Ponzi scheme failing to attract new entrants; Gillard’s home truths

Influential businessman Dick Smith is one of many who calls Australia’s property market a Ponzi scheme. He told the weekend Australian Financial Review in 2011, “I suggest to people who have big borrowings on a house, it’s all a Ponzi scheme.”

A Ponzi scheme provides returns to investors from money paid by subsequent investors, i.e. the property market requires new entrants (‘Greater Fools’) to pay more for housing than the previous person, so the scheme can keep operating (house prices continue to rise).

Figures on housing finance released by the Australian Bureau of Statistics today show the number of housing loans provided to owner occupiers’ fell by a seasonally adjusted 1.5 per cent in December 2012.

Loans for the purchase of existing dwellings fell 2.1 per cent, while loans for the construction of new dwellings increased 1.2 per cent and 2.9 per cent for the purchase of new dwellings. It is expected very generous grants for the construction of new homes is keeping this segment of the market above water.

The value of loans fell 2.6 per cent in December with owner occupier’s spending 2.7 per cent less and the value of investor loans falling 2.4 per cent.

The portion of first home buyers entering the market has hit levels not seen since 2004, falling to just 14.9 per cent of the market. Changes to first home buyer grants may have contributed to some of this fall and data in coming months will prove or dispel this theory.

First home buyers are either choosing not to enter the market at this stage, or have been priced out altogether. Hopefully, they are smarting up.

Prime Minister Gillard’s Home Truths

In Prime Minister Julia Gillard’s address to the National Press Club a fortnight ago, the same speech announcing the September 14 election, the Prime Minister took stock of the nation’s position commenting:

Superannuation returns are only just beginning to recover from the hit delivered by the Global Financial Crisis. Capital city housing prices have not grown at all in the past twelve to eighteen months, compared to the average yearly gains of eight to ten per cent in the years before the GFC.

These two impacts have us worried that our dreams of financial security are harder to achieve than ever before.

Today, we save over 10 per cent of household income. In the years before the GFC, we used to save nothing as a nation.

It was a phase that could not last – but unsurprisingly, many Australians miss those days when they could spend all of their income, see wealth increase through ever-rising house prices, and through easy credit, borrow against the house again to spend more.

Ms Gillard said “It means it can be a struggle to make ends meet and it can seem far harder to get ahead in the post-GFC world.”

Over time, the uncertainties and pressures we live with have led some of us to be concerned that our children won’t live a better life than us.

I want this audience to feel all the force of that concern. I most certainly do.

But first home buyers should consider themselves lucky so far. Housing affordability was absence from her plan for the future, tabled in the third and final part of her address. When it comes to housing affordability, no action is better than action. Predecessors before her had resorted to grants to help first home buyers enter the market and in doing so drove house prices up beyond the reach of many more.

Instead jobs were the key concern, along with the persistent strength of the Australian dollar and what Australia will do after the peak of the resources investment boom.

» First time buyers lead housing finance slide – The ABC, 11th February 2013.
» 5609.0 – Housing Finance, Australia, Dec 2012 – The ABS, 11th February 2013.
» National Press Club: Julia Gillard – The ABC, 30th January 2013.
» First-home buyer plunge – The Sydney Morning Herald, 12th February 2013.


  1. Refreshing to know that’s what Julia Gillard thinks, but as we all know, politicians can rarely put into action what they truly think – Obama anyone? But at least she’s ‘saying’ the sensible thing unlike the massive tool across the bench from her. Please, please, please don’t let Tony Abbott win in September. It will be a DISASTER!

  2. @Chockolate, private personal + private business + all government debts, amount to about $4.5 Trillion bucks worth. Rollover Greece, US, and others if that is to happen.

    @Rupert, I agree. Also, its’ like being in the middle of a tunnel with a disaster at either end. Rupuert, looking around you, and reading many of your post throughout this blog-site, can you really vote? Both sides are too disappointing.

  3. @ Rupert:

    Seriously……Like it’s not a disaster already?

    Get a business…It is a disaster. At least the coalition will listen to advisers and members of their party. Labor, pfft….Toe the line or get ejected…Unless your a crucial green or independent.

    Sorry to get political, but this anti-abbott bashing is wearing thin. It’s not like we voted for our current PM anyway. You voted for the party…remember? And they dumped the elected PM.

    Weak government, leading a fragile economy, with banks now doing their final low doc loans. Expect maximum impact any minute.

