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Byron Shire
February 23, 2024

What if?

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The purpose of increasing interest rates as a ‘blunt instrument’ to lower inflation, is simply to take disposable income out of the hands of people so they cannot spend it.

The banks are making windfall profits out of these ever-increasing interest charges.

What if the increased interest charges went into the person’s super fund instead of the banks, so they get to spend their own money on themselves as they age?

Otherwise the banks are simply passing on profits to their shareholders at the expense of their overburdened customers.

Michael Balson, Upper Wilsons Creek


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48 COMMENTS

  1. Spot on Michael.

    My 20 cents worth below to a prior Echo letter “Boffin or layman” from David Witney Nov 15, 2023

    Banks continue to win as higher rates provide an opportunity for greater profit margins on loans. They are very quick to increase loan interest, but are much slower on increasing the amount of interest they pay on deposits.

    What’s an alternative?

    In times of high inflation, employers could pay a little less wages “in the hand” and direct that money to the employees super account.

    This would have the same effect of reducing immediate consumer spending BUT rather than that money flowing to banks in the form of higher home loans repayments, the money is preserved in super for the benefit of the individual in retirement (rather than the benefit of the bank).

    It would also apply to ALL employees, so in theory, much less cost of living impact on one group of people and it would not increase retiree spending.

    Just a thought 🙂

    • John Maynard Keynes, famous economist, was decades ahead of the curve with the idea of ‘forced savings’.
      And our superannuation system is indeed a form of forced savings, money being set aside for retirement.
      It is a no brainer to temporarily lift the rate of superannuation instead of clobbering people with interest rate rises. It is a mystery that the ALP / treasurer Chalmers haven’t woken up to the solution.

      • The idea behind forced saving was so that the value could be robbed through more money printing inflation. In true commie style, you want to re-aim the theft exclusively to the working people. You can’t solve the problems caused by central planning, with more central planning. That would be The Road to Serfdom. Read some Hayek!

      • Um Joachim, the percentage of wages going into super has been steadily rising – as planned – except when the LNP oppose it which is generally every scheduled increase.

        But this is a slightly different situation. See below. Make sure you read the lot- you might learn something. And remember, who introduced compulsory employer contributions? The Greens? Ah no!

          • Oh, I thought you were hinting that Labor isn’t bright enough to think of super as a strategy to deal with inflation.

          • Lizardbreath, the ALP looks on like a helpless child as each interest rate increase is announced by The RBA.
            The pockets of ‘hard working aussies’ getting drained with each interest rate rise that is fed to the Banks. So instead of feeding the Banks, feed ‘hard working aussies’ superannuation accounts instead with a ‘temporary lift’ to super rate in lieu of an interest rate bite.
            So, yes you right, “Labor isn’t bright enough to think of super as a strategy to deal with inflation.”
            What is not to like, the same effect of reducing current disposable income but at least ‘hard working families’ keeping their money.

            Of course ( up until now ) Treasurer Jim could have used his RBA ‘overrule power’ to nix any RBA decisions to raise interest rates.
            All the nice words of sympathy from Treasurer Jim for those dealing with the multiple interest rate rise but Treasurer Jim does ZERO when he has ( now had ) the power to step in and do something.
            That RBA ‘overrule power’ is now being abolished by Treasure Jim – awful decision.

          • Putting larger sums of the take home pay of millennials gens hand z (who won’t see it for decades), is clearly going to ease their cost of living problems. It’s clearly going to help them pay the rent and save a deposit for a home loan.

            Stick to sledging – you’re clearly better at that than policy.

          • Lizardbreath, if your man Treasurer Jim was so very concerned about “help them pay the rent and save for a deposit for a home loan”, he would have used his RBA overrule power to stop hitting people up with multiple interest rate rises.

          • That’s a different topic Joachim. You didn’t really read what I wrote.

            On the other topic, there are reasons for distance between the RBA and government. You can’t think of any?

    • Quite a good one Steve AND one used to great effect before. In the 80’s when Australia was plagued by ongoing stagflation, to break the cycle of wage/price wages the Hawke Keating Government negotiated the famous Prices Income Accord, wher unions agreed to forego wage claims for an increased social wage – eg relief through improved services and restoring Medibank/Medicare AND compulsory employer contributions to superannuation. It’s worked brilliantly.

