"It was a Disaster" Chris Joye on the Budget, Australia’s Property Correction, Trump & Bitcoin

00:00:00
Speaker 1: Chris joy Well, straight talk again mate, It's a pretty good timing, Like, how long in the country for about a month? About a month. I'm glad I got hold of you before you take off. Last week we met for the budget. What would you say relative to what you were predicting before the budget? Now post budget? What do you think?
00:00:21
Speaker 2: Well, I mean, for a couple of years and silling with you, we've talked about the fact that Australia is threatening itself with economic irrelevance and we're kind of trading away our prosperity, our innovation, our ingenuity. And for several years I've felt that the professional political class are coming for the private sector. They see it as a zero sum game. The guys that have spent their entire life working in Canberra working for government have never started a business, never risked capital, never hired a single soul from their hippocket I've done. They just see those who are working in small, medium and larger businesses as targets for wealth transfers. So I've felt for a long time they're coming for our income, our savings, our capital, and I just think it's astonishing how brazen they were. I argued in my AFI columns before the budget that this would be catastrophic for labor. Everyone thought I was being alarmist. All my journal mates said, no, no, no, mate. They've pulled the but Jesus out of this body and it's going to be wildly popular with the Wokes, the youth and so on. And once the budget was released, I wrote that I thought it was going to be cataclysmic for the country and for the government, and so it's proven. Yeah, I just think it's an absolute disaster. And you know you've got under our be and easy. The bureaucracy since twenty two in Australia, in the last few years alone has increased twenty five percent. In the budget, they said, hey, we're trying to save money from this monstrosity called the NDIS that's now costing as much as Medicare, that is just ridden with like absolutely rampant corruption. They're going to save nineteen point eight billion dollars. How amazing over this period of time, over the fourcast period of the budget. But here's the rub. So they're taking nineteen point eight billion from the NDS, which was this huge white elephant that they created in the first place to feather they're own nests and they're spending though another nineteen point six billion on the public service on themselves, so they're taking it from the NDIS and they're red just distributing back to themselves.
00:02:56
Speaker 1: So those people who are affected in the ndias, like actual genuine people who need NDS assistance that for which they're no longer going to have, if they're looking into where that's gone gone to feathering the nests of the actual government themselves.
00:03:09
Speaker 2: See the only way they know how to make money to tax and take from those who generate. And of course this creates huge disincentives for anyone in Australia who wants to establish a new product, a new service, a new business. Why would you do it in this country when you've got the world's highest capital gains tax rate. You can go to any other country on the planet and get a lower capital gains tax rate. So just unbelievable, particularly as they promised relentlessly to not change capital gains tax or negative growing pride of the budget. So I think it was a bit of an epiphany for the community. I think prior to this, you had Laby, you had teals, you had the right and it was a complex kaleidoscope of agendas, and it's like the budget was this one singular, galvanizing moment where it all coalesced. You had this jigsaw puzzle where the peace as were scattered and they all came in to picture, and there was immense clarity for the community that this is all about the public service robbing from the public private service in order to bolster their own wealth.
00:04:19
Speaker 1: Is this what everyone was talking about when they talk about a transfer of wealth from one sector to another sector. In other words, I don't want to say tax the rich because it actually applies to small business owners. To tax one sector in order to bolster another sector, is it a proper transfer of wealth.
00:04:36
Speaker 2: We'll think about small businesses. You know, one in three, one and two have a family trust. And the history of this country, we have never taxed trusts. Yeah, and then in one fell sweep thirty percent tax on all trusts. Well, it's highest capital gains tax rate a state taxes. You know they've already tried under this government to tax unrealized capital gains. You'll get death taxes, you'll get more taxes on super You'll get taxes on any form of success. Because they see it as a target rich environment from which they can tax and take to ultimately pay themselves, and it's the only way they know how to make money.
00:05:15
Speaker 1: Do you believe in the fact that it's going to create a brain drain? I mean, do you think do you think this will take the innovation out of Australia, You know, the type that Malcolm Turnbill tried to encourage when he talked about the Innovation Nation back in the twenty sixteen seventeen eighteen period, that period whenever he was a Prime minister. Do you think it actually people will leave the country to take their innovative ideas to some other lower tax environment or do you think people just say stuff and I'm going to stay here and I'm not going to bother. I'd rather stay on as a lawyer or a bank or whatever the case may be. I'm not going to go to these other areas. I've got these really great ideas well.
