Welfare reform = rent reform?

The release of an Interim Report as part the Governmnent's Review of Australia's Welfare System has everyone talking about welfare reform today. There are some things that warrant a mention here on the Brown Couch, too.

The Report spends some time looking at Rent Assistance payments, showing that rates of Rent Assistance have not kept pace with the growth in rents. Rent Assistance recipients are paying a higher proportion of their incomes towards the rent, as the rent-specific benefit is eroded by housing costs that have risen more rapidly than general inflation.

The Report concludes that "there is a need to redesign Rent Assistance to assist people in private rental who have the highest needs". As to what that 'redesign' might involve, the report is not prescriptive. But it does make reference to some earlier suggestions - such as those in the Henry Review - that would see Rent Assistance indexed to something other than the Consumer Price Index. Linking Rent Assistance to actual housing costs might have an interesting effect on Treasury's interest in the stability of market rents - but we'll leave that as an aside for now.

The Report has a go at further entrenching the idea of moving away from income related rents in social housing, too. This is also something we've seen before in the Henry Review, as well as the recent Commission of Audit. On this, the Interim Report is also a bit non-prescriptive, with a mere suggestion that "consideration could be given to moving away from the current system of income based rents towards the use of Rent Assistance as the preferred rent subsidy scheme across both private and public tenures."

But its stated rationale for this suggestion is worth a look: the apparent 'perversity' of people on low incomes 'preferring' to live in public housing, rather than the private rental market, on account of its affordability! According to the report, people might pass up the opportunity for paid work in order to maintain their position in public housing, or even on the waiting list.

(This has an eerily familiar ring to it. Of course, rather than changing the way rents are calculated, governments could instead choose to invest in more public housing. Or they could do both - but perhaps we should just stick to the issues at hand... after all, there's another Government Inquiry for all that, right?)

We'd go so far as to suggest there is another reason to prefer a social housing tenancy to one in the private market - and that's the relative security of tenure. You're far less likely to be turfed out of a social housing tenancy at the whim of the landlord, and certainly not without a reason... The Report seems to have missed this point entirely.

There's another important thing that's been overlooked here - and that's Henry's suggestion that there might be an additional payment for 'high needs' clients in social housing. This is consistent with the Commission of Audit's report - it was overlooked there as well...

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Interested parties have been invited to comment or make a submission on the Interim Report by August 8th 2014.

Millers Point and The Rocks: heritage under threat

As the NSW State Government moves to sell-off the social housing at Millers Point and The Rocks, the Tenants' Union's first concern is for the people who will lose their homes and community. But we are also concerned for the buildings and heritage significance of these places.

As Housing NSW's own Millers Point Conservation Management Guidelines put it, 'Millers Point is arguably one of Australia’s most remarkable historic urban places and, for Sydney, a unique jewel.'

And as the Guidelines also say:

There is no question that, had Millers Point’s land been in multiple private freehold ownerships, it would not look or feel as it does today.... government-ownership and a dedicated land-use (public housing) have been fundamental factors in the conservation of the heritage significance of Millers Point.

To consider the threat posed to the heritage significance of Millers Point and The Rocks, let's review what we know about the sell-off.

The Government proposes to sell 206 heritage-listed properties in Millers Point, and eight heritage-listed properties in Gloucester Street, The Rocks (we'll leave aside, for present purposes, the 79 properties in the Sirius building, which isn't heritage-listed. It should be – but that's a topic for a future post). That's 214 properties, all on the State Heritage Register.

This makes them an unusual commodity. If you own a State heritage-listed property, what you can do to it is heavily regulated under the Heritage Act 1977. Some things – for example, cleaning, repairs and maintenance – you can do provided you comply with detailed conditions stipulated by the Heritage Council, which in most cases includes notifying a heritage officer of what you propose to do. If you want to do anything else, you'll have to apply formally for Heritage Council approval. And with these properties, any new owners will have things to do. As the State Government has pointed out, these properties need some work, so the owners have to deal with this regulatory regime.

So taking on one of these properties really is a task for someone with special skills and enthusiasm for heritage conservation. It'll take a heritage buff. This limits the market for these properties.

As for what the State Government plans to get for them, we don't know, but when it started looking at Millers Point the figure of $500 million was mentioned – that works out, on average, to about $2.3 million per property.

Now, a previous program of sales in Millers Point raised $28 million from 29 properties, with an average sale price was $1.3 million (NSW State Government figures). Those 29 properties were sold over a period of six years.