      Although a little late for some wage earners, there are plenty around today who are looking at a much more comfortable retirement than they’d otherwise have. The trouble with taking money from household incomes right now, to go into super while slowing demand, is that it doesn’t solve the cost of living stress many are feeling.

      What needs to be addressed is the growing wealth divide in the country and the Sisyphus like battle any serious government in addressing it. It’s preferable to bank profits (which btw do a lot to grow your super) and the subsequent exec bonuses, but is the country ready for serious reform? Is News Corp?

      • You could do with some Hayek also. ‘Fight of the Century: Keynes vs. Hayek – Economics Rap Battle Round Two’

          • Trickle-down requires a free market economy. Internationally, a larger percentage of people have been lifted out of extreme poverty, but our highly controlled domestic markets in the west have made people poorer. Kinda proves the point.

          • China did a lot of lifting of its massive population from poverty prior to its embrace of capitalism. And there’s no denying a market economy can enhance a general standard of living.

            You see things in such absolutes Christian. Total laissez-faire can create disastrous concentrations of wealth at the expense of the effective running of the capitalist system.

            Trickle down policies have made the general populations of free market economies poorer.

          • The Chinese people got poorer after the revolution, not richer.
            Anarcho-capitalism does indeed cause feudalism, thus the ‘Libertarian to Alt-Right pipeline’ of 5 ears ago. However, there is a big difference between rules being made based on general principles, verses the picking of winners and losers as we have. If you can’t predict how the system will react – if the system may turn on or favour particular groups based on politics, then winning depends on capturing control of the system, rather than providing actual value in the most efficient way.

  2. Steve, no problems thinking mate, A few more politicians should start to do that. I suggest most working people need every single cent they can get their hands on every pay to just survive let alone put any extra into super. Albo is the only one that has the option of helping however he preferer’s to stick his fingers in his ears and hum to himself while rocking back and forth in the fetal position, it’s a great view from up here airbus Albo says, can’t see any problems from up here. Most potential help is wasted on the labor obsessions for wind and solar, billions and billions are being sunk into them while the population suffers, every mortgage holder will remember the twelve interest rate rises Albo has presided over at the next federal election.

    • “Airbus Albo”. Gosh that’s clever Greg. Is it a Gregrrrrrrrrrrrrrrrrr original or did you hear it somewhere? So our PM should maintain an insulated outlook in a globalised world, not worry about trade and defence pacts, international diplomacy, international crises etc etc. It’s a pity ham-fisted ScoMo didn’t adopt this approach – there’d be less damage to undo.

      Which trips have you seen as a waste? The ones to a funeral and coronation? Because ridiculously enough our head of state lives on the other side of the world. I’d put these two right up there except that Albo’s hands were a bit tied by protocol and another disastrous referendum where, unbelievably, the population voted to attached by the apron strings.

      But tell us what the Government should be doing to ease the cost of living while not increasing government spending (while simultaneously reducing income from fuel excise) and adding to inflation – which unfortunately leads to higher interest rates, raising inflation and living costs 🔃. Easy?

      And please don’t parrot “renewables” (see below) and “climate alarmism”.

  3. More than a decade with the lowest interest rates in 6000 years, and everyone thinks it’s normal and sustainable. Why do you think the gov has to keep handing money to the banks all the time?

  4. I think a responsible Reserve Bank Governor would have explained to the borrowing public long, long ago that interest rates were at an all time low and they will have to be lifted gradually as we come out of the effects of the Covid lockdowns etc:, instead the then Governor flippantly expressed they would not start to rise for another approx. two years, there lies the problem. Most young people do not have the experience or look at the situation they are entering into thoroughly enough. I suggest the banks handing out home loans should have enlightened people of the potential consequences ahead before approving a loan, however no one thought 13 rate rises in as many months would occur, the people whom can least afford the rises are now carrying the burden. The Albo government has failed to ease the pain and is still refusing to help, cutting the fuel excise and reigning in their spending would greatly help ease the pressure but Albo’s second obsession is pumping millions of our hard earned in useless renewables. Let the peasants pay.

    • People should have expected interest rates to rise and, inflation and interest rates had started their upward trend before May 22. It’s across most Western economies. They were historically low pre Covid lockdowns and are responding to inflation primarily, nor the emergence from lockdowns.

      You can’t point out that the surpluses Labor has achieved are from the bounty of soaring international commodity prices but also hold them responsible for the other consequences of this phenomenon. (I know YOU can but it’s hardly consistent).