00:05:52
Speaker 2: I know loads of people who are doing exactly that. So it's just a statement of fact that you're going to discourage people from doing business in Australia, from investing in Australia, from establishing any new opportunity in Australia, and you can see this happening all over the world. It's happening in the US in California and New York. They did this dealth socialism, very similar playbook, just tax prosperity, tax anyone who's had any success, and they created huge disincentives to business and what a business and people do They left where they're getting a huge exodus of people and money out of California and New York into Florida and Texas. So you'll get these alternative states that will rise up in their stead and you're also seeing it on a global basis. In Europe, the Italians stepped up and said, okay, if you commit to paying a fixed maximum number of tax each year, a few hundred thousand dollars or euros, you can come here and we won't tax any of your global income. So the Italians have attracted in large numbers businesses and world class investors and entrepreneurs that want to capitalize on that opportunity. Arbudawi did the same thing. De Bay has done the same thing, and so I think you're going to see more and more challenger states who want to usurp the incumbents offer extreme incentives in what is an increasingly competitive and mobile world. We're becoming very mobile, very competitive, and ultimately this is going to directly reduce Australian living standards, Australian incomes, Australian prosperity. So I think it's a.
00:07:36
Speaker 1: Bad policy call. Like I mean, is it a bad policy call? So what I don't mean by that is not bad policy for policy sake, but in terms of prosperity for Australia, as you said, standard living, those sorts of things. Do you think they've got the policy wrong relative to Australians. And I don't want to be I'm not being politically labor liberal whatever, just intellectually to build a country, a great nation, of a really high living standard. You know we can define that later, but highlight standarding. We can basically afford to do whatever most of the things we'd like to do, standard stuff for good stuff, you know what I mean. Do you think that this policy decision has been a major mistake then therefore for Australia's nation building capacity.
00:08:17
Speaker 2: A huge mistake. And you know it's a classic mistake made by nations that have experienced a tremendous amount of success. So Australia has been a very successful country. We've had very high growth rates, we've got these huge natural endowments of resources. We've had amongst the world's strongest population growth, and now we're squandering that prosperity. It's called Dutch disease. It's basically the moral hazard associated with having huge endowments of good fortune, in our case, iron or coal, you know, natural gas, uranium, et cetera, et cetera, plus a political program to relentlessly import people from foreign countries. So we've been dropping half a million people in Sydney and Melbourne every year. We've had amongst the world's strongest population growth threats increasingly because the politicians believe that people coming here will have a higher propensity to vote for those who brought them here. And so you know, it's actually a political strategy in the same way that they ruled out the pandemic that Dan Andrews playbook of just spending as much money as humanly possible to buy votes, financially corrupt voters and try to perpetuate their position of power. The problem with that program of just reckless spending in perpetuity is it eventually creates a huge amount of inflation. So all of this immigration and all of this public spending, it eventually bleeds into the cost of living, so it's pushing up prices. View plant half a million people in Sydney and Melbourne every year. There's only so many houses and only so many services that can support that population growth and supply chain, the chain, energy, electricity, everything, and ultimately it just kind of precipitates higher prices. So as people start to realize that there's a connection between crazy amounts of public spending and population growth, and that drives higher cost of living, high inflation, and then they see interest rates start to rise, and then ultimately all this debt needs to be serviced, and that manifests in the form of higher taxes. With no willingness from the political class in any way to consolidate their spending because that directly impacts their own personal wealth because they're all sucking on the tee to the tax path of these professional politicians. So they've got no incentive whatsoever to balance their books. They've only got an incentive to continuously spend. I mean, the amazing thing about the budget, just to give you the numbers, is this financial year FI twenty seven, they claim the deficit is thirty two billion, that's what they call the underlying cash deficit, but the actual deficit is sixty four billion dollars. So at a time when the reserve bank pustrate is aggressively lifting interest rates three times from three point six percent to four point three five percent, at a time where we have an inflation crisis in this country, where we haven't hit the inflation target since twenty twenty one, where inflation expectations are drifting higher, and the battle against entrenched inflation is becoming tougher and tougher, and it's going to likely warrant higher and higher interest rates. The political class are pouring more fuel on the flames because that's what serves their financial interests. The pay rise is the constant wage inflation for the public sector, the pet personal political projects, the NDAs. It was meant to be twelve to thirteen billion a year, Suddenly it's fifty five billion a year, and every man in their dog is roughting it. So you get this vicious cycle, and the only thing that can really stop it is high inflation, high interest rates, and then a public reckoning when we realize that actually we're squandering our prosperity. We're trying to boost today by borrowing from the future, but ultimately that money has to be repaid, and by allocating money really imprudently. Today we're actually bidding up prices. We're pushing up the price of everything, and it's not sustainable.
