The Australian economy is being ravaged by high rents and the Reserve Bank of Australia’s (RBA) monetary policy lever, raising interest rates is making things worse. Rentiers are not only landlords in the property sector, they exist in the mining, technology, and energy sectors as well. Indeed, this rentier economy is fast becoming the dominant force within our financial state. Higher rents are extracted when monopoly, monopsony, or oligopoly conditions exist within a market. Scarcity and control of supply allows these rent seekers to charge much higher rents on these commodities. The blood sucking effect of rentiers is responsible for the downward pressure on wage growth and poor productivity growth, as the real money is made from the rents rather than the business itself. Rents are choking the Australian economy: RBA policy out of touch with the changing nature of business in the modern world.
“Australia’s economy has become increasingly dominated by powerful firms that are extracting “economic rents” from the system, economist Ross Garnaut is warning. Their market dominance has contributed to declining real incomes for workers, has made our cost-of-living crisis worse, and is undermining productivity growth, he says.”
– Ross Garnaut in Gareth Hutchens, ABC News, 6 May 2023
Australia is not alone in this shift to rentiers dominating the economic skyline, as it has been going on in the UK and US for many years. This force in business, in economic terms, has been facilitated by neoliberalism over the last few decades. Capitalism is defined by competing commercial entities within a market, but companies strive to avoid competition by gaining control of markets by whatever means they can. Concentration of interests in markets and labour pools delivers an imbalance of power. This allows firms to charge high rents, high prices, and pay lower wages. Britain has been in the grip of the rentiers since Margaret Thatcher took the reins as PM back in the 1980s. The North Sea mining bonanza, for the companies involved, kicked things off and funded Thatcher’s dismantling of the coal industry and emasculation of the unions. The British government gave free 50, 000 acre tracts within the North Sea to companies willing to explore them for oil and other minerals. Mining companies usually pay millions of dollars for these rights.
“To understand rentier capitalism, one first needs to understand rent. Rent is income generated by virtue of exclusive ownership or control of a scarce asset of some kind. A rentier is the recipient of this income: the individual or, more commonly, corporation that controls the asset. Rentier capitalism is an economic order organised around income-generating assets, in which overall incomes are dominated by rents and economic life is dominated by rentiers. Fundamentally orientated to “having” rather than “doing”, it is based on a proprietorial rather than entrepreneurial ethos. That, in short, is the UK since the 1970s.”
– https://www.theguardian.com/commentisfree/2020/aug/12/ppe-britain-rentier-capitalism-assets-uk-economy
Australia is being held to ransom by a few gas companies with the rights to extract our gas. The war in Ukraine has pushed up prices on the international market to record highs. These companies are: Santos, Chevron Australia, Shell Energy, and Woodside Energy.
“The Gas Inquiry 2017-2025 interim report released on Monday by the Australian Competition and Consumer Commission finds uncompetitive and damaging behaviour by major players in Australia’s LNG domestic and export markets has actually gotten worse in the midst of the energy crisis.”
– Renew Economy
Australians own the natural resources within our nation. Mining companies, like those in the gas cartel, get hold of the rights to mine them and make their record profits from them as rent seekers. The concentration of the gas rights into the hands of a small group of gas companies and the commodity scarcity created by Russia’s invasion of Ukraine have created the circumstances for huge windfalls from this resource. Australia has no windfall tax in place for the nation to benefit from this enormous financial return on our resource.
“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.”
– Adam Smith
Something Australians may be more familiar with in rentier terms is its place in the high tech sector. Google and Facebook, as digital platforms, charge rents to access the traffic on their sites for advertisers. Microsoft rents out access to its software, as do many other corporations in the digital sector, and this has made them hugely successful on this basis. This revenue has made these tech companies massively wealthy, with annual incomes greater than the GDP of many middle sized economies around the world. The effects of these rentiers within the capitalism economic model has depressed wage growth for all the years they have dominated their sectors. The injection of rentier capitalism and technology deprives workers of their value within companies and sectors.
Monopsony is defined as a market situation where there is only one buyer. This, in economic terms, usually refers to the labour market, where the concentration of hiring power is in the hands of a single firm/sector or small cartel of companies. The removal of any real competition reduces bargaining power from the worker. The RBA has consistently failed to recognise this factor at play in the Australian economy over the last 20 years. It is understandable that workers in Australia have lost faith in the RBA to deliver the conditions ripe for wage growth capable of keeping pace with company profits and the cost of living. Yes, both residential and commercial rents are causing depression, anxiety, lack of entrepreneurial ambition and beyond – they are choking the Australian economy: RBA policy is substantially out of touch in the mind’s of the nation’s workers.
