WHERE HAS ALL THE MONEY GONE?

WHERE HAS THE MONEY GONE?

Productivity has grown enormously since I started work. In addition, participation of women in the workforce has also risen dramatically. In theory, these changes should have resulted in families being much better off financially assuming a reasonable share of the benefits of both these changes were shared with families.

Problem is that too many families with both parents working claim to be struggling financially as well as being stressed by the pressures associated from having both parents working long hours. Which begs the question: What has happened to all the extra money generated by the increases in productivity and working hours per family?

This post asks “where has all the money gone?” with particular reference to affordable accommodation.

DETAILS:

Over the 33 yr period productivity rose by a total of about 60%  while wages only grew by 25%.  In the 5 yrs since 2013 wages were stagnant while productivity grew by about 8%.  Keep in mind that the wages of senior management grew faster than average wages.

The potential benefits of increased productivity and working hours include:

  1. Improved real wages.
  2. Reduced working hours.
  3. Lower prices.
  4. Increased competitiveness
  5. Increased production/sales.
  6. Increased profits, some of which may be reinvested, and some that will go to dividends.
  7. Business able to increase profits by laying off some unlucky employees.
  8. Improved results for businesses and people who sell directly or indirectly to the workers or others whose purchasing power increases as the result of income rises.
  9. Improved result for banks and other businesses that directly supply goods and services to business.
  10. Improved results for banks and other businesses that indirectly supply the business. (Ex: Overseas banks that lend to the bank that lends money to the business, etc.)
  11. Improved results for businesses who sell goods and services to employees, shareholders etc. whose income has increased

It is worth asking: How are all these benefits shared? (There is no guarantee that working families will gain much after all the other beneficiaries have got their bit.)

Families that claim to be struggling may feel this way because of the inflated expectations helped along by things like an advertising industry that works at creating “needs,” general competition for status etc.. However, again and again it is the rising cost of accommodation in real terms that is blamed for their feeling of struggling and dissatisfaction.

HOUSING:

Australians have traditionally aspired to home ownership. Problem is that home ownership is continuing to fall as the great Australian dream gets more distant for many:

Home ownership has fallen from 70 per cent of households in 1998 to 66 per cent last year, according to detailed analysis from the Australian Bureau of Statistics. It is the lowest proportion of home ownership in Australia since the ABS started the data series in 1994.

However, while home ownership is on the slide, the proportion of households still in debt has risen sharply. Two decades ago, 40 per cent of households had paid off their mortgage. Last year that figure had fallen to 30 per cent.

Those renting, as a proportion of all households, rose from 27 per cent to 32 per cent over the period of the study, while the proportion of public housing tenants halved from 6 per cent to 3 per cent of the population.

The ABS study also found the average weekly housing costs for all Australian households was $311 per week. However, it varies significantly for different tenure types:

  • $53 for owners without a mortgage

  • $484 for owners with a mortgage

  • $366 for renters. (Keep in mind that average renters would be living in lower valued accommodation compared to average home owners. Also keep in mind that, for people who move around, renting may be more practical than buying a new home every time they move.)

Some people might want to claim that accommodation costs more now because people want more elaborate homes. This may be true to some extent but the Davidson experience doesn’t support this. (We had two properties we owned for 26 and 33 yrs without doing any upgrades. The compound rate of return for the capital gain of these properties ranged from 8.7 to 10%, well above the inflation rate and well above wages growth.

Buying a home has really become more expensive. The 33 yr house cost us about 2 yrs worth of senior engineers annual income at purchase time. It was sold for about 6 years worth of senior engineers annual salary at the time of sale. So what has gone on?

When my wife and I built the 26 yr house in the sixties the cost of land + building was about twice my annual income as a junior engineer. The cost of the land it was built on was only 14% of the total cost. The cost was low because the banks were reluctant to loan more than what they thought the family could afford.

For example, my recollection is that the Commonwealth Bank would lend no more than the amount that could be paid back by 25% of the male partners income. (Women get pregnant don’t you know!) This may seem outrageous by modern standards but my take is that this loan restriction kept the price of houses under control. There is not much point to building and trying to sell houses that people cannot get a loan for.

It seems reasonable to assume that the actual cost of building the equivalent of the houses we purchased would be lower now because of increases in productivity. This suggests that it is the price of land, not the price of houses that is making houses less affordable. (The people who bought our 33 yr house pulled it down and built another one. The increase in the real dollar price was all about land value.)

The above reasoning suggests that some of the actions that governments take in response to the housing affordability problem actually drive prices up because they increase the price that buyers can afford to pay. (Think grants to new home buyers.)

In addition to “able to pay” there is the issue of “willing to pay”. (Some people choose to buy houses for less than they are able to pay because they believe they have better things to do with their money or want to be less exposed to risks associated to changes in their circumstances.) Our economy may perform a lot better if people were spending less buying houses and more on other goods and services.

Some government concessions also encourages people to increase what they are willing to pay. For example, capital gains tax does not have to be paid when the “family home” is sold. Makes buying a more expensive family home a more attractive capital gain investment. Actions that push up “willing to pay” have a similar effect on house prices as actions that push up able to pay.

Some government policies help to drive up rents by not treating rental properties the same as owner occupied properties. There is this touching idea that charging rental properties more won’t be passed on to renters.

So where does the extra money from house sales go? Alternatives include:

  1. Banks make more money because they lend more money.
  2. Foreign banks make more money because Australian banks get some of the money they lend overseas.
  3. Australian and foreign bank shareholders make more money. Not all of this will be spent in Australia.
  4. Money from sales will go to state governments, real state agents the sellers of the house etc. Not all of this money will be spent in Australia.
  5. Renters and house buyers may have more money to spend on things that improve their lives.

In theory, housing affordability could be improved by fixing some of the problems identified above. However, these fixes are politically fraught given that about 70% of accommodation is owner occupied and some renters will also be home owners at the same time.