00:12:06
Speaker 1: What did you think when you heard the treasurer talk about the intergenerational inequality. By the way, it's not the first time that terms ever been applied. I mean Costello applied that in two thousand and five. I think the same thing. But costello solution, by the way, was to get rid of debt, national debt, public debt.
00:12:25
Speaker 2: Well, here had an opportunity to because the government in two thousand and seven was running budget surpluses rather than a sixty four billion dollar deficit. They are actually printing cash, they were actually spending less than the money they were receiving, and Costello actually had a national conversation about the possibility of completely repaying all government debt, whereas today they've wracked up one point three trillion of new debt, not including state debt. Correct. And the amazing thing is that you mentioned the point about the political class running this propaganda around intergenerational fairness and equity, But how is it fair to borrow trillions of dollars from future restraints that haven't been born today in order to spend that money on the current generation. That's robbing the future to pay for the present. That is demonstrably unfair, that's demonstrably inequitable, particularly when there's no case for spending that money. I think national debt per person in Circuit two thousand and seven was around six thousand dollars to ten thousand dollars, and today it's something like sixty thousand dollars. So it's not fair in any way, shape or form. These guys are just bullshiting because they ultimately just want to claim more power by controlling more and more of the economy and putting larger and larger parts of the economy under the remit of the public service and paying themselves more money.
00:13:51
Speaker 1: What do you think about the Treasury, And of course Treasury supported all this stuff, for the Treasury being the Department of Treasure has supposed to the Treasure's office. What do we thinking about the Treasury forecast in terms of the effects on house prices, which, by the way, so far hasiturated to be correct. They said, house prices will continue to risee but at a slow rate. In fact, right now we're looking at house prices falling like falling like a stone, and there's no pointing. I don't want to sort of you know.
00:14:17
Speaker 2: Short coat.
00:14:18
Speaker 1: This is bad and in some places, some parts of straits worse than others. Blake Victoria, but it's bad.
00:14:25
Speaker 2: Sydney's bad, dude. I, as you know, designed the totality indicies that we used to measure house pruss changes in Australia. In the last three months of data, Sydney house prices are falling at a twelve percent annual rate. Melbourne prices are also falling at a double digit annual rate. So we have potentially the mother of all housebruss corrections, the biggest fall in national house prices ever accorded with eleven percent. So I think there's two explanations for this big downward adjustment prices. One is, obviously the RBA has lifted the CA straight three times because they shouldn't have cut the cash rate in twenty twenty five, but they were politically corrupted by the treasure of Jim Chalmers. He sacked the Treasurer. So he sacked the governor of the RBA and replaced that governor fil though with a new governor and a deputy governor and the new board and a new board, and so we replaced seven of the nine interest rate voting members on the interest rate Setting Committee, and so ultimately you got a very dubbish Reserve Bank of Australia was very politically partial to Charmers and Albanesi, and they won the election with the tail wind of the rate cuts. But house prices, part of that point, had been falling. So until the RBA first cut rates in Febry twenty twenty five, house prices were in decline and those rate cuts really balled out the housing market. Now they've reversed those rate cuts and we are still staring at the specter of potentially further hikes. So currently the cashots at four point three five percent. Our modeling implies the RBA probably who's cool, that's cool, but yeah, our modeling implies that the RBA should probably lift the cashret to somewhere between four point seventy five percent. Yeah, So that's another couple of hikes, possibly three hikes, And that's not that high.
00:16:11
Speaker 1: That's the control inflation there.