The current proposal is for the sale of 214 properties, over a period of less than two years. The State Government wants them sold by March 2016.

You have to ask: is there really a market of heritage buffs to buy 214 State heritage-listed properties in Millers Points and The Rocks, at $1.3-2.3 million a pop, all in the next 19 months?

We put this question to a representative of the NSW Land and Housing Corporation, who said 'watch out for the international marketing campaign.' We wonder how many genuine aficionados of early twentieth century austere Arts and Crafts Australian working class housing there are outside Australia.

It seems like something has got to give.

We're worried that it will be heritage that gives, and these properties will go to buyers who don't know their obligations under the Heritage Act – or who might even deliberately subvert their obligations, and declare their properties are unsafe and beyond conserving, with a view to undertaking a more radical and intensive redevelopment that destroys the heritage significance of the place.

We understand that the Land and Housing Corporation is to review and 'augment' its Conservation Management Guidelines for Millers Point. We're concerned about what 'augmentation' really means. We're also concerned whether the Heritage Council will be able, as a practical matter, to keep tabs on the activities up to 214 new owners of State heritage listed properties.

On the other hand, maybe it will be the price that gives, and the people of New South Wales will lose a valuable asset in what amounts to a fire sale.

It would be better if the two-year time frame gave way. A longer time-frame would mean a better chance of getting value for the properties, from buyers able to conserve them. It would also mean that not every current social housing tenant of Millers Point and The Rocks would have to be moved out right away, and that long-term and older tenants in particular might be able to see out their days in their homes and community.

Best of all would be if the objective of selling all the properties gave way, and a commitment was made to keep social housing in Millers Point and The Rocks, to serve people in need of housing there, and to continue to protect this 'unique jewel' in the State's heritage.

Turn back the tax – and help refugees and RACS

The Refugee Advice and Casework Service (RACS) is fundraising, after the Federal Government cut its funding in March this year.

Donations to RACS are tax deductible, so if you donate before the end of the financial year, and get your tax return in quick, you can 'turn back the tax' on the income you've donated.

We know from the work of the Tenants Advice and Advocacy Services that refugees can find themselves in very difficult housing situations... not to mention the people in detention. Please consider helping out at RACS's fundraising page.  

And happy World Refugee Day. 

Has your phone or internet connection been switched off?

Our colleagues at the Australian Communications Consumer Action Network (ACCAN) remind us that as the National Broadband Network rolls out, property owners have 18 months to authorise the switch from the old Telstra network to the new network for fixed line phone and internet services.

For the earliest NBN sites, the 18 months is now up and connections to the old network are being switched off.

And as time goes on, the old network will be disconnected in more and more places.

ACCAN says Telstra, NBN Co and the Australian Government have been doing a lot of mailouts, doorknocking and other activities to get the word out, but there may still be some landlords who have not done anything about getting the NBN connected.

If you find your fixed line phone or internet service disconnected, ACCAN says you should contact your phone or internet service provider for advice – which will usually be to get your landlord to authorise connection to the NBN.

And if you're still connected to the old network and disconnection is pending, don't delay in seeking your landlord's authorisation – ACCAN says it can take some time for NBN Co to do the installation work.

NSW State Budget 2014: part 1 – social housing

Social housing will continue to consume itself under the terms of the NSW State Budget announced yesterday.

In the coming year, $612 million is allocated for new social housing supply and maintenance – a 23 per cent increase on 2013-14.

However, that money is to come from sales of social housing assets, notably properties at Millers Point and The Rocks, but other places too.

Will this process of sales and spending result in a net increase in the social housing stock? Family and Community Services Secretary, Michael Coutts-Trotter, says it will be 'line ball'.

In the context of a growing need for housing, a 'line ball' result on supply is to go backwards, and tightens the unsustainable spiral of decline in which the system is caught. Only new spending for a substantial increase in social housing stock will make the system sustainable.

Well done Frances Abbott, tenant

The Tenants' Union of NSW congratulates Frances Abbott on asserting her rights as a tenant.

Ms Abbott, formerly resident of Sydney, now of Melbourne, had entered into a tenancy agreement for a flat in Prahran but ended the agreement early because the premises were not secure – amongst other things, the flat had windows that did not lock.

Ms Abbott's landlord claimed instead that the agreement was ended unlawfully, and sued for compensation for loss of rent. Ms Abbott defended the landlord's claim in the Victorian Civil and Administrative by giving evidence as to the poor security of the premises and establishing the grounds for her termination of the agreement.

The Tribunal has not published its decision on the matter, but according to the media reports Ms Abbott was successful (and the landlord is sore about it).

