We have all heard about trickle down economics. If this works, looking into the future what will be the best/most effective thing a consumer can do to 'quickly' boost the economy post covid- 19? Minimum bucks, maximum bang. Buying an expensive product ie luxury car will be out of reach for most people and doesn't sound like it will trickle down much into the economy quickly. Is it just mundane things like buying coffees, or groceries? Domestic tourism? Any ideas/suggestions.
What Is The Best/Most Effective Method to Quickly Boost The Economy Post Covid-19 for The Consumer? Minimum Bucks, Maximum Bang
peterw1 on 01/05/2020 - 21:03
Comments
Username does not inspire confidence.
question is a bit contradictory. I'd just create a 4 day weekend Monday and Friday public holiday
I'm open to relaunching traditional "business hours" to 9am - 3pm and maintaining Mon - Fri
oh it was just a one off. like an easter long weekend
Cheap hooker
Domestic travel tax deductions
4 work day weeks with same pay as before.
America is a good example of a country that has embraced trickle down economics and yet the average consumer is way worse than here in Australia where trickle down economics is used much less.
In what ways are the average consumers in the USA WAY worse than in Australia?
Just look at their minimum wage, it hasn't risen in close to 20 years, not even for inflation.
They have very extreme low and high social economical statuses.
Australia needs a new big city. Would be a good time to create an affordable first home owner city or serious agriculture/irrigation scheme.
Maybe some high (ish) speed trains from satellite cities. For example Ballarat and Geelong for Melbourne.
Lol all the data is pointing at people wanting to be away from cities on a nice nice spacious block of land !
Feel sorry for apartment owners for what is about to happen to their investments .
BangBux
Trickle down strategies have been shown not to work many times. https://en.m.wikipedia.org/wiki/Trickle-down_economics
How about raising taxes on the wealthy, cutting tax breaks that encourage real estate speculation so new investment favours business rather than just bidding up housing assets and removing capital gains tax discounts so people seek income producing investments over speculation.
Wouldn’t hurt to add a bunch of incentives to train new tradespeople too.What tax breaks are geared specifically to real estate speculation?
Negative gearing encourages people to invest in a loss making property in the hopes of price rises (adding nothing to the economy) and CGT discounts reward this by taxing them preferentially to somebody who invests in a profit making enterprise.
Neither of these 'tax breaks' is specific to real property.
If you borrow to buy shares you are likely to be negatively geared and entitled to a 'tax break' for doing so.
The same is true for the CGT discount. Hold those shares long enough and you will be entitled to the exact same CGT discount as you would with a house.
If it is a potentially income producing asset of any variety you will get the exact same tax treatment as housing - and with shares you will not bear the same stamp duty or land tax penalties to name just a couple.
If anything the system is geared AGAINST investing in real estate because of the additional costs (which, while adding to the tax deduction are paid in full, but only refunded based on marginal tax rates).
However, real estate seems to be everyone's favorite investment asset because people still think that bricks and mortar never loses value.@Almost Banned: Sure, but both tax breaks have been key reasons real estate was bid up so ridiculously strongly in this country.
Keep writing off losses against the same class of income, and have CGT with no discount.
Offer to roll over some capital gains into super (as already happens) if you want to reward those diligent lifelong small business people.Speculators provide plenty of liquidity paying full cgt anyway in equities etc. so to my mind the discount is unnecessary.
@mskeggs: Old enough to remember the days prior to the introduction of CGT.
Real estate was more affordable and home ownership a few percentage points higher.
It doesn't really make that much sense to me, that the introduction of CGT combined with an income tax offset for losses, caused real estate to "skyrocket".@sir_bazz: It isn't CGT, but the 50% discount John Howard introduced that has stoked a fire under property (also his doubling in migration, too, to increase demand for housing).
The reason is that before then, whether you got your property returns from rent or growth, you were taxed the same, and nobody would think an investment that lost money every month was a good one.But allowing tax losses on investments to be written off against income decreased those losses by 40% (or whatever your marginal tax bracket is) at the expense of tax revenues - so all tax payers contributed to the minority who recognised these benefits. So negative gearing encouraged investors to consider loss making investments if they believed that capital growth would offset this.
The 50% CGT discount made it sensible to concentrate all your return in growth, so in a tight market (as extra demand from migration was felt) it became reasonable to leave rents at a similar proportion of historical incomes (which is close to all the market can bear), but the return fell, as people participated in a cycle of bidding up prices 'knowing' they would get their money back when they sold.
This is amplified by the loosening of credit since the 80s, coincidentally when CGT was introduced.
Back then, we had to have sizeable deposits to get finance.