00:16:13
Speaker 2: Yeah, So how bud is inflation I talk, you know, I use the potentially hyperbolic characterization of an inflation crisis. But we haven't hit the target since twenty twenty one. But today, inflation over the last six months in Australia has annualized it a three point four percent annual rate and over the last twelve months at a three and a half percent annual rate. So inflation is running way above the RBA's target. And with all this public spending creating pressure in the economy at the same time as in the half a million new people coming into the country every years put creating pressure on the economy, we have entrenched inflation pressures that only higher interest rates can deal with unless the politicians start to pull in their purse strings and balance the books. But they're not going to do that. So I think the RBA has a a multi year battle on its hands with inflation. I don't think there's any short term pantasy. I don't think there's any easy answer. It's going to require a lot of pain. And we had a similar cycle between two thousand and two and two thousand and seven when the RBA lifted the cash rate to its highest seven point twenty five percent. But I was going to make the point that from twenty twenty two to twenty twenty three, the RBA lifted the cash rate from zero point one percent all the way up to four point three five percent, and they stopped in November twenty three. The rest of the world went to five to five and a half percent.
00:17:34
Speaker 1: And I remember you talking about it. You were saying we should have gone more.
00:17:36
Speaker 2: We should have gone more. Exactly, you've got a good memory. So Canada, New Zealand, the US UK all went to five five and a half. The RBA was the only central bank in the world that really bucked that trough. And they said, no, no, no, we're unusually gifted. We can thread the needle. We're going to keep unemployment low and inflation low. And I argue they were wrong, and particularly we use their own economic models, so we're coolby round the RBA's economic models. We showed publicly that they should have gone to five, but they didn't. They went to four point three five and we never got inflation in the control. So the risk is we need to go back to five again. And the risk is it's going to be a bit of a push pull, and it could be a long cycle where they pause for twelve months and then hike again, and all of that's bad for house prices. So the first negative for house prices is the IRBA lifting the cash rate. The second their negative is just the huge regulatory and tax uncertainty created by the budget. What is and isn't going to happen? And I just think you get an immense amount of inertia and decision making paralysis because people don't know what's going to happen, what are they going to keep, what are they going to roll back, what happens if there's a change of government, and so it just kills sentiment and it kills the preparedness for people to allocate their marginal dollars into real estate.
00:18:46
Speaker 1: So what's interesting about that? And I know this for a fact that in terms of flow of new mortgages on a monthly basis, around forty two percent of that was coming from investors. And the investor market has just completely disappeared, Is that right? Yeah, just they've gone nowhere. And sure there are some and I heard the Prime Minister saying yesterday the day before that there's more new homeowners in Australia, or more people are buying first time owners are buying homes. Yeah, but as a percentage of what of first time owners before, Yes, house prices might be lower. Therefore a few more people might be able to afford to buy a house. But the point is you have to there are more people are who own a house who have a mortgage, or people who own a house who don't have a mortage but paid it off, did the right thing. And then you know, they might be in the sixties whose only asset is the home, so they feel rich or poor based on the value of the home as opposed to the number of people who want to get into the home. And this is a bit of a problem. I mean, you don't solve one problem by creating a problem for somebody else. So the way they've just decided to solve the problem for the people who don't own a home first time buyers is to take value away from the people who do. I know.
00:20:03
Speaker 2: Yeah, they're trying to naterally pick winners and lose.
00:20:06
Speaker 1: That's not the answer.
00:20:06
Speaker 2: Is if there's some benevolent dictator.
00:20:08
Speaker 1: Well that's god mentality. Yeah, and it's unfair because.
00:20:12
Speaker 2: It's the same mentality of you know, trying to win a hoodwinking the entire country by saying in an election repeatedly, we're not going to do CGT, we're not going to do negative gearing, everyone contemplating taxing trusts or death taxes, and then just rolling out precisely that, and then they got what's amazing made is it was clear that the community signal that after the budget this was something that they were violently opposed to, like there was a huge backlash against all these polishy measures, and yet they're still railroaded them through Parliament. So they have no interest in sort of cleaving to any democratic notions at all. This is just a money and a powergraph.
00:20:51
Speaker 1: So you know a lot of people are going to you know, I know what's going to happen, but they're going to come after a thing and to say, well, you know, you to die in the wall. Liberals, there's nothing to do. A liberal part of their paper means this is just about policy, like individuals who made who have decided to make a policy. The point being here is the Reserve Bank, which is independent, is putting interest rates up because of the money that's been spent absolutely, and they're going to do it again.