  4. There is no downside to voting in the coalition. If you don’t like Abbott, don’t worry there is always Malcolm Turnball.

  5. @ BotRot and Matty. As someone who is not yet an Australian citizen, I will, unfortunately, not be able to vote in September – but I do have a vested interest in the outcome of the election, so I hope you still consider my opinions valid.

    This election will be a personality contest between two people – not two parties. The majority of the electorate are just too stupid to care about anything else. They and the media will treat it like a reality show, and the mud-slinging will sink to new lows that will make any Australian with half a brain utterly ashamed.

    Julia Gillard is no ‘great leader’, that’s a given, and it’s hard to find many redeeming qualities, but at least she shows some signs of a human pulse come from her ticker! Abbott is dangerous – really dangerous. If, in September, it still remains a choice between those two people, you’d be a fool to vote for the Liberals. Rudd v Turnbull would be far preferable, not least for Australia’s integrity on the world stage.

    But, what’s this got to do with the Ponzi scheme that is the property market? Because to affect change in economic and taxation policy, the best message the electorate can send to these spruikers and liars in Canberra is to vote for NEITHER of them. Get them OUT!!!

    But it won’t happen because as I said above, the majority of Australians are just too dumb and apathetic to care. They don’t know what’s going on in the rest of the world, much less care, because they’re living the Australian Dream in their over-priced and over-leveraged, cheaply made boxes, with the gas-guzzling SUV in the ‘garage’, shovelling junk food in their fat faces while being lobotomised by some of the worst TV in the world (namely Channels 7, 9 and 10).

    This is a great country with fantastic potential and sadly it might be on the verge of going the same way as Europe and the US. WAKE UP AUSTRALIA!

  6. So what happened in 2004 on the chart above? The FHBG was in full swing by then but it dropped dramatically.
    Did non FHBers buy a ton of investment housing so the FHB % dropped against that?

  7. yeah, i will vote for the party taking away money from our future(education), health(hospital) and security(police). yeah, i will vote for the party giving all the money to refugees and factories who make cars never get sold. yeah, i will vote for the party putting heavy taxes on our rotten economy. yeah, i will vote for the party making us pay a lot more for our livings than any places in the world. yeah, i will vote for the party who makes our unemployment rate higher and higher. yeah, i will vote for the party making our stores and offices empty……

  8. Sorry to break it to you DX, but you can’t have education, healthcare and security without taxation. Philanthropy is an option – but I fear most people are too selfish and greedy, so taxation it is. Whether our incomes (rather than our land) should be taxed is another debate.

    The Liberals will give tax-breaks to the rich, expecting it to trickle down (which it won’t) and the poor will become poorer, sicker and less capable of finding work. That is what you get with right-wing policy. It’s written on the label.

    Left-wing policy (traditionally) is to levy higher taxes in order to improve public services, help ‘refugees’ and subsidise ‘factories who make cars that never get sold’ – but that doesn’t win you votes (apart from car-makers). A welfare state also disincentivises and disenfranchises, which is not good either, so the left-wing has become more right-wing. But they’re not as good at it as the right-wing, or as ruthless, so they all merge into one bloated mass of fence-sitting idiocy, decide to create money from nothing (credit) in order to falsely inflate asset prices (ponzi schemes) and then they wonder why it all goes wrong and why we can’t be bothered to vote for the schmucks.

    Tony Blair tried to please everyone, and for a while it worked, but for every action, there is an equal and opposite reaction and pretty soon the whole thing fell down like a house of cards. Australia’s next.

    So DX:
    You don’t want to pay ‘heavy taxes’? – pay a clever accountant to cross-collaterise thereby reducing your tax liability (or move to Hong Kong!)
    You don’t want to pay more for your ‘livings’? – lobby your MP to abolish negative gearing and bring in rent control. Also, consume less – of everything.
    You want lower unemployment? – use contraception and stop procreating. Read Thomas Malthus.
    You don’t want empty stores and offices? – abolish the internet then (too late for that!) Online shopping and working from home is the future – it’s more cost-effective and takes the strain off the transport infrastructure. So instead of moaning that stores are going out of business, why not set up a delivery company? When Amazon finally comes to Australia, the smart money will be made in same-day courier services.

