2026 Federal Budget Reaction with Economist Chris Richardson

Chris Richardson is one of Australia’s most quoted economists and the founder of Rich Insight, bringing decades of expertise from his time at Deloitte Access Economics to decode complex fiscal policy. Chris and I might not agree on every aspect of this budget, but that is what makes this conversation worth having. In this analysis of Australia’s latest budget, Richardson reveals why our living standards have barely grown over the past decade while other OECD nations have surged ahead by 17%. He dissects the real economic effects of the budget on inflation, interest rates, and the Reserve Bank’s delicate balancing act. Richardson also exposes the “off-budget” spending that keeps billions in government expenditure hidden from public scrutiny and explains why housing affordability will not be solved by capital gains tax changes alone. Join my exclusive Mentored+ community: https://mentored.com.au/become-a-member/ Subscribe to the Mentored newsletter here: https://the-mentored-platform-pty-ltd.myklpages.com/l/WWJGc5 See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

• 0:00Speaker 00

  I just finished a podcast with Chris Richardson. He's the former economist at Deloitte Access. And now he runs his own business called Rich Insight. And he's a great economist, but he's very technical, very, very technical. And the reason I wanted to do that podcast with Chris is because I want someone to unpack the Treasurer's Budget for 2026 as it's going to affect 27 and beyond. More in an economic sense, like how's it going to affect the Australian economy? Not how it affects individuals who have been affected by the capital gains tax. Not how it affects people relative to losing their ability to deduct the interest they pay to the banks relative to the rent they pay, that is negative gearing.

• 0:45Speaker 00

  It's not about, not about any of those. It's about actually unpacking the fiscal policy of the budget relative to how it affects inflation potentially. And therefore, of course, all of you know how inflation is, will be managed by the Reserve Bank in relation to interest rates. So what I'm trying to find out is will interest rates go up after this budget? In a general economic sense, I'm not, I didn't talk to Chris Richardson about capital gains tax per se and or negative gearing or tax on trust, by the way. Those affect individuals. They are, and they were designed, by the way, and Chris will say it, that they're going to have very little impact on affordability for housing.

• 1:30Speaker 00

  They're going to have very little impact on new supply of new housing for people to buy. This budget, the narrative around this budget is called intergenerational equity. In other words, looking at the problem that exists for younger people. And let's call people under 35, just for the sake of it. And actually, there is, actually is an intergenerational inequity. In other words, the older generation.

• 2:02Speaker 00

  Own a lot of assets and they've enjoyed high price rises through all unusual periods post GFC, during and post COVID, but they've also enjoyed high prices or higher prices relative to what they paid for maybe 15 or 20 years ago. They've enjoyed it because the government has not kept up supply

• 2:29Speaker 00

  to the levels of immigration and to the levels of population growth. And Chris Richardson will talk about that. Supply is the key here. It's not that people got rich at the cost of people who didn't get rich. It's not that older generation have sucked all the dollars out of the system. It's because we have not supplied enough properties into the market relative to the demand for those properties, that is, you know, young people becoming of age and/or immigration or both. We just, this government has not supplied enough properties, not just the federal government, the federal and the state government and the councils. And Chris goes on to say, to some extent, it's also about us as individuals. Because us as individuals, a lot of us don't want any new things to be built in our street.

• 3:15Speaker 00

  Because, you know, we worked hard our whole lives to buy this house, which we want to leave to our children or our grandchildren, whatever the case may be, or we want to live there to the day we die. Because health has improved, we don't have to be put in a home or a hospital, which is fine. But what we should be doing, the government should be doing is finding new green fields and opening up new areas for younger people to move into.

• 3:39Speaker 00

  But the narrative is the thing that's wrong. The treasurer's narrative is wrong. The treasurer saying this budget is designed to help younger people is politics. Because Samaras sat right here last week and said exactly that. He didn't say it was wrong, but what he said was governments, or governments, all those people he advises at least, know that there is a massive vote that they're missing out on, that's going to the Greens, that's sitting between young people 18 through 35. Because they don't like either party. Some of them may end up moving over to One Nation.

• 4:17Speaker 00

  But there is a huge amount of people sitting there. So this narrative around this budget is directed at trying to make those individuals who vote for governments in the future, and there will be an election in 28. Oh, guys, we and our budget, this budget and a future budget, we are looking after you. We are trying to mend this intergenerational inequity. In other words, we're trying to get you into a house. We're trying to give you what your parents and grandparents have got. Now, what I'm annoyed about is that that narrative is wrong. This budget will not help younger people get into a home. By the way, the very people who are supposed to have caused this intergenerational inequity,

• 4:58Speaker 00

  the older people, they've been protected because effectively they've been grandfathered. On any gains that they've made to date, their 50% discount on the capital gain that they're going to make still remains. They will still get that discount. So the government didn't want to punish them because they worry they might lose their vote. So those people are fine. They're fine. But nothing's happened down the other end of the, uh, end of the board. Like, you know, the books have been pushed down one end of the ship, but the other end's empty. So you young people are not going to get anything out of this budget. Nothing's going to happen. Nothing's going to change for you. Interest rates aren't going to go down so you can afford to borrow more money. The banks aren't going to lend you any more money.

• 5:43Speaker 00

  The government's not going to give you a deposit. No one's going to supply more housing so that there's more competition in terms of those people who are trying to buy these properties. In actual fact, I think this budget is going to create intergenerational inequity, and I'll tell you why. The exemption. In other words, those people who still will be able to get negative gearing for new purchases post today or post last night. Applies to new housing. So anybody who's got coin and they want to invest in the property market and get negative gearing, which could be you as a younger person, but anybody, because that's available to everybody across the board.

• 6:25Speaker 00

  An older person might say, well, instead of buying an existing property now and renting it out and getting negative gearing on that property and getting the capital gains tax discount that I'm not going to get that anymore. What I'm going to do is I'm going to go and buy new housing, anything that's new, I'm going to buy that. I'll put in my 20% deposit because I've saved up a deposit, I'm retired, or I've been saving it up. I'll borrow the money from the bank, I'll negatively gear it, those people are now exempt, they get the negative gearing. And when I go to buy it, I can afford to pay more than the young person. Those people will outcompete the young people every single time. So as usual, government involvement in an asset class,

• 7:09Speaker 00

  usually all it ever does, this is my experience, this is all I've ever seen, it's just happened recently in the 5% deposit government guarantee scheme. All it does is increase the price of the asset, which then in a rising interest market, interest rate market, right, we are right now, puts that beyond the reach of a younger person.