It may be politically easier to attack the problem by doing things that increase the supply of low cost accommodation without reducing home owners wealth. Possibilities include:

  1. Increasing the supply of public housing.
  2. Removing local government rules and developer covenants that discourage low cost housing, smaller housing blocks.
  3. Mandating the minimum amount of low coast accommodation in council areas.
  4. Allowing houses and land to be divided into a number of separate units to suit changing family size and market demand..
  5. Insisting new houses be designed so they are easy to divide up later when family size has reduced.

Additional ideas?

Housing is not the only situation where well meaning ideas by governments and others fritters away the expected benefits of of increased productivity and working wives. For example, one of the outcomes of introducing compulsory superannuation was a boost to share prices because supper companies need good short term results to compete for new customers. Investing in Australian infrastructure might make it harder to compete in the short term.

What other areas are frittering away the benefits of longer family working hours and increased productivity?

72 thoughts on “WHERE HAS ALL THE MONEY GONE?”

  1. Some factors – there are direct and indirect costs for families when both partners are in paid employment
    – child care (big one)
    – clothes (most jobs require higher standard of dress than being at home) and fares
    – cost of buying more prepared meals, more convenience food and paying for home and garden work that would have been done by partner who was not in paid employment.

    That’s the easy part. The invisible aspect of all this is that parents (usually though not always mothers) who are not in paid employment (not ‘working’) are actually doing productive work, producing goods and services that are consumed by the family, and often the local community. However it’s not counted in conventional economics, because it’s not ‘market’ work (not paid for with money). So the supposed increase in economic activity when such women go into paid work is actually a lot less than it looks like. Comparing a woman who was not in paid employment with the same woman when she starts paid employment, it seems as if she is adding her total salary of $x to the household, but in fact you have to deduct the value of $y, all
    the unpaid work she was previously doing.

    Not that I’m suggesting women shouldn’t go into paid work – there’s a lot of good reasons for that – but the monetary one is a lot less than it seems. And too often, women end up trying to ‘do it all’ which is very stressful.

    Marilyn Waring is the economist to read on all this.

  2. Good points about unpaid work in the household, Val.

    Most of which is done by women.

    Couples I’ve heard discussing the very limited additional monetary value of the second job, generally focus on
    * expenses of child care and
    * work clothes, transport
    as you point out…. and wonder if it’s “worth the effort”
    Also the second job may be part-time and/or paid at a lower hourly rate.

    Haven’t heard anyone talk about the unpaid home duties, apart from having to re-jig the sharing or scheduling (to weekends for instance)

    We save many $ by doing our own
    Mowing
    General gardening
    Cooking meals
    Cleaning
    Solar rooftop electricity

    For us, other things are marginal as far as saving money, e.g. growing veges and fruit, collecting rainwater for the garden, preserving fruit and veges, ……

    Very little discussion in the Press about the monetary value of unpaid work. The focus is on house price unaffordability, and unpaid wages for the employed.

  3. Brian

    I think the main place the $ have gone is a generally higher standard of living for the urban moderately- to well-paid employed persons.

    Which puts into even starker contrast the lower standard for the poor, the unemployed, the rural or agricultural/horticultural labourers, the unskilled or casual workers and others “left behind”

    A few things have dropped in real prices: overseas and long distance phone calls, overseas holidays, home computing, family cars…..

    A few things were unimaginable when I were a lad livin’ in ditch: larger more luxurious houses, luxurious hotel rooms, PCs, mobile phones, water bombing aircraft, colour photos, colour TV, digital cameras, transistor radios, nuclear power plants, robots in mines

    ‘ardly recognise. E’en our old ditch – we were ‘appy there – disappeared for bloomin’ motorway!!!

  4. Household debt has Australians living in house of cards

    When it comes to household debt, Australians are world record holders.
    “Why are Australians so in debt? Because we went out and bought houses.
    Not built houses, went out and bought them and pushed the prices up to among the most expensive in the world.
    “It is literally a house of cards.”
    Key points:
    Australian household debt is close to 200 per cent of income
    Most of that is tied up in mortgages
    Commonwealth Bank CEO Matt Comyn says despite the debt, there is no need for concern while interest rates remain low
    “We’ve got household debt to income on just a touch under 200 per cent, and that in my view is a massive macro risk,” Gerard Minack, economist and principal at Minack Associates, told 7.30.

    What wasn’t said is that Austrralians were able to spend a fortune on houses because it became easier and easier to borrow money for housing in part because bank policy changed and the combined income of a family (instead of just the primary income earner’s income) was taken into account when calculating the borrowing limit.

  5. Brian

    I think the main place the $ have gone is a generally higher standard of living for the urban moderately- to well-paid employed persons.

    Which puts into even starker contrast the lower standard for the poor, the unemployed, the rural or agricultural/horticultural labourers, the unskilled or casual workers and others “left behind”

    A few things have dropped in real prices: overseas and long distance phone calls, overseas holidays, home computing, family cars…..

    A few things were unimaginable when I were a lad livin’ in ditch: larger more luxurious houses, luxurious hotel rooms, PCs, mobile phones, water bombing aircraft, colour photos, colour TV, digital cameras, transistor radios, nuclear power plants, robots in mines

    ‘ardly recognise.

    E’en our old ditch – we were ‘appy there – disappeared for bloomin’ motorway!!!

  6. Val: Agree with your points about the cost of both parents being in the workforce instead of one of them spending time looking after kids, making clothes, repairing clothes, mowing lawns etc. Also agree that measuring economic health in ways that ignore the contribution that ignore the contribution that looking after the house and volunteering lead to poor national decisions.
    Think it would be better if families reduced the amount of paid work they do, particularly while other families cannot find enough paid work to live a reasonable life.

  7. Ambi the not quite Ambi:

    I think the main place the $ have gone is a generally higher standard of living for the urban moderately- to well-paid employed persons.