But when you can buy on 0% or 5% deposits, you double your money if the property price rises 5%, treble it if it raises 15%. And you only pay half the tax you would have under old rules or if you were earning the money via working.This has pushed investors into this class of asset because the returns have been so spectacular, and like a ponzi scheme, as long as there are new participants it will keep inflating.
But it doesn't help our economy, because the gains are not adding value because of work or productivity improvements - they are fundamentally paper gains and zero sum across society. If house prices rise, house owners are only richer if they sell, but the new house buyer is poorer than if the gains hadn't occurred.
And because the new buyer has had to pay tax on their income to save to buy, and the house seller gets a CGT discount, the tax burden on the buyer is proportionally increased.A simple example is if everyone in Australia says their stamp collection is now worth double, they can claim it is so, add it to their household balance sheet, and happily trade stamps at the inflated prices. But it doesn't make us a richer economy, it just means more of the money we could spend on useful things like healthcare or infrastructure improvements (things that improve lives) is locked away in stamp collections. This makes the stamp holders individually richer on paper, but proportionally impoverishes everyone else just a bit.
This is why taxes that preference capital growth over income are a bad idea.
@mskeggs: Dude,
Good reply, and I apologise now for not giving you the response you deserve.
Will say that I agree with much of what you posted and will also add a disclaimer that I have ownership of multiple positively geared properties.
So while I do understand your views, I'm just not convinced that taxation changes have been the major driver to the rush on residential property asset class.
One of the findings from the long shelved Henry report was that taxation has only a few percentage points of impact on property prices. The recommendations from that report in regards to housing affordability and the tax treatment of property are still worth reciting today.
@sir_bazz: I also appreciate your considered reply.
I guess I'm not an economist needing to advise policy for the whole nation, and I can see that places in Perth or a lead affected house in Broken Hill for $90,000 contribute to a national story where the impact of tax and investment policies might pencil out to a minor effect of a few points each year.
But my lived experience (admittedly in a white collar job in Sydney) is when I got married I could afford a house, but my kids are looking at a circumstance where buying a house defines their economic situation for decades. They won't be able to buy with repayments around what they pay in rent, with a deposit they saved by skipping restaurant meals and overseas holidays and tightening the belt for a couple of years. But that was common for everyone before 20 years ago (even when interest rates hit 18% for some momentarily in 89).
Kids today need to take dramatically bigger loans (with the risk that entails if there are hiccups on the way) and much higher deposits (even if mum and dad kick a bit in, which just cements the inequity for kids that don't have parents able to)And they will need to keep up those tight repayments for many years, as they don't have the inflationary effect on wages that meant house payments were substantially less than rent after a decade of paying off a loan. And this reduces the dynamism in the business sector - who can take a risk on a new business when they are locked in to huge mortgage repayments?
I have had the benefit of owning a home during the great property inflation, so my own personal financial situation has been stable, but policies like negative gearing, CGT discount and increased migration have made it extremely hard for the next generation to buy a simple house a reasonable commute from the city. I think this is the most dramatic change that has undone our society towards the goal of improving everybody's lives over time.
I'm open to policies that will redress this, but I think swinging the investor-favouring tax breaks back towards making it neutral (at least) for the next generation would be a great start.
So I think there is a very strong argument to tax income from work no worse than income from capital investment/speculation.
It does us no good as a society to lock our money away in costly real estate compared to using the same investment for starting a business that grows the pie, or spending it on things that grow our quality of life like better infrastructure or improved amenities.
So I am strongly in favour of lower housing costs and redistributing the paper wealth that has mis-accumulated there to give tax breaks to new business or build useful infrastructure.
Sensible policy? Fat chance. Big business and the wealthy have already shown that they aren't willing to accept any new tax, just look at how negative gearing played a part in last election or the mining tax.
are you ms keggs or m skeggs? iv'e wondered this since 10+ years ago on ocau
Whatever you wish!
Raising Tax for the rich don't really help when they can afford accountant to list losses against there profit to recover tax.
Legalise cannabis.
It will have some economic impact, but the real benefits will be in how it softens the blow of the post-COVID world.I'm pretty considered in my approach to economics, but I think there is ample evidence from overseas that this is a net benefit.
You get a new, substantial tax base. You close off an area that funds crime. You reduce prison population and the other negatives from weed associated "crime". You can control access for younger people as we do with tobacco or alcohol.
And you give options (like gummies and edibles) that provide recreational enjoyment without the downsides of smoking or alcohol.The downsides are already largely managed, because we manage the current illegal consumption with impairment testing where necessary.