Good on Frances Abbott. All Australian States and Territories have residential tenancy laws that place obligations on landlords in relation to the security of rented premises. The obligations vary between jurisdictions – in Victoria, landlords are specifically required to provide locks on external doors and windows; in New South Wales, the obligation is stated more generally so that landlords must provide locks and security devices to ensure that the premises are reasonably secure – but nowhere can landlords rely on the old principle of caveat emptor to let insecure and unsafe premises.

If you are concerned about the security of your home, seek advice about how you can assert your rights.

What do taxes pay for?

The report of the National Commission of Audit proposes a set of 'principles of good government'. One of them is:

Assure value for taxpayers’ money and ministerial responsibility. Governments spend taxpayers’ money not the government’s money.

(Chair of the Commission of Audit, Tony Shepherd)

This principle reflects the terms of reference given by the Australian Government to the Commission, which state that 'government should have respect for taxpayers in the care with which it spends every dollar of revenue'.

What do Australian Government taxes pay for?

Nothing, actually. From the perspective of Modern Monetary Theory, the Australian Government, as the sovereign issuer of a fiat currency, does not spend money raised by taxes.

The Australian Government spends by crediting the bank accounts of recipients of payments. This is effected by crediting the relevant banks' reserve accounts at the Reserve Bank by the same amount. These credits are accounting entries, created by keystroke.

When a person pays taxes to the Australian Government, they direct their bank to debit their account in favour of the Government and, in doing so, the bank also directs the Reserve Bank to debit its reserve account by the same amount. More keystrokes.

The Australian Government is not constrained by the need to have reserves of gold or another nation's currency at hand before it can spend. It doesn't need those debit keystrokes to happen before it can do the credit keystrokes. If anything, the rest of us need the Government's issuance of currency into the payments system before we can make the payments that discharge our tax liabilities, not the other way around.

Although they don't pay for anything, taxes are crucially important for the Australian Government and other agents in the economy, for a number of reasons.

First, taxes ensure that the Government's money will be used. If you're worried that the dollars in your bank account are nothing more than electronic figments of accounting, be assured that the Australian Government will accept them in payment for tax liabilities. If you don't pay taxes when they're due, you're in trouble. That's a good reason to go out and produce goods and services and get some of that money. And so will other persons, and being able to buy their goods and services is another good reason to get some money.

Secondly, taxation regulates aggregate demand. Taxes take money out of the economy – creating some space for the Government to spend on goods and services without having to bid up private sector spenders, and hence avoiding undue inflation.  

Thirdly, taxation redistributes the spending power of economic agents. Obviously, money is not distributed equally throughout the economy, and taxes take more from some economic agents than from others. Taxes do not redistribute in the sense that the actual dollars taken in tax get paid out again in payments, but they do change what taxpayers individually have to spend, and hence the distribution of spending power throughout the economy. 

Last and not least, taxes affect behaviour. Where an activity comes with a tax liability, people tend to do less of it: think of so-called 'sin taxes' that discourage the purchase of cigarettes and alcohol. And where one activity amongst several similar activities is treated preferentially (that is, it's lightly taxed, or not taxed at all), that activity is encouraged: think of the tax treatment of incomes and housing.

Interest from money in the bank is taxed; a gain in the value of owner-occupied housing is not – so people with money to spare are encouraged to put it into their housing, rather than the bank. Also, gains from capital are taxed at half the rate of incomes earned by work – so people are encouraged to find clever ways of turning their income into capital, such as borrowing to buy a (hopefully) appreciating asset (in particular, rental housing that's appreciating with the help of those owner-occupier who are encouraged to spend spare money on housing).

It should be said, governments have an ambivalent attitude to this function of taxation: as a matter liberal economic principle, rational individuals are best placed to decide what activities they'll undertake, and governments should not try to interfere in the decision – hence the dissatisfaction with 'inefficient' stamp duties, which are levied as a big hit upon the sale of a property, and can discourage people from selling when it would otherwise suit them to do so. By contrast, a tax like a broad-based land tax, levied on the unimproved vale of land, does not interfere with individual decision-making, except to generally encourage the productive use of land.

In any event, notwithstanding these matters of principle, the Australian Government does engage in behaviour-altering taxation a lot, as the distorted shape of our housing system shows.

All these things are what taxes do; what they don't do is pay for Australian Government spending. The Australian Government does not spend taxpayers' money. It really does spend 'government money', and the extent to which it spends that money for beneficial public purposes is a measure of our democracy.