• 7:34Speaker 00

  So all of a sudden, those properties, those new properties, will be bought by the same people who've been buying properties for the last 10, 20 years. They will control that market, they'll be looking for people to rent because they're not going to live there, they own their big house somewhere else. They're going to put it on the market for rent. When someone young goes along to rent that property, they're going to pay the market price because, you know. People have paid a lot of money for it and they want to get a return. Then that will lead into their ability to save a deposit for the future. So this, this system, this, these initiatives by, in this budget, as far as I'm concerned, and I'm going to call it out, are not going to work. In fact, they're going to have the opposite effect, like they always do.

• 8:19Speaker 00

  It might have a, a, a positive effect for a couple of months, but as soon as everyone gets in the market and starts working this arbitrage out, they'll take advantage of it. And by the way, you don't blame them for taking advantage of it because it's a free market. People will invest their money where they can and where the demand is that they'll push the prices up, especially if the supply is low and the supply will remain low. We're not going to get any great supply. What we should be doing, what governments could be doing, they could be saying, you know what? If you're an employee or you're running a business and let's say you earn less than a hundred and fifty grand, where you're paying a marginal tax rate of thirty, thirty-five percent.

• 9:01Speaker 00

  Young person or any person, if you elect to

• 9:08Speaker 00

  into a scheme, what will allow you to do is only pay twenty percent marginal tax rate on that hundred and fifty grand. In other words, you can save ten or fifteen percent. But the condition of that saving of tax is that money must be invested into your super fund alongside your compulsory superannuation that your employee pays. But you are investing this money now, not the, so the employee is going to invest his twelve percent. You are alongside that employee going to invest this money into your super fund. And you, a person earning a less than a hundred and fifty thousand, you can access that money over time at any time if you choose, but only if it is to buy a house or a dwelling.

• 9:53Speaker 00

  That money will be taxed for in your super bowl. It's deductible to you, you get a deduction for it. You're only, and you've made the election, so you're only paying 20% tax, so you're saving money. If you don't touch it and sits there forever, you can pick it up when you turn 65. But the only time you can access this money is to buy a house, is extra money. Now, maybe this is, you know, got flaws in it from a tax point of view and there could be, you know, treasurer will run the rule over if they ever did. I'm sure there's flaws in it, but point being here is this is the sort of stuff that I would have liked to seen in the budget. This sort of real tax reform that actually helps out the younger generation, solve this inequity problem. And the only way you're going to do it is to reduce tax.

• 10:38Speaker 00

  Give them more net money. So that allows them to build a deposit. Which allows them to go into the market and compete with a full deposit. That's what we need to see. That's what I would like to seen in this budget. So I'm sorry treasurer and prime minister, I don't cop it. I think this is unfair. I don't think it's achieved the thing that your narrative keeps talking about. No doubt you're going to have lots of arguments with the Greens about this because they're going to say the taxing that you've put in is not enough. The exemptions that you've applied shouldn't be there. So it's going to be hard to get the support of everybody. Hopefully, you know, we don't have some sort of double dissolution, this budget doesn't go through.

• 11:22Speaker 00

  Yeah, Jim, it was courageous, mate. But at the end of the day, it was courageous because I know, I think, I can tell you feel that this has not been accepted. And it just didn't go the way everybody thought it was going to go. And this is a tough period. We've got interest rate risings, we've got the Iran war doesn't look like it's going to get solved too quick. We've got the price of crude oil is going to be a drama. We've got petrol pricing, you know, or fuel out the bowser and everywhere else in the country causing inflation. We've got potentially more interest rate rises. We're in a tough period. And what I was hoping for was something that actually will help this country grow. And by the way, in this podcast, Chris Richardson talks about growth. And he talks about prosperity.

• 12:08Speaker 00

  And one thing that Chris is a bit disappointed in is that this is not a prosperity budget. And the only way to make things more affordable is put more money in people's pockets, not by government handouts, but by the country growing prosperity, which is what we need. Anyway, enjoy the podcast. Chris is a very knowledgeable guy, one of the best economists in the country. It does get pretty deep and pretty into the minutia. But like, if you're interested in understanding how a budget actually works and the economics of all this stuff, it's worth a listen to. Chris Ferguson, working in Straight Talk, mate.

• 12:47Speaker 01

  Many, many thanks for having me, Mark.

• 12:49Speaker 00

  What would be good today to talk to someone of your expertise about is the economic effects of the budget, or perhaps even the economic objectives of the budget and what do you think will be the economic effects of the budget in terms of it being executed objectively. So obviously a big worry to our audiences, and you know, Australians generally, is how do you see this budget looking for the year ahead and perhaps periods after, but just let's talk about the year ahead relative to inflation. How does it look?

• 13:24Speaker 01

  Let me just step back for a moment because the federal budget is about a quarter of all the money in Australia goes in and back out. You can kind of think of it as is true, you know, every family, every community, every nation has a has a social compact. The federal budget's a bit of a social compact. You know, we tax workers, we tax businesses, we spend it on the young and the old and the sick and the poor and defence forces and the like. I tend to think of any budget, any social compact, having two big aims.

• 14:05Speaker 01

  And both of them are part of the backstory to this particular budget. So two aims are to make people better off, you know, to raise the standard of living over time sustainably. So the sort of prosperity aim. But there's also a fairness aim. As we, as a group, become more prosperous over time, are we sharing those gains well?

• 14:32Speaker 01

  And the true backdrop to this budget, you know, I don't necessarily think it is the the inflation challenge at the moment of the Reserve Bank. I don't necessarily think it is Iran and then the war in the Middle East. I would step back a little further and say, across our lifetimes, Australia's been a magnificent prosperity success story. We spent a long time with our standard of living moving up, at times, including decades faster than you saw in the US. But in the past decade, our living standards have barely

• 15:13Speaker 01

  grown. If you look across the rich world as a whole, the average citizen in that sort of rich world club, the OECD, their their living standards have gone up about seventeen percent in the past decade. Now, that's their income, but it's disposable income, you know, it's inflation adjusted, it's per person. In Australia, it's less than a third of that. And because we're not becoming more prosperous at the same rate that we used to do, we are getting grumpier with each other. You're seeing fights over the pie, again, a very

• 15:52Speaker 01

  dominant part of this budget, and you are seeing, you know, everything from social media to our voting patterns. We are grumpier with each other. And it does worry me, you know, I actually like a bunch of things in the budget, but it worries me that it hasn't done enough to break us out of that low prosperity trajectory, which means we may stuck, stay stuck fighting over fairness. And that's not a great place to be.