I haven't had cannabis for many years, but the advantages of a well run change to the law certainly seem compelling.
Start giving everyone a universal basic income.
It's the first best step to fix the 'trickle down craponomics' and gives people the chance to improve their lives without being slaves to minimum wage jobs.
Who will do the minimum wage jobs?
Who will do the minimum wage jobs?
The people who want a bit more money because they want a nicer home or a new car or any other thing people spend money on that a UBI wouldn't offer? Why would the market stop working? Unless you think the market is in failure already and people only take those jobs for fear of starving.
We already have a great indication of how UBI will work. If you are a disability pensioner or a single parent unable to work while you raise young kids, you already effectively have a UBI (for measures of a UBI for low income, until you earn enough to effect payment).
Unsurprisingly, a lot of these people have left high cost cities like Sydney and Melbourne for places on the coast or elsewhere.With a UBI, expect that to continue. It may well balance out the inflation a UBI would bring to rents/property in cities, over a few years.
If you earn around the median wage ($82k-ish) you likely won't see much change. You would get a UBI, but pay nearly as much in tax.But consider the options it would open for you to start your own business, or drop to 3 days a week while your kids were young, or take 12 months off to nurse a sick parent. I think even people earning substantially more than the average would see that increased flexibility as a huge benefit.
All of a sudden, the dynamism of the economy would be increased as people had increased flexibility to pursue the things that drive their personal value without the shackles 9-5:30, 5 days a week means. And increased economic dynamism - the ability to respond quickly to changes - has been the goal of increase casualisation or contractor employment. This just takes it a step further.
Not sure how it would go for the economy. My wife wouldn't have to work, and I could get ubi and do work for cash, and pay next to no tax, and be better off both time wise and financially. I'm sure there would be lots of people in the middle income household bracket who could do this.
Start giving everyone a universal basic income.
And who exactly will pay for that? Me? The poster below me?
No thanks. Maybe if you lead the way by volunteering to pay 70% income tax from tomorrow, I'll give you a second thought. But until then it sounds like you're just reciting an economic fantasy where we all get to live off imaginary money.
COVID-19 has already given a clear glimpse of what socialism would look like in Australia. Empty supermarket shelves, people becoming totally dependant on government aid (which the government cannot afford), wealthy people/businesses leaving our economy and taking thousands of jobs with them, and people being punished for holding down stable productive job while the lazy/irresponsible get rewarded. Not sure why you'd want to keep this nonsense going.
Probably wont change your mind but its something to give you a bit more information, I guess?
Universal Basic Income Explained – Free Money for Everybody? UBI
https://www.youtube.com/watch?v=kl39KHS07Xc
I’m not an economist, I’ve never studied economics and Its probably not as simple as this.
This is what I was thinking, if we all make a conscious decision to purchase Australian made products and avoid buying things from multinational companies that don’t pay tax in Australia. Then that will support and grow Australian industry protecting and increasing jobs. More people would have more money to spend. This would in turn reduce the amount of people on welfare and increase tax revenue putting the government in a better financial position to stimulate the economy further.
It probably means collectively we need long term vision to recognise that we can be better off financially in the long run by choosing to buy not based on price aloneHow exactly will buying local Australian products reduce the number of people on welfare? There's no logic to that at all.
And while I do agree with the sentiment that we should support local businesses, the truth is that it's not always warranted. Local businesses need to be incentivised to compete and innovate. Supporting them only gives them a free ride to exploit consumers and continue in their faling ways. Just look at what happened to the retail industry. Businesses are failing because they've refused to innovate and compete on the world stage. These businesses shouldn't be our main employers.
A push on domestic tourism, especially to fire affected regions and a big advertising campaign and push to buy Aussie made products. Not everyone is negatively impacted financially during this. I can only support my local restaurants and wineries so much.
Decrease taxes for the middle-class, increase taxes for the wealthy.
Increase education in the schooling sector, not funding but ACTUAL education. Start producing a population of critical thinkers who aren't just smart but they're also ethical. Teach these growing adults to take self-responsibility, have discipline, and create schedules/habits/goals.
Instil a public trust system. Lenin said "trust is good, but control is better". The scandinavian model says "control is good, trust is cheaper".
Have a system that does independent reports on progress:
(eg Don't have the NBN reporting how good the progress is going for NBN)
(eg Don't have the Education sector reporting about what a great job they did this year)Since human memory is bad in-general, before elections have a mandatory video about what politicians Promised versus what they Delivered.
…once you create a system that weeds out bad players, incentives cooperation, and creates better adults for tomorrow… that's when you win
Define middle class?
Lol OzBargainers?