00:21:13
Speaker 2: Interest rates would be a hell of a lot lower, and inflation would be a hell of a lot lower in Australia, and our cost of living would be lower if and our taxes work would be lower if they weren't spending as much money as they are on all of these crazy projects, infrastructure projects that have never completed, pet projects that are completely unnecessary. The NBN, and we spent the best part of fifty sixty billion on the NBN, which is being rendered completely redundant by Starlink when they came out with the idea of the NBN, and this is a classic two labor politicians sitting on a private jet writing an idea down on a beer coaster that wouldn't it be great just to build a fiber optic network that we control, we control the Internet. That sounds pretty fun, doesn't Yeah? Sure? Then they splaged fifty to sixty billion on it. At the time they came out with the idea, I wrote for the ABC online, what happened if we get super fast wireless internet? Hey, what happens if somebody starts cracking the code on satellite Internet LO? And behold elon Musk rocks up with SpaceX delivering Starlink Internet, which can give you one thousand megabit per second internet speeds in aeroplanes flying at forty five thousand feet. So arguably SpaceX and Starlink, you know, going to eviscerate the need for the NBN huge waste of money?
00:22:28
Speaker 1: Are you starlink? I mean, and I don't have it in my house anymod have my farm, But I ardequally would say I put it in my house that sign if I need to, Like, I have no issue about it none.
00:22:36
Speaker 2: You're going to have Starlink in your phone soon. What's going to happen to the telecom communications companies when SpaceX and starting are completely disintermediating them?
00:22:46
Speaker 1: So what's the prognosis in mate? Like amman, this sounds very bleak. I mean, if we're talking about house prices, do you see a recovery on house prices? I mean, we're still gonna have a shortage. The one good thing is of bringing more people into the country, of which everybody needs somewhere to live over time, do you think we'll recover get back to where it was? I mean, we've seen falls and house prices before in Australia. We've seen falls and share markers before. In Australia, things seem to recover this they tend to recover even better than they were before the fall. What do you feel.
00:23:16
Speaker 2: I think this will be one of the biggest, if not the biggest correction in the house prices we've ever seen point one point two. I think it'll be a multi year battle against inflation that will require the RBA.
00:23:26
Speaker 1: To potentially lift that's the keyson.
00:23:28
Speaker 2: It illustrates a lot further and it could be very stop start like we saw between two thousand and two and two thousand and seven. I think another problem that the housing market faces, which no one's really talking about, and which I think I might have spoken about on the last podcast episode we did. But one of our key predictions, and this is well before the budget triggered the debate, was that we would have a very polarizing debate on immigration, as we've seen play out around the rest of the world, in Canada, in the UK, in the US, Poland, Yeah, Poland. And what I told you last time was I think we need to prepare for a world, or more specifically a country and an economy where we have no population growth. It's quite normal in the US right now they have no population growth. In Japan they've had for a long time negative population growth. Population growth is slumped in New Zealand and Canada, and an Australian economy with no population growth is a completely different proposition, and that would be as a function of a radical reduction in immigration, which is arguably required just to cope with the huge influx in people that we've had to absorb in recent times, where we've been running the world's strongest rate of population growth growth certainly as measured by kind of leading countries in the OECD. So that would be very, very negative for housing made So you have a combination of much higher in straits, which we're contending with right now, coupled with extreme tax, legal, regulatory and political uncertainty. Because you just look left and right every time move, youre getting your headlown off by these professional politicians who just want to take everything, your income, your savings, your capital, the works. And then you have a world in which the demand side driver that had been the gift that keeps on giving in the form of well beating population growth, suddenly disappears, and that can happen very quickly. If you turn off the immigration taps, you're not going to have any population growth, trivial population growth, because we don't have much in the way of natural fertility. So I think the prospects of the housing market are a little grim, and I think there's a reasonable chance we have one of, if not the biggest correction of house prices we've ever seen.
00:25:31
Speaker 1: The growth in population or the immigration that helps population growth, what's the economic policy behind that so far? I mean, what is it that is justified from an economics point of view, well apart from collecting more taxes because everyone has to get a job.
