Surveys and official reports obtained through the Ministry of Justice of the Russian Federation, the Institute of Legislation and Comparative Law, the Federal Statistics Service, and the Russian Academy of National Economy and Public Administration were particularly useful, because nearly all of these institutions including the Federal Statistics Service were active participants of the reform. All these sources helped in gathering empirical data on the bureaucratic change process, including issues such as legal developments, structural, and organizational features of new programs.
Prior to the discussion of evidence that accounts for the bureaucratic change process in Russia, it is necessary to briefly focus on the dynamics of the policy formulation stage, including the goals and mechanisms employed by the reformers to modernize Russian bureaucracy. This is necessary in order to understand how and why the stage of policy planning influences the results of policy implementation within the subfield of Russian civil service reform.
The current stage of Russian civil service reform which began in suggests that the set of actors involved in CSR consisted of 1 policy experts practitioners and academics who were engaged in a process of problem identification and agenda-setting; 2 ministers and other career politicians who were engaged in the development of policy options and proposals; 3 Presidential administration PA —the key decision-maker concerned with the issue of hierarchical subordination, and finally, 4 the group of policy implementers career bureaucrats , whose motivation structure, as mentioned earlier, included material and non-material incentives, such as the level of pay or the system of interconnected protections and other possible conditions of their permanent work environment for more information, see Obolonsky, The federal government set generic goals, such as the reduction in the number of civil service employees and the development of legislative bases for the improvement of human resource management procedures recruitment, education, pay, and promotion of civil service employees.
Accordingly, the early Conception of public service reform Presidential Decree no. Since , the organizational core of policy planning process included the Center for Strategic Analysis under the Chairmen of the Government Herman Gref who was a well-known figure of Russian politics. In early November , the PA instructed the Government, the Administration of the President and the Security Council of the Russian Federation to prepare by May 1, and submit proposals for reforming the civil service system. The head of the first working group was the former advisor to President Yeltsin Mikhail Krasnov.
The conception of Public Service Reform was, therefore, created as a product of joint efforts under the post-Soviet tradition of inter-agency consultations. Over time, public committees on administrative and civil service reform were split. These committees were headed by different individuals, and as such, were not closely interconnected. For example, committees on public administration were headed by the leading and visible Russian politicians, such as Boris Aleshin Dmitry Kozak, Alexander Zhukov, and Sergei Naryshkin.
One of the them, Deputy Head of Presidential Administration, was in charge of relations between the federal center and Russian regions in the federal government, which, in effect, made regional heads subordinate to the Russian president. In contrast, civil service reform committees were composed, mainly, of academic experts, and they were rarely visited by the top-level bureaucrats for more information, see Barabashev et al.
One of these has been the deteriorating quality of bureaucratic performance, which progressively undermined public trust in government. This claim was accompanied by the discussion of the poor bureaucratic system and was followed by the promise to restore Law and Order in Russian society Annual Messages and Budget Messages of the President of the Russian Federation to the Federal Assembly of the Russian Federation, — Footnote 2.
The timeline of the policy formulation stage, under Putin, covered nearly 10 years, and it significantly overlapped with the stage of policy implementation, which consisted of the decrees and instructions issued by the President or by the Government. The first set of principles of the earliest government package pursued the goal of constraining the discretionary powers of public officials with detailed and narrow regulations. This set of ideas included policy proposals and subsequent choices in favor of regulation and standardization procedures outlining duties and responsibilities of civil servants, as well as their evaluation criteria this was a long process that took nearly one decade to accomplish with the criteria of evaluation that were not fully applied.
These principles were embraced by the all-encompassing comprehensive public administration reform. The ultimate result of these processes was the introduction of public procurement reform, the opening of multifunctional centers for service delivery, and the development of e-governance projects designed to establish mechanisms through which the individual responsibility of civil servants could be observed World Bank, a.
It is well-known that the New Public Management has traditionally focused on administrative modernization, including performance-motivated public management and the use of integrated economic, sociological, and other advanced conceptual models. These ideas have provided a good starting point for the development of innovative policy proposals. Some projects, such as the introduction of e-governance systems electronic service delivery mechanisms lead to the increased accountability of civil servants. Others, such as the introduction of public procurement system, resulted in aggravated corruption that has been difficult to track considering the scale of resources and actors involved in this process for more information, see World Bank, b.
The Implementation stage of civil service reform, starting from the early s, consisted of the enactment of Law on the System of State Service no. To exemplify the nature of clandestine conflict surrounding the reform, one of interviewees engaged in policy planning an expert form the Center for Strategic Analysis observes that various committees of State Duma introduced amendments to the Draft Law on the System of State Service in order to clarify the principles of merit-based system of state bureaucracy. However, only 39 amendments were recommended by the parent committee responsible for the consideration of this bill Committee on Federal Affairs and Regional Policy for acceptance for more information, see Yuzhakov, Footnote 3 The amendments covered such areas as recruitment procedures, transparency, professionalism, service-oriented culture, merit-based pay and promotion systems Ibid.
