This topic came up in this thread:

http://www.ozpolitic.com/forum/YaBB.pl?num=1196117899/5#5

All subsidies end up increasing the price of the product they are supposed to make more affordable. The first home owner's grant is no exception to this. Such schemes are universally discouraged by economists, yet keep getting promoted by people who have no understanding of economics and who refuse to learn the lessons of history. They keep rearing their ugly head, because they sound good to those who do not understand their true impact. The frequency with which subsidies are promoted in Australian politics is the strongest argument in favour of more economics in high school education.

In addition, they are bad from an economic perspective because they drive inflation up. They are also a waste of taxpayer funds. They take money from those who earn it and give it away on a fairly arbitrary basis. For example, houses are not necessarily a better form of investment than shares, yet the federal government's grant takes money from those who invest in Australia's industrial capital and gives it to those who invest in unproductive assets. In doing so a lot of the money is wasted on bureaucracy.

Any government expenditure needs to be justified with more than just 'wouldn't it be nice if we gave these people a pile of cash...' The first home owner's grant, and most other subsidies fail this test miserably. The only situation where subsidies may make sense from an economic perspective is where they internalise a positive externality.

The $7000 grant increased the number of people buying houses and increased the house price. The grant is a huge burden on taxpayers and the price increase it caused swallowed up a significant amount of the grant, while making it even harder for those who don't have access to it to purchase a house. Economic theory predicts this. Experience backs the theory up. I have read many statements from economists in The Australian and elsewhere saying the same thing. I have not read a single contrary claim, except here. To anyone who knows what they are talking about, it is a no-brainer. Anyone who claims otherwise is either lying, or hasn't studied and doesn't understand economics. I can only imagine it based based on the old 'Howard is a good economic manager' mantra, therefor anything he does cannot be bad for the economy.

We've already debunked that myth - in fact you did it yourself when you proved yourself wrong.

freediver wrote on Dec 4^th, 2007, 10:36am:


The only people who believe in the output of an economist is the economist's family and those gullible ones for whom the economist makes a noise which sounds like their truth.

No one else takes them seriously.  Here's a couple of quotes you'll enjoy.

"Economists and political leaders not only miscommunicate, but each accuses the other of incompetence, obfuscation, self-serving motives, and anti-social behavior"   Rivlin

"Issues of economic policy are necessarily issues of politics. Even in theory it is difficult to distinguish between the economic and political aspects of the problem.... Even if the economist tries to distinguish between the economic and political elements in his argument, the public is unlikely to recognize the distinction. To the public an economist is an economist, and most people are not usually able, even if they were willing, to distinguish the political from the economic. ... The need to distinguish between the economic and political element in any prescription is emphasized in academic economics, but when economists debate in public they frequently ignore this distinction"  Devon

"Economists have no reason to be so full of themselves as they continuously contradict each other, speak gibberish and have a miserable predictive record"  Gijselaers

freediver wrote on Dec 4^th, 2007, 8:52pm:


Yes, I certainly chuckled when you provided the proof which blew your economist's theory out of the water.  But as you are willing to spam your forum with repetitious posts I may as well join in and re-post the graph which had us all rolling in the aisles.

freediver wrote on Dec 5^th, 2007, 8:48am:


It proves that after the introduction of the scheme the number of finance commitments merely returned to the pre-GST level.  It proves the grant did what it was supposed to do - no more and no less.  It proves you are wrong that the grant created an artificial demand for houses.

I am very interested in truth which is why I do not listen to fortune tellers like economists.  I prefer facts.  The link you provided gave us facts - facts which proved you (and presumably your favourite economists) wrong.  I thank you for providing it.

freediver wrote on Dec 6^th, 2007, 9:36am:


Did you notice the rate of increase at the start?  All that happened is the grant redressed the balance, after that normal growth in a booming market resumed.

I'm afraid you (and your economists) have a very simplistic view of the world.  It does not work how you think and the link you provided proves that.

freediver wrote on Dec 6^th, 2007, 5:44pm:


I say.  I'm the dude who stated that the reasons house prices rise are far more than a tax offset while you maintain it is practically solely responsible for making houses unaffordable because an economist said so.

I'm afraid you can't change what you said by pretending.

pjb05 wrote on Dec 6^th, 2007, 7:50pm:


Not to mention the myriad other reasons - lower equity loans, 100% loans, higher rents achievable from rental property investments, flatter stock market etc etc.

Welcome to the discussion pjb, it's incredibly refreshing to get another fellow contributor with two eyes who thinks listening to economists makes you go blind.