    What exactly do you mean by “a generally higher standard of living”? And how much of the things that make for a good life can actually be bought by money? Or would your life be better if you had less money and more time to enjoy it?

  8. Ambi, I just wish to say this is my first comment on the thread.

    John, have to go now, but tomorrow I’ll give some data on how the statement the bank shareholders have been getting more money is simply wrong.

  9. Sorry, I didn’t want to sound negative. Good post and discussion, but bank performance is a sore point that no-one seems to want to tell or hear the truth about.

  10. John the actual John

    That is a fundamental and crucial point. The things I value most are not gained by purchasing.

    It’s difficult to define (and to quantify) but by “generally higher standard of living” I was referring only to those essentials of life (food, shelter, warmth, cooling) which can and commonly are purchased. A small number of persons eschew Jumpy’s services and build their own house, or do most repairs themselves: but most of them purchase the timber, bricks, paint, pavers, plasterboard, tiles, appliances and electrical fittings.

    Some folk grow some of their food.
    No-one I know refines their own petroleum products.

    To bypass inflation rates and such, we can look at “how many hours’ paid work does it take to buy two litres of milk, or a small sedan, or a child’s bicycle, or an average LED television?”

    Occasionally a journalist will publish such a table, showing changes over decades. That’s the basis of my claiming that cars and bicycles and supermarket food and TV sets, etc have dropped in real price (and in many cases have improved in performance).

    At the same time I recognise there is vast waste of raw materials, air and water and soil pollution, poor working conditions, and shocking poverty. And, GM, continued and seemingly inexorable population rises.

    To go to one specific example: when I were a lad me Dad would buy a good, strong hand tool and it would last for decades. Might cost a fair bit. He might therefore have only a small collection of carefully chosen and well-maintained tools. The only power tool was a motor mower: in the 1960s.

    These days he would be able to buy a range of power tools (that only a carpenter or serious woodworker would have bought 40 years ago). But many of them are “Cheap Chinese Sh*t” (CCS) which malfunction or break quite soon. OK for a home hobbyist who uses them not very often. Go out and buy another. A fundamental shift: we used to throw away food scraps and newspapers…. now we throw away solid, metal and plastic tools.

    My cheap tools equate to air pollution in China, transport of goods to Australia using fossil fuels to power large ships, and ignorance of repairing or maintaining tools.

    My cheap tools come at a high price to the global environment.

  11. Brian: I will bow to your superior knowledge of the share market. But it comes back to the question: Where do you think all the money has gone and why are families struggling despite improvements in productivity and working wives becoming the norm?

  12. Ambi:

    That’s the basis of my claiming that cars and bicycles and supermarket food and TV sets, etc have dropped in real price (and in many cases have improved in performance).

    Would agree with that. Would also agree that some of the stuff we now buy and now consider essential is vastly superior than what we had when you were a lad or simply didn’t exist then.
    Years ago we noticed that income gave little guidance to who was struggling financially and who wasn’t. Some couple’s we knew wanted to spend more than they had despite having two professional jobs. Others like us behaved as though we were still trying to live on student scholarships long after starting professional jobs. (Wife managed to save enough to have two overseas trips while living on a teachers scholarship.
    Does this mean that many families claim to be struggling or that key essentials, like housing really have got a lot more expensive or something else has happened that really makes a difference such as more and more things being designed to be un-repairable instead of being repairable by mere mortals such as myself?.

  13. John, this is just from memory, but I recall recently that real wages were said to have gone up by 70% in the 30 years from 1980 to 2010. Alan Kohler last night said they have been flat at best from 2010.

    I’ve been working in gardens since 1991. What I get paid now is 4 times in actual dollars more than when I started, which was during a recession, and I was often undercut. Now I know people who charge 50% more than I do working in rich suburbs.

    Back in the 1990’s we had our bathroom gutted and totally refurbised. Two men working for a week. Labour and material cost us about $1000. Now it would be at least $1000 a day.

    We’ve had our house repainted about 3 times since 1981. I can’t recall the figures, but it’s the same story.

    When I was a university student we bought a bare minimum of clothes and wore them until they wore out. There was no TV. There were two only coffee shops in all of Brisbane. Pizzas hadn’t been invented.

    I won’t go into what it was like when I was a kid, but we didn’t have a car till I was 9, went to the local town (Miles – pop 1000 back then) 3 times a year with a few bob to spend on milkshakes and such. I had two holidays away from home before I left school and neither involved accommodation costs. We stayed with people.

    The number of times I went to the movies before going to boarding school could be counted on one hand.

    Since the income recession Alan Kohler was talking about an income recession that started after the GFC, Yet lawyers, accountants, medical specialists, and plumbers have increased more than inflation by a considerable margin. Some engineers have also done well, including software ‘engineers’ which is what my young son calls himself.

    I heard the other day that unions had negotiated an 18% increase in what supervisors will be paid on cross river rail in Brisbane, a huge tunnelling project for those in other states taking the rail under the river. The figure of $196,000 sticks in my mind. We’ll pay in the tolls. I heard the other day that passenger rail everywhere in the world is subsidised by the public purse. Probably here not so much, but I don’t know.

    The big one is housing. My first was about 6 times my annual wage, but you could still do it and have a kid or two on a graduate starting salary.

    From the 1980s it has become a two-income project. I don’t want to be paranoic about the Chinese, but their role in the big city markets is putting upward pressure on prices.

    All this is subjective reporting. I don’t really have a view that is based on proper research.