In another example of the rent seeker business model. McDonald’s, the franchisor, does not make its money from hamburgers, rather it makes it out of the real estate.
“A lot of us don’t realise that McDonald’s isn’t really a burger-flipping restaurant chain. Well, it is, but not purely. Peel back the layers and you’ll find that the corporate entity is actually one heck of a real estate company. Former McDonald’s CFO, Harry J. Sonneborn, is even quoted as saying, “we are not technically in the food business. We are in the real estate business. The only reason we sell fifteen-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent.” “
– Wall Street Survivor
Foreign Investment & Rentiers
35.1% of all foreign direct investment in Australia occurs in the mining sector, this equates to $360.4 billion. (ABS Catalogue, 2021) This is the heartland of the rentier economy in Australia, which sees our finite national wealth disappear into the hands of overseas investors.
“There have been big changes over the 21st century that greatly affect Australia’s capacity to deliver rising standards of living to most people in a growing population.
“Most importantly, there has been a large increase in the rent component of total income. This has diminished growth in productivity and output, while reducing the share of income accruing to the general run of citizens.” “
– Ross Garnaut in Gareth Hutchens, ABC News, 6 May 2023
There is a level of blindness amid economists about the changing face of modern economies throughout the West. Whether this is because the majority of them are employed by the firms involved in the rentier economy or a general docility, which leads to unquestioning acceptance of conditions, I am not sure. The recent RBA review by Treasury did not identify this and was content to focus much more upon the administrative duties within the remit of the central bank. The review looked at how the RBA goes about its job rather than an overhaul of what it can do apart from the setting of interest rates. Professor Ross Garnaut, one of Australia’s most esteemed economists, has come out and said that raising interest rates is making things worse in the current economic clime. He points out that the rentier economy does not respond to monetary policy in the same way.
“He said in Australia, a high and increasing proportion of income had been emanating from rent‐heavy sectors, especially mining, but also urban real estate, information technology, financial services, media and large‐scale retailing. “Profits of mining, with economic rent contributing a considerable proportion, were larger than the whole of the rest of the economy in the final quarter of last year, the latest data available,” he said.”
– Ross Garnaut in Gareth Hutchens, ABC News, 6 May 2023
The average Australian’s energy bill is 50% made up of rent on the poles and power lines distributing the power to their home or business.
“Prices are regulated by arrangements that guarantee specified rates of return on past investment. “The rates of return rise with higher interest rates, so higher interest rates feed directly into higher power prices.”
– Ross Garnaut in Gareth Hutchens, ABC News, 6 May 2023
Similarly, raising interest rates is directly contributing to higher rents in the residential housing market. This in conjunction with the federal government embarking on record intake levels of immigration into Australia and you have a recipe for an unfolding crisis. Rental stocks are already at an all-time low since the pandemic, so, on what planet is it thought that taking in an extra 1 000 immigrants per day is a good idea in the midst of a high inflation cost of living crisis. The RBA must be complicit in this and probably think it is a good idea on the basis of it raising the unemployment rate in Australia more quickly. The old inflation-fighting idea in economic terms is that unemployment must be around 4.25% to put downward pressure on wage growth. Currently, the unemployment rate in Australia is at 3.5%. The RBA governor, Philip Lowe, is stuck in this 1970’s model of fighting inflation via preventing a wage-price-spiral, but we are in a profit-price-spiral. Lowe refuses to accept this. Bankers are firmly entrenched on the side of the corporate masters and find it hard to see things from any other perspective. A paper produced by Mattias Vernengo and Esteban Ramon Perez Caldentey for the Post-Keynesian Economic Society puts forward:
“It argues that we need to be more conscious of the structural changes that have occurred in modern economies in recent decades. It says the orthodox insistence on using monetary policy as the main tool to contain this outbreak of inflation (by dampening demand) has more to do with “the prevailing prejudices and ideological biases of the profession” than with the analysis of the real causes of this inflation.”