• 16:27Speaker 00

  How does one measure? Our standard of living. So what is that? What is that measurement? Is it a universal one?

• 16:35Speaker 01

  I just use basic numbers coming out of the Bureau of Stats. The exact same numbers used in the exact same way by the OECD. They look across a bunch of countries. What you are doing is taking your total income from everything, from wages, salaries, dividend, interest, your profitability, you're getting the rent, taking out two big things to make it disposable income. One is personal tax, the other is interest payments. And then inflation, adjusting it over time, putting it on a per head basis. And at least at the index level, you can then compare across countries as well as across time.

• 17:18Speaker 01

  In in economics, there is one truly great one liner. The Nobel laureate Paul Krugman once said, productivity isn't everything, but in the long run, it is almost everything. Australia stopped getting better at doing stuff about a decade ago. And when that happens, your living standards don't increase. And and that productivity fail is a prosperity fail is what's got us, I think, in many ways, into this current mess.

• 17:54Speaker 00

  Is the ultimate outcome very sensitive to tax rates or is it more about wage growth? Or is it? What is it more about? Or is it not more about anything? It's about everything?

• 18:03Speaker 01

  Well, it is about something in particular. It is about wages relative to prices. So, you know, all nations have a personal tax take. Ours is relatively high. And and, you know, it has increased a bit over the longer term. But it's not personal tax that has been make or break for our lack of prosperity growth for a long time. It's wages haven't gone faster than prices and people love to reach for all sorts of conspiracy theories around that. But it goes back to the productivity thing that I said. We are not, you know, making great use of new technologies. We are not investing in stuff, you know, I don't mean the financial investments.

• 18:48Speaker 01

  I mean, the, you know, the the road, the rail, the factory, the computer, the the whatever else.

• 18:56Speaker 01

  And that combination, you know, we're not using our skills as well as we could. We are not using um our our envirom- built environment uh out there as well as we could. Means that we are not advancing at the rate that a bunch of other nations are advancing. If you look across the OECD, uh we're still uh in terms of uh the increase in our living standards over the past decade, we're still uh beating the palms. Uh and it always, you know, it's nice to do. Um but they are essentially bottom of the list, right, you know, and uh under US, uh top of the list in terms of gains in its living standards. Uh and I do think Australia can and should do better.

• 19:38Speaker 01

  Our politicians, by the way, aren't make or break around a lot of that. Um but they can either stand in the way of our productivity gains, our prosperity gains, or they can uh help them along. Uh and and for some decades now, you know, we have been um in a in a nation where our politicians have not challenged us as much as they should, haven't made us change as much as we should. Uh and and therefore we haven't had our political classes giving us a boot along uh on that prosperity front.

• 20:14Speaker 00

  It's it's very interesting. So um uh the RBA's mandate sort of also talks about prosperity of all Australians and also the welfare of all Australians. And those two in some respects conflict, but we sort of understand when inflation's really high, we've got to look after the welfare of everybody, therefore we put interest rates up. Um when uh inflation is nice and low, we need to grow or be prosperous and we put interest rates down. Pretty simple. Um that's very simple at least for me to understand. When it comes to the government relative to their policies, fiscal policy.

• 20:51Speaker 00

  So RBA's monetary policy for our audience. But when it comes to fiscal policy, and the big one is, you know, the budget. The big event is the budget. Does the government also look at those two aspects? Prosperity, therefore, growth, measured by growth and welfare?

• 21:11Speaker 01

  To be fair, it does look at all that. But again, you raise a really important point around the backdrop. You know, at times people pretend there is a magic wand, you know, well, we could all just be more prosperous if this, if that. Sometimes it's let's just, you know, raise everybody's wages, which at one stage Australia in the mid 1970s did that. And of course we got a lot of inflation and we did not get any change in prosperity. There are all sorts of people out there who will peddle simple solutions for complex problems. If you look at the problem that the Reserve Bank has to juggle, it promises Australians that over time it will stay on top of inflation.

• 21:56Speaker 01

  And what is inflation? You know, inflation, it crops up when we have too much money chasing too little stuff. When our spending runs ahead of the ability of the economy to produce the stuff that we're spending on. Or in the economist jargon, demand is ahead of supply. And that is a situation that we had before the Iran war. Inflation had, you know, it looked as though it was going down for a while, but it had popped its head back up. The Reserve Bank had brought out the hammer and was whacking that nail. And then this war happened. It is worth noting, and you're talking about the budget and you're entirely right, right? It is worth noting that what we are juggling in Australia in the near term

• 22:41Speaker 01

  is not that dissimilar to what we juggled back in 2022. In 2022, right, there was already inflation like we had before the Iran war. And then Russia's invasion of Ukraine sent energy prices up. And you got off the back of that combination of worsening in inflation. And again, we're getting that worsening in inflation now. And governments, so the, I've mentioned the feds are about a quarter of the spending in Australia. By the time you add in the states, you're about two fifths, 40% of all the spending in Australia.

• 23:20Speaker 01

  Um, the, the politicians essentially reacted to that by uh giving us money, all right? You know, and lots of subsidies for this and that. Uh, and, and I suspect there was a certain amount of grinding of teeth from the Reserve Bank uh around that. Um, because it sounds good, you know, in a bunch of cases, they handed us money in ways that, that reduced the measured inflation rate. But they still achieved worse than inflation because they were giving us extra money uh at a time when there was already too much money chasing too little stuff.

• 23:55Speaker 00

  So if, if I might be able to ask you then, in that regard, the Reserve Bank governor in her post-announcement press conference uh last week did say, I, I can't remember the exact words, but I remember one of the words she used exactly. She said Australians could be forgiven for fe- for feeling poorer. Um, and that's sort of, sort of, uh, puts a knife straight into, you know, how we feel about our standard of living. So we feel poorer, that goes right to the very heart of that.