The enactment of Law no. A remarkable feature of this discussion was that the hearing process occurred mainly from the standpoint of the presidential program. The Chairman of the Committee on Federal Affairs and Regional policy would consistently ask of the draft offered to the State Duma is consistent with the Conception issued by the Presidential Administration the key issue on agenda of policy-makers. Interestingly, one of the earlier versions of the Code of Ethics had been introduced by the President himself in This piece of legislation—initially backed by the Union of Right Forces—did not enjoy full support of the State Duma, and it was subsequently rejected by the lower chamber of the Russian parliament in anticipation of Draft Law on Civil Service Reform offered by the Presidential Administration Barabashev and Klimenko, Federal Law no.
This new piece of legislation defined civil service as a professional occupation, which is paid by the Russian budget. Employment conditions were contract-based and performance-oriented. Civil service tenure was no longer guaranteed. Overall, civil service system was reshuffled to comply with the hybrid nature of public management system, which was based on a combination of old table of ranks and new performance management principles. Interview findings Expert Interviews by Author anonymous , — identify the following major features of CSR policy cycle.
The most explicit, in this context, was the ideational split concerning the principles of bureaucratic organization, including the principles of bureaucratic recruitment, promotion and security of tenure. The Ministry of Economic Development, by contrast, advocated the need to incentivize civil servants to work more productively, thus recommending the use of short-term contracts and performance-based pay to improve the operational capacity of civil service organizations Former Employee of the Ministry of Labour of the Russian Federation feredal level , interview by author, Moscow The final version of Law no.
Some of the most popular ideas such as performance-based pay became part of Law, though conditions for the enforcement of relevant implementation procedures were not created. This approach produced useful, yet uncoordinated reform efforts, and as such, resulted in the development of incoherent legislation:. Given our relatively weak civil society and political parties, the main forum for representation and reconciliation of interests is provided by the executive authorities. Accordingly, government agencies and departments are the main actors involved in shaping the political agenda, as well as in its implementation.
But the departmental agency approach to reforms is limited by definition. A radical agency project is a breakthrough in one relatively narrow area and is out of line with the general state of the public sector and public management. In addition, any agency, whether reform-oriented or conservative, tends to try to increase its influence and facilitate the performance of its functions Member of an Expert Committee within the Russian Government cross-affiliated, senior role , interview by author, Moscow This view is supported by the leading academic experts on Russia pointing out that the model of decision-making, in this country, presents a significant challenge for the possibility to reach an optimal developmental outcome for more information, see Huskey, The body of expert proposals set the stage for comprehensive reform program experts acted on the demand of the Federal government seeking expert advice.
However, the course of events, which accompanied the creation of Law no. Similar developments, at the time, were observed with respect to the Russian anti-corruption legislation package see Dmitriev, Ultimately, many norms contained in Law no. Interviews conducted by the author in — reveal that nearly all explanations of policy process shared by policy experts belong to at least three distinct policy implementation narratives, which reflect upon the desirable reform prerequisites conditions of change that appear to be insufficiently present in the case of Russian civil service reform.
This narrative suggests that the success of civil service reform largely depends on the motivation of the reformers and their willingness to enforce civil service legislation. The problem underlying the observed narrative is the discrepancy between obvious and hidden agendas of policy-making process largely observed by those involved in policy planning stage.
The discrepancy between obvious and hidden agendas may be observed due to the fact that CSR was a convenient tool employed by the top-level political leadership to attract its political supporters among a diverse group of Russian intelligentsia and the Russian public. Obvious agendas official policy goals , in this context, include a variety of substantial policy goals, such as the need to improve institutional structure or to update legislation in order to maintain legal coherency. Hidden agendas, on the contrary, involve a variety of political considerations: the need to reshuffle the body of bureaucrats, including their roles, functions, selection criteria, and accountability structure.
The lack of understanding of why CSR is important is also frequently mentioned by interviewees. The second major narrative, identified through the interviews with experts mainly academics , points to the broader organizational conditions of policy change, such as the structural and cultural attributes of Russian bureaucracy the size, composition, organizational coherency , as well as bureaucratic capacity of the Russian state to absorb changes. The Russian case of CSR offers a valuable source of insight for the type of reasoning that links the delay of policy implementation stage with the culture and structure of bureaucratic institutions, and the regularly observed conflict of interest among bureaucratic and administrative actors.
This is due to the set of actors involved in policy formulation and policy implementation stages of Russian civil service reform. During the early stage of the reform — , the community of civil service reform actors policy formulators was composed of academics and policy practitioners, serving as advisors to Russian President. By contrast, the group of policy implementers was fractured and not heavily involved in policy planning process. The remaining group of policy implementers lower-level civil servants occupying mid-level management positions included public employees who started their careers prior to the collapse of Communism Jakobson, Over time, the split among generations became less important due to the underlying process of elite-settlement.
During the Soviet times, the Communist Party specifically, its multiple local organizations provided the primary channel for the recruitment of civil service employees. Political loyalty remained one of the guiding principles of the hiring processes, which left the heads of administrative divisions with vast discretionary powers in the application of personnel recruitment norms. When the Soviet system dissolved, the ideological and organizational principles of a stable bureaucratic system quickly vanished, which led to the development of ad-hoc measures that aimed to establish a new legal bases for the Russian system of public administration.
Civil Service Law no. This law has been criticized due to the lack of coordination in developing relevant policy implementation procedures see also Krasnov and Satarov, It is noteworthy that the total number of public employees of which civil servants are a minor part increased sharply prior to the collapse of Communism. In , for example, the total number of people employed by the state, excluding party members, reached nearly 2.
