9 Things The Australian Government Can Do To Reduce Living Costs

Authored by Graham Young via The Epoch Times (emphasis ours),

The federal government is belatedly recognising that some of its economic policies are contributing to the inflation that the Reserve Bank of Australia (RBA) is trying to stamp out by raising interest rates.

Since April 2022 when rates first started to increase, it’s as though we’ve been in a car with two drivers—one with its foot on the brake, the other with its foot on the accelerator.

Now, at last, the driver with his foot on the accelerator is showing signs of understanding that they’re going to damage the engine of growth if they keep pulling it in two directions.

So they’ve determined to cut spending on road and rail projects after a blowout in costs on the $120 billion (US$78 billion) portfolio of current and proposed projects of $38 billion—more than 25 percent.

Cutting road and rail projects is not where I would necessarily start. Good road and rail projects actually add to the productivity of the country.

Think of all the trucks that go between Brisbane and Sydney. The upgrades of the Pacific Highway have so far cut the time to travel between the two major east coast cities by 2.5 hours, or somewhere around 20 percent.

That’s a huge lift in productivity, and as logistics are a significant proportion of retail prices, a huge decrease in prices. It is therefore anti-inflationary, as well as helping truckies maintain their real earnings.

Not that all transport projects are that productive.

Former Victorian Premier Daniel Andrew’s Melbourne Suburban Rail Loop and Queensland Premier Annastacia Palaszczuk’s Cross River Rail are both products that provide negative benefits. They therefore increase costs and are pro-inflationary.

The federal government should step away from funding projects like these.

What else should it do?

In a population of 26 million, this puts too much pressure on infrastructure and is substantially responsible for the current housing crisis.

While immigration could help with various skills shortages, there is no evidence that is what the current surge in migration is actually doing.

And anyway, a skill shortage is a signal that either the education and training system needs to adapt, or the economy is exhausting its ability to fulfil all wishes with current resources.

Producing surpluses, without increasing taxation, means a decrease in the size of government and an increase in productivity.

Surpluses would mean they would need to control rapidly increasing costs in health, aged care, and the National Disability Insurance Scheme (NDIS). That should be relatively simple.

The NDIS should have always been means-tested, and restricted in what it was available for.

Aged care is a centrally micro-managed mess where most of the problems could be fixed by the government stepping away, and also requiring better-off retirees to meet more of their own costs.

In health, we spend proportionately around 50 percent more than countries with similar health outcomes like Israel and Singapore. We’ve got a generally good health system, but it could be better and cheaper.

There is also a list of more radical reforms that should be implemented to raise the productivity of business.

Australia’s productivity has been dropping partly because business has not been investing in productive capacity, and most investment in the economy actually comes from companies.

One easy way to boost investment is to allow businesses to accelerate the rate at which they write off assets.

Fast-growing companies are always chronically short of capital, and we exacerbate this by taxing them even when they are not cashflow positive.

Accelerated depreciation helps with this, and while it temporarily decreases government tax revenue, over the long run it should increase it as greater wealth is generated.

They could also look at abolishing company tax altogether and taxing profits entirely in the hands of shareholders.

They should also look at abolishing Capital Gains Tax (a tax that only came into being in 1985).

It strikes at the heart of ambitious Australians who want to do things for themselves and will make our workforce significantly less flexible, increasing costs all around.

In fact, this bill ought to be known as the “Enabling Greater Union Power and Screwing the Small Business Sector” Bill.

The “loopholes” that it claims to close are in fact, not bugs, but features in what has been a remarkably flexible and productive workforce.

It gives too much power to objectors, who in many cases are environmental groups (not conservation groups) set on sabotaging wealth creation rather than protecting the environment.

They’ve certainly done this with gas which, in the long-term, actually sends prices up.

It is already diverting labour and resources from everyday necessities like housing, but there is a looming shortage of the components that make up renewable energy and power networks.

In addition, proceeding without adequate storage is going to increase the need for gas-fired power generation, which is only going to get more expensive because of government policies making it difficult to start new gas projects.

It should be clear to the RBA, and to voters, that official interest rates should never fall below, say 3.5 percent.

The record-low rate of 0.1 percent was absurd for a number of reasons.

Risk-averse investors, such as pensioners, need to have an asset class that gives them a reasonable return, and which is liquid. That is cash or bonds.

While an asset could wear a return of 0.1 percent if there was a reasonable chance of capital gains, at that rate there is a more than reasonable chance of a capital loss.

In fact, the RBA is apparently sitting on around $45 billion of unrealised losses because it invested in its own paper at this absurdly low rate.

The rate is also important because the government bond rate tends to be priced off it, and the return on government bonds is used as a hurdle rate by investors to gauge the return they need from an investment to make it viable.

When the official cash rate is too low people, businesses and governments invest in too many marginal projects which add nothing to national productivity and income, and often freeze out riskier, but ultimately more profitable, ones.

I wish I could say it is likely the government will pick up even one of these ideas, but it isn’t.

Just a few days ago Treasurer Jim Chalmers boasted, “We’ve seen the highest quarterly wages growth in 26 years under an Australian Labor government. Real wages started falling under the Coalition due to a decade of deliberate wage stagnation and high inflation. We're turning it around.”

Except they’re not turning it around at all.

He’s quoting nominal wages against real wages, and ignoring the fact that labour productivity has just suffered a record fall.

Those wage hikes aren’t good for the economy, they are inflation in action.

If you can’t see it when you stub your toe on it, in the end, you’re unlikely to be able to do anything about it.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.