Australia needs a six-month GST holiday



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Isaac Gross, Monash University

Treasurer Josh Frydenberg has spent billions trying to save us from recession. The winding down of JobKeeper scheduled for September means he’ll have to spend billions more.

Many of the stimulus measures talked about are focused on the traditional targets of infrastructure and residential construction.

But this recession is different to previous ones. It has wrought most of its damage to restaurants, retail, entertainment and the holiday industry.

These service sector industries employ the lions share of the Australians at risk.

No matter how much traditional stimulus we offer, very few baristas or chefs are going to be able to find work building high-speed rail lines.

The COVID recession requires a different response.

A GST holiday would fight the recession we’ve got

One that would work would be a GST holiday.

Instantly, and for the next six months, all goods and services covered by the 10% tax would become more affordable.

The concession would be timely, targeted and would generate the maximum economic bang for the government’s buck.




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It would be targeted because the GST doesn’t cover many of the goods people are already buying such as fresh food and medicines.

What it does cover is extra, less essential, spending on things such as clothes, tourism and restaurants – the exact kind of spending we need to stimulate.

Cutting income tax or cash splashes wouldn’t deliver as big a bang for the buck – much of the bonus would be saved, or spent in sectors that don’t require stimulus.

However the only way to get the GST discount would be to buy goods and services, many of them produced by workers who will need support.

It’d be direct money where it is needed

The benefit would also be progressive. Calculations by Peter Varela, an economist at the Australian National University, suggest that the poorest households pay the highest share of their income in GST.

Removing it would eliminate this burden, if temporarily, helping the poorest households the most.

Making it temporary would encourage Australians to spend right now.

A GST holiday that only lasted only six months would force households to consider bringing forward planned future purchases to the present, when they are needed, in the same way as the government’s six month extension of the instant asset write-off is meant to for businesses.

It’s been done elsewhere

The idea was considered by Australia’s treasury during the global financial crisis. Britain’s treasury did it, cutting its GST (called value added tax) from 17.5% to 15% for a year in a measure judged a success.

Britain is reported to be planning to do it again.

Germany has already done it. It has cut its value added tax from m 19% to 16% until the end of the year.

Australia baulked at the idea during the global financial crisis because it was considered too difficult to get the premiers to agree to it.

But it mightn’t be as difficult now. The COVID-19 response has generated a new surge in cooperation between state and federal leaders for the good of the nation.




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Cutting unemployment will require an extra $70 to $90 billion in stimulus. Here’s why


A fly in the ointment would be who paid for it. The six month holiday might cost A$35 billion. While the states traditionally receive the GST revenue, in this instance the bill for the cut should be paid by the federal government.

It’s the federal government that is responsible for managing the national economy. State budgets, already hard hit, shouldn’t be further damaged.

Over to you Treasurer Frydenberg. Your economic statement is due on July 23. The budget is due on October 6. You could do worse than emulate Germany and the United Kingdom.The Conversation

Isaac Gross, Lecturer in Economics, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Cutting unemployment will require an extra $70 to $90 billion in stimulus. Here’s why



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Brendan Coates, Grattan Institute; Matthew Cowgill, Grattan Institute, and Tony Chen, Grattan Institute

After managing the first stage of the COVID-19 crisis so effectively, the government now faces a bigger challenge: getting us back to work.

The official employment figures indicate the scale of what’s needed. In the past two months number of Australians with a job has fallen by 835,000. Millions more are in jobs kept on life support by JobKeeper.

Employed Australians, total

Includes Australians regarded as still employed because they are on JobKeeper.
ABS 6202.0

The Reserve Bank’s latest public forecast has the unemployment rate peaking at 10% and then falling to 6.5% (baseline scenario) or 5% (optimistic scenario) by mid-2022.

In Grattan Institute’s latest report, The Recovery Book, released this morning, we argue this isn’t ambitious enough.

The case for ambition

The bank and the government ought to aim for something better, closer to 4.5%.

This is the rate it has previously identified as “full employment”, the lowest Australia can sustainably achieve without stoking inflation.

It would mean bringing unemployment down 1.5 percentage points further than it might otherwise fall over the next two years – to somewhere between 4% and 5%.

Projected unemployment with and without extra fiscal stimulus

RBA forecasts linearly interpolated between 6-month intervals. ‘Full employment’ corresponds to the RBA’s pre-COVID estimate, plus and minus one standard error band.
Grattan calculations, RBA May 2020 Statement on Monetary Policy; Lucy Ellis, 2019 Freebairn Lecture in Public Policy

The bank has passed the baton

With the bank’s cash rate already cut to 0.25%, conventional monetary policy (cutting the cash rate) has run out of steam.

Unconventional policy will help.

The Reserve Bank is advancing cheap money to private banks for onlending to businesses, buying government bonds to keep the three year bond rate near 0.25%, and has pledged to keep the cash rate at 0.25% for the next three years.