      Energy prices SHOULD start coming down midway through 2024 when DMOs expire. the Guardian reported in October that “Spot market prices in the national electricity market (Nem) that serves about 80% of Australia’s population averaged $63 a megawatt hour in the July-September period, according to data provided by the Australian Energy Market Operator.

      “That result was 70% lower than for a year earlier and almost 42% lower than in the June quarter of this year, Aemo said.

      “Milder than normal weather during winter and early spring contributed to lower demand and increased renewable energy – aided by windy and sunny conditions – were among the factors sending prices lower.”

      Now that’s wholesale prices and we pay retail prices because of a philosophy that has gripped this country that everything works better privatised. Also, have a look at your power bill and how much of it is made up of the actual charge for power. Compare your ever increasing supply charges!

      You might like to stop carping on about renewables as well. The Australian Energy Regulator’s report for the same quarter stated: “Not only did we see energy prices and demand fall during the July to September period, but we also saw a number of quarterly records set for rooftop solar output, electricity demand and gas storage levels.

      “The National Electricity Market also saw black coal contribute 45% to total output, its lowest share on record.

      “As the energy transition progresses it was pleasing to see 2 windfarms, 2 solar farms and 2 batteries commence generating during the quarter and while they will add 800 megawatts of capacity once fully commissioned more is needed to keep pace with the planned coal plant retirements over the next decade.”

      • Well, that’s where your carbon emissions are coming from, massive gaslighting. See, your power bills weren’t sky-rocketing before the covid that you didn’t catch because of the experimental genetic engineering you took. Windmills will totally give you free energy, we just need to cut down enough trees for the masses of ugly infrastructure required, but it’s forestry corp that is the problem.

        • So the Covid vaccines caused our power bills to rise? Interesting! I don’t know if you’ve driven past any wind farms but the ones I’ve seen have been happily coexisting with farming activity on already cleared land. Offshore wind farms should get plenty of wind without sacrificing one tree.

          You do seem desperate to maintain the narrative Christian, including channeling Joe Hockey’s pronouncements about finding windmills offensive.

      • Here’s a break down of what makes up our electricity costs, from Clean Energy Council research –

        1. Poles and wires ( networks costs )– 44%
        2. Electricity generation ( wholesalers costs ) – 39%
        3. Electricity company costs ( retailers costs) – 10%
        4. Environmental costs ( RET and home solar schemes )– 7%

        The wholesale cost of electricity is coming down thanks to increased supply of the cheaper renewables and the decreasing cost of the expensive fossil fuels that still makes up some 60% of overall energy supply. And remember it is the most expensive of them all, the gas, that sets the price in the NEM.

        • You saved me the trouble Joachim. Thank you. A couple of things though:-

          Gas is expensive but less emission intensive than coal. It can also be turned on and off quickly to cover supply peaks and troughs, unlike coal fired generation which fires away weather needed or not.

          In relation to coal, the Australian Energy Regulator reported: “The National Electricity Market also saw black coal contribute 45% to total output, its lowest share on record”.

  5. Christian is right, interest rates were at historical and unsustainable lows. Yes many of us remember 18% interest rates. But Alan Kohler’s been pointing out some other historical data for ages and has closely examined the housing affordability crisis in detail in the lates Quarterly Essay.

    Interest rates being low doesn’t stop each 1/4% increase being a huge shock given the levels of debt necessary to get into the housing market compared with wage capacity to cover repayments.

    Median house price as a share of income, has doubled since 2000. In 2000 the median house price was about 3-4 times the average wage. The cost today is 7-8 times the average wage. Previously prices rose more steadily and more in line with wages growth and CPI.

    Kohler believes that to reverse the housing affordability trend, house prices would need to stay frozen for around 18 years to allow wages to catch up. Not a popular prospect for either investors or the newly mortgaged.

    Coincidentally the Howard Government’, at the end of ‘99, discounted by half the capital gains tax payable. When existing home owners with little remaining debt – fuelled by other economic circumstances in the previous decades – could use this equity to purchase investment properties, a combination of tax policies made property a very popular investment and wealth creation strategy.

    Did this start the trend of investors being so easily able to outbid HOME buyers and push up prices? Tell me if I’m wrong but does this not mean that increasing property prices, just increase the attractiveness for investors and create an ever spiralling upward trajectory?

