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  • Writer's pictureGrant Tenni

The System is Broken

We have now entered the phase in new government which proves that it doesn’t matter what they promise, what mandates they claim, no government can control the economy.

The Tax system needs to be fixed. It is the cause of all our economic problems.

Why do governments fail? Every government, every time. Because under the current tax system they have only one tool to try and control the economy, and they don’t have control over that one tool! Interest rates.

Just look at recent years. After the GFC our Reserve Bank lowered and left interest rates low. Whilst our economy was recovering strongly!

Then Covid hit and the Reserve Bank lowered them to virtually nothing. Note, long term, that is 400 years in the UK, 5% is the “normal” interest rate.

During the lifespan of the Investment Cycle, (only referring to the last 222 years in the USA), the major land crash is followed by 4 years of recessionary times. Then 7 years of growth. Then the business recession. After the recession governments spend money galore and over commit to huge projects. Inflation always starts again. Also, although it seems incredible to those who are ignorant of history, house prices rise as interest rates commence their rise. Governments don’t do anything to fix the tax system in order to attack the one reason why we have booms and busts. Instead they have blind faith that the Reserve Bank can slow inflation, fix up prices, control wages, avoid a share market boom, make housing more affordable, the delusion list goes on and on, by raising interest rates!

At the same time as the people who are hurt the most by having lower wages, rising food petrol clothing medicine children costs, they punch them in the face even more and raise the mortgage repayments and of course property investors pass it on to their tenants via higher rents.

Who isn’t hurt? the wealthier people with nil or insignificant mortgages, the people past child rearing, the middle aged inheriting the estates of their dying elderly parents, the millionaires buying feel good EV’s, government employees in Canberra, politicians, the property land bankers, people who own multiple properties, those wealthy enough to travel overseas, buy Gucci bags, luxury cars, penthouses, NFT’s. None of these are hurt by rising interest rates. Notably, most of these people pay far less tax proportionately of their wealth than the first group.

In the last 50 years name a Western country where housing is now more affordable than it was in 1970, or where poverty is now less than it was then. Henry George asked the same question in 1879 in his book Progress and Poverty. Yet it has only got worse. A tiny % of the population own most of the country, land bankers drip feed into the market, more people can’t manage the rising cost of living.

Inflation includes lots of things in the “basket”. Yet pays very little credence to the cost of land.

There is a better system. Yet we blindly continue believing a change of government will fix things, make life better. With the tools at their disposal it hasn’t improved for centuries, Reserve Bank interest rate movements only exacerbate the problem.

But we can’t see past the end of our nose!!

Try, try looking at Norway, Texas, Singapore, Hong Kong, you might learn something. They have a different tax system. Norway especially does not have the problems in housing and poverty that every Western country has.

But no, we Australians will continue expecting things to change, while doing nothing different.

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