August 30th 2008

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Articles from this issue:

CLIMATE CHANGE: It's official: the world is cooling, not warming

EDITORIAL: Olympic Games backfire on Beijing

CANBERRA OBSERVED: Tougher times ahead as commodity boom falters

ECONOMIC AFFAIRS: Should we rescue imprudent banks?

WESTERN AUSTRALIA: How Labor's Carpenter may cling to power

WATER: Radical plan to overcome water shortage

NATIONAL AFFAIRS: Remembering Menzies' "forgotten people"

INTERNATIONAL AFFAIRS: Resurgent Russia's conflict with Georgia

STRAWS IN THE WIND: Recipe for social conflict / Putin's gamble / Once more unto the swill buckets, dear friends

SPECIAL FEATURE: B.A. Santamaria, strategist and prophet

MARRIAGE: On breaking the marriage covenant

HISTORY: Hitler proposed a "final solution" for Christianity

OBITUARY: Bob O'Connell (August 29, 1922 - July 30, 2008), a generous man of integrity

Economic production needed, not speculation (letter)

BOOKS: WHAT'S HAPPENING TO OUR GIRLS? Too much too soon: how our kids are overstimulated, oversold and oversexed

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Economic production needed, not speculation (letter)

by Dr Garrick Small

News Weekly, August 30, 2008

Peter Westmore's solutions for Australia's economy (Editorial, News Weekly, August 16) correctly identify some of the problems, but his solutions would only shift the focus, not heal the economy.

There is a difference between saving and not borrowing. The problem is that, since about 1991, Australian householders have been borrowing too much and largely using their funds to become speculative property investors in a play that worked for their parents, but will be ruinous today.

Mr Westmore's recommendation of tax incentives to save will not slow borrowing. At best, it will bring some of the creditors onshore. It also supposes that the average Australian has the capacity to save. However, we appear to be past that, and, if we are, then tax incentives for those who can save will be tantamount to tax incentives for the wealthy - another regressive tax innovation.

Likewise, forcing superannuation funds to invest locally is laudable, but it misses the history of why they are investing externally, and that has to do with their profile which requires quality investments of which there are limited numbers in Australia.

Already superannuation money is distorting property markets as it represents masses of investment dollars with nowhere to go. The investment Australia needs is not to fund debt, or property or equities acquisition.

Australia needs primary investment into income-generating activity, and the research and development that precede it. Superannuation funds are not good at investing into this more risky area, though it is that area alone that will generate genuine economic strength.

We need disincentives on property speculation and borrowing, but incentives on activities that result in actual production. These are the fundamentals that our society has forgotten over the last 30 years.

Dr Garrick Small,
Property Economics Department,
University of Technology, Sydney

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