00:25:45
Speaker 2: So I think the political calculus is the government of the day at the federal and state level, has spent trillions of dollars and they need people to deliver those intentions, whether it's schools, infrastructure, care, economy, yeah, hospitals, whatever the case may be. And we just don't have enough people in this country. So unemployment in Australia is sitting at very low historical levels, around four point four percent. The normal rate of unemployment, according to the RBA's own numbers, is about five percent. And what that means is the labor market's hot, and that drives wage pressures. We've obviously had very large minimum wage increases that amplify that, and that in turn feeds into the costs that businesses have to bear, which are people. And in Australia we have a particularly insidious problem where not only is there healthy wage growth, but productivity is amongst the world's lowest, and so productivity adjusted wage growth is very strong and that's what drives inflation. So our productivity adjusted wage growth has been running around five percent and that feeds into very strong services inflation, which keeps the cost of living very high. So we have ongoing very robust inflation pressure that didn't turn what weren't higher interest rates.
00:27:02
Speaker 1: So what is a government? What have they got to do? Like I mean, I remember years ago you wrote a nine point plan or eleven point plan for Joe Hockey when he was the treasurer. But what what would you be planning for? What would you say to Jim Chalmers now to correct things? Because because because because the last thing he wants is to go on an election in twenty eight with us perhaps in a recession, and we'll talk about that in a moment. Or house prices down in interest rates high, et cetera. You know, unemployment perhaps going closer to five percent. Last thing he wants is at what would you be saying to Gym.
00:27:40
Speaker 2: Now, I'd sell the NBN and get whatever value you can salvage from it. I'd cut the NBAS down pine fifty to seventy five percent. I would try and shrink the public service by about a quarter, so you'd say a huge amount of money through those channels. I'd increase the GIS tea and widen the base of the GST so to cover more things. Yep, I'd increase to about fifteen percent. And then I'd use all of those savings to fund massive income tax cuts and massive corporate tax cuts. I'd obviously remove his new taxes like the trust taxes, and then I'd create incentives for the founders of new business, whereby they would have the opportunity to pay no capital gains tax on their upside in the event that they were successful and they created well beating products and services. So you could create a quarantine on any capital gains tax at all up to say a certain threshold, and try and ensure Australia remained a destination for world class human and financial capital that would have all the incentives to establish new ideas here.
00:28:57
Speaker 1: Would you create like a play in a certain a circle and a certain place to sit in your Melbourne prisoner where it is a bit like it They've duneon Island in Dublin where you invite all the big guys in and say, look, if you establish yourself here and employed people that start building buildings and all that sort of stuff, your tax rate will be ten percent. Would you like Singapore style? Yeah, I mean Dublin style.
00:29:17
Speaker 2: We've seen around the world that these incentives work, whether it's Abadabi, Dubai, Italy, Portugal, Florida, Texas. If you set the platform for businesses to become well beating, you will attract people in capital. But I probably would look at a national reset. So I'm not that interested in having one particular jurisdiction that has these incentives. I want to make Australia a great place to invest in work in by Australians. Yeah, and so I think the solutions are clear. It's a lot less political spending, much lower taxes, and massive rationalization of waste NBN waste, NDIS waste, public BUREYOCRICY I mean, we know that if we went through. In fact, I was just having lunch with a bunch of guys today who said the waste in the public service in commercial real estate is unbelievable. He said, we own these buildings.
00:30:11
Speaker 1: There's someone in there, there's nobody in there, and they're empty. There's camera.
00:30:14
Speaker 2: These are ghost cities. And everyone works from home.
00:30:19
Speaker 1: They don't need They probably can work from home, subjects them being supervised to stuff like that, but they don't go to work. I know that to be the case.
00:30:26
Speaker 2: In Canberra. We know that there's been absolutely zero increase in government productivity for about a quarter of a century. So that's one of the big problems that straight has with its overall productivity performance.
00:30:36
Speaker 1: How much of this is to blame just labor? I mean, where's liberal f in it? All?
00:30:40
Speaker 2: This?
00:30:40
Speaker 1: And Nationals and the Coalition generally.
00:30:44
Speaker 2: You know, people often say that the opposition is to blame. We don't have a healthy opposition. I just wonder whether it's the opposition or it's actually the electorate and the community and voters themselves. Because they want this hedonism, they want this myopia, they want the handouts they've loved making out like bandits on the NDA.
00:31:00
Speaker 1: So you have got try I mean in this room has got that handers. I mean, do you know people got the handouts?