• 24:23Speaker 00

  And she has been very, um, as you would expect to go, uh, the government of the Reserve Bank or Federal Reserve of any uh country, uh, been very careful not to be critical of the government relative to fiscal policy, but has made some references to um increases um by government in spending, for example, the two hundred and fifty bucks that they're going to give to everybody, not that that's, and by the way, it's not coming into twenty twenty eight anyway, but it doesn't matter. Um, she has been, sort of made some references to it. And then the Prime Minister has made reference to this being a, a budget which is with, full of labour values. Um, I don't quite know what that means, but I could guess, I guess, I can guess.

• 25:07Speaker 00

  Um, do you think in that, in that context, do you think that this budget is one that is aimed at growth?

• 25:17Speaker 00

  Or constraint? And or will it have an effect by increasing pressure on inflation by increasing private demand?

• 25:30Speaker 01

  Yeah, yeah, yeah, and you are setting out. I thought of three tests for the budget. One, just briefly, if you like, was insurance in the sense of paying more for fuel really hurts. But running out of fuel, especially diesel, our farmers feed the world, our miners make us the money, our transport sector moves everything that is our lifeblood. If we were to run out, then that would be a real problem. So the main task for the government right now is to make sure that we're getting supplies and that our supplies are secure. The second one, though, and you talked about it, inflation.

• 26:12Speaker 01

  Because back a handful of years ago, when the Reserve Bank was taking money out of the economy, governments, and the states were arguably worse than the feds, governments were putting the money back in. And if inflation is too much money, chasing too little stuff, it was a real problem. And we had in the week or two leading up to this week's budget, some state budgets, right, you know, Victoria or Western Australia, and they have. And so Victoria's got no money, but they still spent some more on their punters. Western Australia's got heaps and heaps of money, but they spent more on their punters.

• 26:52Speaker 01

  And you could just hear the teeth start to grind at the Reserve Bank, you know, the states being part of the problem. And their fear would have been that maybe the federal government would do as it did a handful of years ago, you know, because an energy crisis is one where the budget is better off, but families are worse off, families are poorer, as the governor pointed out. The temptation for governments to hand over some money is very high. To this government's credit, it has not extended things like that fuel tax cut, it hasn't handed out too much money. Um. But I'm I'm cautious of uh saying that they haven't um you know, made life a

• 27:35Speaker 01

  a little more complex for the Reserve Bank. Um. Or or at least I'd say they haven't helped the Reserve Bank. Uh. So the last big budget update we got here at Christmas about five months ago, um, the estimate of spending uh in the financial year we're just about to start was eight hundred and eleven billion dollars. Do I hate myself that I know that number? Yes. Uh. And then the update we got in the budget, uh, it was no longer eight hundred and eleven billion in spending, it was eight hundred and thirty billion in spending. That extra eighteen nineteen uh billion. And then, you know, you can understand some of it. There were policies, there's new policy stuff, some of it's defence, some of it's, you know, fuel security, some of it's uh pharmaceutical benefits, some of it's

• 28:19Speaker 01

  uh, well, governments do spend more when inflation goes up and and the economy weakens. Um. Some of it is the continuing blowout in in the NDIS that uh put the boot up the bum of the government to to get more serious on reform then. But that increase in spending, five months ago, the expectation was that spending in the year just about to start by the federal government would increase by three point one percent. Um. As at the budget, they said, well, hang on, uh, we now think it's going to be five point three percent. And I do think that will have raised a couple of eyebrows at the Reserve Bank. So, um, you know, yes, the Reserve will be quite happy. There wasn't a big cost of

• 28:59Speaker 01

  living uh package. Uh, we have not repeated those mistakes. The states, though, are still throwing some money around and the feds are spending more than they had uh said they were going to do last time they updated us.

• 29:13Speaker 00

  I'm imagining you remember the um Costello years and uh let's go back to the mid two thousands, early period. And uh Peter Costello did talk about um intergenerational equity in those days. This is this has been an ongoing conversation and and, you know, treasurers post him, you know, hockey did, um, you know, uh, Swan did, et cetera. So it's not something new. Um. And there probably is an intergenerational problem in that um all the wealth seems to be at one end of the table and the younger people are struggling to get there. That makes sense. What's interesting about this is that um Costello's thesis.

• 29:52Speaker 00

  About fixing intergenerational inequity, if that's the way we put it, is that instead of running deficits, we should run surpluses. And the reason we should run surpluses is so that we can reduce national debt. Of course, he wasn't talking about state debt, he's talking about the federal debt. And the justification for that was we don't want our kids and grandkids and future generations to have to pay either an interest or alternatively in extra tax. The debts that, say, my generation and perhaps your generation have accumulated for them.

• 30:32Speaker 00

  But today, if we fast forward that, the intergenerational inequity still exists in the same format that existed in the mid 2000s. I actually remember in 2001 election, when John Howard was going for the election, affordability, housing affordability was his mainstay policy. And he launched it in Adelaide, I remember him launching. And Chris Joy, who was where I first met him, Chris Joy wrote a paper for Malcolm Turnbull, when Malcolm was a Chair of Goldman Sachs. I remember the event very well. So we haven't really solved affordability and we haven't solved intergenerational inequity. We've tried, we haven't solved it. The thesis for solving that today seems to be a lot different.

• 31:15Speaker 00

  What do you, as an economist, how do you feel about solving for this problem as an economist, relative to fiscal policy, for example?

• 31:23Speaker 01

  So there are three standout things that you can do. You mentioned one of them, that's to have a better, a stronger, long-term budget, so that we're handing on less debt to the generations that follow. To be fair to this budget, it does that. To be less fair, it gets there over the longer term by assuming we'll be able to make some pretty big savings in the NDIS. And that's going to be hard to do. And certainly, the speed of the turnaround that the government is looking for on the spend on the NDIS is pretty fast. So it's hard to find too many people here in Canberra who think that that will be achievable.

