The first subsidy I ever received, was back in 2001. You may remember it as the "First Home-Owners Grant". It was a new Federal initiative meant to offset the introduction of the GST, and was funded by the various States. It was intended as a one-off payment ($7,000) to people who were purchasing their first home. As I understand, the scheme is still going today.
It was great news for us back then however, as it meant we could buy our first home. The sticker price on our Australian dream, only cost $64,000. After the grant was applied and our small deposit, we only had to borrow $54,000 from the bank. It doesn't sound like much now, but we barely earned $30k between us.
Prior to moving in
Our little 3 bedroom house, became the centre of many "firsts" for us. It was the first house we lived in as husband and wife, we brought our first daughter home from hospital there, we planted our first vegetable garden and it made us feel wonderful to play our part as first home owners.
As exciting as all this was however, something started to change in the background. I'm referring to the incredible "boom" in house prices. We had just gotten through the door before prices started to escalate. The First Home-Owners Grant, achieved exactly what it was meant to do: cash people up - so everyone was vying to sign on the dotted line.
As property values were increasing so rapidly, many investors (including retirees putting their superannuation to work) decided to buy investment properties. Pretty soon, it was becoming impossible for young couples to buy a house on the wages people were earning. This rapid escalation even saw the government double the First-Home-Owners grant for newly constructed houses.
What this meant to us personally however, is our house went from being worth $64,000 back in 2001 , to $174,000 in 4.5 years. We sold our house in 2006.
Construction almost complete
We were patting ourselves on the back too, as the sale of our house cashed us up to build on 5 acres. It looked rather good from where we were sitting. That was until the Global Financial Crisis (GFC) in the US arrived in 2007. I remember it well, as we were in the middle of building and naturally worried about interest rate rises. They didn't rise much at all, but the GFC certainly set the stage for emerging economies like China and India to sell their cheap labour and manufacturing. As their economies started to boom, it meant oil prices started to rise across the globe.
Which directly contributed to us receiving our last government subsidy. Another Federal initiative was created to help individuals convert their petrol cars to LPG (Liquid Petroleum Gas) which was around 50 cents per litre back then. Heaps cheaper than petrol, which was edging closer to the $1 mark.
The new gas conversion certainly helped the family budget, but only for about 12 months. Because pretty soon everyone was getting gas conversions (including buses for public transport) so inevitably LPG prices climbed as a result.
A definite pattern was beginning to emerge in my lifetime, but I still wasn't convinced until the recent solar subsidies started to come into effect.
Early days in our new house
posing in front of a cake
Like the boom in house prices and then the petrol/LPG prices, the boom in connecting solar to the National electricity grid, has started to show in the economy too. It's driving up the prices of electricity. I know this is often fiercely debated, but there is more to this situation than meets the eye.
I will save the full explanation for another post, as this is where it starts diverging from the intent of this post. Needless to say (in brief) when heavy demand is suddenly placed on an individual network, designed for something other than solar, it starts to need massive upgrades. Massive means expensive. As consumers of subsidised products, we often see the fault at the delivery end - the suppliers. We see them as greedy corporate entities, trying to make more profit from helpless consumers.
But aren't we also acting in a self-interested manner when we get someone else to foot the bill for our consumption, for our exclusive profit? That "someone else", are the future tax payers of Australia. Just because the government dips into revenue to help Australians make purchases, doesn't mean it's free money. It comes from collecting tax revenue.
So if we want to start increasing our taxes, a sure fire way is to continue borrowing from the revenue base. As a family, we've borrowed around $10k in the past eleven years. That's just one family in Australia. I say "borrow" in as much as we're expected to give it back. Our local Council rates have risen dramatically, vehicle registrations, and what we pay in the economy has risen also, due to the fact business are expected to pay more to operate under new government legislation/levies/taxes, etc.
If we want to see prices continue to rise at the unsustainable rate they are in the economy (as I've witnessed in just eleven short years) then we'll continue to buy with fast money, without any thought of who will pay in the future. We are the ones who pay. We always are. So will our kids when they start earning money.
Most of our pre-fab retaining walls were purchased on borrowed funds
Our wage of $30k eleven years ago, has almost had to double to pay for the increase in cost of living - and I've noticed we don't have as much disposable money as we used to either. This is despite all the cheap labour and manufacturing coming out of China and India now - and the fact we have stopped making unnecessary purchases.
I decided to write this back-story down, as there's a far bigger picture going on beyond our personal stories. I took part in a great deal of personal profiteering and saw it as "good", then criticised the corporations for wanting to make money from the services I demanded - and ruining the environment as they did it. There's a simple answer to this equation however - desire less services as a consumer and use only what money is truly your own. Just because it comes from government subsidies, doesn't mean it has less damaging potential as borrowing from the bank.
At least with a bank, you know what you'll be paying with interest and when your contract will expire. With government money, they can set the return at any rate they want and the contract never ends for the rest of your life, your children's lives and their children's lives, etc.
Consumers who are kept away from the real price of what they're purchasing, contribute to a great deal of waste in the environment and loss of freedoms. When we demand a government that will give us stuff on the cheap, and pressure business to give us what we want NOW, we're going to end up with a big cost blow-out in the economy. Who is going to pay for that? Certainly not the corporations and certainly not the government. We reduce our freedoms when we demand more - be it plasma screen tv's or solar panels. It still requires copious resources en masse.
I started to think if I really wanted my daughter to have to earn the kind of income rises we've had to endure to meet the increase cost of living. These increases have been substantial, considering the minimal time-frame it occurred in.. I started to wonder if there was an alternative to this juggernaut, which actually makes sense?
A personal decree helps when handling your money
The only one I've been able to come up with, is determining myself to pay full sticker price for consumer purchases - with the money we earn now, not potential earnings: be that from tax revenue or bank credit. Doing things in real time, seems to have a built-in mechanism, where I only demand what I have the resources to buy. I also start paying more attention to efficiency, because if something isn't very efficient, why would I bother investing in it?
Which is what I discovered in my research into solar panels. Being connected to the grid is the most inefficient use for what solar panels were designed for. But I will cover that topic more in depth soon.
This post is about attempting to understand what we do in our households, en masse, and how it affects larger forces in the economy to our detriment. We may not necessarily want to acknowledge those effects at first glance, especially when there's a short term gain to be made. I've often asked myself recently, would I have taken the First Home-Owners Grant if I knew the effects it would bring? Chances are, if I was that savvy with money to understand the consequences in the first place, I wouldn't have needed to borrow anything.
Fruit can be unique from the ordinary
I know taking the opportunity back in 2001, bore a different kind of fruit though. It was the realisation, borrowing from future earning potential, only means everyone has to work harder to stay ahead. If we are going to pay for tax revenue, let it be for the important life saving services and for the genuine disadvantaged. They need that revenue, more than the middle class need their ever increasing (unrealistic) dreams of utopia to come true.
I'm not suggesting for one minute, we should drop the pursuit of our dreams. But if it's not dealt out in "real-time" however, earned with our own labours, then it means we increase our need for resources ahead of time too. Because the energy used to make those resources available today, doubles (even triples) the need of an individual, because we're borrowing on future labours.
Can the future handle that kind of demand on resources? At some point, the law of diminishing returns will kick in, which will be the theme of my next post on the matter.