– Gareth Hutchens, ABC News, 7 May 2023
Rents are placing a sizable economic impost on everything we buy. It is not only the chunk of money charged by landlords in terms of real estate, the economic rent includes poles and wires for power bills, plus the high prices for coal and gas from the spiking international energy market. Our banks are part of an oligopoly and, thus, controlling the market, which means higher rents can be charged on services without competition hindering them. All of those convenient financial products, like credit and debit cards, we pay a rent for their use on every transaction. Our money is burdened with an impost when we use plastic and digital financial products. Westpac declares a $4 billion half yearly profit! Rising interest rates super boost the profits of the big 4 banks in Australia.
Media in Australia is in the grip of Murdoch and Nine Fairfax Media, which, again, means no competition and control of prices and the labour market in their too few hands. Information is under the control of two corporations, with only the ABC, funded via our taxes, providing news unencumbered by vested interest bias. Social media has emerged as a popular source of news but is incredibly unreliable regarding the veracity of information and prone to exploitation by those wielding fake news. This mess, as scene in America, with societal divisiveness fanned by social media and Russian bots forming a loud Greek chorus could be Australia’s future on this score.
The ironic thing is that conservative forces bang on about the free market and non-government intervention but in reality corporations strive to create zero competition and to control markets by whatever means they can. We, the people, are the ones being economically screwed by these rent seeking corporations in nearly every sector. These same corporations employ tax minimisation to ensure they pay little to no tax. Governments are always bending over backwards to facilitate the presence of these companies with generous tax breaks. The mining sector is the perfect example of this with huge taxation breaks offered to encourage the development of their mines and facilities to reap the benefits of our resources. Gas companies can offset their profits via these establishment tax breaks. Australia has been blessed with large amounts of mineral resources but these will not last forever, as everything is finite eventually. If we do not get a larger slice of the financial pie via windfall taxes we will rue the day in the end. Our children and future generations of Australians will despair at the foolishness displayed by our current political leaders. Australia has a tax problem with diminishing revenue streams on the brink of failing to fund the level of services expected by the populace. There is a too great reliance on income tax from workers. Ken Henry is a former Treasury Secretary and has conducted a review into the tax system. He is warning about the changes needed to meet the challenges of the fast arriving future
“In the most recent budget, Australian workers contributed 45 per cent of all the revenue collected. Australian companies contributed less than half of what workers did, 21 per cent, including the taxes gas companies pay to sell Australian gas abroad. And the fastest-growing part of the revenue pie is income tax.”
– Tom Lowrey, ABC News, 4 May 2023
Ken Henry wants to see an increase to the GST to at least 15% up from the current 10% and a broadening of its remit across all goods and services. He, also, supports some sort of profit tax on mining corporations operating in Australia.
“Landlords grow rich in their sleep.”
– John Stuart Mill
The RBA & Inflation Targeting
Inflation fighting is the grand goal of the RBA and most central banks around the globe. In economic terms, it has become the holy war of these governing financial bodies.
“Inflation targeting has become the operating method of choice for many mainstream monetary economists, international organisations such as the IMF and many central bankers.” (Bernanke, Laubach, Mishkin and Posen, 1999). According to one of its more active promoters, Frederic Mishkin, “The emergence of inflation targeting over the last ten years has been an exciting development in the approach of central banks to conduct monetary policy. After initial adoption by New Zealand in 1990, inflation targeting has been the choice of a growing number of central banks in industrial and emerging economies, and many more are considering future adoption of this new monetary framework.” (Mishkin and Schmidt-Hebbel, 2001, p.1). By their count, nineteen countries had adopted inflation targeting as of November 2000 and more were on the way. In a nutshell, inflation targeting involves establishing a low inflation goal and directing monetary policy to achieve that goal, almost always to the virtual exclusion of all other goals such as employment generation, high levels of investment, or full employment.
In the end, it appears, that a main effect of adopting inflation targeting, thus far, has been to reduce inflation and increase the share of income going to rentiers in many parts of the world. Thus, at the core, to understand inflation targeting, and the promotion of the neo-liberal central banking structure, it is necessary to look at the political economy of central banking. “
– Gerald Epstein, June 2002
Epstein suggests that the central bankers are in bed with the financialisation of the modern economies and that their inflation targeting monetary policy, via setting interest rates on the cash rate, serves the rentier economy by delivering an ever greater share of the wealth of nations to them. This fits with the data revealed by the Australia Institute showing the inequitable flow of wealth within our economy.
“Inequality has been on steroids in Australia over the last decade with new data revealing the bottom 90% of Australians receive just 7% of economic growth per person since 2009, while the top 10% of income earners reap 93% of the benefits.”