• 32:08Speaker 01

  But, so yes, you can improve fairness over generations by being more careful with the longer-term budget. There's been a bit of that in this budget. You can be fair to younger Australians if you give, and you've mentioned it a few times, if you give greater potential around growth. I've called it prosperity. You don't get growth in living standards without growth in the economy, but growth in prosperity, it's essentially all the same. And there are some things, right, you know, there'll be all sorts of changes around artificial intelligence and the like, and that chopping and changing in the economy will create some problems on the way through, but it will

• 32:52Speaker 01

  also give us a more prosperous economy. We will get greater prosperity out of those technology changes and the like. What worries me is that we are, you know, not getting enough of a push from our political classes and haven't done for decades around the everything else of prosperity. There are all sorts of things we do in the federal budget and outside the federal budget that are astoundingly stupid and that holds us back on the prosperity front. I am a sad, sad human being, Mark. I love tax, right, you know, and I think we can and we should do better in tax. But you look at some of the biggest tax reforms

• 33:34Speaker 01

  we can make in Australia. And then you look at, well, you know, what's the economic models that people like me and others run, you know, what's the boost to prosperity we get out of something. You may be surprised to hear that the, you know, tax, I love it to death, we can and we should do it better, but it's not make or break around prosperity. There is a little-known push by the federal government to change non-compete clauses. That's, you know, you get a new job, you sign the bit of paper that says, as and when you leave that job, you can't do this, you can't do that.

• 34:16Speaker 01

  And here in Australia, about one in every four workers signs those. And they're way too restrictive, as I like to say, the clue is in the name, right? Non-compete clauses. We are stopping competition and competition is a grand thing. If we do, you know, really wind back the scope of those clauses, or even get rid of them and protect intellectual property directly, you can have as big an impact on prosperity as some of the, you know, the huge tax fights, the changes out of tax that we can get. So I do worry that sometimes we roar down rabbit holes rather than chasing some of the easier wins that we could achieve.

• 35:02Speaker 00

  In the context of that then, Chris, maybe you could explain to me and our audience, why over the last two months, we've had changes to super, which probably at the margin don't make much difference relative to the budget, changes to trust tax, the way we tax trusts, and all this capital gains and, you know, the elimination of negative gearing, or the changes to negative gearing. Why do we have that as such a big deal? If in relation to, you know, growth and or prosperity, they're not going to have that much of an impact. What's that all about then?

• 35:40Speaker 01

  Yeah, and they're not going to have that much of an impact. And let me add, because I do worry about. So I'm broadly happy in particular with the capital gains tax change. But I do worry that it's being marketed, it's being spun as, you know, this solves housing affordability in Australia. And the good academic work in this area has never claimed that. And, you know, the simple illustration, over the next five years, the changes to capital gains tax and a negative gearing will raise an extra $3.6 billion in tax.

• 36:21Speaker 01

  Now, that's a lot of money I would bend down and pick it up. Um. But uh across the same five years, we will uh as a nation um pay about six hundred billion uh in terms of uh mortgage interest payments, not uh principal, just mortgage interest payments. Uh so three point six versus six hundred, or look at the total size of Australian housing currently valued at uh twelve point three trillion. Uh the these sort of changes will have an overall impact on housing, but if you think of housing as a big rock and we are moving the lever there, um we've got a tiny lever and this is Australia's largest rock.

• 37:04Speaker 01

  I would take you back to twenty twenty one or twenty twenty two even at that stage before interest rates started rising uh in Australia. You could have made two um relatively reasonable arguments about why Australian housing was so unaffordable. One was, um well, interest rates had been falling for a long time during uh the pandemic, they fell to essentially nothing, um and and when money is cheap as chips, uh no wonder housing prices had gone up and and uh when when interest rates in Australia rose, you would think, well, hey presto, um house prices will come down, they'll become more affordable. The alternative argument uh said, well, look, you know, for decades, uh the

• 37:48Speaker 01

  the Australian housing policy has been the word no, you know, no, you can't build it. No, you really can't build it there in that leafy suburb because older and richer people don't want you to. Um if in the rare occasions we say yes, uh you know, we we put all these rules of regulations that make it stunningly expensive to do. And if you roll on to today, our interest rates have risen a lot over that period. Uh and and it is the equivalent. Uh, of the Reserve Bank abolishing um negative gearing and and uh the entirety of capital gains tax uh discounts of any kind, many times over, right? You know, so

• 38:30Speaker 01

  whether you're talking about interest rates, uh capital gains, negative gearing, you are talking about uh the cost of money going into property, right? Um, we've done the equivalent of of all this stuff around negative gearing and uh on capital gains taxes, and it did not stop a big rise uh in house prices in Australia. We now know, right? We have great evidence uh that the the way to fix housing in Australia is uh going to be the political fight of the uh the rest of uh our lives. You know, it is convincing older and richer uh Australians who don't want change uh in and around uh the suburb where they live, that if population is going to grow this much, uh we need to change a lot.

• 39:13Speaker 00

  If I can interpret that, I think what you're saying is the rules and regulations are not conducive or are not encouraging any more supply in those particular areas, for example. But and because of Australia is such an unusual nation with, you know, fifty five percent of its population, whatever it is, living in three capital cities, and you know, they're surrounded by mountains and sea, um it's very hard to go beyond those places. So supply is a problem. Supply is a huge problem. Did you see anything in the budget that's going to help us with supply, therefore help us with perhaps um access to for younger people to buy their own place and or affordability?

• 39:53Speaker 01

  Uh, yes, I did. Very happy to see it. Uh, also fair to say, you know, it's it's again, not a big enough lever. Uh, so the budget has an extra two billion dollars essentially going into infrastructure um around housing, all the, you know, the the sewerage and and the rest of it. Uh, and that is great because we haven't been um spending enough. Uh, but uh the ultimate is supply in Australia requires street by street, suburb by suburb, council by council. We've got to say yes, uh where for decades we've said no. And the people who said no, the not in my backyard, the NIMBYs who said no, thought they were doing the right thing.

• 40:32Speaker 01

  But here we are forty years later and and we know we have killed the prospects of a generation by continuing uh to say no. And and the feds, um it's hard for them, you know, the feds have levers that can have an impact on the states. The states have levers that can have an impact on local council. Uh but at the end of the day, this is still a fight. Uh where um you know, older, richer Australians uh who are already there don't want change around them. And that is uh the the ugliest political fight uh you can ever imagine. I I've always liked um uh there was a a speaker of congress over in the uh US many years ago, Tip O'Neill.

• 41:13Speaker 01

  He said all politics is local uh and and all our housing problems are local and it's hard for the feds to fix it.

