Costello has nothing to brag about

The fight against volatility should have begun early to mid 2000 when housing speculation really took off. There was much that could and should have been done. The capital gains tax could have moved to parity; the First Home Owners grant could have been cut; negative gearing for investment properties could have been removed for existing property purchases (and expanded for economically-useful new properties); and the immigration intake could have been cut and refocused on the most at need industries.

A co-ordinated land release program could have begun with the states; aggressive rezoning to higher density could have been forced on the states. A vendor tax could have been introduced to discourage speculation; money from the bursting Federal budget could have gone to the states on a per new house basis to remove charges and levies that have ballooned to well over $100,000 in some cases.

Instead, a report was belatedly commissioned from the Productivity Commission in 2003 which duly found an urgent need for more reports to be commissioned.

The options now are a lot tougher. The Rudd Government appears to be trying to prop up the market with a new record immigration intake, even in the face of its own projections for rising unemployment, and with its $4 billion foray into the mortgage backed securities market. This may not be the best approach. The key to getting out of this mess is to create a building boom in one to two years time to offset the sudden drop in mining investment and the real economy fall-out from the credit crisis.

We have the pent up demand for such a boom, but until affordability improves - that is, prices come down - it is likely to be stalled. Therefore what is needed is a controlled deflation of the bubble and a return to more typical historic multiples of income and rental yields. Brace the banks, take the hit on the chin, by doing what should have been done five years ago and get the nation building. One gets the feeling that such a gutsy approach is not the Rudd Government’s preferred style, but delaying a recovery by delaying the pain will definitely make things worse.

In judging the Howard years, history is likely to forget about Tampa, the GST, the “say sorry” saga, PTE Kovco, Australia’s token involvement in Iraq and perhaps even the East Timor intervention. It may well be remembered as a time of a mismanaged resources boom, ballooning debt, and fiscal and monetary policy errors. Hardly the stuff to be bragging about, particularly while it is unwinding.

Could somebody please keep Mr Costello off the tele?