MMT in Three Layers

I often find myself in conversation with supporters of Modern Monetary Theory, and for a long time I was mystified by what they are saying. This is the MMT I meet in argument and online, not the academic literature, which is more careful and more divided than any single account allows.

Over time I have come to think of MMT as three layers: a small set of accounting identities, a set of mechanisms, and a set of normative principles. Some are uncontroversial. Others are either inconsistent with the rest of MMT or simply impractical. What is most evident is that the identities do not establish the mechanisms, and the mechanisms do not establish the principles. If anything the arrow runs the other way: the mechanisms flow from the principles, and the identities are recruited afterward to make the whole look derived.

Three of the identities are mainstream economics; nothing new there. MMT adds a fourth claim and presents it as though it too were an identity, but it is not. It is the first of the mechanisms, an institutional design proposal wearing accounting's clothes. Of the six mechanisms, four rest on a technically true core the mainstream accepts but add reasoning or consequences it does not accept; the other two are institutional proposals the mainstream rejects outright. None of the principles are mainstream at all.

MMT did get one thing right, and it is worth saying so at the outset. A government that issues its own free-floating currency is not a household. It cannot be forced into nominal default on its own-currency debt, and even mainstream central banks now accept as much. So this is not the tired complaint that printing money causes inflation. The disagreement is about everything the theory builds on top of that one sound insight. I will take the layers in the order MMT usually presents them, from the arithmetic up to the politics, because that is the order you meet them in argument.

A Cruel Irony in the Housing Target

The Government wants 1.2 million new homes built in the five years to June 2029. It is not going to happen on current trends. The first five quarters delivered around 219,000 homes against a run rate that needs roughly 280,000 a year. The National Housing Supply and Affordability Council now expects the target to be met around September 2030, more than a year late, and that estimate predates the latest commodity-price shock.

Weekly Energy Update

We have heard it many times before: the United States is on the verge of a deal with Iran. Trump has announced breakthroughs that never materialised, and markets have learned to discount the rhetoric. This time appears different, and for one concrete reason. The progress is no longer just a presidential claim. On June 12, Pakistan, the mediator that brokered the ceasefire, publicly confirmed that both sides had agreed on the final text of the memorandum of understanding, the so-called Islamabad Declaration. A signing venue in Geneva is being arranged. Agreed text confirmed by a third-party government is a different animal from another "soon" on Truth Social, even if Tehran is still careful to stress that nothing is final until it is signed. My take: more believable this time, but let's see if it is actually signed.

Crude

Crude prices are reading it as optimism. Both benchmarks have rolled over from their May highs, with WTI settling at \$84.88 and Brent at \$87.33 to close the week. 

A tour of the microeconomics of housing

What this is

Home purchase prices in Australia have risen a long way, faster than incomes, for at least a generation. There is a great deal of argument about why, and what to do. This piece is a tour of that argument, drawn on a common set of axes so the competing views can be compared rather than shouted past each other.

Capital Gains Tax: Good Reform or Bad?

Australia has a fiscal problem, and it is not a small one. The 2026-27 budget carries an underlying cash deficit of \$31.5 billion, roughly one per cent of GDP, with aggregate deficits of some \$150 billion across the forward estimates and no return to balance projected until the middle of the next decade. On the headline measure, which also counts the equity injections and concessional loans the government channels through off-budget vehicles, the gap is far larger: cumulative headline deficits of around \$217 billion over the forward estimates, against roughly \$150 billion on the underlying measure. Gross debt has passed \$1 trillion and is heading toward \$1.1 trillion. 

The headline balance, on the Treasury series, has with the exception of two recent surpluses sat in deficit for most of a decade, and those surpluses were the product of a once-in-a-generation surge in commodity prices rather than any structural repair. Strip out the mining windfall and the underlying position stayed in deficit throughout, with successive budgets projecting a return to balance that has repeatedly failed to arrive. Anyone arguing about tax policy who pretends the money is not needed is not being serious.

A problem of that size has to be closed from both sides of the ledger. Some combination of spending restraint and revenue measures is unavoidable. This piece does not try to settle that balance or to nominate where the axe should fall. It takes up a narrower question, are the changes to the Capital Gains Tax (CGT) well designed? Because a gap this structural will not be closed by a tax that raises little while doing real harm, and on that test the CGT changes fail. They reveal a budget well aimed at fairness in the present and poorly aimed at the wealth of the nation in the future.

Q1 2026 GDP: A Soft Quarter, an Above-Potential Year

The headline reads as solid for the year but weak for the quarter. The AI/data centre investment boom is largely discounted because the equipment was imported rather than produced in Australia. Once the imported equipment is netted out, the boom adds nothing to GDP. What remains is an economy still running above its annual speed limit, inflation that has mostly returned to the band but is not all the way home, and a productivity trend that continues to disappoint.

The quarter itself was quite soft. GDP rose just 0.27% in the March quarter, well below the 0.87% of the quarter before and below my own nowcast of around 0.5%. A single quarter's figure is an unreliable guide at the best of times. The through-the-year figure is the one that usually matters, and at 2.52% it sits uncomfortably above the RBA's potential growth estimate of roughly 2%. And that 2% is itself flattered by strong population growth feeding the labour input in the production function, with productivity adding almost nothing. The economy is running hot in the least healthy way: adding bodies and hours rather than output per hour. The fear is that another weak quarter will see a substantial reduction in the through the year figure because of base effects (when the 1pp contribution from Q2 in 2025 drops off).

Weekly Energy Update

 Australian Fuel Gate Prices

Of note: the Fair Work Commission has a proposal before it to extend the diesel cost pass-through for truckies.