  14. My mother commented in her old age: “When we were young we were materially poor but psychologically OK. By contrast, the younger generation is materially OK but psychologically unsettled. I guess growing up in a depression and being a young woman during WWII meant that, unlike the younger generation she was talking about, her generation knew what they wanted and glad when the post war period delivered real improvements.
    Wife’s mother did a few years of education in primary school and wife’s father had to leave school in first year high school to go down pit because his father became too sick to support the family. (Her father really wanted education and, fortunately, his daughter shared his desire for education and was very good at it. )
    Wife is very positive about her life because she understood how much better off she was. Our kids are a bit less so because they are comparing their lives to what we had rather than the lives of their grandparents.
    At the moment our grandchildren’s future could be quite challenging in some rather unpleasant ways.

  15. John, there’s an article in the New Daily which finds productivity in Australia has continued to increase since the GFC while wages have flatlined.

    That suggests the bosses have been ripping the workers off. Their pay has not flatlined. They no doubt get bonuses for successfully dudding their workforce while increasing company profits.

  16. Impressive wages vs productivity graph Brian:
    Productivity vs wages growth
    Wages up 25%, productivity up 60% for period 1985 to 2018- And the wages would have included the sky rocketing wages of senior executives.

  17. Brian

    That suggests the bosses have been ripping the workers off. Their pay has not flatlined. They no doubt get bonuses for successfully dudding their workforce while increasing company profits.

    That comment strikes me as appallingly ignorant, and insulting too to be honest.
    What equation do you use that states the “ fair “ ratios between productivity, wages and taxable profit, and how the positive movement of any of those must naturally move the others ?

    Consider you actually took on all the bullshit it takes to establish a business that employs one employee, create a single solitary job. Just mowing grass.
    You decide that having that employee using a ride on rather than a push mower would up productivity by 20%. Of course that ride-on is electric ( to do your bit on the global warming emergency) costs thousands. Using that extra 20% of productivity to pay it off over 2-3 years.

    Does your employee deserve a 20% pay rise ?

  18. Jumpy: Look at the period when Bob Hawke was in power. That was a period when a lot of the productivity gain came from changing work practices, not capital spending. In the deals I was associated with the people who were employed at the time who entered these agreements either stayed and got a better package or were paid a generous redundancy package.
    The workers who left were experienced workers who were usually able to get another job, often at the expense of young people who were struggling to get into the workforce. The plight of those trying to get into the workforce was made worse because the new agreements often involved changes to rosters which meant that the stayers worked longer hours.
    I thought at the time that the unions were looking after those who had a job because these were the only workers who had a vote in union decisions. (Unions for the employed, not the working class.)

  19. Jumpy:

    You decide that having that employee using a ride on rather than a push mower would up productivity by 20%. Of course that ride-on is electric ( to do your bit on the global warming emergency) costs thousands. Using that extra 20% of productivity to pay it off over 2-3 years.
    Does your employee deserve a 20% pay rise ?

    You seem to be saying that the capitalist should be getting all of the benefit, the employee should get nothing and nothing should be done to help those who would have got a job if Brian hadn’t bought a lawnmower.
    In the fifties we had a healthy, growing economy because the unions were strong enough to get the workers a fair share of the growing economy. The workers tended to spend the extra money they were paid which gave the economy a further boost which……..
    The productivity and wages gain graph says this is not happening properly any more and, as a result, we have a wobbly economy and high unemployment.

  20. Where has all the money gone? Nobody has mentioned that a lot of it is tied up in offshore tax havens where it does precisely nothing for our economy.
    On a similar note, I remember stories that Bill Gates intended to give his wealth away by funding good causes (correct me if I’m wrong). So we have the Bill and Melinda Gates Foundation which has spent billions on such worthy projects as eliminating polio, for which I applaud the Gates family.
    However, after 18 years of the Foundation siphoning off Bill’s money I am told he is actually wealthier now than he was when it was founded. I think there’s a lesson there.

  21. John
    I ask of you the same question I asked Brian.

    What equation do you use that states the “ fair “ ratios between productivity, wages and taxable profit, and how the positive movement of any of those must naturally move the others ?

    You’ve obviously never been bothered to created a job either ( and no, wanting garbos because you want your rubbish gone is not job creation ).
    The productivity gains under Hawke were in no small part because of less collective collusion blackmailing strikes on account of their Mate was in power. Hawkey and the Unions used strikes as a campaign strategy leading up to the 83 election, can you not recall ?

  22. How about I make it simple for those without any practical experience.

    Should the percentage of productivity growth equal wage growth ?
    A direct coupling despite any of the millions of other factors involved.

  23. Also, if the productivity of a business falls for some reason, should wages fall by the same amount ?

    Or is all the investment, risk and financial downside worn by the evil job creators?

  24. Strikes in Australia in the 60s and 70s were, on average, much longer and involved more strikers than the pathetic little stunts in the early 80s, Jumpy.

    You’d be too young to recall.

    You seem to be saying that the Hawke Government’s attempts to reduce strikes through negotiation and an “Accord” were simultaneously a Good Thing (fewer days lost) and a Bad Thing (because Hawke and the dreaded ALP tricked us all?)

    BTW, Conciliation and Arbitration were here decades before Hawke joined the ACTU as an advocate, let alone became its President or the nation’s PM.

    With your independent spirit, are you in fact a fan of “rogue unions” because they step outside the Nanny State system?? Surely they display resilience, a certain entrepreneurial flair, and they help to create jobs??

    (Perhaps the only good job is one that Jumpy “creates”….)

  25. Where has all the money gone ?
    Well 19 billion of it ( and growing) goes to paying just the interest in your National Government debt.
    Then more in your State debt repayments.
    And even more in your local council debt repayments.

  26. At least I’ve created jobs Mr A, you ?

    Let’s see a graph from the 50s rather than one the cherrypicked a start in Hawkes term. Matter of fact, before the WWs .

  27. Jim Stanford
    Briefing Note
    “Historical Data on the Decline in Industrial Disputes”
    has a table on page 3, listing averages by decades, back to 1950s Australia.

    He uses a measure of days lost p.a. per 1000 workers, to adjust for the changing size of tbe workforce.