The total number of state employees, during the period of —, increased by Footnote 4. These numbers appear to be striking, considering that the number of career bureaucrats civil servants , as opposed to the total number of public employees non-civil servants, such as military and administrative staff , under Putin, did not significantly change, and even dropped, starting from , thousand until , thousand.
The Federal Law no. The observed trend suggests that career bureaucrats were generally quite resilient toward the pressure of organizational restructuring and downsizing see Appendices 2 and 3. It is worth mentioning that the size of the state does not fully reflect upon the success or failure of civil service reform project.
In fact, the size of civil service influences the results of the reform, in Russia, in a less obvious manner that its spatial and organizational characteristics. The total number of employees per region size varied depending on the organization capacities of regional administrations Tables 2 and 3. Conditions of implementation process, observed within the body of empirical evidence, may be split into the categories of agency-based and structural prerequisites influencing various stages of interconnected policy cycle.
Agency-based conditions include the nature and quality of actors involved in CSR process primarily policy leadership. It is well-known, for example, that the success of policy implementation depends on the qualities of actors involved in this process. However, the way officials choose to react and respond to the new policies depends on their perception of the reform, as well as on a wide range of formal and informal institutions, which constrain their choices and behavior Solomon, , Footnote 5. In this context, one of the most important institutional features of all Russian bureaucracy is whether its activities are financed out of federal, regional, and municipal budgets.
In Russia, regional and municipal budgets are normally constrained and experience pressure to downsize programs that are being perceived as marginal DeBardeleben, Starting from the early s, the Federal powers interfered in regional affairs more often due to the expansion of government regulation promoting centralization agenda DeBardeleben, Mechanisms employed by the Federal powers to incentivize reforms included a mandatory legislative framework and competitive financial mechanisms World Bank, a. Selection criteria for individual regions were not equally enforced.
Performance targets for the achievement of personnel management objectives included, among others: the status of institutional reforms, assessed through the numerical reduction of the bureaucratic corpus, the level of employee turnover, the use of contract-based systems and the introduction of a performance-based system Ibid. Table 4. While the observed explanations of the bureaucratic change process interview narratives focus on CSR prerequisites—reform leadership, bureaucratic capacity, and the strategy of the reform process—the relationship among the observed variables of policy implementation is far from being straightforward.
The choice of an appropriate explanation that would help reconciling the diverse and highly fragmented policy implementation narratives is further complicated by the fact that there has been a number of top-level political actors involved in the development of civil service reform proposals, which raises concern about the role of policy leadership in the design of public policy and its implementation. As mentioned earlier, during the late s and early s, policy experts acted on the request of the Federal government, who sought advice on the means of administrative modernization.
The organizational features of bureaucratic reform process in Russia suggest that the following sources of policy ambiguity informed the dynamic of policy implementation stage. The Conception [framework] of Public Service Reform no. All of these policy goals were highly ambitious requiring comprehensive rather than incremental approach, that was not yet properly matched with the operational and organizational capacities of the post-Soviet state, such as the size of the state and the decentralized nature of the post-Soviet civil service system, or the presence of parallel reform objectives, such as the goal of administrative centralization pursued by the federal government since the year The unresolved problem of CSR management process: From to , there has not been a single independent agency responsible for the development of civil service reform as a coherent project.
Since , CSR management has been split among at least four alternative centers: 1 Department of civil service management of Public Administration of the President of Russia; 2 the Office of the Government of Russia, in which the functions of managing the civil service were assigned to the civil service department, in collaboration with state and local government; 3 the Ministry of Health and Social Development of Russia subsequently, the Ministry of Economic Development , and 4 the departments administrations or structural subdivisions within the departments of the federal authorities responsible for personnel issues and the management of public service in these bodies.
The lack of a single institution or agency responsible for CSR implementation process, resulted in a lack of a coherent vision concerning the goals and values underlying bureaucratic modernization effort. The most explicit, in this context, was the ideational split among a variety of actors with different backgrounds and institutional mandates concerning the organizational principles of Russian bureaucracy Expert Interviews, by Author, — Official sources, for example, demonstrate that, in 2 consecutive years — , the Federal powers spent around million rubles and , thousand rubles, accordingly, on the public administration reform program.
Thus, the implementation stage of civil service reform has been regularly underfinanced. The amount of initially allocated material inputs has been significant insofar as it has been effectively spent and distributed. Evidence on this account suggests two major observations. One of them concerns the unequal share of funds invested in the stages of policy formulation and policy implementation.
The second problem concerned the impact of government expenditure on civil service reform progress: during the early s, coordination mechanisms among budget allocation and civil service reform were not clear, which significantly decreased the chances of comprehensive law enforcement process to take place Ibid. Resource inputs identified by the interviewees in — included not only financial support that was necessary to conduct reforms, but also communication between the decision-makers and policy implementers about the goals of the reform e.
The initial stages of the reform relied on the idea that laws were self-executing documents. Another The clandestine nature of bureaucratic resistance suggests that, in some cases, the struggle among the top layers of public bureaucracy took form of regulatory capture transforming the scope of legal coverage, or even constraining the enforcement capacity of relevant policy implementation documents.
