KOHLER & KOHLER: Should childcare be free?

Chris and Alan look at whether childcare could be made free… and what sort of impacts that would have. Then again, maybe Chris is just trying to score some extra babysitting.

• 0:00Speaker 00

  Hello Dad.

• 0:01Speaker 01

  G'day, son.

• 0:02Speaker 00

  It's nice to be with you.

• 0:03Speaker 01

  It's good to be with you too.

• 0:04Speaker 00

  We've been talking about doing this for a long time, eh?

• 0:07Speaker 01

  We have and finally we're doing it.

• 0:08Speaker 00

  We're doing it. I'm really excited. Kees Kohler and Cola. And as discussed, no one's really sure which Kohler is which. I mean.

• 0:16Speaker 01

  We are sure.

• 0:16Speaker 00

  We're, we're pretty sure. I'm a bit flat, but I, yeah, I'm happy to take it on. Kohler Junior, that's who I am. Fair enough.

• 0:24Speaker 01

  One day you'll be Kohler One.

• 0:28Speaker 00

  Eventually, but I'm excited because we're gonna do this podcast about economics and finance, which we're both of course working. You.

• 0:37Speaker 01

  Yeah, that's right.

• 0:38Speaker 00

  But I'm looking forward to it and I get to ask you all these kinds of questions and we've put up.

• 0:42Speaker 01

  I'm gonna ask you questions too.

• 0:44Speaker 00

  Yeah, well, that's fair. Well, I'll do my best with them. Thing is, we put up this post saying we were gonna do this podcast. To sort of say that we're doing it, basically. And without asking them to, all these people came up with other names for the podcast.

• 0:59Speaker 01

  Oh, right.

• 0:59Speaker 00

  Not Kohler and Cola. Do you want me to give you some of my favourites?

• 1:04Speaker 01

  Yeah.

• 1:04Speaker 00

  Is what we could have called it, apparently, according to the, the good people. Blue Kohler, White Kohler.

• 1:11Speaker 00

  Kohler gag, you see? Colier than now, long time listener, first time Kohler.

• 1:19Speaker 00

  Hot under the Kohler, lot of Kohler gags, the special K's, Kohler squared, the popped Colers, because you're a pop.

• 1:29Speaker 01

  Oh.

• 1:29Speaker 00

  You know what I mean?

• 1:30Speaker 01

  But I'm not a pop.

• 1:31Speaker 00

  Well, you are. Your other grandfather is pop, I think. Yeah, okay, you chose, you, you can, now is a pretty good time to tell everyone, you didn't go with grandad or pop. What did you go with when you had grandkids?

• 1:43Speaker 01

  Well, it wasn't me who made it up, but the first grandchild, Alfie, said, called me Baba.

• 1:49Speaker 00

  And that's stuck.

• 1:50Speaker 01

  And that's what everyone calls me now, which is fine.

• 1:52Speaker 00

  Baba, there you go.

• 1:54Speaker 01

  Baba.

• 1:54Speaker 00

  Feel free to comment at Baba. I'll see it. Anyway.

• 1:58Speaker 01

  On the other hand, they call me Dad.

• 1:59Speaker 00

  I shall and will continue to do so.

• 2:02Speaker 01

  I, I like, I like so far, I like Kohler squared. I think that's.

• 2:05Speaker 00

  I know. I don't know why. Yeah, that's, that's one that you like. I like the pop Colers. I like multi Kohler. That's good. No Kohler ID, that's pretty good. The Kohler of Money.

• 2:16Speaker 00

  These people just came up with these and father figures, because we're both dads and we like.

• 2:19Speaker 01

  Oh, yeah.

• 2:20Speaker 00

  Figures.

• 2:20Speaker 01

  Okay.

• 2:21Speaker 00

  I think they're great. We didn't ask people to come up with them and just for some reason, everyone just immediately got into the swing of that.

• 2:27Speaker 01

  That's great. I like it.

• 2:28Speaker 00

  I like that we went with Kohler and Kohler, but um.

• 2:32Speaker 00

  That's the name.

• 2:33Speaker 01

  That's what it is.

• 2:33Speaker 00

  That's the name now. I'm sorry, everyone. Feel free to keep on pitching them. Who knows? But we're gonna get into childcare today. That's gonna be a big one. But before I do that, I wanna congratulate you on finishing up three decades as the finance guy on the ABC. I obviously grew up.

• 2:52Speaker 01

  Why does everyone congratulate me for retiring? Is it because it's, because I didn't get sacked? I'm, uh, since I've retired, I didn't get sacked, which is.

• 3:00Speaker 00

  Oh, people congratulate.

• 3:02Speaker 01

  Congratulating.

• 3:02Speaker 00

  Yeah, people congratulate retirees. It's a, you know, congratulations on a stellar career.

• 3:07Speaker 01

  Yeah, fair enough.

• 3:08Speaker 00

  When else do you do that?

• 3:09Speaker 01

  Yeah.

• 3:09Speaker 00

  So, no, congra-, I'm sticking with it. Congratulations. How does it feel?

• 3:14Speaker 01

  It feels great. I'm looking forward to my new life, doing this with you and a few other things. But yeah, look, thirty-one years is enough, I think.

• 3:24Speaker 00

  How do you reflect on your time there now? Cause you've covered so many stories, so many crises.

• 3:30Speaker 01

  Well, I, I wrote a column for the ABC, my last column for the ABC website this morning.

• 3:36Speaker 01

  In which I did reflect on those years. And when I started at the ABC, you had just turned seven.

• 3:43Speaker 00

  Yeah.

• 3:44Speaker 01

  And.

• 3:45Speaker 00

  And we all watched that first finance report eagerly around our family TV.

• 3:50Speaker 01

  That's right. And I think you recall me talking to my producer at the Seven Thirty Report as I drove you to school. Is that correct?

• 3:57Speaker 00

  Absolutely. Yeah, his name was Marco and you used to just answer the phone. No, no hello, Marco. And then you'd be off and racing about like the big stuff. And I was in the backseat, kind of trying to figure out what you were talking about. Which became a thing and then now I ended up in.

• 4:14Speaker 01

  Here you are.

• 4:14Speaker 00

  Here I am, trying to figure out what you're talking about.

• 4:16Speaker 01

  Becoming brainwashed to the backseat.