    I’m very willing to be corrected but it seems to me that something else significant happened at the end of the 90s. The Howard Government introduced the possibility of self managed superannuation funds that, in an income stream for over 60s, paid NO tax on earnings from uncapped assets held – which could include investment property. NICE! I remember at least one journalist at the time describing the changes to superannuation taxation as personal Cayman Islands schemes.

    Thus the much vaunted economic skills of Howard and Costello, conversely frittered away the earnings of the mining boom with middle class sweeties, that skewed housing and screwed younger generations and set landmines subsequent governments have largely not dared to reverse.

    To their credit, the Turnbull government made a step in 2017, introducing an indexed $1.6 million cap on the total amount of superannuation that can be transferred into a tax-free retirement account. This government has increased the concessional tax rate on balances over $3million.

    So yes, people have overcommitted, but you can hardly blame them, seeing what’s going on, being desperate to get a foot on that ladder.

    • What’s a derivative? How do they work? Why did central banks around the world have to go into negative interests rates? Or was it superannuation changes in Australia that caused the same phenomenon to occur across the planet?

      • This is really quite simple to understand Christian. Kohler identified the CGT 50% discount 1999) as the main driver of the increasing gulf between house prices and wages.

        I made the suggestion that the ‘99 changes to super, whereby earnings on assets in income streams of over 60s became tax free, was an exacerbation of this effect. I invited feedback on this if I’d got the legislative changes wrong. But you gave me tangential stuff about negative interest rates.

        I don’t think there’s much evidence for these factors impacting internationally. Australia has gone from a country with one of the highest rates of home ownership to Forbes.com asserting that:

        “ Australia’s property market is considered to be among the most expensive in the world, with Sydney and Melbourne regularly featuring among the list of least affordable housing markets, along with some US, Asian and Canadian cities.

        “One measure of affordability is the household debt-to-income ratio. Australia’s housing sector is burdened by some of the highest debt levels in the world, with a household debt-to-income ratio of 211%, more than double the 101% in the US and far higher than the UK’s 148% and Japan’s 115%.”

        • The phenomenon is in all western countries, and has extended beyond, so it’s not driven by local factors. Debt-to-income is a measure of disposable income to buy anything, and can’t explain the particular rise in property, and a few other assets effected by the same mechanisms that have actually been driving asset unaffordability.

          • Not as dramatically as here. I think it’s more than a coincidence that the trajectory of house prices has risen so steeply from exactly the time the taxation of capital gains and superannuation became more generous. Combined with pre-existing negative gearing it greatly increased the attractiveness of property as wealth creation.

            I have well healed acquaintances who used these factors to great effect, prior to 2016, to amass large property portfolios and fat super funds.

            We’ll have to differ.

          • I’m sure that’s some factor, so is superannuation funds investing to corporations that buy up all the houses to rent them out. A bigger factor maybe that other countries such as the US don’t import several % of new population each year. The couple of years Germany did it, their housing problem got really back, so they stopped.

        • On the other hand: “… Master Builders Australia says the foreign workers are needed to keep costs down.

          ‘ “A shortage of tradies, including skilled migrant workers, is leading to higher labour costs and delays in construction timelines,” said Master Builders chief executive Denita Wawn.

          ‘“This ultimately drives up the cost of building and reduces our ability to meet our annual housing targets.”’

          One skilled worker and family takes up one house. How many do they contribute?

  6. I apologise for my long posts, but really, it takes more than a few gratuitous, abusive labels and Tory generated slogans to look at the issues raised with any perspective.

    • You somehow get away with it when I can’t. I could explain what was going on to cause 2008, and everything that followed, but it wouldn’t get published, so I post videos of experts explaining the same thing, but get censored. Your confused rants about symptoms with no economics content, no prob.

      • Christian, thanks for that. I don’t pretend to be an economist which is why I largely quoted Alan Kohler, an economist who does know his stuff. Besides that data about median prices and percentage of average wages is not theory.

        What I do know a little more about is the English language so please let me give you some constructive feedback. I’d put your term “experts”, as I’ve done, in inverted commas in this context.

        I’d suggest my longer contributions get through because they are at least coherent.I’m sorry if you found these explanations a little confusing. Figures and finance can have that effect on people.

  7. Don’t waste your time lizardbreath no one reads them anyway. Normal people have a very sensitive BS metre so knock yourself out. You only have one perspective and that’s your own, you really do like to listen to yourself don’t you oh great one.

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