Take my upvote.
War.
HOOR
What is it good for?
First expense: equipment for the soldiers, ammo for the weapons, foods for the army, logistic, etc.
Second expense: if we are defeated, we will be paying for our own lost + the cost of the war to the winning side.Sounds like an easy option but not really.
Regardless of which side wins, there will be mass casualty.OP did say maximum bang lol. But for real though, isn't this what the Germans did?. They spent heaps and went into massive debt to fund infrastructure projects like the expansion of the autobahn then they went and (profanity) up Poland and friends to pay for it. We're spending heaps on infrastructure and arming our military to the tune of 100s of billions. Scomo's comments made me feel like another cold war is coming around so it got me thinking.
We have all heard about trickle down economics. If this works
It doesn't.
Anyone who maintains it does after 40 years of the national median income falling is a religious idiot.
Any ideas/suggestions.
The private electricity sector has been "severely damaging" (ACCC head Rodney Sims) the economy ever since it's inception because it raised electricity prices to the highest in the world.
Large and small enterprises are no longer viable because of it according to the ACCC.
It is horrifically inefficient suffering a 30% loss in productivity 2007 - 2012 as they added 13,000 middle management positions according to TAI. Please find any Government department that has had such a ridiculous loss in efficiency. It is a joke.
This should have been fixed years ago but now is as good a time as any to provide a massive stimulus.
Nationalising electricity again would be a far larger stimulus than anything the Goverment has done so far. It would help all citizens and all business regardless of income or assets (unless you own electricity businesses but most owners are overseas). It would not be drawing on taxpayer funds to provide the stimulus.
Sounds good. What would it cost to buy the electricity sector from private companies (like AGL, Alinta etc)?
The title gave me a good needed chuckle, thanks dude
Not something the consumer can do but how about if the government did the following…
Tax every dollar that leaves the country and use the proceeds to reduce income and company taxes.This will have the effect of
1. help local businesses compete with foreign companies that pay significantly less tax (lower cost of doing business)
2. put more money in consumers pockets so they can spend and stimulate economic activity
3. catch multinational tax minimisers. Especially the ones engaging in transfer pricing.For example
Every dollar that leaves the country gets taxed 10%
income tax below $90k is taxed 10%
Company tax rate at 10%
Adjust welfare payments to ensure recipients are no worse off.It's possible this would actually cost next to nothing but at the same time give the local Australian economy a huge boost.
Thats the same as putting tariffs against every country you do business with.
You're effectively making the cost of importing anything (money leaving country) more expensive which is then passed back to the consumer. (Or the business wears it and hires fewer people)
Any country then importing Australian goods can do the same and charge 10% on our goods and the net effect is while you have reduced income and company taxes, in return you get higher priced goods and less revenue from your exports to other countries.
You're effectively making the cost of importing anything (money leaving country) more expensive which is then passed back to the consumer.
Yes. Imported goods/services become more expensive. But the consumer has significantly more money in their pocket. Even after paying a higher price for imported items they are still financially ahead. Australian businesses on the other hand will not need to raise their prices for 100% Australian goods/services. This will give them a more level playing field than they currently have giving them a competitive boost and will enable them to expand and employ more staff.
Any country then importing Australian goods can do the same and charge 10% on our goods
Yes. Many countries have trouble with multinationals, eg. FAANG, shiftng their income to low tax jurisdictions. If those countries implemented a similar tax on money going out they would address this issue. On balance far more money leaves Australia than comes in and we would be better off overall.
For the consumer to have any impact on the economy, they need to spend on things which circulate money. Buying a TV at Harvey Norman wouldn't do much. Going to a cafe probably would — keeps staff employed, keeps suppliers going, landlord getting rent paid etc.
Another thing which would be good is to get renovations on your house done, extensions, a granny flat, new roof etc. Not only can these things be good investments, they also employ a bunch of people directly.
Australia need leaders who understand the economic impact of the economy on ice and make the correct risk/reward moves to get it going again .
Eg tell Andrews that people unemployed based on overseas studies have 1 in 1000 committing suicide and 3 out of 1000 abusing drugs .I would start by removing cash from the economy.
Everything from welfare to wages recorded electronically. Essentially monitor money.It would expose the rot that is essentially fudged up economics that politicians parade around.
It took 7 days of covid to reveal who was financially healthy and who was scraping by.A transparent economy is a healthy one.
To think these <o<ksuckers had $35 "back in black" mugs printed ready to go.
Had a heart warming moment when they announced their budget.How does cash allow fudged up economics?
Remove GST.
Donate the money to my PayPal account and I'll do the rest