• 4:18Speaker 00

  Yeah, thanks, Marco.

• 4:19Speaker 01

  As I, as I spoke to Marco, who's, it was Marco Bass, by the way.

• 4:24Speaker 00

  I know. And shout out to Marco if he's listening. I am, I obviously loved watching you on TV and surprise, surprise, loved it so much that I ended up doing basically the same thing in Channel Nine. But you, in that column, you talk about the kind of the key moments on reflection and that perhaps you didn't see as key moments at the time.

• 4:44Speaker 01

  That's right. And, and as I was just thinking back and I thought, actually, you know, I covered big stories. But perhaps some of the bigger stories were the ones I missed. And for example, I was covering the waterfront dispute in nineteen ninety-eight for Seven Thirty. Basically doing what we called same day as every day, which was incredibly taxing and interesting at the same time. But at the same time, the Kyoto Protocols were going on

• 5:18Speaker 01

  of the United Nations Climate Change Conferences, began in nineteen ninety-seven, signed in nineteen ninety-eight. So that was a massive story. I don't think I paid any attention to it at the time.

• 5:30Speaker 00

  But I mean, all news is local. You had to cover the waterfront dispute.

• 5:34Speaker 01

  I know, I know. But what was local about it was that John Howard refused to sign it. And he set Australia up for thirty years, basically until now, of, of fighting about climate change and paralysis of energy policy in Australia, which began then. And so, you know, and I don't think we kind of understood, well, I know we didn't understand, I didn't understand the significance of that.

• 6:01Speaker 00

  You talk about that not understanding the significance of it with regard to the Kyoto Protocol, but also with regard to lots of other legislative changes around the same time. And John Howard doesn't come off looking great in your last column for the ABC.

• 6:13Speaker 01

  No, I don't think he does. And, and nor should he, to be honest. No, I, I mean, I think he, uh, uh, look, as I say in the column, you know, that the ten years before nineteen ninety-five, we regard as the great reform era of Australia under Cork and, Cork and Keating, where they opened up the economy, deregulated finance, floated the dollar, lowered tariffs, all this. And that was correctly seen as a great reform era. But I do think the following ten years, between ninety-five and two thousand and five, were just as consequential, you know, in terms of the reforms that, that Howard brought about.

• 6:49Speaker 00

  Particularly on housing, I guess.

• 6:50Speaker 01

  Which he did quietly, you know. And, and another thing we missed, or I missed at the time, as in terms of the significance of it, was the fifty percent capital gains tax discount in nineteen ninety-nine.

• 7:05Speaker 01

  You know, which came out of the Relf Review of Business Taxation, you know, and I remember covering that and it was kind of interesting and, and, but the focus of that review was all about the, the level of company tax. The income tax rate on companies, which was, which they recommended should be reduced from thirty-six to thirty percent, which Howard wanted to do. And, and in fact, that was the reason he, he appointed the Relf Reviewers in order to provide some cover for what he wanted to do. Already. And, but then the, those three guys in the Relf Review came out and said, well, also we ought to reduce, we ought to change the way capital gains taxes calculated. Instead of being indexed to inflation, we should just make it a fifty percent discount.

• 7:44Speaker 00

  Yeah.

• 7:45Speaker 01

  And he did that. I mean, Howard did that.

• 7:46Speaker 00

  That's right. But so, and now, of course, since the May budget of this year, we're on, unwinding the whole thing and there's a lot of difficulty with that. A lot of people are feeling very put out. Back then, were people kind of cockahoop about this whole thing going, yes, we've nailed, we've nailed this amazing thing that's gonna set up a huge wealth creation avenue in the future.

• 8:08Speaker 01

  Nobody was asking for it. I mean, like, no. It was just kind of coming out of the blue. No, no one, like the, the capital gains tax had been in place since nineteen ninety-five.

• 8:17Speaker 00

  Yeah.

• 8:17Speaker 01

  It was one of the reforms of, um, Hawke and Keating. And, you know, the deal was that you paid tax on capital gain minus the effect of inflation, right? And, and everyone was kind of okay with that. It was fine. And then these guys of the Relf Review said, what we need to do is change it to fifty percent discount, which will help people, which will encourage people to buy shares. Right? And, and that's what they were trying to do, was get people to buy shares. Well, you know, three months later, there was a stock market crash. And no one wanted to buy shares anymore. And so, but, but the, the importance of that fifty percent discount was that it's, it kicked off. You know, 25 years of outsized house price gains,

• 9:01Speaker 01

  where house prices on average increased at double the rate of incomes for 25 years. The result being that housing became completely unaffordable.

• 9:09Speaker 00

  One of the main factors in our housing affordability crisis in Australia, which of course is crises on that front all over the world. But our one, you reckon, is at least in large part built on that change.

• 9:21Speaker 01

  Yeah, it's not entirely due to that. I mean, there's a lot of other factors, you know, interest rates are the main reason house prices tend to rise and fall. But that was certainly what kicked it off, I think. And, you know, and now we have a situation where the Financial Review calculator this morning, Michael Reed in the Fin Review, figured out and got a graph of, which I'll put on the news tonight.

• 9:42Speaker 00

  You put it on this too?

• 9:44Speaker 01

  Yeah, why not?

• 9:44Speaker 00

  Why not?

• 9:45Speaker 01

  It's in the Fin Review, it was a nice graph, shows the percentage, the repayments on mortgages as on the median house, median priced house in Australia, as a percentage of income. And the important point is it's back to 37.4% or will be if there's another rate hike.

• 10:03Speaker 00

  37.4% of household disposable income?

• 10:06Speaker 01

  Income, that's right. And, no, it's just of income.

• 10:11Speaker 00

  Of total income, not disposable income.

• 10:13Speaker 01

  Not disposable, total income. But that's the same as it was in 1989, when interest rates were 15%. And so the, and the difference now that interest rates, the mortgage rate is about 6.34%. The difference between 15 and 16, 6.34% is of course

• 10:30Speaker 00

  Debt.

• 10:31Speaker 01

  Debt, right? Everyone's got so much more debt now because you have to, in order to, in order to buy a house.

• 10:37Speaker 00

  Yeah, that bucket's heavy. Two and a half trillion dollars worth of mortgage debt in Australia. Point, but the point that you're glossing over here is that millennials can complain equally as loudly as boomers did when interest rates hit 15%. And they can say to their parents, hey, we've got it just as hard as you. And in fact, probably harder because it's not going anywhere. That situation came and went. This situation's not going anywhere.