The bank can and should do more, but the rest will have to be done by government spending and tax measures, so-called fiscal policy, of the kind that has already been proved effective in suppressing unemployment.

We’ll need $70 to $90 billion

We estimate that reducing unemployment by 1.5 percentage points by mid-2022 would require additional stimulus of A$70 billion to A$90 billion over the next two years, equivalent to between 3% and 4% of GDP.

This is on top of the more than $160 billion committed to JobKeeper and other coronavirus supports to date.

Here’s how we make the calculation.

First, to reduce unemployment by that much we estimate that real gross domestic product needs to grow by about 4 percentage points more than forecast over the next two years.

The estimate is based on previous work by economist Jeff Borland. Jeff kindly updated his calculation with us for this article, finding that each one percentage point increase in annual GDP growth reduces the unemployment rate by around 0.38 percentage points.




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Second, we assume each dollar of stimulus in a particular year increases GDP in that year by between 80 cents and one dollar (some of the rest is saved and some leaks overseas).

This estimate of “fiscal multiplier” is slightly higher than that used by treasury during the global financial crisis but is in line with recent academic work finding that stimulus measures are more effective when monetary policy is out of ammunition.

If the fiscal multiplier isn’t as high – or if the recovery is more sluggish than expected, more stimulus might be needed.

There’s little risk of overkill…

A few weeks ago Reserve Bank Governor Philip Lowe raised the possibility that the crisis had pushed the minimum sustainable rate of unemployment higher, from 4.5% to nearer 5%, on the face of it making a case for less ambition.

His concern was “scarring” – the risk that some of the people who lose their jobs will become so damaged they become unsuitable for future employment, meaning that employers looking for staff would rather bid up the wages of existing workers than employ them, fuelling inflation.

But, if anything, his concern is a powerful argument for spending more, and more quickly, in order to avoid scarring. There’s good evidence sustained high unemployment hurts the economy in the long term.




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The charts that show coronavirus pushing up to a quarter of the workforce out of work


And if the extra spending did fuel inflation, it mightn’t be such a bad thing.

Inflation has been below the bank’s target for years. If it gets above it and becomes a problem, the bank can dampen it by raising rates.

…and little time to lose

The extra stimulus will need to be announced soon: on or well before the federal budget scheduled for October. Fiscal measures take time to have their biggest effect.

We are facing a “fiscal cliff” when measures including JobKeeper and the enhanced JobSeeker payment are withdrawn at the end of September. To escape it, they will need to be wound down more gradually, as the international Monetary Fund warned last week.

There are plenty of ways to maintain support including further cash payments to households, along the lines of those in the global financial crisis showed were effective in boosting spending, as well as spending on things such as social housing, roads and school maintenance.

Fear of debt needn’t hold us back

Extra stimulus will mean extra government debt. But the Australian government can now borrow for 10 years at a fixed interest rate below 1%. Adjusted for inflation, that’s a negative real interest rate, making debt more affordable than it has been in living memory.

There will naturally be concerns that further debt will place a burden on younger generations. But they are the generations that will be lumbered with the costs of worse than necessary unemployment, some of it very long term unemployment, unless we act.

In the worst case, they’ll ask why we didn’t do more.




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The Conversation


Brendan Coates, Program Director, Household Finances, Grattan Institute; Matthew Cowgill, Senior Associate, Grattan Institute, and Tony Chen, Researcher, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Vital Signs: COVID-19 recession is different – and we need more stimulus to deal with it.



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Richard Holden, UNSW

Australia has done well on the public health front during the COVID-19 pandemic, thanks to decisive action by the National Cabinet in March. Australia has done better than most countries on the economic front, too, thanks to the federal government’s large fiscal measures.

But we are at a crossroads.

By September, we may well have largely dealt with the public health aspects of the pandemic. But the economic recovery will only just be starting. The danger is that misunderstanding the nature of this economic crisis will lead the government to bungle that recovery.




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This recession is not like any recession in living memory.

Those of the 1980s and 1990s were “business cycle” recessions. The economy outpaced its inbuilt speed limit and inflation rose. To curb inflation, central banks pushed up interest rates. Those higher rates ended up choking off investment and spending too much.

The global financial crisis of 2008 was different again. That basically involved a massive dislocation in credit markets due to defaults (or the prospect of defaults) on mortgage debts packaged up and sold as investment products – known as mortgage-backed securities and collateralised debt obligations. When it finally became clear how bad these investments were, global credit markets effectively froze, bringing a range of otherwise healthy companies close to bankruptcy.

COVID-19 Recession

The economic crisis now was caused by a massive supply shock which, in turn, was caused by the virus.