One vivid example of this process, which took form of a seemingly regular discussion in the State Duma, has been provided by the income declaration procedures that aimed to make bureaucracy accountable to the public. In , for example, the Ministry of Labor developed extensive regulations requiring all civil servants and their family members , to file their income declarations online in order to allow for their public scrutiny.
However, later on, State Duma managed to redraw the draft regulation by excluding adult children from the group of family members of senior bureaucrats. An interesting account of the observed process is provided by the following discussion:. Medvedev ought to be given his due: his idea for the law on declaration of state incomes was progressive. However, in the end, this initiative, like so many of his initiatives, turned out toothless and ineffective. Officials agreed to this compromise.
The majority of them had adult children, and thus, this definition suited them. As a result, the Russian public was given the opportunity to learn about the income and property of officials and their spouses only. But even these limited data proved amusing reading Innocente, Generally, some of the observed instances of bureaucratic resistance toward the reform may be explained by the challenging nature of policy proposals and the public discourse surrounding the case of CSR.
It is obvious, for example, that the goals proclaimed in the mass media during the early stages of the reform such as the need to reduce the number of civil servants , threatened bureaucratic interests. Footnote 6 As a result, when reforms commenced, the bureaucracy was unprepared to accept another wave of bureaucratic reform Interviews, Policy discourse that focused on the ideas of NPM effectiveness and efficiency was hardly useful, as it revealed the tendency of the federal authorities to challenge bureaucratic interests. The latest years of CSR implementation witnessed the reluctant, yet steady enactment of local law enforcement practices in the area of personnel management and the creation of guidelines for the application of relevant norms at the regional-level see, for example, Merit-Based Recruitment and Selection Guidelines of Nizhny Novgorod region in Collection, However, the process of merit-based recruitment is neither closely monitored, nor fully regulated by the Federal legislation.
Since , the process of reform management and administration shifted to the Federal government and its ministries making proposals and enforcing decisions in a largely decentralized manner. However, the fear of establishing control over the civil service by the interested rival group became an important factor in the rivalry between the structures of the Administration of the President of Russia and the Government of the Russian Federation, which blocked the formation of a consolidated system of public service management.
Another important reason for the unresolved nature of CSR management cited by interviewees concerned the necessity perceived by policy advisors to avoid the Soviet-era tradition of centralized state personnel management system Advisor, Center for Strategic Analysis under the President, interview by author, Moscow Ultimately, the unresolved nature of CSR management—implementation agenda advanced by experts in effort to decentralize the process of reform management in order to escape the Soviet legacy— led to the increased concentration of powers in the PA.
The striking peculiarity of the competitive hiring process in Russia which is one of many possible outcomes of the reform is the co-existence of two major routes of bureaucratic employment. It is harder than ever and I expect most of my younger friends to never be able to afford to buy especially those with families. I can only hope that as I get older I don't grow so out of touch with reality remembering only how it was for me. You nailed exactly Micky. Every generation reckons they had it harder than any other but the numbers don't lie.
The Baby Boomers had it the easiest of any in our country's history. The main reason is simply that they have been the single biggest electoral demographic. I don't think Australia will ever recover from the Baby Boomers. I don't believe your figures Petrus P. Was that house in Broken Hill? Petrus P is spot on! What's more, even though we owned the land and had half the price of the house and my wife and I had permanent, secure government jobs we were REJECTED by two banks for loans!
The tragedy of high real estate prices is that most of our country's wealth is tied up in an industry which does not generate national prosperity. If we lived in small cheap flats and invested our collective wealth in export industries, not real estate,our country would grow stronger. As things stand, we have a parasitic economy, feeding on itself which, in the long run, will impoverish us. Very much agreed. If people were forced to invest in business, we would be far ahead of where we are now.
It is pretty pathetic that we are here in Australia, in squabbling over people's right to put a roof over their family's head. Australia used to be a great country but now it becoming just another 3rd world hole. Then you're part of the problem, Petrus P. See a problem? A very, very big problem? Fine, right? Thankfully, I chose to by acreage in South Australia 6 years ago, about 50kms from Adelaide, and don't have a mortgage any longer. We bought land only, self built read as restored the original farmhouse ruins and have never lived off credit or brought new stuff if we could avoid it.
Smart on our part, but uncommon. People aged 40 and under will struggle to own a place like the boomer generation in the capital cities, and there's little to no work outside these areas. You're foolish to think there's not a problem. Ultron, not meaning any disrespect, but please check your figures. Are you sure you've got the right figures or year? Perhaps a unit in the boon docks but I seriously doubt a house. I take your point but dispute your figures. First home buyers have largely given up they now make up of all home buyers. They are being overwhelmed by investors and foreign buyers who appear to be unchecked as regards their eligibility in Sydney.
The market in Sydney needs to collapse perhaps to levels and buyers need to be better scrutinises to their eligibility to purchase in the first place. Hi there Petrus and Troy and Keith, I am one of your so called 'young people always spending what they can't afford' and I take umbrage that you have so easily stereotyped an entire generation. My parents scrimped and saved for 5 years to afford their dream home in the 's. They have both worked damn hard their whole lives and always taught me the merits of saving.