• 11:02Speaker 01

  Well, exactly. I mean, the thing about the 15% interest rate back in 1989 was that it was designed to cause a recession, which it did, right?

• 11:10Speaker 00

  That's encouraging.

• 11:11Speaker 01

  No, it happened.

• 11:12Speaker 00

  I know it did, but far out.

• 11:13Speaker 01

  No, but that was the, that was the idea. You know, that was the recession we had to have, 1991 recession. And of course, what happens in a recession is that interest rates come back down again.

• 11:22Speaker 00

  What happened to you in the recession? Did you, like, what was it like? Did you have to get another job? Like, what happened?

• 11:29Speaker 01

  Oh, what was I doing? I'm just trying to remember.

• 11:32Speaker 00

  I put you on the spot, I was three.

• 11:34Speaker 01

  You were three? I was

• 11:36Speaker 00

  You'd just done a reno, I think. That can't have been easy.

• 11:39Speaker 01

  We'd rented, we'd bought this house, which was a, was a kind of a yogi retreat, yoga retreat, ashram thing, which smelled of curry.

• 11:52Speaker 00

  Yeah.

• 11:53Speaker 01

  And we fixed it up at great expense. I had a big mortgage.

• 11:57Speaker 00

  Yeah.

• 11:58Speaker 01

  We were in trouble.

• 11:59Speaker 00

  It would have hurt.

• 11:59Speaker 01

  Oh, yeah, we were, we were struggling.

• 12:01Speaker 00

  Yeah.

• 12:02Speaker 01

  I did have to, I mean, to be honest, I did have to get another job. I was working long hours, weekends, just trying to keep up. Yep.

• 12:12Speaker 00

  Just before we go to the break on this, I just wanna, I just wanna ask you, because in that column, you reflect on the fact that the big stuff was the stuff that you missed, which I think is really interesting thing to reflect on after three decades as a national finance guy. Does that provide you with advice to give to people like me or people taking over those roles? Or can you not pick up on the big stuff at the time?

• 12:38Speaker 01

  Yeah, yeah, my, my advice would be you're always gonna miss it. Don't worry about it.

• 12:42Speaker 00

  You miss 100% of the shots you take.

• 12:44Speaker 01

  No, no, you're gonna, you're gonna focus. No, no, we're focusing on, we're focusing on the big, obvious stories, right? But we're missing, missing the kind of unforeseen consequences, unintended consequences often.

• 12:57Speaker 00

  Yeah.

• 12:58Speaker 01

  I mean, I would say that John Howard didn't really intend house prices to rise so much. Although he did say at one point, you know, no one's ever complained to him about, you know, house prices going up.

• 13:09Speaker 00

  He said it a few points.

• 13:10Speaker 01

  I don't think, you know, I don't think he or the Liberal Party wanted house prices to do what they did.

• 13:17Speaker 01

  So, you know, I think, I think it was probably an unintended consequence.

• 13:20Speaker 00

  So it's just a reflection. It's not necessarily laced with do better next time, everybody. It's just the way it works.

• 13:26Speaker 01

  Tends to be, doesn't it?

• 13:27Speaker 00

  Yeah. I, I think there's anything wrong with that. Hey, we're gonna have a quick break, but you've been talking about the problem with privatization. And now, after the break, we're gonna talk about nationalization, which is a big scary word. We don't talk about that very often.

• 13:42Speaker 01

  No, we do not.

• 13:42Speaker 00

  I'm looking forward to that. Back in a sec.

• 13:46Speaker 00

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• 15:18Speaker 00

  Welcome back to Cola and Cola. I'm talking with you, Dad.

• 15:23Speaker 01

  Yes, we are, son. Or Cridy, as we call you.

• 15:26Speaker 00

  Don't tell me, Cridy.

• 15:29Speaker 01

  Why not?

• 15:29Speaker 00

  People don't know that.

• 15:31Speaker 01

  Now they do.

• 15:31Speaker 00

  Okay, fair enough. Cridy, yep, got me there. Hey, speaking of children and childcare, you had this really interesting idea a little while ago about nationalizing childcare and making it free, which went down very well

• 15:48Speaker 00

  with lots of people. It was a little while ago. You kind of did the rounds and you've had time to think about it and reflect on it. And I've had time to think about it and reflect on it as someone with two kids, quietly. And I wanted to kind of examine it with you again.

• 16:03Speaker 01

  Yep.

• 16:03Speaker 00

  So can you take us through it in sort of bullet point form? Because it all came about because research had been done and people have been looking into this, right?

• 16:13Speaker 01

  Well, not exactly on nationalizing childcare.

• 16:16Speaker 00

  Not, okay, fair enough.

• 16:17Speaker 01

  But there's been a lot of thinking about childcare and what's to be done about it because it's clearly a problem, you know, like, I think it's fair to say childcare in Australia is a mess. I think it's a mess around the world. It's not really something that is, it's kind of developed gradually as, as, you know, participation by females in the workforce has grown so rapidly. It's really kind of become an issue now.

• 16:45Speaker 00

  Specifically mothers.

• 16:46Speaker 01

  Well, of course, that's right. And, yeah, so the thing I did was a, was a two-minute piece on the ABC News on a Sunday night. Where, you know, I have been doing these pieces for Sunday night on the news, which were focused on a particular issue. And this one was on childcare. And I was thinking, you know, what's to be done about it? And I, the, the one thing that's kind of struck me about childcare is, and kindergarten, is the way that if your child's under five, you know, you have to pay for it. If, if the child's over five goes to school, you've got a public school system where it's notionally free. I mean, there is, there are costs, I understand that some, some state schools actually charge a bit.

• 17:28Speaker 01

  But on the whole, it's, it's a free system all the way to year 12. But under the age of five, it's not free, right? So, and, and that's, it seems to me that's a pretty arbitrary kind of point. And it's a real problem. And the second real problem that I've become aware of as a grandparent is after hours, after school hours care, which is, you know, most people have to work till six o'clock. School's finished at three.

• 17:58Speaker 00

  Yeah.

