taken from you in the same way.


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#65 2015-07-27 04:40:26

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

@smk, so you've got a quandary. If we just had a crystal ball.  cool

Depending on how old you are, I'd give the SMSF owned property as a future place of residence idea the flick. By all means investigate it, but I'd be suggesting to you that any purchase of a property using your SMSF is firstly to enhance your financial position as much as possible by the time you retire, as opposed to buying a place you might like to live in when you are old.

Don't spend your SMSF $$$ on stuff you like, spend it on stuff that will make you $$$.

Big A.D. wrote:

These all important property rights were magicked into existence 225-odd years ago when a bloke rocked up in a boat and said all the the land belonged to a monarch on the other side of the world because he said so, and bugger the people who were already living here.

Let's not pretend property rights are sacred decrees from the gods above. We create them. We nullify them. We uphold them and limit them to certain extents where it suits a greater purpose.

Your property was created by force in the first place, so don't get all huffy about the prospect of it being taken from you in the same way.

Sometimes you talk shit, this has been one of those times.  hmm

Maybe that was a bit harsh. I'll get back to you.  lol

Last edited by mmm....shiney! (2015-07-27 04:43:53)


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#66 2015-07-27 05:00:04

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

Welcome and sage advice Shiney, always welcome your perspective. It's a worst case scenario, primary consideration on SMSF land is potential business value in the decades until retirement. I'm not too keen on living in a shed on an rural property, but if if it comes to that it'll have to do. In the meantime, having the biz pay my SMSF rent is better than paying someone else. Ideally I'll be able to cash it in for something more idyllic when I retire, assuming the cost of a decent place to live is within reach. Seems to be getting further and further away though.


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#67 2015-07-27 06:33:15

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

mmm....shiney! wrote:

Depending on how old you are, I'd give the SMSF owned property as a future place of residence idea the flick. By all means investigate it, but I'd be suggesting to you that any purchase of a property using your SMSF is firstly to enhance your financial position as much as possible by the time you retire, as opposed to buying a place you might like to live in when you are old.

+1
Really bad idea.
You have no idea where you will want/need to live when you retire. Circumstances can and do change.

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#68 2015-07-27 07:49:27

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

Big A.D. wrote:

These all important property rights were magicked into existence 225-odd years ago when a bloke rocked up in a boat and said all the the land belonged to a monarch on the other side of the world because he said so, and bugger the people who were already living here.

Let's not pretend property rights are sacred decrees from the gods above. We create them. We nullify them. We uphold them and limit them to certain extents where it suits a greater purpose.

Your property was created by force in the first place, so don't get all huffy about the prospect of it being taken from you in the same way.

I'm confused from which philosophical position you operate.

On the one hand you support tax policy which has been "magicked" into existence by legislative decree, yet on the other you dispute property rights because they have been "magicked" into existence by legislative or military decree. hmm

Property rights from my perspective are a priori ie they exist prior to and are independent of any experience we have. They are a prerequisite to any human being free. They exist without our consent and they are restricted only with force. They exist even if the human is not free regardless of the circumstance in which they may find themselves. In other words, regardless of the situation in which a person finds themselves, property rights remain paramount despite the dominant world paradigm, despite what some believe. As an example, a Negro slave in early America may find himself subjugated to an overseer who restricts his rights to self-determination, yet the situation the slave finds himself in does not in any way dismiss his legitimate rights to sovereignty. Despite his situation, he has a legitimate moral claim to agitate for an alternative existence to that which he is experiencing.

On the other hand taxes are not established a priori. They are not established prior to experience. On the contrary, they are dreamed up as a result of experience.

Therefore, to suggest that property rights are "magicked" in the same way that taxation is is fraught with inconsistencies.

Last edited by mmm....shiney! (2015-07-27 08:40:49)


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#69 2015-07-27 08:20:23

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

239 years ago Thomas Jefferson and his founding fathers understood the same when they declared their natural rights with a document that contained a phrase that would be captured by a nation some 187 years later:

"We hold these truths to be self-evident".