00:31:04
Speaker 2: No, but people are getting handouts and they are making it like banners and they are perpetually voting the likes of Dana Andrews back into power. So the incentives work. You know, you pay money, they tend to people, they tend to be partial to your perspectives when you're funding them. And I think that works until you get an inflation crisis that warrants much higher interest rates. And it also works until you wreck up so much debt that you're left with no choice but to jam taxes up in order to get people to repay the money you've borrowed. So and I think that reckoning is emerging now. We're starting to see people join the dots and understand that there is a powerful relationship between government spending, cost of living, inflation, interest rates and taxes.
00:31:50
Speaker 1: Could we often talk about the national debt like just under a trillion dollars, which means, you know, Australians will owe that amount of money and we'll be paying the interest in our children and grandchildren paying the interest on that for the future. But maybe you could just quickly touch on what never gets talked about as a state debt. I mean, as I under saying state that debt is close to eight one hundred and fifty billion, it's not far off the national debt. How important is it for us to get control of state debt? And what is the relationship between state and federal Like, why is the state racking up so much money?
00:32:24
Speaker 2: Well, I think they're borrowing from that same playbook. Everyone across all the states has recognized that for that period that money was cheap in interest touch was very low. They wanted to borrow as much as possible and spend as much as possible to buy votes. And that became a very successful political reflex that was rolled out. But now we're seeing the consequences. What we are seeing is the interest rates on state government debt have gone through the roof. So Victoria was paying an interest rate on instead of about one percent in twenty twenty one, whereas today it will be paying closer to six percent. Wow, and certainly five and a half to six percent depending on what the lone go.
00:33:00
Speaker 1: Because there's losses rating didn't it.
00:33:02
Speaker 2: It went and it's now double A and the risk as it goes to single at But yeah, I mean, our public debt is accommodation of the federal and state government debt. It's a fairly inefficient system where you've got a lot of duplication and a lot of coordination failure between state and federal governments. And as you mentioned, you know, it wasn't long ago that we had no debt to really speak of, and the states weren't buying much and the Feds weren't buying much. And now their collective debt is well north of the trillion dollars. And you know, the States are borring about one hundred and twenty five billion a year, a little bit more than that in fact, and the Feds are also borring about one hundred billion a year. So between the two of them, you know, they're borring about a quarter of a trillion dollars of new debt every year.
00:33:52
Speaker 1: What do you think is going to happen with Australia's rating, because at the national level I'm talking about in terms of the Credit Agencies rating of US. Do you think that they're going to get starting to get nervous about deficits and debt rising so much so that they might change our rating, which means our interest cost is going to cost is going to be a lot more costly on an annual basis.
00:34:12
Speaker 2: Yeah, we've definitely been in the cross aairs on our rating in the past. The credit rating agencies that anoint these things have threatened to Downgreat Australia repeatedly, and the ongoing deterioration in our credit worthiness and the enlargening of these deficits threatens that rating. So there's every chance we could lose that trible rating. We never used to avatable rating. We won it after the thrifty experience of the pre GFC period, and then that rating has since been called into question, and I think it's a good question if we lost it. With interest rates go up, there is a bit of a relationship between the rating and the quality of the rating and the interest rates. It's a somewhat complex relationship, but I think the direction of travel for interest rates on debt are much higher, and that just means higher taxes. Higher interest on debt means governments have to pay more money to the people that borrow from which means.
00:35:10
Speaker 1: They have to raise taxes in order to service that debt, and I think it's really important just to mean you and I understand this, but maybe the audience doesn't quite get it. The bottom line is when we talk about intergenerational inequity in relation to the bigg amounts of debat that have been gathered by government, state and victual. But the inter generation and equity is that the bigger the debt, the higher the amount of interest we pay. The only place government are going to get They've got to get it from taxes. They either increase the population to get more taxes out of an increased population, or alternally do something to make our country really profitable and everybody's making a whole heap of money, then we all pay more taxes, or alternatively, if we don't make a whole lot of money. In other words, there's no duty big growth. We're not growing, just charging more tax, just drag more tax aut it because we the government have to pay the interest on the bill, so we have to get the money from somewhere. So your point earlier was changes changed that you said, change the population growth, immigration, changed the tax position. Maybe do something with the GCT. But can you see government doing any of that?
