I recently asked Treasury why they don’t reintroduce capital controls to stop house prices from over inflating.
As I’ve pointed out many times before, when Paul Keating abolished capital controls in 1985 house prices more than doubled relative to income.
This has resulted in Australia having the second highest household debt in the world relative to GDP of 116%.
The next country after that is Canada at 99%.
This is clearly unsustainable. Furthermore high house prices has meant that fewer young people can afford to buy a house so continue to rent.
Being enslaved to the banks is no way for people to live. For Treasury to claim that Treasury’s financial settings has served Australia well over the last few decades is just wrong.
It’s only serving the banks well while Australians are being forced out of their homes as wealthy immigrants move in.
Quote from:
https://www.ceicdata.com/en/indicator/australia/household-debt–of-nominal-gdp
Economics Legislation Committee
06/11/2024
Estimates
TREASURY PORTFOLIO
Department of the Treasury
Senator RENNICK: You may find this interesting, Minister. One of the findings of the 1937 banking royal commission was that the central bank should always control the volume of credit in the system. One of the authors of that royal commission was Ben Chifley. That was overturned in 1985, when another Labor Prime Minister, Paul Keating—he was Treasurer at the time but later became Prime Minister—lifted all capital controls. So we had foreign debt held by the four major banks inflate from $8 billion to $800 billion, which has mainly been lent against housing, and which has inflated house prices relative to income—
CHAIR: Your question?
Senator RENNICK: My question is: instead of using other central banks to control the volume of credit—which, effectively, is what Paul Keating did in 1985, when he took his hands off the capital controls—why don’t Treasury and the federal government take responsibility for controlling the volume of credit, which was the recommendation back in 1937 and served us very well in terms of building infrastructure and homeownership?
Mr Yeaman: That’s a very large and complex question.
Senator RENNICK: But can I just say that it’s a very important one and goes to the nub of why we’ve had a decline—
Mr Yeaman: What I would say is that the reforms that have been made to our financial system, central bank and capital markets over the last 20 to 30 years, I think fundamentally, have served Australia well and reflect changes not only here but also in the broader global economy. Recently, we had a review of our central bank and, personally, I don’t see a current case to change, but I note your comment.
Senator RENNICK: Could I just finish with one comment.
CHAIR: No, actually.
Senator RENNICK: We’ve got a decline in the level of homeownership in this country by young people—
CHAIR: You’ve said that this is just a comment.