For instance, Sweden’s “self-lockdown” saw economic activity drop 25%. Denmark’s coordinated lockdown resulted in economic activity falling 29%. According to Asger Lau Andersen and colleagues at the University of Copenhagen’s Center for Economic Behaviour and Inequality:

This implies that most of the economic contraction is caused by the virus itself and occurs regardless of whether governments mandate social distancing or not.

This is COVID-19 Recession phase one – a big supply shock while the virus ravages both the community and the economy.

Once the public health crisis has been brought under control, countries will emerge from the supply shock with fractured economies.

Australia will likely be in this position in the next couple of months. Household and company balance sheets will be badly damaged. Consumer and business confidence will be low. Unemployment high. Underemployment higher still. Renters or mortgage holders at greater risk of defaulting on payments.




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This will mark the beginning of COVID-19 Recession phase two.

Supply shocks create demand shocks

In a remarkable paper published in April, economists Veronica Guerrieri, Guido Lorenzoni, Ludwig Straub and Iván Werning develop a theory of what they call “Keynesian supply shocks”.

Their theory demonstrates how supply shocks can create demand shortages when markets are “incomplete” – which is pretty much all markets, all the time.

The COVID-19 supply shock is the shutting down, directly or indirectly, of industries such as hospitality and tourism. Workers in affected businesses lose their jobs and income. If they were on low incomes – as many workers in food and accommodation services are – their “marginal propensity to consume” (rather than than save their income) would have been high. If you don’t earn much, you don’t save much – you just spend. So their drop in consumption will be large unless they borrow to spend.

This is going to lead to an overall demand shortfall unless the workers who still have jobs and steady incomes start spending a lot more. But people typically won’t want to do that for multiple reasons – including the fact the goods consumers ordinarily spend big on – such as exotic holidays – are still not available.

The policy response

This all suggests policy responses to this economic crisis must be different to past responses.

Phase one has required ameliorating the supply shocks as much as possible.

Arguably the Australian government’s JobSeeker and JobKeeper programs have done that reasonably well – although JobKeeper in particular should have been better designed.

Phase two needs to deal with the demand shortfall that will become more apparent as the supply shocks fade.

That will require more stimulus, not less. Any focus on getting back to a balanced budget – encapsulated by Prime Minister Scott Morrison warning the government can’t save every job and needs to be “extremely cautious about expenditure” – is precisely not what is needed.




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In times of widespread falls in demand, with monetary policy that can no longer respond, fiscal contraction simply makes the crisis worse.

It’s a lesson learnt long ago by economists of all stripes, and immortalised by former US Federal Reserve chairman Ben Bernanke on the occasion of Keynesian critic Milton Friedman’s 90th birthday in 2002:

Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

Mr Morrison needs to remember that lesson.The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

We may live to regret open-slather construction stimulus


Martin Loosemore, University of Technology Sydney

Many countries around the world, including Australia, are looking to the construction industry to help rebuild economies. Industry bodies such as the Master Builders Association are strongly urging governments to bring forward spending on already approved infrastructure projects. They also want these projects to be unbundled into smaller contract packages so small local businesses and the whole sector get a piece of the pie.

We should not ignore the risks involved in the rush to get the economy going again. We will pay for mistakes made now in the form of debt created by cost blowouts and unscrupulous developers. We will have to live with poor-quality, ill-conceived and environmentally damaging developments for decades.

Of course, construction and infrastructure programs provide us with a powerful stimulus tool. It’s why federal and state governments are looking to this sector to drive recovery. The social impact of investing in more construction and infrastructure could certainly be significant.




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Construction is one of the country’s largest employers. The sector employs about 1.2 million people directly, and indirectly much more. It’s one of the largest employers of apprentices, youth and disadvantaged groups such as Indigenous people and refugees.

Investment in construction flows through the broader economy. The Australian Bureau of Statistics estimates every A$1 million spent on construction output generates A$2.9 million in output across the economy as a whole. Every job created in construction leads to another three in the wider economy.

Knowing this, state and local governments are relaxing hard-won controls to fast-track projects. Planning ministers are being given more power to override many of the statutory timeframes that govern normal planning and approval processes.

Fast-track approach creates risks

This approach creates many risks as well as many opportunities. If we do not control these risks in our rush to stimulate the economy, we are likely to regret this in future.

While the construction industry includes some world-class firms, the government-commissioned Productivity Commission inquiry into infrastructure raised many concerns about the lack of transparency and trust in development and infrastructure approval processes. It noted infrastructure project overruns were common. The extra costs amount to billions of dollars.

We are already battling a crisis of confidence in the residential apartments sector. Poor-quality buildings have devastated people’s lives. In New South Wales, the state government has appointed a building commissioner to clean up the mess.




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Unscrupulously exploiting a crisis

Relaxing controls also opens the door to unscrupulous developers to exploit the crisis for their own personal gain. Transparency International’s recent submission to a Senate inquiry argues that powerful groups have too often prevailed over public interest. It warns:

Businesses in highly regulated industries, such as transport, mining, energy and property construction, all actively seek to influence politicians, although the channels of influence vary by industry.