    So DX, I would say that you should vote for the party that encourages entrepreneurism by giving tax breaks to small business owners. Vote for the party that will fast-track the National Broadband Network. Vote for the party that discourages waste and greed by taxing polluters. Vote for the party who pledges to improve our nation’s health by taxing sugar and corn starch derivatives. Vote for the party that is kind to refugees and pledges to give them a head-start. Vote for the party who wants to abolish negative gearing and introduce rent control. Vote for the party who will introduce a ‘financial transaction’ tax for investment banks and the party who will bring in more regulation for lenders and prison terms for unethical and fraudulent behaviour in the financial sector. Vote for the party that will tax the super-rich a little more and will raise the tax liability threshold for those on lower incomes. Better still, vote for the party that shows even the vaguest inclination to investigate land value taxation.

    Which party comes even halfway close I wonder… ? I’ll give you a clue – it’s not Labour or the Liberals.

  9. @Rupert

    i know what you talking about, but people are aint smart enough to get rid of both of them. so between the turd sandwich and giant douche, i would pick giant douche.

  10. Rupert. Again. Are you serious?

    Are you aware that income tax is only just reaching 100 years old now?

    Before that for thousands of years the human race prospered.

    You’re theories are so vaguely supported by fact you could earn a living running around the world like Al Gore did….Oh, hang on I’m told, he runs a hedge fund out of London (Blood and Gore) making money off ‘green’ companies that he’s pumped the prices up on.

    At the end of the day, economics is all about simplicity.
    If we reverted to a complete ‘user pays’ society, where people paid for their own education, health, infrastructure the prices in these sectors would be more realistic.

    What you clowns don’t realize that the reason health is so expensive is because Medicare, Work cover and Health insurance provide the health industry with a blank check and says “Do what you need”: Ok, it’s not quite that ridiculous, but it’s close.

    At the end of the day, until the average worker who contributes nothing other than labour (no innovation, no capital) earns bottom feeder wages our economy will be unbalanced.

    You say internet businesses are the way of the future? Correct, but not operating from Australia. Our entire structure is way to uncompetitive to become present on the international stage.

    If, as you say, location is irrelevant interms of the internet, why do we not see the next Apple, Microsoft, Google, Facebook, Dell, Amazon, etc software company rise from any country other than the USA?

    I don’t know why I waste my time.

    The GST is an epic fail. EPIC.

    Here is my suggested economic framework:

    Income tax only. Capital gains tax to remain at 50% for investments over 12 months. Negative gearing can remain: But audit these idiots often.

    NO GST: Business is not a tax collection agency. Why should a business have higher prices, just so Canberra can kick back?

    Police to act as police, not tax collection agents.

    No work cover: If you’re worried about your safety at work:
    a) Seek safer employment
    b) Take out your own insurance
    c) Start your own business (FFS I hate people who complain about working conditions – We are in a capitalist state, starter your own business, or stop talking to me

    No Superannuation guarantee: Save for your own damn retirement, why should employees be faced with staff who can’t make ends meet asking for pay rises, when an additional 9% of their wages is locked up by finance types who rape it for their yacht maintenance.

    Medicare: Basic health needs covered: For those who have hereditary conditions or issues through no fault of their own. If your over weight, smoker, drinker etc, pay for your own damn health issues

    NO AUTOMOTIVE OR TBTF business bail outs EVER!
    EXAMPLE: Why does a mechanic who spent 4 years below the poverty line, earn half that of an assembly line worker, only to have to pay tax to keep that assembly line running? This is one of the sickest forms of theft seen anywhere in the world.

    Smash red tape for small business
    Clean up the real estate industry: Rogue RE agents jailed, same for land lords, residential or commercial

    Don’t get me started on the legal system.

    As for centrelink. I know plenty of business owners who are living on far less than centrelink payments at the moment and have been for the last 2 years.

    Rupert, I’ll give you a clue:
    Wellfare is being unwound around the world. It will come here too. Until our government gets competitive, we are in a death loop.

    Our geographical position dictates that we need to have competitive advantages just to be equal on the world stage. I’m not sure many Australian’s, citizens or not, are prepared for that to happen.

    I read the other day, England will take over 10 years to reach the standard of living attained before the GFC. Given that these projections are often optimistic, England has a shaky future ahead….And they are almost 5 years ahead of us in this cycle.