– Australian Institute
The question must be asked, what is the Albanese government going to do about this sharp economic trend? Do Jim Chalmers and the Treasury even recognise the problem? The conservative nature of Australia and the ‘don’t rock the boat’ approach, so far shown, by the federal Labor government doesn’t inspire a great deal of confidence, in my view. Negative gearing and the absence of capital gains taxes continue to economically favour the wealthy at the expense of workers in Australia. The divide between rich and poor continues to grow into a gulf. Breakdowns of law and order, now becoming apparent in parts of regional Australia in the north, are signs of greater societal breakdown, which often accompany growing inequality. The ‘have nots’, even in largely apathetic Australia, will take matters into their own hands, as economic conditions worsen amid the cost of living and rental crises. Jim Chalmers can only get way with mouthing platitudes about ‘how tough it is for poorer Australians’ for so long.
Already, these are beginning to strike an empty tone, as he fronts the media. This budget will turn more citizens against him and the government if it denies their desperate calls for real help. Especially, as revenue streams are up this financial year due to the higher prices for resources exported and the low rate of unemployment delivering greater levels of income tax to the government coffers.
The Treasury review into the RBA wants to remove the government’s last vestige of control over the central bank’s ability to set monetary policy. Paul Keating has come out and rebuked the Labor government over greenlighting this proposal for complete RBA freedom, saying it is not a good idea.
“He said Australia’s government must retain the power to ultimately direct the country’s economic policy, at the behest of the Australian community, and it needed a institutional mechanism at its disposal to overrule the RBA in exceptional circumstances. “The RBA has always suffered from institutional inertia,” Mr Keating told the ABC.
“It was always too slow in lifting rates to manage bursts of activity, as it has been in getting rates down as activity moderated.”
– Australian Broadcasting Corporation
“In a society rigged in favour of landlords over tenants; to rent privately is to be deprived of security.”
– Owen James
The nub of the current dire situation is that the inflation fighting policies of the RBA are not working and, indeed, making things worse in several ways. Some economists, like Ross Garnaut and Richard Denniss, are speaking up about this policy failure. Sticky inflation is the new buzz term being bandied about, and the RBA’s decision to raise interest rates by .25 percentage points in May, after a one month hiatus, has probably been in response to this and the latest inflation data. Monetary policy has dominated economic thinking via the influence of neoliberalism and financialization for decades across the globe but the facts are now demanding change on this score. Rents are choking the Australian economy: RBA policy out of touch with the new reality facing us all. Mark Blyth, an economist from the Watson Institute for International and Public Affairs at Brown University, states that inflation is not the same problem that it was in the 1970s and that wages can be raised for needy sectors without fuelling rampant inflation. The old way of economic policy thinking is out of date and does not serve the greater parts of our communities. The Albanese government has raised the wages of those in the aged care sector by 15%.
“The Albanese Labor Government’s second Budget will deliver a record 15% pay increase for aged care workers across Australia. The biggest ever pay rise for aged care workers will benefit more than 250,000 people and reflects the intent of the Royal Commission into Aged Care Quality and Safety’s final report to improve remuneration for aged care staff.”
– Health.gov.au
The Real Economic State Of Play
“It was Warren Buffett, one of the wealthiest people on Earth, who famously broke ranks when in 2006, he told The New York Times that his class was ascendant: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” By 2011, Buffett declared victory. “My class has won”, he exclaimed, condemning a tax system which allowed a billionaire like him to pay less tax than his modestly remunerated secretary.
Buffett’s declaration of victory reflected the legacy of the neoliberal project: a massive redistribution of wealth away from employees in favour of business owners. In the three decades after 1989, the overwhelming source of stockmarket gains was generated by what economists describe as a “transfer from wages”. Instead of seeking to grow the pie, business owners turned to redistributing it to themselves by cutting and suppressing labour costs. Unions were eviscerated, secure jobs were offshored, outsourced, franchised and Uber-ised so that a new class of insecure labour emerged. Before the pandemic smashed the global economy, the share of economic growth enjoyed by employees sunk to a historic low and stayed put.”