• 17:59Speaker 01

  You know, everyone, and, and they have to start earlier than school starts. And so, you know, just about everybody now has to use what's called after school hours care, which is a private industry that's owned, in some ways, it's worse than the childcare problem because its own tend to be, most of the big ones are owned by private equity. And they do a deal with the school. Uh, whatever it is, and the parents of that school not only are requi- not only because of their life have to use it, um, that they're forced to use a monopoly, basically, that that provider-

• 18:35Speaker 00

  Yeah.

• 18:36Speaker 01

  Has a monopoly of the school, and so they're stuck. They have to do it.

• 18:40Speaker 00

  That's right. Well, the, so the point that you raised when you did this on, on the TV was that this is a cost of living issue. It's a gender equality issue.

• 18:49Speaker 01

  And a productivity issue.

• 18:50Speaker 00

  Product massively a productivity issue because, and you set it up because effectively in the last thirty years, the workforce participation of mothers has gone from sixty percent to over eighty percent. But the way that the subsidy tapering system works is that so often the more hours that a secondary household income earner, which is often the mother, the, the extra hours or the extra day that they put on effectively nets them zero extra money because it's all getting soaked up by childcare costs.

• 19:16Speaker 01

  Yeah, that's right.

• 19:17Speaker 00

  Which is a huge problem and demoralizing for one thing.

• 19:20Speaker 01

  That's right. So the, the, the way the government runs the system is through subsidies, as you say, and, and the subsidy kicks in, it's a ninety percent subsidy for people with, and, and they measure not individual income, but the household income, the family income. Uh, it's ninety percent subsidy for a family income of about eighty eight thousand.

• 19:38Speaker 00

  Household income of eighty eight thousand.

• 19:41Speaker 01

  Right. That's for both.

• 19:42Speaker 00

  Mm hmm.

• 19:43Speaker 01

  Um, parents and it, um, it, it reduces by one percent for every five thousand dollars of income.

• 19:50Speaker 00

  Yep.

• 19:51Speaker 01

  And it gets to zero at about five hundred and thirty eight thousand family income, right? Which sounds like a lot, but if you've got a big mortgage, it's not. And there's a lot of people who, um, you know, are struggling with a big mortgage and a five hundred thousand family income. Both, both parents are on, you know, decent incomes, but, you know, they're coughing up a lot of money for childcare and they're left with nothing.

• 20:18Speaker 00

  Yeah, and it forces this calculation for households to sort of say, well, I mean, do you go, do you sort of scale yourself back up to four or five days of full time work or do you not? Cause you know, money wise, for a lot of, you know, mid, middle income families and above, it's not worth doing, which is a productivity commission, uh, productivity issue.

• 20:39Speaker 01

  Yeah.

• 20:40Speaker 00

  Uh, and a kind of a workforce issue.

• 20:43Speaker 01

  Yeah. And, and part of the problem is that it's so complicated, you know, like the, the, the tapering system for the subsidy is one thing, which is kind of relatively clear, but it's, um, but it, but it then changes for subsequent children. So it's, you get more for subsequent children and it's, you know, very complicated to work out. And also every state does different things with kindergarten. So that's, that's a-

• 21:05Speaker 00

  Yeah.

• 21:05Speaker 01

  The childcare thing is a, is a federal subsidy. Kindergarten is a, is provided by the states.

• 21:12Speaker 00

  Yep.

• 21:12Speaker 01

  Most centers do both.

• 21:14Speaker 00

  Yep.

• 21:14Speaker 01

  Childcare and kindergarten. And so they're a combination of state and federal and the states are all over the place. It's absolutely impossible to work out.

• 21:23Speaker 00

  So what happened here is that you looked at all this and the productivity commission's recommendation of making it a hundred percent and dialing back from there and Rattan Institute, all their work, and you kind of walked out into the middle of the pitch and just swung hit for six. Let's make it totally nationalized. Let's, let's chuck it over and get the federal government to buy up thousands and thousands of childcare centers and then just run them.

• 21:48Speaker 01

  Yep.

• 21:48Speaker 00

  So that was your-

• 21:49Speaker 01

  That was my solution, which will never happen, right? It was kind of, is, and what I was trying to do was just to draw attention to the problem and to, and to get everyone's attention.

• 21:58Speaker 00

  Why can't it ever happen? I mean, you did the maths. It wasn't, it didn't, like, I didn't get to the end of your segment and go, no, he's a fool. No.

• 22:06Speaker 01

  No, no, I don't, I mean, I don't think I'm a fool.

• 22:08Speaker 00

  No, I don't think you are either. The point is that, and not that you ever present things in the way that makes me think that, but like, it's not a totally dumb idea.

• 22:15Speaker 01

  No, no, it's not. I don't think it is at all.

• 22:17Speaker 00

  Can you take us through the, the dot points of it?

• 22:20Speaker 01

  Oh, well, I, I mean, it was basically, um.

• 22:23Speaker 00

  I can remind you of the numbers.

• 22:25Speaker 01

  Right, okay, go on.

• 22:26Speaker 00

  Sixty billion dollars to buy the centers.

• 22:28Speaker 01

  Right.

• 22:29Speaker 00

  Then, um, you would fund that by having, you're giving childcare bonds to super funds, um, which would add an extra three billion dollars over ten years. Annual running cost would be thirty billion dollars roughly. So the total annual running cost will be thirty three billion. And half of that roughly would be covered by the current subsidy program of sixteen billion. And then you said at the end of your piece, call the rest and investment in productivity, which we have a huge problem with in this country and elsewhere.

• 22:58Speaker 01

  So subsequently I thought about it and I don't think, uh, I was right to say that we need to nationalize the whole industry. I think that that is, that's unnecessary. And in some ways, the best thing to do would be to replicate the school system where roughly two thirds, a bit less than two thirds of the system is state owned.

• 23:18Speaker 00

  Right.

• 23:19Speaker 01

  And one third is private. Um, and the deal with the private sector, um, private schools is that you only get subsidies and there are subsidies obviously for, for private schools. You only get those if you're not for profit.

• 23:33Speaker 00

  Hmm.

• 23:33Speaker 01

  Right? So all the childcare and kindergarten providers, they're for profit, not, not all of them. So the, the, the other thing is that a lot of them are community centers, like.

• 23:42Speaker 00

  Like the one, like the one you, you, you use.

• 23:47Speaker 01

  Community centers that are not for profit.