• 41:22Speaker 00

  Could you explain um the connection or the dynamic between public spending and private demand? So when the Reserve Bank governor talks about aggregate private demand has been increasing outside of outside of um fuel ta- uh fuel prices I'm talking about. Um and she often says it, where does public spending, money spent by the government fit in? Governments, not just federal, but states as well, fit into that?

• 41:50Speaker 01

  Uh so feds are about a quarter and in the states are about forty percent of all spending uh in Australia. Um but of course, you know, they they tax and they spend, sometimes what they do is uh give a tax cut or give a subsidy. You know, you're seeing that with fuel taxes uh at the moment, you've seen it recently with electricity uh costs. Um there was an another tax cut uh announced in the budget. So sometimes, even if uh governments aren't spending more, they are giving families uh or perhaps businesses uh the the uh money to spend more.

• 42:28Speaker 01

  Um. Inflation doesn't care, if you like, uh, whether an extra dollar got spent by uh, a federal government, a state government, uh, a family, a business, whatever. Um, all that inflation cares about is how much spending in total we're getting relative to our ability to supply uh, that spending. Again, I'd go back to that basic equation. Too much money chasing too little stuff. Uh, and, and that's, I think, some of the frustra- I, I'm not one of those people who thinks the Reserve Bank, um, can or should jump up and down about, uh, governments. That's not their role. They are there to fight, uh, inflation. Uh, and, and the politicians, to be fair to them, they have a different role and

• 43:14Speaker 01

  politics being what it is, sometimes, you know, they are going to make the task of inflation fighting harder with their decisions. That's what it is. Um, you know, I don't expect, uh, the governor of the day or the Reserve Bank to be jumping up and down about, uh, what governments do. That's not how it works. Uh, if you want an, an assessment of what governments are or aren't doing, you know, there's plenty of people out there who can give opinions. You, you've, you can't necessarily expect the Reserve Bank to be the one, you know, the part of government to be jumping up and down about, uh, the rest of government.

• 43:46Speaker 00

  We often talk, um, and it's, it's in the media all the time about the national debt, um, being nine hundred and, let's call it sixty billion, close enough to a trillion. Um, maybe you could also explain to our audience, that's not the end of it because I think the debt of Victoria alone is a, a couple of hundred billion. Um, does that fit into the national debt or is that in addition to the national debt? So, and what would our national debt look like when you add everything up?

• 44:17Speaker 01

  Couple of thoughts for you. Best way to measure debt is not gross debt, it's net debt. If I've got a big housing loan, but I've got a bunch of money in the bank, I'm better off than somebody who's got the same loan, um, but no money in the bank. The net, uh, of our financial assets is important. So the feds are close to a trillion dollars, as you know, uh, in debt. Uh, but net debt, once you allow for the money they've got stashed away in various places, is about, uh, six hundred billion. Um. Second thought is, uh, you know, well, uh, whether I've got a big housing loan, uh, and whether or not I've got money in the bank. What's also relevant is my wage, how much I'm earning. Uh, and, and the same is true for governments, right? You look at

• 45:01Speaker 01

  the nation as a whole, uh, and, and you look at that, uh, six hundred billion, uh, in, in federal debt, you kind of need to compare it to national income. Uh, and, and I suspect, uh, this will come as a surprise to you and to many people. Um, if you're looking at net federal debt as a share of Australian national income, uh, that is below where it was before Covid. All right. You know, uh, yes, Covid was expensive, but it was temporary. Uh, and, and our national income has, uh, grown a lot. And we've had a burst of inflation, um, you know, which has boosted the size of, of national income, but it hasn't boosted the debt. So I

• 45:44Speaker 01

  am less worried about federal debt than a bunch of people are. What has changed over the past decade, and you mentioned it, you know, the, uh, Victoria with its two hundred billion debt, a bunch of others, uh, states have also got debt. Uh, they also have less financial assets so that the, the reduction to net, uh, is, is, um, uh, more of an issue for them. Uh, to the extent that Australia has a public sector debt problem, it is more, uh, the states than the feds, uh, these days.

• 46:17Speaker 00

  Thank you. And are there any insights you can offer around something that rarely gets discussed, but the off-budget budget? So in other words, things that weren't disclosed in the income expenditure budget that are more in the capital side of the budget, or what we're going to spend, what Australian government's going to spend on capital items?

• 46:37Speaker 01

  Yeah, and, and, and the distinction is a, is a different one. So, um, if, if there's a given measure of the budget that the media and analysts concentrate on, uh, then the politicians have an incentive to, to put money that it doesn't show up in the measure that's being concentrated on. Uh, and, uh, until that charter of budget honesty back in nineteen ninety-eight, we, we used to, um, Uh, look at a, a number that was made better when governments sold an asset, when they privatized.

• 47:11Speaker 00

  For example, like Commonwealth Bank or Telstra.

• 47:14Speaker 01

  Yeah, yeah, and indeed you saw a lot of privatizations at the state uh level and, and um just before change of government from uh Keating to Howard, uh Jeff Kennett was privatizing some things that let him pay back some debt to the feds, um the, the uh repayment of some Victorian government loans um allowed the federal government to say uh at that stage, right, the, the budget is in good nick. Um, you know, whereas it was uh being propped up by one-off privatization uh receipts effectively. Um, and, and so uh economists, including me, said, well, hang on, you know, we need to fix that. And then we had a charter of budget honesty.

• 47:55Speaker 01

  Um, our problem is that when we changed what we look at, we simply changed the incentives for the politicians and don't get excited by one side or the other, right? Our, I, I, if you think one side of politics are genius and the other side are incompetent and evil, then you are a deep disappointment to your primary school maths teacher, all right? You know, they, they are all flawed human beings and they are dealing with flawed incentives that we as a nation have given them. Uh, and, and as soon as we changed the incentives, as soon as we said, well, you know, um, we're now going to concentrate on this budget measure, not that one. Uh, it gave them in an incentive to, to put different money. Instead of privatizing, we were sort of nationalizing.

• 48:40Speaker 01

  Suddenly we had all sorts of funds, you know, we've got funds around housing, uh, we've got funds around climate change, uh, we've um, got, got everything from uh the N B N to Snowy Hydro, uh, to student debt, uh, all sorts of things sit off budget.

• 48:57Speaker 00

  In other words, they're not in the current budget.