– Josh Bornstein, opinion piece in SMH, 2 January 2022
Getting Credit In a High Interest Rate Environment
Accessing consumer credit in the current high inflation and higher interest rate environment can be tough. It becomes more important for all of us to stay on top of our personal finances. It is essential, in my view, that we all know how are credit rating is trending to ensure that we can get credit if and when we really need it. Inflation is not estimated to come down, by the RBA, until the second half of 2025. This means we will all have to suffer another 18 months to 2 years of rising or high interest rates. The housing crisis will get worse before it gets better in terms of unaffordable rents and mortgagees in loan stress. Australia is bringing in record levels of immigration and this will compound the problems. Now is not the time to stick your head in the sand when it comes to dealing with your personal finances.
Illion Ph. 1300 734 806
Experian Ph. 1300 783 684
Equifax Ph. 138 332
Check your credit file for accuracy to determine that all listings and data are correct. If you find a mistake or error, you can contact the company concerned and the credit agency to request that it is rectified. In this time of scammers and hackers, look out for identity fraud and false listings on your consumer credit file. If you find stuff on your report that should not be there, immediately contact the police and the Australian Cyber Security Centre.
In addition, you may wish to get some expert legal advice about the state of your credit report. Legal eagle eyes can, often, see things that the untrained may miss. Fees are charged on a No Win No Fee basis. Plus, there are steps that can be taken to prevent negative information appearing on a credit file. Indeed, credit repair can, often, be facilitated by a lawyer who understands credit reporting law in Australia, when there are just grounds for doing so according to the law. Credit reporting is governed by The Privacy Act 1988 (Cth) in Australia. It pays to understand the various timeframes involved in negative listings remaining on your credit file. Credit makes the world go around, so it is vital that you know all the rules governing how the system works.
Central banks are entirely focused on inflation targeting and blind to the manipulation of the financial state, which has morphed over three decades into the most inequitable share of wealth the world has ever seen. Corporations are completely profit driven and seek out every advantage they can to ensure business activity via rentier capitalism unfettered by competition or regulation. The story is the same in the US, Britain, and Australia.
The question we all need to ask is, how do the silent majority of Australians begin to get their voice heard on the economic stage? Most public economists are employed by banks and other financial institutions; thus, they work for the rentiers. Their voice is controlled by vested interests. Unions in Australia have been decimated by concerted conservative campaigns over decades. Therefore, their ability to represent workers in economic debates has been diminished. Governments are constrained by lobbyists representing industry political campaign donors in their economic policy decisions. The loudest voices in the room are those with the biggest cheque books and funds for buying influence. Change is not going to happen by itself; indeed, things will continue to get much worse for the majority of Australians if the current economic trends play out. The calls for greater productivity growth to determine any wage increases misses the point that the dominance of rent seekers in our economies does not promote productivity growth. A new economic perspective is required, one not mired in the thinking of the past, if we are to navigate the economic challenges we face now and in the future.
References
Australian Bureau of Statistics (ABS), Australian industries and foreign direct investment, 2021, Viewed 7 May 2023.
Australia Institute, Inequality on Steroids as Bottom 90% get just 7% of Economic Growth Since 2009, 11 April 2023, Viewed 7 May 2023.
Bornstein Josh, Pandemic amplifies the brittle fault lines in our society, SMH, 2 January 2022, Viewed 7 May 2023.
Christophers Brett, The PPE debacle shows what Britain is built on: rentier capitalism, The Guardian, 12 August 2020, Viewed 6 May 2023.
Epstein Gerald, Financialization, Rentier Interests, and Central Bank Policy, Department of Economics and Political Economy Research Institute (PERI), June 2002, Viewed 7 May 2023.
Hutchens Gareth, Profits haven’t contributed to inflation? Former treasury economist says it’s not that simple, ABC News, 7 May 2023, Viewed 8 May 2023.
Hutchens Gareth, RBA’s rate hikes creating inflation, Ross Garnaut says, calling for radical overhaul of economic policy, ABC News, 5 May 2023, Viewed 6 May 2023.
IBIS World, Liquified Natural Gas Production in Australia, 22 February 2023, Viewed 6 May 2023.
Lowrey Tom, Australia’s budget is a “hell of a mess.” The government is not collecting enough, and you are paying too much, ABC News, 4 May 2023, Viewed 7 May 2023.
Vorrath Sophie, “Held to ransom”: Damning report shows gas cartel throwing away social licence, Renew Economy, 1 August 2022, Viewed 6 May 2023.
WSS Author, McDonald’s Real Estate: How They Really Make Their Money, Wall Street Survivor, 6 January 2022, Viewed 6 May 2023.