    1970s had the highest number of days lost.
    (I was wrong.)

  28. Jumpy: You may like to think of yourself as a job creator because you employ people. However, the reality is that, in terms of your business, the real job creators are the people who decide to spend money on the sort of things you do and/or the advertisers, article writers etc who convince people that they really want to repair and modify their buildings. Having said this I would admit that your business is a “intermediary” job creator in the sense that you have to buy and hire to get your jobs done.
    My wife and I are job creators in the sense that we spend some of the money we have earned on goods and services that somewhere in the chain require someone to something that earns something.
    In the work sense I have created jobs by deciding that goods and services are required to keep what I was responsible for running properly and/or running better.
    I have also spent most of my working life doing things that increase productivity. R&D, training, improving designs, inventing, negotiating better working arrangements etc., etc.
    I understand that business needs to get a satisfactory return on capital to justify the expenditure. But that doesn’t make it fair if all the gain goes to the capitalist. I also understand that “fair return” can vary substantially based on things like risk.
    Graphs that show productivity and wage gains give some guidance re whether what is happening overall is fair. Brian’s graph tells me the split is badly biased in favour of the capitalists, particularly since around when Abbott became prime minister. (Wages have stagnated since then,.)
    This failure to fairly share

  29. And let us not forget the warnings from many economically astute people (unfortunately, not our treasurer, finance minister or PM) who point out that stagnant wages are dragging our economy down.

  30. It would be good if the employees got some of the rewards of productivity, rather than nothing. Everyone should benefit.

    I’m attracted to the German industrial relations system, where a supervisory board made up of workers and other stakeholders sits above the management board.

  31. Jumpy, just FYI.

    Gardening contractors who use ride-ons tend to be a separate breed who work in the suburbs where the blocks are bigger. In Brookfield the standard is around 2.5 acres. In Upper Brookfield it’s more like 5 or 10. With a ride-on you need a bigger truck.

    In both cases it’s basically charging by the hour. If you have a ride-on the rate is 2-3 times normal mowing and garden work. Charges vary, but the NDIS has set a standard of $45 per hour for “yard work”. Mostly you bring your own tools, but on acreages this is not always the case.

    Thing is, if I buy a better brushcutter or trimmer in particular I get the work done faster, and hence get paid less.

    So you’d best stick to stuff you know about.

    When I started on this venture several decades ago I looked at starting up a company. Someone I knew at the time who was doing just that said it took him about 6 weeks effectively full-time.

    In the US it’s not easy either, At the time I heard there were 26 transactions, some of which were subject to objections by other people. Here I was going to have to advertise the fact that I was operating a business from home (where none of the activity except bookkeeping happens) with a big sign on the footpath.

    I decided to work as a sole trader, with an NBN and a GST exemption because I’m not high turnover. I decided right then I was over employing people, so it’s just me. Had more than enough of employing people in the public service.

    BTW, I’m sometimes paid in cash, but I declare it all, because I’m subject to the possibility of a desk audit. I’ve seen how auditors work, and I wouldn’t like to be trying to fool one.

    John, upthread has made a lot of good points (zoot and Ambi too). Where you spend money matters. Go back to Henry Ford’s vision of paying his workers enough so that they could all drive a Model T to work every day in his factory.

  32. Wikapedia has a useful table of Australian basic wages over the years. I reran the calcs for the house we owned for 33 yrs to estimate how many hours someone on the basic wage would have to have worked to buy that house (ignoring tax) The figures came out at:
    Purchase 1981 – 12,188 hrs
    Sale 2014 – 53, 349 hrs.
    The sale hrs are 4.4 times the purchase hrs.
    I am not trying to say that this example is “typical” and the area was not a working class area but it does explain why more and more ordinary Australians are struggling to buy houses.
    Brian: Thanks for the mowing figures. To put your rate in context, the minimum wage July 2019 is $19.49 if you can find an honest employer. Appreciate that your rate has to cover significant expenses.

  33. Thing is, if I buy a better brushcutter or trimmer in particular I get the work done faster, and hence get paid less.

    What a wonderfully stupid and economically regressive system. Only a bureaucrat could devise and thrive with that. That’s where some of the money goes.

    Had more than enough of employing people in the public service.

    Hate to break it to you but you didn’t employ anyone, at best you were upper management.
    Get back to me when your name is on the bottom of people’s pay cheques.
    You thought about creating jobs but decided it was too hard, that’s fine, not everyone has the stomach for it.

    My main problem is with this ill informed nasty garbage,

    That suggests the bosses have been ripping the workers off. Their pay has not flatlined. They no doubt get bonuses for successfully dudding their workforce while increasing company profits.

    Every boss is an employee of the business they have some ownership of.

    Some share holders are in fact parasitic profit taker and non productive, that’s where some more of the money goes.

  34. Jumpy: I had a duck producing business when I was in primary school. (My father wanted me to learn business principles.) My father and his family were small business and farming. Learned a lot about small business listening to my father and family.
    Despite this I ended up spending most of my working life working for big mining and big construction. Found what I had learned from my family useful at times while working for big business.
    By contrast my in-laws were nearly all underground coal miners, coal miners wives and/or the children of coal miners. Helped a lot when I was doing the industrial relations stuff or generally dealing with the workers.
    It is worth listening to small business people like yourself and Brian. However, the problem I have with too many small business people is that they think the country should be run as a small business and see no relationship between what they pay their workers and the health of their business because their employees are rarely their customers. (By contrast, all the Australian workers are customers of Australian businesses and screwing them means less money is available to buy the goods and services Australian companies produce. (Useful point: Public servants, people on Newstart are also customers of Australian business.)

  35. At least two meanings of “employing people”, Jumpy.

    1. Having someone work at your direction in a business you are the co-owner of. For example as a sub-contractor or a shop operator.