• 48:58Speaker 01

  Uh, they, they are not in the measure that we look at the most. Uh, and, and the, the, the sort of punter way to think about it is I don't mind if something goes off budget. Uh, if, if that's just a, all right, you know, money's going to go out, but it's going to earn a bit of a return and that money will come back in. I don't care. I don't need to look at that closely. It can go off budget. That's fine. Our trouble is um that our rules and our reporting mean that effectively stuff goes off budget and then we stop caring about it. So increasingly over time, that's where the trash goes, you know, and that money goes

• 49:35Speaker 01

  dark. We don't look at it enough. And so, you know, for example, when you have debt write-offs, as we did recently with student debt, it doesn't show up in, or not immediately, it only shows up very slowly, in the main measures that we look at, right? You know, so there's a real incentive for our governments to put trash off budget and then to forgive that debt, right? You know, because the system sort of lets them get away with it. It's not, by the way, the only way in which they do things. They tend to, any given budget gives you some numbers over 10 years, but it gives you detailed numbers over four years. So they try to be careful in the

• 50:20Speaker 01

  four years and mysteriously years five and six are suddenly much worse, right? You know, there's that dodge. There's all sorts of things we do need, and I would, it is an incredibly nerd and niche point, forgive me, but if we give our politicians such terrible reporting rules, of course they are going to vote them. And I'm desperate to change those rules. We are letting our politicians consistently pull the wool over our eyes.

• 50:51Speaker 00

  I think what you're sort of saying here is that there are a number of items that have effectively been classed as assets for, under the, in this environment and don't appear in the expense column or the income column. The income column being the tax they collect and other things. The expense column being the thing that they spend day to day on, the government, that is, in terms of a budget. But there's another column over here called assets. Snowy Hydro, for example, or NBN. Snowy Hydro, by the way, is not even completed. It's, in fact, they've stopped doing some work on it recently because there was a cave in or something. But they're going to keep throwing money at it. But that's money that's coming from, that's either borrowed. Money or alternatively it's coming out of the tax pool.

• 51:35Speaker 00

  It's got to come from somewhere because you've got to spend it.

• 51:38Speaker 01

  Yeah, and and and the the acceleration in the amount of money that's headed off budget is spectacular. To be fair, this week, it didn't throw, you know, threw an extra five billion in over four years. And I'm not that excited. It was only five billion, but there has been a truly massive amount. We are currently looking across a five year period at a hundred and fifteen billion dollars. That that sits off budget. Again, I hate myself for knowing that number without having to check it. But yeah, you know, Australians deserve better.

• 52:17Speaker 01

  And it's such a nerd thing. We would be outraged if businesses were rorting their accounts. You know, if if the auditors were failing to to jump up and down about all this sort of stuff. The behaviour is bad because we let it be bad.

• 52:35Speaker 00

  Well, I think what you're saying there too, Chris, is that it's really our responsibility. Or perhaps more the responsibility professionals like yourself, because most punters wouldn't understand this. But there is a level of obligation or responsibility for people in this country to hold the government to account for these sorts of things.

• 52:54Speaker 01

  Absolutely.

• 52:55Speaker 00

  We talk about hundreds of billions. We're talking about seriously big dollars. And the question becomes, will these so called assets actually one day make us money? Or at least we get some utility utility out of them at some stage? We don't know the answer to that. Because I was only thinking about the N B N the other day. You know, the N B N, great, but you know, when you look at Musk's Starlink. I mean, like, I mean, if you've got a farm, for example, or even if you've got a house, Starlink works really well. And it costs the consumer, you know, three or four hundred bucks. And we've, yeah, we're spending billions on the N B N. And I know it's valuable, but it's, we use it here.

• 53:35Speaker 01

  Yeah, the technology changed. So you might have thought the N B N was a, you know, good and safe investment and you could set it off, uh, off budget there because it was going to be okay. But the technology changed and, and we've lost money. Um, you look at the snowy hydro, turns out it was, um, uh, a lot harder to dig. Uh, a lot more expensive and a lot slower to dig than we thought. So it might have been reasonable to, to put it off budget, uh, to begin with. But here we are. We now know we've lost a fortune. Um, there are all sorts of, uh, thing, or, or, you know, um, uh, some of our money these days, uh, props up aluminium smelters, uh, because there are votes in it, although props up the, uh, uh, production of tin tams.

• 54:19Speaker 01

  And I love tin tams, but I don't want, you know, my taxpayer dollars, uh, is supporting it, uh, you know, at the cost of everything else. Uh, we let crap happen. That's on us, uh, much more than it is on, on the politicians.

• 54:35Speaker 00

  Thanks. That's a, that's a very clear answer on that. Thanks very much. The, the one that wasn't, the, the word that was not used, I don't think, in everything that I read in relation to the budget. And I did use A I to help me. Um, the word that didn't come up was immigration. Do you reckon you could just, uh, sort of, uh, sort of drill down a little bit on immigration relative to fiscal policy, relative to inflation and probably finally the standard of living, our standard of living? Cause that's where we started.

• 55:13Speaker 01

  Yeah, yeah. And it is worth, um, going back a couple of decades, uh, when, um, migration was a clear positive, uh, for Australia. But because we have not built, uh, or when we built, we haven't built in the right place, or when we built, we haven't, you know, the rules and regulations have made it stunningly expensive. But that isn't the fault of the migrants, right? That, that again, that's on us. We've screwed up. Um, but the worse that housing has become, uh, the more of a complication that the pace of, uh, our migration, uh, has been. Now, migration, uh, the government has been tightening up. Um. But we have a system that lets you appeal this, appeal that, meaning that

• 55:55Speaker 01

  uh the slowdown in migration is occurring more slowly than the government had expected. Uh. This financial year in the budget, the other day, the government just revised up the uh expected net migration this year by thirty five thousand people. I think it was twenty thousand uh next year. Um. To be fair, that number is coming down. To be really fair, you know, if we want to get back to a society that that can be uh much more welcoming as we should be, we have to be doing better on housing and a range of other fronts. Um. We've made uh the migration uh equation for Australia much more complex. Uh. And we can and we should do better.

• 56:37Speaker 00

  Do you think there's a mismatch, or there has been a mismatch relative to policy on immigration into Australia? And and and we're talking about net immigration, so there's people leaving and there's people coming. Um. Relative to um the policy relative in relation to housing these people. Has there been a mismatch?