In some countries we are already seeing developers exploiting the COVID-19 crisis to argue for relaxation and even removal of regulations put in place to ensure projects contribute positively to the communities in which they are built. A former senior adviser to US President Donald Trump has argued that his administration should trigger an emergency override of America’s environmental protection laws and establish “Australian-style permitting”.

If fast-tracked projects are undertaken without appropriate controls purely to boost the economy rather than meet a real community need, then we will be paying for this crisis for far longer than we expect.




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Focus must be on community benefit

As Elizabeth Mossop warned in her recent Conversation article, our governments are committing taxpayers to further debt to stimulate recovery from the economic impacts of the coronavirus pandemic. Infrastructure spending is great for economic stimulus, but it still has to be the right kind of infrastructure that meets local community needs.

Mossop argues for small-scale stimulus projects focused on local small businesses, rather than multinationals, to deliver broad, long-term community value. Investing stimulus funding in local businesses means the money recycles in the community, reduces inequality and helps meet real community needs.

Of course we need to move quickly to rebuild our economy. But we must also place the community at the heart of any decisions about which projects we push through the system.




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We could learn much from the principles of urban acupuncture, which would advocate a community-based approach to stimulus. It would also warn against awarding contracts to major multinationals. These corporations suck money out of needy communities into the pockets of shareholders with no links to the communities we need to help.

Research shows procuring from local businesses provides a 77-100% economic advantage and an 80-100% increase in jobs compared to procuring from multinationals.

If stimulus programs follow traditional approaches to infrastructure procurement in Australia, then we will miss an unprecedented opportunity to tackle growing inequity. Even before this crisis, many younger and poorer members of our society were already being left behind.The Conversation

Martin Loosemore, Professor of Construction Management, University of Technology Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

How to improve JobKeeper (hint: it would help not to pay businesses late)



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Danielle Wood, Grattan Institute and Nathan Blane, Grattan Institute

JobKeeper has been a lifeline for the economy.

Given the ferocity of the economic hit caused by COVID-19, the government was right to prioritise speed over perfection.

But the current review of the A$70 billion provides an opportunity to iron out some of its crinkles.

The biggest priorities should be moving to upfront payments, expanding the scheme to cover temporary workers and short-term casuals, and avoiding the looming government support cliff.




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The government should also introduce a separate part-time payment rate, to better target the scheme and provide greater bang for buck.

The biggest barrier to the effectiveness of JobKeeper is the fact that the employer gets it in arrears, weeks after she or he has paid it to employees.

Stop paying businesses late

Businesses without the necessary cashflow have been encouraged to take advantage of government-backed loans, but for many the process has been too slow or unacceptably risky.

It might help explain why the take-up of the JobKeeper has been lower than expected.

Those cash-flow-constrained businesses that have been able to access finance have been forced to borrow on an ongoing basis in order to pay their workers.




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Given that the government now knows how much it needs to pay to businesses that are in the scheme, it would be very easy to switch to payment in advance by doubling up a payment – moving to being in step with, rather than behind, employers’ needs.

With government able to borrow so cheaply – at less than the rate of inflation – the fix would cost it little, and would add little to JobKeeper’s total cost.

The case for extending JobKeeper to temporary visa holders is clear cut.

Include more workers

Temporary visa holders can’t get safety net payments such as JobSeeker. And many of them are stuck here: there are no affordable options for them to return to their home country.

Leaving people without support does not do much for Australia’s reputation as a global citizen – many of the countries with which Australia normally compares itself have extended wage support to the wages of temporary residents.

It means JobKeeper is far less generous for businesses in sectors that rely on temporary visa holders, including the hard-hit sectors such as hospitality, retail, healthcare, and aged care.




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Why temporary migrants need JobKeeper


If temporary visa holders sign up to the scheme at the same rate as other residents, including them for six months would cost about $10 billion.

Short-term casuals – those who’ve worked for their employers for less than a year – have also been excluded, which has also left big holes in support for some of the worst-hit sectors and some of the lowest-income Australians.

Including short-term casuals would cost an extra $6 billion.

Pay part-timers less

JobKeeper pays all eligible workers at the same flat rate, regardless of the hours they worked before coronavirus hit or afterwards. More than 80% of part-time workers are believed to have received a pay rise under JobKeeper.

This means the scheme costs more than it needs to. It also raises questions about fairness between employees within businesses, because a part-time worker gets as much as full-time worker.

No doubt the government chose a flat rate to make the program simple, but a simple way to adapt the scheme would be to follow New Zealand and introduce a lower rate for people working less than 20 hours a week.




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It could mean that full-time employees on JobKeeper continued to receive $1,500 a fortnight, while employees working less than 20 hours a week got $800.