    2. Employing someone in the sense of deciding some work needs doing, defining the role, advertising the job, selecting a candidate, showing her the ropes, supervising her work; possibly mentoring or suggesting training; etc. The Americans would call the advertising/selecting part “hiring”. The new employee might say, “I went for an interview and they gave me the job. I start next week.” You call the senior role “management”. The manager says, “I gave Phoebe her first job. Later she moved to ….”

    In everday discussion, it’s unusual to hear “Hold on, you didn’t ‘give’ Phoebe that job!! Oh no, we taxpayers groaned as the $ were extracted unjustly from us, and by a circuitous and entirely unhealthy procedure, the Oppressors merely deputed you to arrange for Phoebe to be paid an exorbitant wage to carry out meaningless tasks. You, Sir, are both an Imposter and a Junior Oppressor. Mark my words: the people shall rise up and consign you to The Dustbin of History!! You have never Truly Employed anyone. That Honour remains with us, the Honest Toilers of Risk and Sparse Reward.”

    No, I have to admit I rarely hear such sentiments.

    Strange……

  36. I really have to wonder. Jumpy has spent how many years here preaching the one true gospel to us heathens and not one of us has converted. Yet is he discouraged? Hell no! He’ll keep bashing his head against this particular brick wall until … ?

  37. Jumpy

    At 4.41pm you responded to

    Brian “,,, or trimmer in particular I get the work done faster, and hence get paid less.”

    by writing

    What a wonderfully stupid and economically regressive system. Only a bureaucrat could devise and thrive with that.

    Have you not heard of hourly rates of pay?
    They’re quite common in the real world.

    Another group who devise and thrive with that are the capitalists, Jumpy. They tend to like higher productivity (one of whose features is “getting the work done faster”).

    Do you know how capitalists and economists and unionists define and understand productivity?? Starting to have my doubts, oh mighty interlocutor.

    Of course a gardener might give a new customer an estimate of the time a job was likely to take, then give it a whirl. But the fee would still be based on an hourly rate, in most cases.

    The gardener isn’t running a charity. It’s a business. Equipment has been purchased and maintained. Crikey, you pen-pushers simply don’t appreciate entrepreneurs, do you?!!!

  38. Zoot:

    Jumpy has spent how many years here preaching the one true gospel to us heathens and not one of us has converted. Yet is he discouraged? Hell no! He’ll keep bashing his head against this particular brick wall until………..

    I will mark today on my calendar Zoot. Or am I wrong to class the above as praise?

  39. I said that when I buy new equipment “I get the work done faster, and hence get paid less.”

    Just a fact of life. And if I didn’t buy new equipment then over time the work would go to someone who did.

    Jumpy says:

    What a wonderfully stupid and economically regressive system. Only a bureaucrat could devise and thrive with that.

    Sorry, I’ve got no idea what you are talking about. Can’t see where bureaucrats had anything to do with it.

    I’m not running a business. I like helping people. I like working in the open air. I like helping plants to thrive. And I like people paying me to keep fit.

    There were other points, but I’ll let them go through to the keeper, except that when I made my original comments I had in mind publicly listed companies, and equivalent private companies which would be largely represented in those statistics.

  40. John, I stand in awe of anyone who can continue to pursue a lost cause even after it’s obvious they have failed dismally in their quest. I’m not sure you could call it praise 🙂

  41. I just want to assure Jumpy that if you follow major listed companies, senior management does indeed often get rewarded for cost-trimming exercises that involve downsizing, ‘right sizing’ or in other words sacking people. Often the share price also goes up.

  42. Brian
    I said “ What a wonderfully stupid and economically regressive system. Only a bureaucrat could devise and thrive with that.”
    About you saying the ridiculously rorted NDIS bureaucratic price setting that results in motivating less productivity with,

    …..I get the work done faster, and hence get paid less.

    Can you not see how stupid, anti productive and anti capitalist that is ?

    In my business the most productive get payed more than their less productive workmates.

    On the parasitic share trader thang, have you ever benefited financially due to a company you “ invest in “ practicing “ right sizing “ ?

    May I suggest you “ invest in “ companies that left size with identity quotas and no dead wood clean outs.
    Sure, your evil profits may be reduced but that’d be a small price to pay to assuage your conscience.

  43. Jumpy

    Go back to 4.41pm and look at what you actually wrote.
    (Hint: it differs from what you appear to recall.)

    The way you set it out your comment “only a bureaucrat…” follows a short statement by Brian which you selected and quoted in italics.

    That quote concerns brushcutter and trimmer, not NDIS.

    (If I made an error like that, I suppose you would chortyle that you “love seeing the Left tear each other apart”)

    Brian: apologies. You don’t see your gardening as a business. (My mistake.)

    Mr A.

  44. Ambi, when I say I don’t see my gardening as a business, perhaps insert the word “primarily”.

    Just on the $45 per hour, I don’t know how that was worked out. Also I didn’t say that is what I charge. That’s not up for discussion here.

    However, I can say that in richer suburbs people often charge more than that. To some who can pay, the quality of the work done and factors like reliability and being someone people trust count for more.

    Jumpy, where did I say that profits were evil? We need entrepreneurship capitalism, but we need it to be civilised. We also need Schumpeter’s ‘creative destruction’ where companies that don’t change as circumstances change go broke or are taken over.

    Then there are also some areas of activity which are better in public hands. And it is appropriate that they are subject to periodic review.

    Ethical investment is a whole different subject, and realistically shades of grey rather than black and white.

  45. Brian
    Ok, everyone’s dodging the statement you made.

    That suggests the bosses have been ripping the workers off. Their pay has not flatlined. They no doubt get bonuses for successfully dudding their workforce while increasing company profits.


    That’s an insult to hundreds of thousands of employers, including me.
    What I asked specifically to you good self is

    What equation do you use that states the “ fair “ ratios between productivity, wages and taxable profit, and how the positive movement of any of those must naturally move the others ?

    to justify why the graph “ suggests “ the statement you made.

