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The Forum > Article Comments > Lessons for Australia from Irelandís woes > Comments

Lessons for Australia from Irelandís woes : Comments

By Saul Eslake, published 3/12/2010

To avoid similar troubles to Ireland Australia needs to change its approach to fiscal policy.

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Wise words Saul.
Interest rates should be set by the market to reflect the balance between saving and borrowings. Allowing cheap foreign credit to offset lack of real domestic savings just forces people to adopt higher investment risk in order to stay ahead of inflation.
As for the property "boom". If an "investor" makes $1M from buying-sitting-selling...who pays the $1M? Clearly the process of buying-sitting-selling does not *produce* $1M in wealth, so someone else must pay....who is it? Ideally it is just the next buyer, but history shows that the "final" buyer before the crash will default and pass it on to the bank...who will of course pass it on the taxpayer and future customers. We now have 30% of our economy as "financial services"...personally I'd prefer tulip farms. (Farmers are so much nicer people than bankers; Much cheaper too!)
Yep, the current "boom" in credit and cheap ores will be paid for by your kids, (As will our environmental splurges)...aren't we gracious
Posted by Ozandy, Friday, 3 December 2010 10:26:35 AM
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Paul Murray made some interesting comments about all this, in
Wedneday's AFR.

Our net foreign liabilities amount to 60% of GDP. That is
extremely high by global standards.

More local savings could deal with it, but of course our tax
system is structured against saving. Better plough the money
into the family home, any profits are tax free, or negative
gear an investment property or two.

Now lets say we have a hiccup in China or foreign investors
lose faith in Australia, for whatever reason. Interest rates
would shoot up and there is nothing that the Govt or RBA could
do about it.

There would be much wailing and howling, as those with mortgages
up to the roof, lost their homes. House values would finally
crash, our property bubble popped.

It will happen one day, its just a question of when. Good times
don't last forever. They never have and they never will.

No doubt we'll only actually deal with these imbalances, once
there has been enough pain all around and enough licking of
wounds from the experience. Humans are quite predictable really.
Posted by Yabby, Friday, 3 December 2010 5:09:08 PM
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Saul,It is about time you and others looked at the reality of this scamming banking system.The IMF creates money in its computers and loans it to Ireland pilfering their pension funds and putting them into more debt.

The fractional reserve system of banking is a thieving scam.Each year $ 91 billion of new money is added to our economy to equal increases in GDP + inflation.Our Commonwealth Bank and state banks used to create a % of this money as a tax credit.Now all of our new money is created as debt.If this continues,debt will consume and enslave us to a few powerful corporate elites.
Posted by Arjay, Friday, 3 December 2010 6:44:28 PM
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If Australia had learnt its lesson delivered by Harold Holt, who was treasurer from about 1947 and Prime Minister until his drowning? in 1966, and had kept the top personal tax rate at 66.6% and had enough intelligence to raise the no tax level - about $30,000 today, we would be sitting in a very prosperous country. Unfortunately, The politicians and the CEO's of the news media and others would sooner see the country slide into a bankrupt heap rather than lose any of their booty, the same as those politicans who pretend they are going to make Australia a wonderful economy, but their only action has been to destroy it, and to increase their own salaries and perks - they are considering removing some perks, and increasing their salaries, but they haven't said that they won't take back the perks later, have they. They are only employees, and very poor ones at that. Would you employ any of them, you are now you know.
Posted by merv09, Sunday, 5 December 2010 5:37:43 AM
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*and had kept the top personal tax rate at 66.6% and had enough intelligence to raise the no tax level - about $30,000 today, we would be sitting in a very prosperous country*

We are sitting in a prosperous country, Merv. But that world has
changed, with or without Australia.

Fact is most people have a sense of fairplay. At the moment the
top tax rate is half. Go beyond that and people get cranky and
rightly so. The smartest and best paid simply go and live elsewhere,
where taxes are more reasonable. We lose their talents and if
Australia is short of one thing, it is bright people.

Those remaining will think up new schemes to avoid paying tax,
transfer money offshore, which with our globaly econonmy is not
hard to do. Or they will simply work less. I've seen shearers
knock off, once they reached their quota, for they were not going
to sweat and toil, when the govt took most of it.

So your idea might have worked in the 60s, but would be a failure
today. Ronald Reagan figured that one out. When he decreased top
taxes, tax revenue actually grew, as more people decided to pay
tax in America, rather then shuffle it offshore.
Posted by Yabby, Sunday, 5 December 2010 7:23:31 PM
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Arjay,

Could you expand on the tax credit. I would be most interested to hear how it worked?
Posted by Fickle Pickle, Monday, 6 December 2010 10:30:53 AM
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