The saving, more than $2 billion per quarter, could be used to fund some of the extensions to the scheme we propose.

Extend it for businesses not recovered

The universal September 27 cut off date is blunt. It does not recognise that social distancing constraints will continue to affect some businesses for many months and that different sectors will bounce back at different rates.

Pulling back assistance on businesses that are still significantly revenue constrained risks undoing much of the good work JobKeeper has done to preserve jobs.




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Australia’s first service sector recession will be unlike those that have gone before it


Businesses currently receiving the payment should be required to re-test against the turnover requirement at the end of July and September. Where a business’s turnover climbs to higher than 80% of pre-crisis levels, support could be withdrawn with notice.

Businesses that remain below the recovery threshold in September should receive JobKeeper for an additional three months.

While the incentives would not be perfect – some businesses close to the threshold would have a short-term incentive to limit their recovery – it would be better than withdrawing support prematurely for scores of businesses.

JobKeeper is good, we can make it better

As well as being more effective in maintaining productive capacity, the approach we advocate would help cushion the “fiscal cliff” due at the end of September when all major coronavirus supports are due to come off at once.

Three months into its short life, JobKeeper is performing well. Now is the time to get it right.

Overall the proposed changes would cost a little more but they would better target the scheme and ensure it delivers on its promise of keeping Australians in jobs.The Conversation

Danielle Wood, Program Director, Budget Policy and Institutional Reform, Grattan Institute and Nathan Blane, Analyst, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Businesses get extension for instant asset write-off



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Michelle Grattan, University of Canberra

In its latest move to spur business investment, the government will extend its $150,000 instant assets write-off until the end of the year.

The six-months extension, which will be legislated, will cost $300 million in revenue over the forward estimates.

As part of the government’s pandemic emergency measures, in March it announced that until June 30 the write-off threshold would be $150,000 and the size of businesses eligible would be those with turnovers of under $500 million.




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The government is battling a major investment slump. Bureau of Statistics capital expenditure figures show non-mining investment fell 23% in the March quarter and 9% over the year to March.

Spending on plant and equipment fell 21%, spending on buildings and equipment plunged 25%.

An extra six months

Apart from giving businesses generally more time to claim the write-off, the government says the extension will help those which have been hit by supply chain delays caused by the pandemic.

The write-off helps businesses’ cash flow by bringing forward tax deductions. The $150,000 applies to individual assets – new or secondhand – therefore a single enterprise can write off a number of assets under the concession.

With rain breaking the drought in many areas, farm businesses are getting back into production, so the government will hope the extension will encourage spending on agricultural equipment.

About 3.5 million businesses are eligible under the scheme.




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The instant asset write-off has been extended a number of times over the years, and its (much more modest) thresholds altered.

On the government’s revised timetable, from January 1 the write-off is due to be scaled down dramatically, reducing to a threshold of $1000 and with eligibility being confined to small businesses – those with an annual turnover of below $10 million.

But there will be pressure to continue with more generous arrangements, to head off the danger of a fresh collapse in investment.

In a statement, treasurer Josh Frydenberg and small business minister Michaelia Cash said the government’s actions “are designed to support business sticking with investment they had planned, and encourage them to bring investment forward to support economic growth over the near term”.The Conversation



Commonwealth Government

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

HomeBuilder might be the most-complex least-equitable construction jobs program ever devised



Jason Pofahl/Unsplash

Geoff Hanmer, University of Adelaide

HomeBuilder is a good idea gone bad. It is possibly the most complex and least equitable program the government could have devised to deliver construction jobs.

It gives $25,000 to people who already own a home or already have enough money to buy one while delivering a minimal stimulus to extra construction. It isn’t a program to create jobs, it is a way of making people who are reasonably well off richer.

It does not address homelessness, precarious rental or any of the other pressing problems that are caused by our current housing mix.

It might build more nice decks for sipping Chardonnay (most already planned), it might deliver ritzy new bathrooms with imported taps or even new kitchens with the latest European appliances, but it won’t help those suffering housing stress.




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Construction is Australia’s third-biggest employer, after retail and health care and social assistance. It employs one in every 11 Australians, and it generates other jobs in the building supplies industry and in design and engineering.

The Master Builders Association says construction is facing a decline of 40%, with potentially horrendous implications for employment.

The industry has three main components:

  • residential – apartments and houses

  • commercial – including offices, airport terminals, retail, tourism, education and factories

  • engineering – including roads, railways and airport runways.

Engineering construction is doing reasonably well.

Across the country, governments are delivering a veritable infrastructure Utopia. Continuing projects include the Tullamarine Airport Rail Link, the second stage of the Sydney Metro, the North East Link motorway in Melbourne, the WestConnex motorway in Sydney, the Airport Metro in Perth and Cross River Rail in Brisbane.