• 23:49Speaker 00

  Yeah.

• 23:49Speaker 01

  And so you, you don't need to buy them. They, they can continue on as they are, community centers. And you don't need to, you know, you don't even need to buy two thirds of the industry to, or nationalize two thirds of the industry to more or less replicate the school system. I think that that's probably, uh, what would be reasonable. And, and, uh, so the, the numbers then fall accordingly.

• 24:08Speaker 00

  It does, I suppose, you know, it's a bit of a problem to have all these, you know, billions of dollars worth of subsidies flowing into for profit companies. I mean, there's not a whole lot of different parts of the economy where that happens, right?

• 24:20Speaker 01

  No, no, that's right. That's the other problem with the whole thing is, is that we're, we're paying ninety percent subsidies, up, well, up to ninety percent subsidies to for profit, you know, companies.

• 24:33Speaker 00

  Yeah.

• 24:33Speaker 01

  And I, you know, some of the, and some of them are big companies, private equity owned. A lot of them are, you know, individual, individually family owned enterprises and, um, but either way, you know, and, and then the productivity commission comes out and says, well, well, we need to increase the subsidy to a hundred percent in some cases and change the taper and all this. And I think, ah, you really? Is that what we're gonna do?

• 24:55Speaker 00

  Hmm.

• 24:56Speaker 01

  Just, just cough up more money to these for profit outfits?

• 24:59Speaker 00

  So let's say that we are able to unpick this incredibly complicated thing. Do you think that it would, um, do you think it would sort out the productivity crisis?

• 25:08Speaker 01

  Well, yes, well, well, it would, it wouldn't sort it out, but it certainly would help.

• 25:13Speaker 00

  Is it number one on your shopping list to, to sort it out if you could?

• 25:17Speaker 01

  Productivity? No, no, it's not that, I don't think it's the number one thing for productivity. It is a, it would help productivity.

• 25:24Speaker 00

  Wouldn't it get tons of people back into the workforce?

• 25:26Speaker 01

  Sure, that's right. I mean, uh, the problem is AI is taking all the jobs now, so.

• 25:30Speaker 00

  It's a separate issue.

• 25:31Speaker 01

  You know, they can all, they'll all kind of join the, join, join the dog queue, you know? But, but that's, oh, that's a whole different issue.

• 25:41Speaker 00

  We'll get there next week.

• 25:43Speaker 01

  Into a separate.

• 25:45Speaker 00

  Oh.

• 25:45Speaker 01

  Episode, but, um, but yeah, I mean, the main thing to deal with productivity is we need to, we need to get businesses investing. I mean, we're just, businesses aren't investing enough in, uh, in their workers. They're not investing enough in their companies.

• 25:59Speaker 00

  Yeah.

• 25:59Speaker 01

  Um, so that, I mean, that's, that's true. Um, but look, I, I, I think it's mainly about equity. Um, and, you know, cost of living, helping families. Part of the problem would be that it would be, tend to be inflationary, obviously. If suddenly, you know, childcare costs went to zero or something approaching or reduced.

• 26:23Speaker 00

  Hmm.

• 26:24Speaker 01

  That'd be like a massive tax cut or a massive rate cut at the time when inflation's a bit high. So that might be-

• 26:31Speaker 00

  Demand up.

• 26:32Speaker 01

  Bad idea.

• 26:32Speaker 00

  Supply of childcare centers potentially not on the up. That causes a problem too.

• 26:37Speaker 01

  Well, that's right. I mean, there would be demand, the demand. I mean, there'd be, suddenly there'd probably be queues.

• 26:43Speaker 00

  Tons, tons of demand and you'd need to, you'd need to figure out a way immediately of increasing the amount of capacity for current centers or create tons of new ones.

• 26:54Speaker 01

  That extra demand, uh, would largely relieve grandparents.

• 26:57Speaker 00

  Well, this is the other thing I wanted to ask you about because it's a, it's a sort of a, it's a availability of help gap that gets created here because we've talked about this from a financial, um, impact on a household. But if you've got grandparents who are willing to take the kids or kid for a day or two days a week, that's happening a lot out there. And it's not like it's sort of talked about widely and sort of understood what the impacts of that is. It's a bit like the Bank of Mum and Dad in a way. Saves you a lot of money. It doesn't get talked about. And then also it kind of cre, it frees you up. And so that's kind of a big deal. Whose parents are up for it and whose parents aren't, you know?

• 27:33Speaker 01

  That's right. I, I think that's absolutely true. And I think the analogy with Bank of Mum and Dad is accurate.

• 27:38Speaker 00

  Hmm.

• 27:38Speaker 01

  Um.

• 27:39Speaker 00

  Childcare.

• 27:39Speaker 01

  And so, so really the, the, the, the best way to deal with childcare problems is housing affordability.

• 27:47Speaker 00

  Hmm.

• 27:47Speaker 01

  Is to deal with that.

• 27:49Speaker 00

  Well.

• 27:49Speaker 01

  Um, because the, the fundamental problem is that houses are too dear and everyone's struggling with the mortgage. That's the, I guess, the real problem, which means that, you know, everyone has to work, too many couples have to work full time for both of them, which is, you know, the real problem, I think.

• 28:09Speaker 00

  I've heard it said recently that having a third kid is like, is it in a large way, a kind of a financial, almost like a flex now because you've got the setup, you can do it because it's so expensive to deal, to look down the barrel of that going into the future. And so many families are thinking about the size of their family as a financial situation, which perhaps wasn't as much of a thing in previous generations. Do you think that's right?

• 28:35Speaker 01

  Yeah. What about you?

• 28:36Speaker 00

  I know, I'm a third kid. It was probably very expensive.

• 28:42Speaker 01

  Worth every penny, mate.

• 28:43Speaker 00

  Thank you, mate. I was waiting for that. That was me fishing and thank you, I needed it.

• 28:47Speaker 01

  Yeah.

• 28:47Speaker 00

  But I, as a third kid, I want there to be third kids and fourth kids. I'm sitting here because you took a punt financially.

• 28:54Speaker 01

  Well, I'm the first of four, so.

• 28:56Speaker 00

  Yeah.

• 28:56Speaker 01

  There are a lot of four.

• 28:58Speaker 00

  Your youngest sister would, and the youngest, but I'm sure feeling the same as me. You know, more, you know, we want people to have the resources to have a big family.