    I’m thinking your good self, or anyone else here, don’t have even a theoretical, ballparkish, sort of economic equation to give any relationship between productivity growth, wage growth and profit growth.
    Why should overall productivity growth result in wage growth when we all concede advanced technology or higher plant investment raises productivity?
    That’s a medium term cost to the business for potential long term gain, not a theft of wages.

    I will salute Mr A, he and I seem to be able to admit being mistaken.

  46. That’s an insult to hundreds of thousands of employers, including me.

    Maybe so, but it remains a very fair and accurate statement.

  47. And in passing may I note that our warrior for freedom of speech clutches his pearls as soon as any free speech is aimed at a group of which he feels a member.

  48. Freedom of speech should be reciprocal racist troll.
    I fully support you right to spew worthless dross.
    Keep it coming whilst it’s culturally somewhat able to do.

  49. What I used to like about BHP was that it used to be loyal to its staff. If the job you were doing stopped an effort would be made to find somewhere else to go and work. This meant that people would give advice even if it meant that the job you were in would disappear.
    The the new bosses changed things. All of a sudden if the music stopped and you didn’t have a chair you went no matter how much you had contributed in the past. Funny thing is BHP had a really bad run with dud projects after this happened. What the new approach meant for people on a dud project is that they had a choice between being honest and losing your job and pushing the people you were working at out of a job OR just shutting up. Even if you didn’t shut up your boss may have felt what you were saying was going to lose his job. And yep, the things I am talking about were big stuff-ups that ended up costing the CEO and some senior execs their job.
    I also like working for Thiess because the company understood loyalty was a two way thing. It meant that I would argue hard for Thiess interests at the risk of pissing off someone that might give me a job later on.
    One of the people I did a lot of working with commented on the way the people who represented Thiess had a different air about them.
    The way you talk about your team suggests that you are interested in their welfare. However, the way you talk in general about the right of the capitalists to get rid of people if productivity improves doesn’t gel with what you claim to do with the people who work for you.

  50. Jumpy, I’m not insulting anyone in particular. Just look at the graph again:

    During the 1980s wages were held down by the “Accord” between Hawke/Keating and Bill Kelty and the unions in recognition that wages had increased excessively during the early 1980s and needed balancing back towards company profitability.

    If you ran mathematically derived trend lines from the early 1990’s it’s apparent that wages would fall below the trend line from about 2013 while productivity continued to rise. If you looked elsewhere you’d find that wages as a percentage of GDP have fallen from about 60% to heading below 50% from memory.

    Flat is flat and it appears that wages are not keeping up with inflation. Economists are now talking about an “income recession”.

    The article says:

    Employers can afford to boost the superannuation guarantee to 12 per cent as planned by 2025 as well as boosting wage rises from current rock-bottom levels, according to new research.

    Since 2013, when the economy was recovering from the global financial crisis, wages growth halved from an average of 4 per cent to 2 per cent.

    And:

    In fact, slowing wages growth has given bosses a pile of money, which they are sitting on for their own use.

    And:

    “In theory productivity is supposed to translate into higher real wages – the link has been imperfect for a long time – workers haven’t been getting their full share. Now the link is broken completely and workers are getting nothing in the form of higher real wages,” Dr Stanford said.

    “That means there’s an enormous wedge of surplus profits that is sitting there that employers are absolutely capable of using to both increase wages and invest more in the retirement security of their workers.”

    And:

    “What stops them from driving wages even lower are minimum wage laws, our award system, what’s left of enterprise bargaining and the expectations of Australian workers,” Dr Stanford said.

    So your argument is with Dr Stanford and his research.

    I have to say that the number of people employed by small business is larger than I thought. These two articles are instructive:

    Small Business in Australia: The Lowdown

    ABS Business Performance by Size

    The percentages employed by small, medium and large is tricky because of the definitions. However, this may be salutary:

    Being your own boss or working for a small business isn’t everyone’s cup of tea. For starters, wages tend to be much lower—around $32,000 a year compared with $58,000 at a medium-sized corporation and $70,000 at a big business. In fact, some small business owners don’t even collect a wage.

    However, 1-4 employees are classified as micro-businesses, so they are not included in that generalisation.

    I probably need to remind you that when a generalisation is made it tells you exactly nothing about any individual case as such.

  51. And of course Jumpy, being even handed, has contacted every employer who has been found guilty of wage theft to point out they are bringing all employers (including him) into disrepute.

  52. Brian:

    Employers can afford to boost the superannuation guarantee to 12 per cent as planned by 2025 as well as boosting wage rises from current rock-bottom levels, according to new research.
    Since 2013, when the economy was recovering from the global financial crisis, wages growth halved from an average of 4 per cent to 2 per cent.

    One of my takes on superannuation is that it is another place where the money is going instead of actually people now. Its main effects seems to be providing the money that is required to boost share values as well as putting pressure on companies to seek the short term gains that superannuation companies need to compete.
    As you well know the tax concessions our government offers on super strongly favours the rich to the extent that it would actually cost less to pay the old age pension to everyone over 65 and pay for this by removing all tax concessions on super.
    It would have the added benefit of encouraging people on part pensions to get a job or start a micro business. A number of our friends on part pensions aren’t doing these things because of the hassle of dealing with Centerlink and its changing stories.

  53. John, Centrelink is a major catastrophe and a blight on the body politic.

    If you listen to Paul Keating on super you’ll get a whole different take. Australians left to themselves are poor savers. Super has solved that problem and is a major source of capital accumulation. Without super, some of which is invested overseas, we would be over-reliant on imported money.

    There’s more if you hear PJK in full flight.

  54. I’m sure PJK has a very healthy personal super balance, pity he didn’t produce a National one like Costello did.

  55. Yet another “ where did the money go “ factor, $18 thousand millions in debt interest payments per annum in perpetuity till the actual debt amount is reduced.