All governments have to do is keep this pipeline going, which, by and large, they are doing.

On the other hand, commercial construction will be in deep trouble by the end of the year as current projects finish without new projects to replace them.

Outlook bleak, then COVID

The outlook for residential construction is desolate, although for some people with secure jobs working from home, COVID-19 appears to have ignited a mini home renovation boom.

Prior to COVID-19, commercial construction was forecast to shrink from A$48.77 billion in 2020-11 to $41.3 billion in 2023-24.

Residential construction was forecast to bottom out in 2021-22 with only 168,000 dwelling starts, down from a peak of 233,872 starts in 2016-17.

Now, both forecasts will be slashed.

The tourism sector is dead, the education sector is near death and the multi-unit residential market, already badly impacted by confidence issues around construction quality, is in terrible shape with many projects on hold.

Not big enough, not broad enough

The HomeBuilder scheme is not big enough or broad enough to do much to reignite residential construction. To be useful for jobs, it would need to deliver an extra 60,000 housing starts.

Given the only people who will benefit from the grant will be those some way down the track to either buying or building, it is hard to guess what the additional outcome will be, but it would be surprising if the scheme generated much additional activity.

Even if the full budget allocation of the scheme is taken up, it would fund only about 25,000 projects. Many would have gone ahead anyway.

Among the peculiarities of HomeBuilder are that it won’t work in much of Sydney where many houses are likely to be valued above the $1.5 million limit and it won’t work in regional towns where the required spend will overcapitalise existing houses.

Complexities aplenty

It will encourage people to build in fridges, microwaves, coffee makers and washing machines (many of them tastefully European) to bump the contract price up above the $150,000 minimum.

It is a potential administrative nightmare for state governments that are already stretched administering existing emergency relief programs.

Who will establish that the value of an existing house is less than the $1.5 million upper limit? Will it be the value now in the middle of the COVID downturn or the value last year, or the value used to set local government rates?

Contracts are meant to be arms-length, but who will ensure the builder is not the cousin or the in-law of the owner, something that might be impossible to avoid in a small country town? If a garage is built on the side of a house, rather than as a separate structure, will it comply with the rules? And on and on and on.

Few extra homes

While these are legitimate questions, they ignore the big, central problem with the scheme: the opportunity to deliver a substantial program of social housing that would address real problems, including homelessness, has been missed.

And the government has done it in a way that will minimise the jobs created and maximise the wealth transfer to Australians who are relatively well off.

For a government that has mostly managed to do the right thing ever since COVID-19 hit, this has been a terrible policy clanger.

It will encourage everyone who cannot afford to buy a home, or who is homeless, to believe the government has forgotten them.The Conversation

Geoff Hanmer, Adjunct Professor of Architecture, University of Adelaide

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Stimulus that retrofits housing can reduce energy bills and inequity too



Nicola Willand, Author provided

Nicola Willand, RMIT University; Bhavna Middha, RMIT University; Emma Baker, University of Adelaide; Ralph Horne, RMIT University, and Trivess Moore, RMIT University

Stay-at-home orders and the economic crisis have increased the burden of energy costs on lower-income Australians. Poor housing quality and unequal access to home energy efficiency are hurting our most vulnerable households. With the next stage of the national recovery program expected to include cash grants for home renovation, now is the time to turn to housing retrofits that support health and well-being as well as boost jobs.

Staying at home during the COVID-19 pandemic increases households’ energy consumption and costs. As one in ten Australians might lose their jobs, the pandemic is adding to the energy hardship of people who were already struggling to pay their bills.




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The other 99%: retrofitting is the key to putting more Australians into eco-homes


Access to energy is essential

Cold housing is a known health risk. Lancet research attributes about 7% of Australian deaths to cold weather. Warm housing reduces the risk of airborne infections, as well as providing comfort for working and studying.

Laundry temperatures of 60-90°C are needed to limit the spread of the coronavirus. But this conflicts with common energy-saving advice of washing clothes in cold water. Self-isolation also means heating more and not being able to close off unused rooms.

Low-income households, renters and older people are more likely to live in energy-inefficient dwellings. In fact, most Australian housing has poor energy efficiency.

When people on low incomes live in such housing, they are doubly disadvantaged by the challenges of needing more energy and not being able to afford it. Households with older people, people with chronic illness and children are particularly susceptible to energy stress and poor health outcomes.




Read more:
Forget heatwaves, our cold houses are much more likely to kill us


Stop-gap measures

The temporary stop to disconnections in some states recognises that access to electricity and gas is a basic need and essential for health and well-being. This guaranteed energy, and a commitment by Australian Energy Council retailers not to charge penalty fees for late payment, will give affected households some relief.

Even if power bill payments are deferred, households must still eventually repay their mounting debts.
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However, bill payment will only be postponed until the end of July. Much of the expensive heating period will still be ahead of us. And after that households will face the costs of cooling homes in summer.