• 29:09Speaker 01

  Well, I think, and I think they want. I think the fundamental problem, as I say, is, is housing affordability. It needs to be dealt with. Um, and, and basically we all need to stop complaining about house prices falling 5.2%. Which is what they've done. I mean, they're falling more and, you know, um, eight or nine percent in Sydney and Melbourne, but you know, that's what needs to happen, everyone.

• 29:31Speaker 00

  Hmm.

• 29:31Speaker 01

  You know, and, and I think house prices need not to rise for a while. And this is going to be hard, you know, people like you who've bought, bought recently, you know, a lot of people have bought recently, bought a house recently, are kind of relying on house prices to keep rising. So they build equity, but I think hopefully those days are gone.

• 29:54Speaker 00

  I really love our pep talks.

• 29:58Speaker 01

  Sorry, mate.

• 29:58Speaker 00

  It's okay. It's okay. It's how it's meant to be. I get it. I understand. We've been doing this for a long time, you and me, talking at halftime with a footy about how messed up everything is. I'm down, but I ask you questions. I'm going to ask you some more questions right after this very short break because we are going to do some audience questions and a segment brought to us by UniSuper called Decoded, where we break down something that people assume that everybody knows, maybe they don't. So we're going to do that right after the break.

• 30:26Speaker 01

  Can't wait.

• 30:26Speaker 00

  Me too.

• 30:29Speaker 00

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• 31:09Speaker 00

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• 31:50Speaker 00

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• 32:06Speaker 00

  Welcome back to Cola and Cola. This is a segment that we're going to do every single time called Decoded. It's brought to you by UniSuper. And the way it works is we take something where people will just assume that you get it and maybe you don't. And maybe you're too embarrassed to ask and you can ask us or we can just sort of talk about it. And then you don't have to feel embarrassed anymore.

• 32:24Speaker 01

  Well, it'd be good to get people's, it'd be good to get people's suggestions for this topic.

• 32:28Speaker 00

  Well, we're going to get to that. Oh, you're always jumping ahead. We've got audience questions coming up right after this.

• 32:32Speaker 01

  No, but this is a separate thing of suggestions for decoding.

• 32:34Speaker 00

  Yeah, fair enough. Fair enough. Good point. We should do that and drop them into the comment section. But what we're going to do this time is talk about why a $50 share stock can be cheaper in inverted quotes than a $10 share. And I think a lot of people stumble on this and I get this question a lot from people who are starting out in investing about what, what do you mean? It's a 50, it's $50 for one, for company A and it's $10 for company B. You know what I mean?

• 33:03Speaker 01

  Oh, yes, that's right. So, and it can apply to, no, it can apply to a, a share is one cent.

• 33:09Speaker 00

  Yeah.

• 33:10Speaker 01

  And something else is $10 and the one that's one cent is dearer.

• 33:14Speaker 00

  What's a Berkshire Hathaway share? What was it going for, for a while there? $200,000 or something like that?

• 33:20Speaker 01

  Yeah, yeah.

• 33:21Speaker 00

  Meanwhile, Apple or Nvidia, Nvidia might be 200 bucks. You know, it's all over the place. And the point is that the, the dollar amount of the share is, is kind of just an arbitrary. It's not arbitrary. We'll talk about that in a second, but the point is when you sit down to buy it, that's not the thing to look at.

• 33:37Speaker 01

  No, indeed. And the, the thing, the difference is of course that the, all these companies issue different number of shares.

• 33:43Speaker 00

  Yes.

• 33:44Speaker 01

  So what matters is the number of shares that have been issued.

• 33:46Speaker 00

  Yep.

• 33:47Speaker 01

  You multiply the price of each share by the number of shares that have been issued and you get what's called the market capitalization of the company, which is the market value of the whole company. And what matters is the market value of the company, not the individual share price.

• 34:03Speaker 00

  But is that what matters when you're trying to figure out if something is cheap or expensive, market value? Or is there another thing that you need to look at?

• 34:10Speaker 01

  Well, you've got to look at the market value in relation to the things that the company's doing.

• 34:16Speaker 00

  Earnings, revenue.

• 34:17Speaker 01

  Yeah. I mean, and each company is a bit different. There are some companies you need to look at their assets. How does the market value compare with the value of their assets? But most of the time you've got to look at the market value compared to the amount of money it's making in profit. Because the, the value of a company, the real value of a company is the, is the today's value of all of its future profits.

• 34:40Speaker 00

  This is why it's always forward looking. Everyone's always looking ahead. So price to earnings ratio is kind of the thing, the most commonly used tool, right?

• 34:50Speaker 01

  Yep.

• 34:52Speaker 00

  And it's all looking a bit stretched at the moment. So it's still good.

• 34:55Speaker 01

  Yeah. So the question is, you know, what, what sort of, how much more, what multiple of today's profit or, or next year's profit is a good price to pay for a company?

• 35:06Speaker 00

  Yeah.

• 35:07Speaker 01

  And, and the answer is, well, the, the, the average in the share market over time is around about 15 times. That's, you know, over the long haul, the market tends to value, uh, profits. It tends to value companies at about 15 times their profit. And they tend to use the estimate of next year's, what the analysts reckon next year's profit is going to be, rather than last year's, because, you know.

• 35:33Speaker 00

  Better.

• 35:34Speaker 01

  Yeah. So 15 is the average. Currently it's, it's closer to 20, so a bit higher than usual.

• 35:42Speaker 01

  If you can get something for 10 times their profit, then that's a good buy.

• 35:47Speaker 00

  Dude, that's what Buffett, that's what Buffett would say.

• 35:49Speaker 01

  Five is even better.

• 35:50Speaker 00

  Yeah.

• 35:50Speaker 01

  So, you know.

• 35:52Speaker 00

  And when you've got Nvidia forecasting a billion dollars a day in earnings for the next quarter, you get big numbers.

• 35:58Speaker 01

  Well, that's the interesting thing about, you know, the question of is AI a bubble and is it about to burst?

• 36:04Speaker 00

  Yeah.

• 36:06Speaker 01

  The thing is that these AI companies are making so much money and their profits are so high that although the prices look high and the, the stock market's gone through the roof and all this, the, the, the multiple of price to earnings is not that high.

• 36:20Speaker 00

  Yeah.