    Your idea of more taxes, more taxes, more taxes is typical of someone who lives in their own world and is jealous of those who succeed. Seek a vision from further abroad….There are plenty of low tax states that will gladly accept capital for the advancement of their economies….Not simply tax the guts out of capital so as to have nice hospitals and schools.

  11. @ Matty, firstly I was responding to DX and I think in that context you may have somehow gone off the rails, but in the spirit of an open forum, allow me to say that I’m very successful, am not jealous of anyone, and pay my fair share of tax gladly (unless it goes on bailing out bankers, propping up the property market and bombing the shit out of enemies known or unknown – yes I’m a pacifist too, sorry!).

    But I also try to be socially responsible, philanthropic, self-sufficient and aware of my place in the environment. My suggestion is to tax most people less. Only those who don’t pay their ‘fair share’, who aren’t socially or environmentally responsible, and who aren’t generous within their communities should pay much more. Those are the people who live in their own worlds, not me. I want a more inclusive world, a greener world, a healthier world, a world that is fairer for all and not just the idle rich. At the moment, the system is weighted heavily in favour of those who earn the most from achieving and providing the least. Change your habits for the betterment of your world, or pay up. Only the greedy, the selfish and the apathetic would oppose that. Your solution of a low-tax state would see hospitals sponsored by Pepsi and schools sponsored by Macdonald’s. No thanks.

    Oh and income tax has been around since the mid 18th century. Before that, the human race survived – yes; prospered – not really. We are healthier and arguably smarter now than ever before. We are living longer and have amazing technologies at our finger-tips. My friend just had a brain tumour the size of a golfball removed from the centre of his head on the British NHS. It cost him nothing. In the US, it would have cost him hundreds of thousands of dollars! Taxes saved his life. We can travel around the world, and we’ve landed on the moon. You’ve got taxes to thank for that. The research universities in Europe and the UK are funded by the tax-payer, exploited for capital gains by US multi-nationals who avoid paying tax, but the innovation and invention was funded by you and me. Tim Berners-Lee (who went to my school by the way) isn’t the millionaire he probably should be, but all those billionaires in the US have the UK tax system to thank. All those roads that you and your mates can drive to the golf-course on – taxes. (Incidentally, I’d also reclaim many golf courses and return them to places of beauty for everyone to enjoy). The Fire-Service – taxes. Teachers and nurses – taxes. Stop me when you realise it is not me who is the clown.

    Apart from that, I agree with many of your points, and I’d equally like to see real estate agents and landlords in jail. But please don’t knock Al Gore – he has more intelligence in his little finger than Tony Abbott could ever dream of.

  12. @15. DX, you don’t have to be smart to get rid of both of them, just vote for an Independent candidate or a Green Party candidate. There are more than two choices on the ballot paper. The media will always tell you it’s a two-horse race, but democracy says it isn’t! Think the unthinkable.

  13. @ Rupert.

    I was rather harsh before. Some of your points are very valid. Yes, the UK NHS seems to work well.

    Was hoping you’d touch on bailing business out. Being involved in small business for my entire life, and entire family also. It is so frustrating that we continue to operate legally, when there is an entire cash economy out there. We can’t compete on price against that.

    then that GST that we do pay is recycled to big business, which is often slow, unresponsive to it’s environment and has directors driving porsches, Aston’s etc. It is a sick joke.

    As for taxing people less? Don’t 80% of Australian families pay no tax at all due to rebates and allowances?

    Government needs to get it’s costs under control.
    I could tell you stories of tenders that will make your blood boil.
    I have seen tenders of $8k turned down, only to be offered to a tender of $100k – to interstate contractors. So much for governments supporting small business.

    It is a sick joke. And our standard of living will continue to decline. In fact, it will likely take years to just stablize the fall.

    In a global economy, where in the PM’s words “the internet will break the tyranny of distance” the simplist form of competitive advantage is low cost of doing business: Low, efficient government taxes and spending.

    Until then, I will continue to watch my friends and colleagues take their financial and mental capital overseas. I see it happen regularly. And I have no valid argument against doing so. So, sad.

  14. Rupert and Matty, glad you called a truce (:

    Both of you have excellent, well thought out views on the situation Australia and most of the western world is currently facing economically.

    I wish there were more enlightened, passionate, intellectual, forward thinking people like you in the world. We certainly need some to sit on the front bench!

    Keep up your posts, love reading what you both have to say.