Energy debts are going to accumulate as a burden to low-income households into the future. Energy retailers might find it ethically difficult to resume disconnections, but customers will have to repay their debts. This will only be possible if their overall financial position improves and/or the cost of their energy decreases.

Income support via energy concessions can ease bill stress. However, taxpayer money may be better spent on providing sustained relief by improving the energy performance of homes. Acknowledging housing as essential infrastructure would enable economic and social progress.




Read more:
Is social housing essential infrastructure? How we think about it does matter


A lasting solution to energy poverty

A long-term stimulus package for retrofits would be welcome. The focus should be on comprehensive retrofitting to reduce energy demand, thus helping households to repay debt. Comprehensive or “deep retrofits” combine simple activities such as draught proofing with insulating ceilings, floors and walls, upgrading heating and cooling appliances, and installing solar PV systems.

Many retrofits overlook the opportunity to install underfloor insulation when restumping a house.
CSR Bradford/YouTube screenshot

Initial findings of our HEET (Housing Energy Efficiency Transitions) research show simple retrofit measures are cheap and easy to do, and DIYing is popular. However, some opportunities are missed because householders are not aware of what can and should be done. A common example is failing to install underfloor insulation when restumping the house.




Read more:
Thinking about a sustainable retrofit? Here are three things to consider


Riding the current wave of home improvements, innovative retrofit initiatives may guide people in their DIY efforts. However, some training for proper DIY installation and the use of skilled tradespeople for technical installations is needed for safety and quality.

Spread retrofitting benefits more widely

Federal and state subsidy schemes already promote retrofitting. But recent research suggests low-income households and renters have benefited less. The one-in-three households that rent their homes should not be missing out.




Read more:
As power prices soar, we need a concerted effort to tackle energy poverty


Putting people at the centre of retrofitting programs will provide healthier homes and help tackle unemployment. This means providing retrofit assistance to those who need it most and training people in retrofit skills.

Previously, the boom in new housing construction inhibited retrofitting. This might change following the COVID-19 crisis. A long-term retrofit program would be an opportunity to upskill builders and to retrain newly unemployed Australians, particularly the young people who have been most affected by job losses. An expanded retrofit workforce is needed to reach the large number of inefficient homes.

So-called “Green Deals” have already been proposed in Europe, the US and the UK. Green construction stimulus packages in Australia have successfully supported economic recovery before.
The aim should be to spawn a new industry of energy-efficient builders who will continue to contribute to the upgrade and upkeep of Australian housing. This could help cut greenhouse gas emissions, promote public health and improve our resilience to crises.

A nationwide stimulus package to provide healthier and more energy-efficient homes would help the most vulnerable and boost the economy.The Conversation

Nicola Willand, Lecturer, School of Property, Construction and Project Management, RMIT University; Bhavna Middha, Research Fellow, Centre for Urban Research, RMIT University; Emma Baker, Professor of Housing Research, School of Architecture and Built Environment, University of Adelaide; Ralph Horne, Deputy Pro Vice Chancellor, Research & Innovation; Director of UNGC Cities Programme; Professor, RMIT University, and Trivess Moore, Senior Lecturer, School of Property, Construction and Project Management, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Scott Morrison’s HomeBuilder scheme is classic retail politics but lousy economics



Easypads

Brendan Coates, Grattan Institute

Scott Morrison’s new housing stimulus package is straight-out retail politics.

HomeBuilder offers homeowners (including first home buyers) a grant of A$25,000 to build a new home worth less than $750,000 or to spend between $150,000 and $750,000 renovating an existing home.

The scheme is limited to owner-occupiers with reported incomes below $125,000 for singles and $200,000 for couples.

Giveaways to home buyers are wildly popular. And who wouldn’t want their house renovated on the public dime? The trouble is it’s bad economics.

Take the new grants for home owners wanting to renovate.

To be eligible, they have to sign a contract with a builder by the end of the year.

But renovations costing $150,000 or more take time to plan.




Read more:
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The plans need to be drawn up, finance approved, and any building and development approvals secured.

Which means that anyone who signs a contract with a builder today was already planning to renovate.

And chances are that many who sign contracts over the coming months have already planned to renovate.

The new grants will also encourage the in-demand tradies to raise their prices.

They’ll add up to a lot of spending for few jobs saved.

Not many more homes

The grants for buying new homes are more likely to support construction jobs. They will encouraging buyers to bring forward purchases.

It’s why in 2008, in response to the global financial crisis, the Rudd government tripled the first home buyer grant to $21,000 for new homes.

There’s no doubt the coronavirus crisis has hit construction hard: in the past three months almost 7% of the industry’s workforce have lost their jobs.

But most industry forecasters expect at least 110,000 homes to be built (and sold) in Australia anyway next fiscal year.