• 36:21Speaker 01

  It's, it's like, it's a little bit high. It's about 25, 20, 30 times. But in the, in the, in the dot com bubble before it burst in 2000, the average multiple of, um, price to earnings was 100 times.

• 36:35Speaker 00

  Yeah, that was silly, wasn't it?

• 36:36Speaker 01

  And that was kind of, and that was a signal that things are going to crash, right?

• 36:40Speaker 00

  That was lofty.

• 36:41Speaker 01

  But now it's like 25 to 30 times for these AI companies. You think, okay, that's not too bad. But then it becomes a question, and this is another topic, I guess, question, is the earnings, are the earnings sustainable?

• 36:53Speaker 00

  I knew, I knew you'd get rolling on this.

• 36:56Speaker 01

  Yeah. I'm rolling.

• 37:00Speaker 00

  No, it's, look, this is a good question and I'm going to get to that, but for the point, for the, for the point of the person who's wondering about this whole $10, $50 share thing. That's the point is that these are the things that you end up looking into. This is why people pay for analysts. This is the whole point is that it is inherently a little bit complicated. What you can do now is use, um, you know, chat GPT to try to give you a bit of a steer on, on that sort of stuff.

• 37:24Speaker 01

  Yeah, yeah.

• 37:25Speaker 00

  For, for broad brush stuff. But anyway, we're going to keep on doing that, decoded segment.

• 37:32Speaker 01

  Point being that if you've got a thousand dollars to invest in the share market.

• 37:35Speaker 00

  Yes.

• 37:35Speaker 01

  You might be better off buying, I don't know, what is it? Um, 20 shares in BHP.

• 37:42Speaker 00

  Yeah.

• 37:43Speaker 01

  At 50 odd dollars or something, whatever it is.

• 37:45Speaker 00

  62.

• 37:47Speaker 01

  62, well, a bit, bit fewer than 20, but you might be better off buying 18 BHP shares than a thousand shares that are a dollar each, you know?

• 37:59Speaker 00

  Totally.

• 38:00Speaker 01

  Even though you're getting more shares, you know, you're getting a lot more shares. It might, that might be better, that might be better thing to do.

• 38:07Speaker 00

  And diversification is always key, widely.

• 38:10Speaker 01

  Well, look, and you've got to look at the valuation of the company. It is it, because, because the thing that Warren Buffett tells you is you need to, uh, buy things that are good value, that are cheap.

• 38:22Speaker 00

  Certainly does say that.

• 38:23Speaker 01

  He does.

• 38:24Speaker 00

  He's been saying it for ages.

• 38:25Speaker 01

  He says, in fact, when everyone's greedy, you should be fearful. When everyone's fearful, you should be greedy.

• 38:34Speaker 00

  Very good quote. I love that. Um, so that was, that was decoded, just brought to us by UniSuper. And we're going to keep on doing that. But the other thing that we're going to do to your point is answer a couple of audience questions. And we've had a couple already.

• 38:48Speaker 01

  Right?

• 38:48Speaker 00

  This one, and this is basically going to take us out. This one is from Sherpa the Pug.

• 38:55Speaker 01

  Oh, Sherpa the Pug, of the Pug.

• 39:00Speaker 00

  Sherpa's come through with a, with a surprisingly serious question. For Sherpa the Pug, um, quote, are we heading towards a large scale correction or adjustment in share markets? If yes, what's the worst case scenario in terms of losses? Rackets just retired, finance naive and nervous. Please show a reassuring graph or two. Love your work, Cola, the good looking shorter one.

• 39:23Speaker 01

  Okay.

• 39:24Speaker 00

  Which, well, I don't know who that is. I know which one is shorter.

• 39:30Speaker 01

  That's me.

• 39:31Speaker 00

  And therefore it's you.

• 39:33Speaker 01

  I'm, I'm too old to be.

• 39:35Speaker 00

  Sherpa likes you. Anyway.

• 39:37Speaker 01

  Anyway, um, okay, uh, Mr. The Pug.

• 39:41Speaker 00

  Are we heading towards a big crash? Um, and actually I'm going to piggyback on the back of that question because we all know that crashes happen. Um, and I think he's right to be asking it because I can't remember a time when people have been so openly talking about, oh, the crash is coming, it's a bubble, it's going to pop. I talk about it, other people comment on it.

• 40:01Speaker 00

  You know what I mean? Have you ever seen a time when people have been talking about this much?

• 40:04Speaker 01

  Uh, yeah. Nineteen eighty-six. And the thing about, the thing about predictions of crash is that they almost always happen too early.

• 40:16Speaker 00

  Not wrong, just early.

• 40:17Speaker 01

  People start worrying about a crash way too early.

• 40:21Speaker 00

  Yeah.

• 40:22Speaker 01

  Which is, you know.

• 40:23Speaker 00

  To your point about eighty-six, that's an interesting one because the crash wasn't in eighty-six.

• 40:28Speaker 01

  No, it was in eighty-seven.

• 40:28Speaker 00

  Late eighty-seven.

• 40:29Speaker 01

  And people were, people were calling the crash in eighty-six, uh, after which the share market doubled again.

• 40:36Speaker 00

  Yeah, okay.

• 40:38Speaker 01

  By the time crashes happen usually, um, it's kind of, you know, everyone's kind of on board. Everyone's forgotten about.

• 40:48Speaker 00

  The euphoria stage.

• 40:49Speaker 01

  Well, and, and, uh, and what a lot of people talk about is that, um, the, the real signal for a crash is when the bears capitulate. The bears are those who think that's, that there's gonna be a crash, right? As opposed to the bulls who think there won't be.

• 41:03Speaker 00

  Oh, so listen to the tone in the comments.

• 41:05Speaker 01

  And, uh, once the bears all go, give up and say, oh, well, we give up, we're wrong. It's, it's never gonna be a crash. That's when there's gonna be a crash.

• 41:15Speaker 00

  This is why it's so hard. Okay.

• 41:16Speaker 01

  So if everyone, if a whole lot of people are saying there's gonna be a crash now.

• 41:20Speaker 00

  Yeah.

• 41:20Speaker 01

  That is not the signal that there is gonna be one. The signal would be if nobody was saying there's gonna be a crash anymore.

