GLOBAL OR LOCAL?

Cormann and Lowe

OK, so the finance minister Mathias Cormann admits Australia is facing “global headwinds”. That’s a start.

But are they global or local headwinds, Mathias? I suppose they may be seen as global insofar as it’s part of the general problem: the world has been sinking too much private debt into land price bubbles. And, by definition, bubbles have a habit of bursting.

But if land has no cost of production, how can it possibly be so expensive? Neocon economists tell us it’s simply a lack of supply. But, real estate valuers might cut to the chase to explain high land prices are indicative of insufficient public capture of land rent. That is to say, to the extent we permit the private capture of land rent, so will land rents be capitalised into higher and higher land prices; especially if the Reserve Bank of Australia looks the other way as the banks shovel easy credit into the bubble in land prices we’ve experienced since 1996. That’s right: since 1996.

Now I see the RBA governor, Philip Lowe, says he can’t fix our local economic mess all by himself by tweaking the cash rate. He needs the government to engage in fiscal reform.

That’s quite right, Philip. I tried to tell Glenn Stevens that back in 2014.