• 56:59Speaker 01

  Oh, yeah. And and again, that's on us. We should be much better at building housing uh than we are uh and we're not. There are other complications, though, right? The when uh migrants arrive, federal governments tend to make money, they get the taxes. State governments tend to lose money, they've got to, you know, build the roads and and the schools and the hospitals and the like. Um. But it's it's uh the feds who get to make the decisions. So they tend to make money out of it. Uh. And and uh, you know, that has a bit of an impact. They also like um net migration uh to be higher, partly because it makes it less likely that the economy ever tips into recession. Uh. Politicians hate headlines about recessions.

• 57:44Speaker 01

  More people means that's less likely to happen. To be clear, right, you know, the the um uh the politics of migration are made much more complex, not just by those things, but by our policy failings on everything else. Uh. And those policy failings on everything else have lasted uh for so many decades, right? We that responsibility lies clearly with us uh to get them better.

• 58:11Speaker 00

  Do you think overall that this budget was a reform budget?

• 58:15Speaker 01

  I do, which is not the same thing as saying I like um everything in it. There's some things in it that I quite strongly disagree with. Um but it is fair to say, if you look back in in the last couple of decades, we have had, you know, white knuckled scary budgets as we fought off crises, right? You know, and the budget had to do really important things during Covid, uh during the global financial crisis. And and again, not to say that our decisions were perfect either time, but we know, because we could compare to what other nations did, that most times we did better than other nations. And and um, you know, uh federally, uh it was under one side of politics with Covid and another side during global financial crisis.

• 58:58Speaker 01

  What we have not done uh for many years now, uh our politicians have not challenged Australians enough. If an opposition says, you know, we really need to change, we don't vote vote them in. If a government, right, think of the twenty fourteen budget, says, all right, we do need to change. And this budget said, we do need to change, we tend to kick them out at the following uh election. As an electorate, we have begged our politicians to do nothing. We have elected the ones who promised to do nothing, and then they deliver on that promise of of doing nothing. Our problem is that our the barnacles continue to grow. You see it in housing, you see it in climate policy, you see it in federal state relations.

• 59:43Speaker 01

  You see it uh you see see it in our um tobacco taxing, uh you see it now gas taxing. Uh you see it in the NDIS, you see it in in the deal, the sweetheart deal that gives um West Australia uh extra money, even though it's got money coming out of its ears. We do dumb things, and I find that very frustrating.

• 1:00:04Speaker 00

  Can I ask you one final question, Chris, um in the interest of time for for you? Um and I appreciate the time you spent on this. If you were advising the treasurer, tough one, and uh and he said to you, look, Chris, this intergenerational inequity is just wrong, we've got to fix it. And and the way I want to fix it is I want to get young people into a house.

• 1:00:28Speaker 00

  What would you whisper in his ear?

• 1:00:30Speaker 01

  Um, I would say, and again, you know, I was happy enough with the capital gains tax changes, but I would say it's not about tax. Um, it is about our stupid regulations. Uh, and, and I was part of that reform, uh, roundtable, uh, here in Canberra last August. Uh, one of its key recommendations was just stop adding things to the National Construction Code, uh, those regulations. And, and if you are in a nation where one of the key recommendations is just stop, right? You know, it, it helps you show, uh, the stupidity of what we have done. Um, I described it earlier as, as for decades, Australians', uh, housing policy has been the word no, right? No, you can't do that. We have to make it yes.

• 1:01:13Speaker 01

  Uh, and that is incredibly urgent because even if we have perfect policies, right? And, you know, federal, state, local council, even if we have older, richer Australians saying, all right, okay, I get it. I've, I've got to change my mind. I've got to be willing, uh, for this to happen. Um, you've then got to build it, right? And that's going to take a very long time to fix. Uh, and that is the, the, uh, tough news. There is no magic wand, uh, in housing and I, I suspect the, the, uh, fix that it needs, uh, is not merely automatically slow because of the building process, but it has to travel through older and richer people who really do not want that sort of change.

• 1:01:55Speaker 00

  Yeah, well, and would you offer them an incentive to accept the change? Would you say to older, richer people, look, you know, if, uh, you five people in those five houses all alongside each other, all agree to sell to this developer is going to put a block of apartments up there. Maybe, um, I don't know, there's some special incentive for you, some, some tax incentive or, you know, I don't know, whatever. Um, would you, do you think that's the way out of this? Because I mean, how do you, how do you, how do you change people's attitude towards, like you just said, the, the five older people living in a leafy suburb? They've always lived for the last 50 years, have paid off their house, have worked out, paid the taxes. They don't want a five story building popping up next door to them. Um, how do you incentivize these people? What do you think?

• 1:02:35Speaker 01

  And I'm assuming they don't have kids and grandkids. Correct. They clearly not worrying about them. And the answer is, and you're seeing it in New South Wales at the moment, as they have changed the planning rules and regulations around train stations, for example. You are suddenly getting builders going to them and saying, well, hang on, there's money. If you wanted, you know, we can now do stuff that we couldn't do before. There's money here. So there is an incentive, a financial incentive to change. Once that change is allowed, we are not yet at the point in Australia where much change is allowed. There's a spot I walk past in Sydney all the time. It's a, you know, a little half a terrace and it looks terrible.

• 1:03:20Speaker 01

  It is tiny, it is dirty, and I suspect it costs many millions of dollars. And squeezed, there is no actual parking spot, but squeezed in under the sort of bay window there is a very expensive looking Porsche. We are creating a first world nation that has third world housing. And that just drives me crazy. You know, why are we shooting ourselves in the foot like that?

• 1:03:48Speaker 00

  Well, Chris Richardson, a former Deloitte Access Economics, but probably importantly today, your business, you're the founder and principal of Rich Insight. I really appreciate your time. And by the way, thanks very much for explaining these complex minutia that sort of sit in budgets that, by the way, the media never talks about. They just hit the headlines all the time. And their headlines obviously are important. Some people will be upset about CGT and some people are going to be upset about negative gearing going and trust taxes and all that sort of stuff. And that's for another day, for another topic. That's not for you and I today, but for you and I, what I really appreciate is you sort of getting to minutia and sort of giving us context about that sort of stuff. I really appreciate it. Thank you very much.

• 1:04:32Speaker 01

  I love it all too much and it's my first time.

• 1:04:35Speaker 00

  Thanks, Chris.