They did not have the funds to send me to private schooling, pay my university tuition, assist me with purchasing any of my cars or my first house. I've had to achieve that through my own hard work and discipline. I have started my life 'fasting' and unfortunately the way things are going I think I'll be 'fasting' for the entire time, that is the problem. And this is in Perth, not even Sydney or Melbourne. The average wage to average house price disparity has increased since the 's, this is a fact. The dynamics of cities have changed, vast urban sprawl means that living in affordable areas generates longer commute times and restricts specialist workers.
So no it is not as simple as that, and you clearly don't wish us all the best because it is the complacency and rose-tinted glasses of the generations with influence that hamper this countries ability to innovate. Acknowledging they had it easier than us would mean acknowledging their success was not all due to their own magical personal strength and perseverance, but basically, being born at the right time in the right place. So the equivalent of minimal wage back then. About a tenth of now. I did a google search. There was a house in Proston, 2 bedsm 1 bath.
Not grandiose. So at the very least the equivalent will put you a hundred plus kilometers away from a city, let alone one of the state capitals. Things have gotten worse for affordability because home owners have had their house prices increase above inflation. Housing affordability AND house price increases can not occur together. There's plenty in a km radius.
Not in a 50km radius; but in a km radius. Your generation was dubbed the 'me' generation in the 70s. And now you preach this austerity nonsense to young people.
Bureaucratic reform and Russian transition: the puzzles of policy-making process
The boomers had it easier than any other generation in earth. Before or after. Stop with the hypocrisy. I'm guessing I'm about 20 years younger than you, Petrus, but I've lived my life by exactly the same rules as you. I worked a difficult job, in a difficult environment, for long enough to be able to have enough savings to buy a house in cash, by the age of 32 admittedly a cheaper house in an outer suburb. Now not everyone could or would choose my career path, but it is an option. Don't complain to me if your choices don't work for you.
If property prices do not increase relative to income, properties would never go up in value. There'd be no investment, there'd be no market to speak of. By definition, an increase in value is due to a decrease in the percentage of the population that can afford it. Banks pay tax on the interest earned so there is no tax payer funded negative gearing unless you believe in double taxation.
When anyone borrows to fund an income producing business they do not pay tax on the interest. So what your saying is that when I go to purchase a property as a first home buyer, and another person comes along as an investor, that we have the same tax treatment, and the same subsidies so the playing field between us is completely equal? Please, do tell me more Your own property is not being bought for income. So the solution is easy then, Amber. People shouldn't be allowed to buy property to generate an income unless they are part of a registered business.
Tax deductions are there for people who use money to generate taxable income. A rental property is an investment - rent is taxable, therefore interest in tax deductible. Your house is not an investment - there is no income generated, therefore no deduction. Similarly, a vacant block is not an investment no income earned. Therefore expenses are not deductible. With all respect, one of the biggest problems in this debate is that those complaining about the status quo simply don't seem to understand the rules.
Players who don't understand the rules of the game usually lose, and are the first to blame the ref. Banks don't pay tax on interest earned, like all other businesses they pay tax on profit. Also your double taxation theory is rubbish. True they pay tax on profits but the interest paid makes up some of the profit.
Income producing businesses, which an investment property is, are exempt from paying tax on the interest on the loan to buy the business. This exemption makes perfect sense as it encourages investment which is quite different to you paying income tax and the GST. The only outcome, as evidenced by the current situation, is rising prices or to put it another way, inflation in the housing sector.
A sector that virtually doesn't actually produce anything. Negative gearing does skew the ledger in favour of investors, but so does the CGT discount. Add in low interest rates and you have an almost perfect mix for investors. It wouldn't be a big deal to get rid of the CGT discount tomorrow and treat money earned from capital the same as money earned from effort. Some of the heat needs to be taken out of the market and the government needs more revenue as well.
Double taxation is a myth. It's a nonsense. Money is taxed again and again and again. Calling fair taxation 'double' so you pay less is just typical conservative myopia. I have no issues with people negatively gearing.
Just quaranteen it so they can write off their losses against the income generated from the property, not their wages. If I make a capital loss on shares, or incur an interest expense in my business I am not allowed to offset the loss on my salary income. Whether losses are offset against income from salary or from rental income, it makes no difference: an income loss can only be offset against an income "gain" ie positive income , just like a capital loss can only offset a capital gain.
To create in the Tax Act different types of income to offset against each other creates yet more complexity, not less. That is the same problem with the anti-negative gearing argument. At the moment, an investment property is treated exactly like any other investment, as it should be. To create special rules disallowing negative gearing for a rental property investment but allowing them for say the purchase of a business creates complexity when we should be aiming towards simplicity. I find it amazing that those who don't understand the tax system because of it's complexity are generally those who propose fiddling with it even more to create more caveats and complexities.
And of course taxes should be different for business and property investment. Business investment usually actually creates something or performs a service. Property investment is just sitting on an asset waiting for it to appreciate. It contributes nothing to the economy. No government wants the bubble to burst on their watch, it will be hung on them for a generation.
So both colours kick the can down the road. The real estate greedies want the gravy train to go on forever, I agree that the TV reno shows contribute to the myth that there is no end to what you can get for a fixer upper. Our politicians all want to be rich and live off a fat pension and a gold travel card, they are greedy too. It looks like panic buying is going on in Sydney so the end must be near. I don't know a single solitary person who would say investing in real estate is a bad idea.