  15. @Matty – I am in agreement with you, which is why I would try to take small businesses out of tax altogether. I also am a small business owner and, while I don’t have any full-time staff, I do have to sub-contract, so I’m with you completely, but the internet is an amazing tool for change and the PM is right that it will break the tyranny of distance. If it means adapting our businesses to new technologies, then we mustn’t be Luddites about it.

    The ‘black’ economy in France and Italy, although technically illegal, is thriving, because the government turns a blind eye. They know it works and it keeps communities together and trade ‘local’. Nothing wrong with cash, or even a Local Economic Trading System. I don’t want central government getting their dirty hands on the profit made by a farmer selling a dozen eggs to his neighbour.

    GST is pointless – get rid of it. But I would replace it with a tax for financial sector transactions over $500k for example. So while the farmer and the baker are free to trade, the investment bankers and the brokers would have to pay something. I would also introduce a Tobin Tax for foreign currency transactions over $10k say, or in an ideal world, just have one global currency – yeah dream on.

    I wasn’t aware 80% of Australians didn’t pay tax. I think it’s highly improbable though, because I and everyone I know pays tax, so statistically that can’t be right.

    I would love to see responsible and ethical government, that is why I keep bleating on about sending our corrupt MPs a strong message, by voting them out. The power is with us! Politicians have no experience of how business really operates so they are hindered. Vote out of office the career politicians who only care about the next election and vote in statesmen who care about the next generation. We should be voting for people who want to leave the place in a better state than they found it.

    Of course I want low taxes for the majority, but not for the idle rich land-owners (I’d introduce Land Value Tax); not for the environmentally irresponsible (I am a supporter of the Carbon Tax – but I don’t think it goes far enough); and certainly not for the super rich (those individuals earning over $10 million would pay 75%! in tax). Social and ethical philanthropy would see those taxes reduced in the way of generous rebates. Either way, the super-rich are gonna pay.

    We simply must not sit in caves and watch all of this disintegrate. If you have strong views then run for office or at least find like-minded people to congregate and put pressure on our ‘elected’ MPs – they work for us!

    Neo-classical economics doesn’t work. It’s up to us to replace it with something a system that put people and planet first.

    On your last point, it’s interesting to note that there is an exodus from the UK right now and they’re all coming to Australia (I’m one of them). I was referred to as ‘an economic refugee’ on New Year’s Eve by an erudite woman from Melbourne. I’ve brought my capital here (at a shockingly poor exchange rate) and I’ve brought my skills and experience here. You won’t find any Poms complaining about the standard of living or the state of the economy. The weather is great, wages are generally better, people friendlier and the population smaller. The only gripe is that just about everything, apart from fuel, is more expensive than in the UK. So for every one of your friends and colleagues who leave, he or she is being replaced, hopefully by someone with equal financial and mental capital.

    I was pessimistic about the state of the world for too long. That’s why I came to Australia. Nothing’s perfect, but with the right will and determination, we can all make a difference to our children’s futures.

  16. @ 20. Thanks Jane. Don’t worry, Matty and I aren’t going to be mud-slinging like certain individuals on the front-bench in Canberra. I took exception to being called a ‘clown’, but I returned the compliment, so that’s water under the bridge now 😉

    When I’m an Australian citizen (in 4 years!) then I’ll be allowed to vote and maybe run for office. Until then I’ll be one of the uncounted voices shouting from the cyber-wings of the interweb.

  17. Having worked for the State Healthcare system here, and having “done the working holiday” thing in the UK NHS, I certainly know which service’s hands I would prefer to place MY health care in, and I’m afraid it’s not the “Australian Model”.

    Here, I NEED to have Private Health insurance (and I see the shoddy job the “Private Sector” here does, for a vast fee too!) In the UK we all contributed to the National Insurance Scheme, and there’s the advantage of centralisation (not every State having a whinge about Federal funding shortfalls, and playing the “He says, She says” game).

    The systems are different, and unfortunately the Brits have got it very right – after all they’ve had plenty of practice.

    One day we’ll abandon our costly, very, VERY inefficient multi-Federal / State / Local Government system and marvel at all the operational savings – in the meantime we’ll just continue paying the taxes, and see the corruption in “Our Leaders”, of whichever stripe you choose.

    Maybe we’ll “retire” to the UK as Illegal Immigrants?? Seems a better prospect than everyone’s future in Australia, unless “Our Leaders” stop the posturing and get down to really promoting productivity!

Comments are closed.