I hold the Founding Fathers in awe, well maybe not Alexander Hamilton. tongue

Last edited by mmm....shiney! (2015-07-27 08:20:44)


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#70 2015-07-27 20:27:13

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

mmm....shiney! wrote:
Big A.D. wrote:

These all important property rights were magicked into existence 225-odd years ago when a bloke rocked up in a boat and said all the the land belonged to a monarch on the other side of the world because he said so, and bugger the people who were already living here.

Let's not pretend property rights are sacred decrees from the gods above. We create them. We nullify them. We uphold them and limit them to certain extents where it suits a greater purpose.

Your property was created by force in the first place, so don't get all huffy about the prospect of it being taken from you in the same way.

I'm confused from which philosophical position you operate.

On the one hand you support tax policy which has been "magicked" into existence by legislative decree, yet on the other you dispute property rights because they have been "magicked" into existence by legislative or military decree. hmm

Property rights from my perspective are a priori ie they exist prior to and are independent of any experience we have. They are a prerequisite to any human being free. They exist without our consent and they are restricted only with force. They exist even if the human is not free regardless of the circumstance in which they may find themselves. In other words, regardless of the situation in which a person finds themselves, property rights remain paramount despite the dominant world paradigm, despite what some believe. As an example, a Negro slave in early America may find himself subjugated to an overseer who restricts his rights to self-determination, yet the situation the slave finds himself in does not in any way dismiss his legitimate rights to sovereignty. Despite his situation, he has a legitimate moral claim to agitate for an alternative existence to that which he is experiencing.

On the other hand taxes are not established a priori. They are not established prior to experience. On the contrary, they are dreamed up as a result of experience.

Therefore, to suggest that property rights are "magicked" in the same way that taxation is is fraught with inconsistencies.

Property rights in this country exist largely on the basis that a little over two centuries ago, there was an extraordinary reverence placed in the wearing of a funny hat. Whomever wore the funny had got to say who land belonged to and people accepted that decree as lawful and abide by it. Worth noting here is that land was doled out by our early governors on the basis that the people it was granted to were expected to do something useful with it, like grow crops or raise animals.

Now, having a funny hat isn't necessarily a poor basis for a legal system but if you trace the title back to it's first instance, you'll find that it was created by simple decree and everyone since has just gone along with it.

Trying to weave a narrative out of land title being part of a grand philosophy on human rights is interesting and everything, but land used to be cheap because a guy in a funny hat gave it out out to promote productive enterprise and land is expensive today because guys in suits stopped giving it out so the value of everything already out there would increase with a rise in demand.


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#71 2015-07-28 00:03:04

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

Just like tax. Some guy in a funny hat thought it would be a good idea and because he was god's divine presence on Earth everyone thought it was a good idea too. Now we have some men in funny suits who work in a big house in Canberra, they say paying taxes is a good idea, and because most people are too stupid or too scared to think of an alternative to having men in funny suits who work in big houses in Canberra making decisions for everybody else, everyone thinks tax is a good idea too.


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#72 2015-07-28 09:33:10

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

Big A.D. wrote:

These all important property rights were magicked into existence 225-odd years ago when a bloke rocked up in a boat and said all the the land belonged to a monarch on the other side of the world because he said so, and bugger the people who were already living here.

Let's not pretend property rights are sacred decrees from the gods above. We create them. We nullify them. We uphold them and limit them to certain extents where it suits a greater purpose.

Your property was created by force in the first place, so don't get all huffy about the prospect of it being taken from you in the same way.

It's true that the philosophy of property rights came into existence around 200 years ago, I'll take your word for it as 225 years.  But land has been "owned" for centuries by monarchs and the like.  As were the people (the king's or queens subjects).

It was more about developing a philosophical grounding for the idea.   Which of course at the same time meant that it was not just monarchs and the like who could own land because nothing in the philosophy restricted it to a certain subset of humans. 

In saying that, it should also be obvious to say that not everyone respects property rights, even today, and that ultimately there is some kind of force or threat of force required to back them.