And most of those first home buyers will be eligible for the grants

About 83% who had recently bought their first home in 2018 paid less than $750,000 for it. Of those, about 90% would have satisfied the income tests for the new grants.

That’s a lot of homes that will have to be funded first before HomeBuilder funds the construction of any extra homes.




Read more:
Government to give $25,000 grants to people building or renovating homes


And stiff competition among prospective buyers of homes selling below the $750,000 price cap will force up the prices of those homes.

That’s a big win for developers selling house-and-land packages on the urban fringe.

Perhaps the best that can be said for the scheme is that it probably won’t cost much.

The grants are uncapped, but the government expects it to cost about $688 million for roughly 27,000 grants. And since many of those homes would have been built anyway the scheme won’t support many construction jobs either.

What’d be better

It’d be better to fund the states to build new social housing or refurbish existing homes, as the Rudd government did during the global financial crisis.

Many have forgotten about that scheme because it attracted so little controversy, unlike other of Rudd stimulus programs.

Public residential construction approvals spiked within months of the announcement, and more than half of the homes built went to tenants at risk or already homeless.

Building 30,000 new social housing units today would cost between $10 billion an $15 billion. it would support the building industry, and as important, would help many of the 116,000 Australians who are homeless on any given night.

It might not make for good retail politics, but it would help people who need it. And it would be good economics.The Conversation

Brendan Coates, Program Director, Household Finances, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Government to give $25,000 grants to people building or renovating homes



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Michelle Grattan, University of Canberra

The Australian government will provide eligible owner-occupiers with a grant of $25,000 to build a new home or extensively renovate an existing one.

The scheme – estimated to cost up to $688 million – will not be limited to first home buyers.

Contracts must be entered into between now and the end of the year, with work to begin within three months of the contract date, to maximise the stimulus to an industry set to take a big hit from the pandemic crisis.

The means-tested HomeBuilder scheme will be available to individuals with income up to $125,000 and couples whose combined income is up to $200,000.

It will not be available to companies or trusts, those who are not Australian citizens or people under 18 years of age. Owner builders will not be eligible, nor can the scheme be used for investment properties.

New builds must be for a principal place of residence with a cap on the combined value of house and land of $750,000.

Those renovating their existing home as a principal place of residence will have to be making changes valued between $150,000 and $750,000, with the dwelling worth not more than $1.5 million before the renovation.

The renovation must be “to improve the accessibility, safety and liveability” of the home. It can include a combination of work, such as a kitchen and bathroom renovation.

It can’t be for unconnected additions, such as detached sheds or garages, or for swimming pools, tennis courts or outdoor spas and saunas.

It must be under the supervision of a registered or licensed builder.

Sensitive to comparisons with the Rudd government’s stimulus grants in the global financial crisis, notably the controversial pink batts scheme, the government has listed differences including the limited term of the program, tighter eligibility criteria and expert supervision.

The latest package comes as Wednesday’s national accounts showed the Australian economy went backwards by 0.3% in the March quarter. Annual growth was 1.4%.

Treasurer Josh Frydenberg admitted Australia is already in recession, given the June quarter is expected to be horrendous. A common definition of a recession is two negative quarters.

Frydenberg also announced the government’s promised economic and fiscal update has been delayed, from June until July 23.

He said it would include the response to the review of JobKeeper, which is currently under way. He again flagged the government could cut the $1500 a fortnight payment for those earning less than that before COVID.

Shadow treasurer Jim Chalmers said the delay was a disgrace in these uncertain times.

The government says the housing scheme will help support 140,000 direct jobs and another 1,000,000 related jobs in the residential construction sector.

The sector has lobbied for special assistance, saying it expects new dwelling starts to fall by half by the end of this year.

The government expects competition for work will keep prices contained.

Frydenberg said that “with dwelling investment expected to decline by around 20% through the June quarter, the HomeBuilder program will support residential construction activity and jobs across the industry at a time when the economy and the sector needs it most”.

The scheme will be implemented through the states and territories, which will monitor compliance. The grant will be paid to people when they make their first progress payment.

Prime Minister Scott Morrison said: “Our JobKeeper support has helped the construction sector weather the crisis, now we’re helping fire it up again.

“This is about targeted taxpayer support for a limited time using existing systems to ensure the money gets used how it should by families looking for that bit of extra help to make significant investments themselves.”

Housing Minister Michael Sukkar said “HomeBuilder will not only support the jobs of carpenters, plumbers, bricklayers and electricians on our building sites, it will also support the timber mill workers who produce the frames and trusses and the manufacturing workers who make the glass, brick and tiles for our homes”.

Some days ago, Labor’s housing spokesman Jason Clare said the housing industry was “expected to go off a cliff” and a stimulus package was urgently needed. Labor has also said stimulus should be given to social housing.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.