Quite the contrary. That's when you know its the mother of all bubbles. What's that old saying? When the shoe shine boy gives you a stock tip, sell? The answer really is coming. The renting will again be seen as a very viable option to buying. I agree gerard. Back to the conditions that applied in the 's and the early part of the 's. However it will effect different groups very differently. Those that own outright or have only a very small mortgage Those who will also be effected badly are renters. Tha vast majority dont have a deposit saved so couldnt buy even with the price drop.
Rents wont go down, if anything the opposite as landlords still have to make the mortgage payment in a property woth less than what they bought it for. So once again people who be bemoaning the BB who have had it all their way since they will be the ones least effected by a sudden drop in property price. I disagree about the rental. Landlords always charge as much rent as they can get. If they could get more, they would be already. A crash will not change the number of existing houses nor the number of people who need one.
It is straight forward commonsense. All the BS about negative gearing keeping rents low is just spin from people who don't want the gravy train to end. A housing bubble, just like the U. Lets compare shall we? US has a housing bubble US pours billions of dollars into beefing up national security. Bubble bursts and takes some big-name lenders with it.
US sinks into a recession The ripple effects are felt around the world, adding fuel to the crises in Italy, Spain, Greece and Ireland. Fast forward 8 years Australia has a housing bubble Australia pours billions of dollars into beefing up national security. Get the picture? It is said that Australia is usually 10 years behind the US. So by my clock, this bubble is about to burst fairly soon. It would seem that the government are in a bind because they took the path of least resistance and did nothing when they should have been regulating the industry a little more than usual.
A tightening of the rules around housing investment would have been a good idea several years ago. Now, with the bulk of a couple's retirement nest egg tied up in the family home, any fall in prices will put an added burden on retirement incomes, which is not a fight that the government wants right now. The government is going to have to bite the bullet and deal with this before the bubble bursts, or learn the hard way just as they did in the US. Oh, and for those 'economists' who are saying it cannot happen here, they were saying the same thing about the US too.
The problem with comparing Australia to the U. S in this instance is that Americans can walk away from their mortgage and leave the bank with an asset that has reduced in price. The bank then has to deal with it. Australian can't do that. Australians still have to come up with the loan amount, regardless of what happens to the price. This sounds like a pretty bad deal for us here. Yet the mechanism prevents vast numbers of properties suddenly coming on the market. Significant falls in Australian prices can only come about through a large-scale economic downturn affecting large numbers of people across the board.
No one want that because it doesn't address affordability, even considering the reduced prices. Well, I say no one wants that, but I'm sure there are those who would be protected from the large scale economic downturn who could suddenly clean up on a number of now-much-cheaper properties. In the US they loaned money to people who were in no position to service the loans. In Australia no such thing has happened. That is the difference. Uh, actually there have been a couple scandals in Australia recently of lenders faking the papers of low income earners so they could give them loans.
And nobody really knew the banks were giving so many bad loans to people in the USA until after the crisis. Except the banks of course, some of whom were also insuring those mortgages so they would win either way. How do YOU know the banks aren't doing something similar here? Because the banks tell you they aren't?
Hi Michael Janda, very good piece, thanks! But that statement is an inherent contradiction. Kudos to you and our ABC for this contribution to this serious discussion. Chinese investors are sinking a huge amount of investment into Australian residential housing in Melbourne and Sydney. Does anyone know how these investments are funded? Are they cash sales, paid with overseas finance or are these purchases facilitated by loans from our own big four? I have not seen the source of the funds identified. I can provide some anecdotal evidence about how Chinese buyers are operating.
Someone I know recently inspected a property with a view to renting it, the owner was handling the transaction himself - he was a young Chinese student international student visas allow them to buy property apparently. Chatting with the owner it was revealed that he owned multiple investment properties around Sydney - not bad for a 20 year old studying full time!
I'd guess he was buying on behalf of people in China who used him to funnel their money into the country. As a student in Sydney my son has experienced the same. Abbott knows perfectly well that foreign investment is propping up house prices. He wants it that way. We know because he said so himself! How do rich Chinese elude foreign exchange laws? Not keen on legal means, think underground money changers.
A client transfers funds to the money changer's account first, then the money changer remits the equivalent in foreign currency to the customer's overseas account. Out of sight, out of mind. Private banking: Banks in China help their wealthy clients open overseas accounts within the same bank. After that, they can apply for loans overseas and get foreign currency. Direct business investment: Company owners invest in foreign companies, then transfer money out. Looks legit. Marriage and visa scams: Marry a foreign citizen, no more problems, at least not in regard to transferring money out.
Travel with cash: Live dangerously, suitcase full of cash through the airport, if it is not your money, who cares? Looking forward to the day govt does an audit on recently purchased homes in high value suburbs in Sydney and Melbourne. But this is also a contradictory statement because an increase in property value has to be due to a decrease in the relative affordability of property. If property ownership is not constantly concentrating, property values don't go up.
We can increase supply so that it outstrips demand, but then values fall and the property market fails. Inevitably what we end up with is 'Peak Property'.