Only thing is, who declared that that threat of force should be delegated to a certain group of men and women exclusively?  The only reason I think it was is because no -one really had any ideas about how else it could be done.  Those ideas have only really come about and been well developed, to my knowledge, in the last few decades.

EDIT:  I realise I didn't read your post properly.  I was referring to John Locke and the philosophy of property rights.

Last edited by hawkeye (2015-07-28 10:42:40)

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#73 2015-07-28 09:47:08

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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

trew wrote:

Got no problem with all of that as long as all these 'investors', and the banks financing their 'wealth generation' are happy to take their lumps along with their rewards.

When the property market eventually turns down (and it will - nothing goes up forever) will the banks take their losses or go running to the government for bailouts ?

Only problem is, all that money the banks owe to everyone (what they euphemistically call "savings").   And the fact that all Australian banks basically work under the same umbrella of the Reserve Bank and under the same regulations thereby giving those of us who want a safe bank essentially no option.   

But fundamentally, I agree, the investors need to take their lumps one way or another.    I think it can be done through controlled bankruptcies and the like if we give the system a bit of breathing room.  I don't expect that to happen though.   Aussie property investors would scream like hell.   No-one is willing to take the sword to that sacred cow.

EDIT: as to the initial question of who is to blame, we all are.  Everyone who had faith that the government knew what it was doing.  That's the reality we need to face.

Last edited by hawkeye (2015-07-28 09:49:49)

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#74 2015-07-28 10:16:57

hawkeye
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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

There's no bigger rip-off, in my opinion, in the known universe than Australian property at this point in time.

Just something I say to people when the subject comes up.  It's up to them if they want to continue the conversation from there.  wink

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#75 2015-07-29 03:01:19

Big A.D.
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Re: Bullion Baron: Who's to Blame for Australia's Expensive Property?

mmm....shiney! wrote:

Just like tax. Some guy in a funny hat thought it would be a good idea and because he was god's divine presence on Earth everyone thought it was a good idea too. Now we have some men in funny suits who work in a big house in Canberra, they say paying taxes is a good idea, and because most people are too stupid or too scared to think of an alternative to having men in funny suits who work in big houses in Canberra making decisions for everybody else, everyone thinks tax is a good idea too.

Yeah, so saying you disagree with the made up tax we call CGT because it violates property rights is silly because property rights were made up as well.

Both serve useful purposes when they're applied within a wider context.

Property rights create security for the people who hold them which gives them the confidence to invest in things which will make the property useful for something. Capital gains tax captures income derived from trading assets so the tax burden isn't carried solely by people earning money from a salary.

One of the reasons property is expensive here is that you can get a tax discount while you hold it and you get a tax discount when you sell it. The idea with negative gearing is that some investments take a long time to realize a gain (true) so it may be necessary to offer tax relief until that occurs (fine). Negative gearers therefore have an incentive (or, less of a disincentive) to wear an ongoing cost over a long period.

That's fine if there is a need to attract private capital to something that's useful and provides opportunities for people which wouldn't otherwise happen. We happen to apply it badly by allowing it for all housing, not just new builds and that's part of the problem.

Leaving the scope aside, the other part of the problem is the rate of tax and that's the CGT discount. It's a second, separate incentive to hold an asset for a long period of time. There are plenty of reasons why you'd want to discourage short-term flipping, particularly with high value assets where volatility would create instability, so it's not a bad idea in itself. Again we apply it badly by doing it across the board, rather than targeting it to particular areas. Maybe it would be better for a CGT discount to be applicable to shares owned for one year, but only after three years for property. Shares can be sold in milliseconds for a few dollars, but each property is unique and the sales process is longer and more labor intensive, yet they're both treated the same way.

So...

Should the taxpayer offer to subsidize ongoing losses on an individual's investment? Perhaps.

Should the taxpayer offer to discount the tax payable on an individuals income from the sale an asset? Perhaps.

Should the taxpayer both subsidize ongoing losses and then also discount the tax payable when the investment finally comes good and the asset is sold? No, that's just a bit too much and it really should be either one or the other.

Load up the incentives to do something and, like BB said, people will do it.


I am the Leafy Sea Dragon.

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