• 41:27Speaker 00

  Well, the problem is with that is, yeah, I totally get you. But the problem is that the signal on it, uh, is things like, you know, ten-year bond yield of five and a half percent, rising interest rates. Um, you know, trillion dollar valuations, but to the question from Sherpa the Pug of how bad it can be. We all know that crashes happen. In twenty twenty, the COVID crash, thirty-four percent in a month. Twenty-ten, the flash crash, that was nine percent in a couple of minutes. That was bad, but that was algorithmic. Um, two thousand and seven to two thousand and nine GFC, fifty-seven percent in a year and a half. Dot-com bubble bursting was seventy-seven percent from the peak. And the eighty-seven crash that you're talking about, that was twenty-three percent in a day.

• 42:10Speaker 01

  Yep.

• 42:11Speaker 00

  Which would have been nasty. You would have been reporting on that.

• 42:14Speaker 01

  And part of the reason these things are always nasty is that they go, is the market keeps rising longer than it should. And so by the time it gets to the point of crashing, it's way too high.

• 42:24Speaker 00

  So.

• 42:25Speaker 01

  So, no, I suppose what I'm saying is that it is now too early. I don't think there's gonna be, I don't think there's gonna be, I'm gonna be proved wrong tomorrow, of course. I, I think we're not, you know, there isn't gonna be a crash tomorrow or something. But the, but the seeds of a crash are being sown, I think. And one of the seeds is the rise of Chinese AI. Which is, in my opinion, beginning to fatally undermine the business models of the American AI companies. I mean, these things are cheap, um, they're getting used more than, um, uh, ChatGPT and Claude and that. I mean, DeepSeek, DeepSeek is really good.

• 43:11Speaker 01

  I've been using the one called Kimmy, K three, and it's very, very good.

• 43:16Speaker 00

  So this question of, you know, okay, the seed's being sown, how bad could it be? You think, I mean, if you had to kind of eyeball it, and again, we're all gonna be proved wrong in ten seconds on this anyway. But the big crash was the twenty-nine crash. Eighty-nine percent with twenty-five years to recover.

• 43:34Speaker 01

  Hmm.

• 43:35Speaker 00

  Is that the kind of thing that we could be talking about with the scale of, you know, the multi-trillion dollar valuations, all that sort of stuff? I mean, you know, is it possible that that vertical in valuations gets unwound like that?

• 43:51Speaker 01

  Yeah, if, if at some point, yeah, that's, I mean, yeah, the answer is yes, it could happen. I'm just saying it's not gonna happen now, I don't think. Um, and that if it keeps rising for another twelve months as, as currently is, then that'll, that's likely to happen at some point. But, you know, trouble, trouble is, you know, you miss out on this big gain in the meantime.

• 44:12Speaker 00

  Yeah, a lot of people sitting on the sidelines with cash, including, um, Berkshire Hathaway, just quietly.

• 44:18Speaker 01

  Yeah, of course. I mean, and me.

• 44:20Speaker 00

  Really?

• 44:21Speaker 01

  I mean, the trouble is, I've been sitting on waiting for the crash, for the downturn for like twelve or twelve, twelve months or so, and it hasn't happened, right? And I missed out on this big rise. And it's frustrating.

• 44:32Speaker 00

  It's, well, yeah, I mean, you look back and you kick yourself. I'd do the same thing with Bitcoin, you'd probably do it too. We were covering it at the time. I remember talking to you about Bitcoin in like two thousand and ten. Like, what are you, are you been covering this thing? What's going on with this thing? We're both kind of talking about it, going, oh, yeah, you know, it's interesting. Life could have been very different if we had have piled in.

• 44:52Speaker 01

  I, I do, I, I don't, uh, berate myself, um, for not investing in things I don't understand, right? And so I, I kind of understand Bitcoin, but I don't understand it as an investment.

• 45:05Speaker 00

  You sat down and you worked out, you learnt about Bitcoin like it was your job. I mean, it was.

• 45:11Speaker 01

  It was my job.

• 45:12Speaker 00

  Slash.

• 45:12Speaker 01

  And I did learn about it. I do kind of understand what's going on, but I don't understand it as an investment. I think it's basically a speculation. Uh, I don't understand gold as an investment.

• 45:24Speaker 00

  Really?

• 45:25Speaker 01

  I don't.

• 45:25Speaker 00

  There's, there's gonna be people who are gonna go, excuse me, gold is the investment.

• 45:30Speaker 01

  Oh.

• 45:31Speaker 00

  Historically speaking.

• 45:32Speaker 01

  That's right. I understand. But, but it was always, the reason for that was because gold used to be money.

• 45:37Speaker 00

  Yeah.

• 45:37Speaker 01

  Not anymore.

• 45:39Speaker 00

  Yeah.

• 45:39Speaker 01

  So now it's this kind of thing that everyone kind of says, well, it's the only thing that's gonna be, gonna save you from fiat money and all this.

• 45:47Speaker 00

  I know.

• 45:48Speaker 01

  And I kind of think, oh, really? Anyway, um, so I don't invest in gold, I don't invest in Bitcoin.

• 45:53Speaker 00

  If I dig around in your backyard, I'm not gonna find anything.

• 45:56Speaker 01

  Correct.

• 45:57Speaker 00

  I've dug around in your backyard several times, um, and I didn't find anything.

• 46:00Speaker 01

  No.

• 46:01Speaker 00

  Hey, uh, Sherpa the Pug, I reckon is gonna be feeling like, where did that go? But.

• 46:12Speaker 01

  He won't be, he won't be the only one.

• 46:13Speaker 00

  No, no, that's all right. We go, we go rolling and I love that about us. Um, hey, Cola and Cola, I'm having fun. Should we do this again?

• 46:21Speaker 01

  Let's do it.

• 46:22Speaker 00

  Let's keep doing it. Um, thank you very much.

• 46:25Speaker 01

  Thank you.

• 46:25Speaker 00

  I'm having the best time with this and I'm so glad that we're finally doing it. And congratulations again. I know you don't like getting congratulated on retiring, but.

• 46:31Speaker 01

  No, I don't mind. It's fine, it's fine.

• 46:33Speaker 00

  Here we are. You're not retiring.

• 46:35Speaker 01

  That's right.

• 46:36Speaker 00

  Anyway, thank you very much, Dad. I'll see you next time.

• 46:39Speaker 01

  Thank you.