BUREAUCRACY, DISTRIBUTION AND SOCIAL CHANGE. A CRITIQUE OF COLOMBIAN STATELESSNESS
As someone who worked for years in the lending industry I find it amazing that with rates as low as they are people are still managing to make a deliberate loss on their investment. In the lending interview I was always asked one of two questions: Can you tell me about negative gearing or direct me to someone who can? Personally, as a renter I hope they keep on putting their heads in the sand so that when the bubble bursts I can start an affordable portfolio on the back of a wave of tears cried by the current entitled.
Could be a risky and costly gamble, cobbler. I distinctly recall discussing the housing bubble back in The bubble was set to burst back then, 'any day now'. Wish I'd bought then. Mind you, if you're buying to live in it, then it doesn't really matter if prices go up or down over the course of your mortgage provided you can still make the repayments. When it comes tome to sell, your home has kept to roughly the same value as similar properties that you might be interested in buying.
In other words, if your k property drops to k, and that's all you can sell it for. Don't worry, everyone else k has dropped to k and you can buy that with your proceeds from sale. Really, Nacnud? No deposit? While I don't have the various banking laws committed to memory, I would have thought it was possible to sell your k for k if you owed less than k to the bank. If you owed k to the bank, you could use that 50k towards a deposit on the 'replacement' k home. Once more we see the genius of the Left at full work here in this article.
So, Mr Janda believes that house prices going up is a bad thing and the PM should be punished for suggesting so. Which means that perhaps he thinks house prices should be dropping? Last fortnight he indicated that if negative gearing were removed then we could actually see annual double digit price falls, and seemed quite pleased at this prospect.
However, Mr Janda seems to have forgotten about those who have purchased a property in the last 5 years or more and are in the process of paying it off. What are they to do in the face of falling house prices? They can't sell as that would put them underwater as far as their mortgage goes and they can't change jobs or upgrade their houses or they would still end up as before when they came to sell, so effectively they are stuck where they are until forever or they pay off their mortgage, whichever comes first.
It seems this article has failed to think through the adverse consequences that might arise from all the projections and wishing and hoping contained in it, as I am not sure the general homeowner would see much benefit in any if not all of Mr Janda's recommendations. Thanks Charles. I had almost forgotten that in our free market economy the government has a pivotal role to play in supporting high asset prices. And it almost slipped my mind that there should be zero risk in investing in housing, only upward growth.
I really do have a strange view of capitalism KKRR: His point is valid. If you want the govt to do things to limit price rises then equally they should do things to limit price falls. It certainly works in my businesses, not always in my favour unfortunately. His point is nonsense. The government has stimulated demand and restricted supply.
The prices meed to fall and there will be losers. Most of those losers will be greedy property speculators and greedy over-extenders sold on the 'always up' thing. I've already cashed out and shifted my money to NYC, a city with an industry apart from its own real estate. Smart money would do likewise. I'm happy for supply and demand to do its trick too. Remove onerous regulations and planning laws restricting supply. By your own logic, the government is doing things wrong. Yep the market. Supply and demand. That sounds like a lot of non-right wing market ideology but what would a lefty like me know?
Privatise the profits and socialise the losses. The problem with your argument is that if nothing is done before the bubble bursts, which it must do, the problem at that time will be even worse than what it would be if politicians had the balls to do something about it now. Why must the bubble burst? Do you honestly think that Australia's economy can continue to grow indefinitely?
The only 2 questions about the next recession are when will it come and how severe will it be. With respect Charles, I think you are missing the point. What the left thinks or does has very little to do with whether or not there is a bubble. If there is a bubble, and it looks like there might be, then at the very least the Government needs to have its eye firmly on the ball. If the bubble pops, the economy is in danger as a whole, and if the government is unprepared because it has had its head in the sand, the very thing you are concerned about will not only happen, but be worse.
These people have either bought a house to live in or they are "investing". If they are the former, a price fall should not worry them because they were not planning to sell anytime soon anyway. If they are investors, they have chosen to take a risk. If they happen to lose money, its their own bad luck. The government should not be distorting the property market to protect the interests of lazy, claytons investors preying upon younger generations just trying to keep a roof over their heads.
As i ask on all these threads, when will the bubble burst? I've always fancied living in Manly and am cashed up. Michael, you have hit the nail on the head of what the problem is with not only home ownership but our tax system as a whole. Too many of our politicians, especially those making the decisions, have their own hands in the trough making personal economic advantage out of these flawed policies. They all have the income to take advantage of policies such as those that support investors over home ownership that the large majority of people don't.
I can't see any way we are ever going to get changes from either side of politics when they are the ones gaining advantage from the very policies that we need to change if not get rid of. This is I would suggest politics of personal advantage over the good of this country and the majority of the people they are supposed to represent.
What it shows is that they represent themselves and the very rich in this country over everyone else. It is a bit hard to see how it can be seen in any other light. This Sydney centric and Melbourne centric problem is not a proper snapshot of housing affordability in Australia. Yes, it's more expensive than we would like but nothing stays the same and being a magnet for people around the world is not helping as many come with bags full of money to buy what they want and what this may mean for locals is of no concern to them or to governments.
What happens when places like Sydney and Melbourne become popular not just for Australians but people from around the world is that the cost is going to go up, there is no avoiding it.