  56. Brian:

    John, Centrelink is a major catastrophe and a blight on the body politic.

    It is a disaster because many of the things it administers operate with complex rules that most of the clients and Centerlink staff don’t understand properly. Rules that mean that act as a disincentive for seeking work.

    If you listen to Paul Keating on super you’ll get a whole different take.

    One of the things he was trying to do was replace the pension with super. To some extent this has happened but there are still a lot of people who depend on the pension and there is always a risk of a super fund collapsing.

    I would have to say that super has been good to the Davidson’s. It has allowed us to save money we were going to save anyway. Best of all, unlike most other types of saving we could have selected, the tax incentives to put our money into super were very nice thank you kindly.

    Keep in mind too that the super tax concessions mean that the government has to borrow more or not do a raft of other things it should be doing . I find it a bit obscene that the super tax cuts to the rich can be more than the cost of providing everyone over 65 with the old age pension. It is a bit like providing franking tax credits to SMF users who avoid the tax they are getting the credits for.

  57. Jumpy, is snide remarks about figures on the left all you’ve got left?

    John, I’ve re-arranged the blockquote markers on your comment. Hope they are right now.

    Yes, I agree there are obscenities, but the people have spoken, albeit perhaps not in their own interest.

    Frydenberg was still rabitting on about Labor’s $387 billion worth of taxes on Insiders today. He lost all credibility the day he stood next to Jay Weatherill and blamed the SA blackouts on renewables rather than a dirty big storm.

  58. I find it a bit obscene that the super tax cuts to the rich can be more than the cost of providing everyone over 65 with the old age pension.

    This image shows who is getting the cream:

    It comes from an article in the AFR by Phillip Coorey Super tax breaks outweigh pension payments about a consultation paper put out by the government for its review into retirement incomes.

    The consultation paper says the review will look at the interaction of the three pillars of retirement income: the age pension, compulsory superannuation, and voluntary super contributions and other savings.

    The guiding principles are adequacy, equity between different groups, sustainability of the system, and cohesion, which will look at the incentives in the system.

    Over the past 20 years eligibility for a pension has declined from over 80 per cent, to around 68 per cent. However, the full effect of 9% super will not be felt until 2042.

  59. It seemed strange to me that Treasurer Costello suddenly made payments-from-superannuation-lump-sum-investments (these days always reported in income tax returns as separate, quarantined income) to retired citizens, TAX FREE [sic] though many friends have benefitted by a few thousand dollars every year, through that change.

    The relatively high (income) tax threshold helps many retired persons on low to middle incomes; just as it helps poor or underemployed or low paid persons. I can’t see why “self funded retirees” should have a tax free component of their retirement income.*

    Next you’ll be telling me that a married couple can “split their income” by being joint owners of a small business or farm, to reduce their income tax!! Astounding, when PAYE workers cannot!!!!

    * after all, earnings going in to the employee’s super balance as income from investments, during the accumulation phase while the person was working, were already relatively lightly taxed (at a ‘concessional rate’)…… helping that balance grow faster, having the effect of generally increasing their potential retirement income.

  60. Peter Costello chose the best of times to be treasurer when the resources boom which many had expected in the early 1980s made Australia the lucky country. So, yes, he paid off government debt and created the Future Fund, but other than that he p*ssed large sums up against the wall, neglected infrastructure, including roads, the NBN, research and development and imbedded distortions to the economy, generally in favour of the rich and higher income earners, that we are still dealing with.

  61. Brian: Your diagram @10.17 suggests that about 60% of people over 65 are on part pensions. Teacher friends on part pensions tend not to work or start small business because of complex and inconsistent advice from Centerlink.
    If Frydenburg wants +65’s to stay in the workforce he should pay the same pension to all those over 65 and pay for it by removing Super related tax concessions. Just think of it: Big drop in wasted tax, more people doing part time work and starting micro-businesses because the clawback from big Centerlink will be cancelled.

  62. Brian

    Peter Costello chose the best of times to be treasurer when the resources boom which many had expected in the early 1980s made Australia the lucky country.

    That’s an interesting comment.
    Weren’t both the price and export volumes of resources much higher under Swan ?
    That’d be mainly yellow rocks and black rocks and red rocks. Looks to me like it was better under Swan.

    In any event, how would Federal Treasurers be “ lucky “ about State Treasurers resource royalty collection, different budgets all together.

    Honestly, I can’t fathom that one.

  63. Jumpy: In case you missed it mining companies do pay income tax and mining employees do pay income tax, GST etc. During the mining boom there was a boom in the income of construction companies and their employees.
    The GFC 0f 2007 started shortly after Swan became treasurer. He and his government deserves high praise for taking the right action to minimize the damage done by the GFC.
    By contrast, the LNP under Turnbull urged yet again tax cuts for the rich as the solution to the GFC, a “solution” just as affective as the current round of tax cuts has been to the current economy.

  64. Jumpy, I can’t deny your graphs. However, Ross Garnaut has been lecturing us for ages that Australia has been almost unique in not taking advantage of increased economic activity by dispersing the rewards in short term political boondoggles rather than building the nation’s capacity for long-term good.

    I’ve just seen another graph showing Swan’s tax take was lower as a percentage of GDP that his predecessor, and his successors. Yet his successors have been increasing government debt at record levels.

  65. Just from a personal point of view, I have made frequent visits to the areas of the Surat Basin where coal seam gas is big.

    During the development phase there was massive congestion on the roads with trucks an other commercial vehicles, you had to book ahead a few weeks to get a room in a hotel and real estate in some sleepy little places increased in value by about a factor of 10.

    It has settled down now, but level of activity around those places is still way higher than it was.

    The roads were cut to pieces, and the replacement program is now just about done. The work was approved by during the Swan years.

Leave a Reply

Your email address will not be published. Required fields are marked *