Economy and housing
If politicians put as much effort into solving housing affordability as they do in buggerising around with same sex marriage this problem would be half way to being solved. There are no votes in it and those complaining perhaps need to make it an issue. Solving the problem in Sydney simply involves supply. Eight stories out to Annandale will render this problem history. There are lots of countries out there where foreigners cannot buy land, sometimes they can if they live there. Australia is meant to be one of the latter, but people are getting around our regulations and politicians don't care to do anything about it.
The pit of all this debate is that governments and oppositions only use the housing situation to score political points. Question time today: Question about the affordability of housing, and talk about a housing bubble. Response by the Prime Minister, using his longest bow. Stupid belittling debate. No middle ground. This followed yesterday's response that an increase on homes was good for the economy.
When is the nation going to be governed by a competent government? Or when the average Australian can recognise what a competent person sounds like. A great article, if Tony Abbott had said "I am on a pretty good income and already own my house, I don't need another one" We would have a prime minister that could empathise with people on less income or at a different stage in life. The premise is don't trust the government to be able to support you in retirement we have no plans to secure that future.
This is a man opting out of responsibilities he inherited. The Coalition need to quickly address this problem even though it does follow a sub plot of fear and uncertainty of others and the future which normally works quite well in politics. If Labor seek to allay these fears with robust policy the Coalition are going to find the next election very difficult. One of the problems I have found is that houses and units are so huge. This severely affects what I can spend. Studio flats which is all I need - 30 square metres can be found in Inner Sydney but that is precisely where the high part of the bubble is.
Go to cheap suburbs like Kingswood or Ingleburn in Sydney and all you have are houses or two to three bedroom flats. Way too large and hence too expensive. And how many studio flats in country towns assuming one can find a job there? Am I the only one who doesn't want to buy an oversized place which seemingly are all that is available in cheap parts of Australia?
Michael, according to the Australia House Price Index Forecast housing prices are on the slippery slope down. Why would all these politicans care if house prices drop , say 20 or 30 per cent when in the last last 10 years they have gone up much more than that. I would say they would just buy even more properties knowing that immigration is growing and the only way interest rates will rise is if the economy picks up which they them selves are at the control of the economy Remember back when John Howard said in his farewell speech after losing the election?
It seems as if the bubble will have to burst. But money from China is flooding into the Real Estate market in Sydney. When a friend of mine sold at auction last year the top bidders were all Chinese and the Real Estate agent said they are driving the local market. They are from mainland China, not Hong Kong or Taiwan, and dripping money. Its not about housing affordity. Its about boom and burst cycle. In history there were many lesson to learn about. Any thing in this life has their own life cycle. Night and Day to make a day, 4 seasons Summer Winter etc to make a year.
The value of fiat money always go down in value thats why commodity and assets have to go up in term of fiat dollars. No question about the land is going up in dollar term, because it has to. However, the intrinsic value of the land is the one we should be talking about here. The intrinsic value of the land will be increased or decreased depend on a lot of external factors. Growing population, environmental disactors etc. In this topic I am not talking about a specific real estate Land market.
I am talking about in general, and Australia, or Sydney will need to follow the fundamentals. No one call dollar market, they call it currency market, because it shows current value of the fiat dollar. The same with stock market, lets be assume the CBA bank is doing nothing better today compare to yesterday, why the stock price is up. Because some people demand it. Now we talk about real estate market.
To be called a market, has to have buyers, and sellers. When RBA governor talks about assets, and bank talk about security, mean a piece of Thing can be sold at the current market price. AT the moment, people thinks a piece of Thing Land is their assets which product income, and bank consider it an asset.
So people demand and hold it so its value of dollar is up. Boom period. Bank is in business for lending and expansing assets loan book without inflate the price too much, and causing fear. If the bank don't inflate and stop lending, the Land price will fall, mean the bank asset will fall, because everybody sale at one time.
Then Bank run, when people rush to convert the bank deposit into cash, by withdrawing cash. At the moment, no one can confirm the real estate market is boom or burst. People will ask why don't the bank control lending, and the boom will last forever, it will last long , not forever, because in banking lending mean creating credit, make loan.
Bank build on trust. Thats why whoever work for a bank, they have to wear suit. Seem prosperity. At the moment, I think Australian real estate market is at booming and nearly peak cycle. Because, banks start to hoarding cash, deposit interest rate is higher than RBA cash rate. Bank Operating cost is up due to cost of living.
Rental mar. However, following an interim report in March and Mr Morrison's election victory in May, The Australian Financial Review reported the Prime Minister had urged the review panel to take a tougher line on performance standards and delivery of services. Mr Thodey added his review would be looking at "real metrics" for success and the implementation of big, complex projects. It would also examine "cultural issues around structures that have long been held by the public sector for many years", and making recommendations to improve capabilities in the public service for the next two decades.
One of the "great tragedies" was that senior executives' ability to work across public and private sectors was "not great" compared with the US. Other issues under review include clarity of public sector roles, apolitical and "frank and fearless" advice, "looking beyond the Canberra bubble" as well as improving services for all Australians through technology. Skip to navigation Skip to content Skip to footer Help using this website - Accessibility statement. Politics Public service Print article. David Marin-Guzman Workplace correspondent.
I'm not saying we need to increase public spending. License article. Topics Public service. David Marin-Guzman writes about industrial relations, workplace, policy and leadership from Sydney. Connect with David on Twitter. Email David at david.