00:36:15
Speaker 2: Probably not until you have a cathartic crisis.
00:36:18
Speaker 1: But what do you mean by that, Like we actually hit.
00:36:20
Speaker 2: The recession, you have to have yeah, and that forces that basically galvanizes the collective will for real change. So I think the change has to come on a grassroots basis. I think the great thing about the budget is it did catalyze a huge public debate and suddenly it cast into sharp relief that there are alternatives. You know, you do have one nation, you do have the Coalition. And I don't think it's the Coalition's fault necessarily that they weren't contest. I mean maybe they competed and contested the space very poorly. I don't follow Ossie politics, particularly closing myself, but I think there was just no community interest and appetite for change. I think everyone was on the tape. I mean the cis, the Center for Independent Studies, estimates that one in two Australians are deriving more than half their income directly or indirectly from the public purse. Whether that's right or wrong, we know it's a big number. And so the only way you can convince people that they need to change and they need to perhaps be more thrifty and parsimonious is if they can see the costs and they're now staring down the barrel of the cost because it's cost living, interest rates, taxes.
00:37:26
Speaker 1: So it seems to me what you're saying is that we need to have a collective national punch in the head. A recession we had to have. And the last time we had a major recession was back in the early nineties, and Keating called it the recession we had to have. By the way, that period, whilst interesting, was substantially high in absolute terms, in relative terms relative the amount of money we borrow, we're actually in a worse position now right now. He did call for Banana Republic at the same time, I think earlier on in that year, but he said it's a recession we had to have, being honest. You know, one thing about Coating was always pretty honest. He said we had to have it because that was the only way you're going to control inflation getting strace back. Do you see that as a proper proagnosis from Australia.
00:38:11
Speaker 2: I think inevitably, like whether we have a recession soon or at some point in the future, that's probably going to be what's required to make the changes that are needed in order to restore productivity, improve the per capita income growth, the standard of living nationally, and to power prosperity because otherwise we've talked about this before, we become ashes at bet that we just sell our physical wears, our beaches and bikinis and budgies and yeah, so we need a big reset. I do think the brain drain is a real issue. I mean a lot of very successful strains that I speak to are looking for alternative They have moved their capital. Yeah, well they are, it's happening. Yeah, yeah, because they're just like and the rest of the world looks at Australia just thinks we're basket cases in the sense that but non the Republic, well they think this is the UK reducts. This is exactly what happened in the UK, This stealth socialism, the pendulum swinging to the fire lift. It's also similar to what happened under Biden. So we're now seeing the pendulum swing in the other direction. And people are saying to understand that the cost of taxing away productivity and prosperity is lower living standards and everyone's worth off. The world is actually a much better place with the Elon Musks out there, rather than having the place powered by the Jim Chalmers and the Anthony Alberanezies of the world who are kind of sucking on the taxpayer's teeth. And the thing about Musk is people say, well, let's just tax him even more as if there'll be no consequences. But if you create those disincentives, Musk will go elsewhere. There he leave.
00:39:46
Speaker 1: Yeah, then you can do the same thing. His brain will take him anywhere.
00:39:49
Speaker 2: As crazy as it sounds, why do you think he wants to create an interplanetary capability? I mean, who has control of rights, regulations and in space or in mars. Yeah, it's very interesting in utopia.
00:40:02
Speaker 1: Yeah, it's a very interesting prognosis that we're sort of sitting in front of us, Because what should people be looking out for if this government thinks that we're going to go into a recession. Let's just say some of the treasures said there's a possibility we go into recession because of the high interest rates and the cost of living, et cetera, et cetera. What would you expect to see the government do to avoid that Before the next election. What sort of policies would they put in place I don't know, mean economic policies, but spend give people more money.
00:40:29
Speaker 2: I think they're going to spend more, and this is the.
00:40:31
Speaker 1: To buy their way of recession for the next election.
00:40:33
Speaker 2: Try and defer and delay that prospect. And the problem is it just exacerbates the problem.
00:40:38
Speaker 1: Or pushes it a bit further, but makes it bigger.
00:40:40
Speaker 2: Yeah, but they're kicking the can down the road. But if they lose the election, it'll be the next government. And if they win the election, they can deal with that problem at that point in time.
00:40:49
Speaker 1: So in other words, we'll put the land mines out there everywhere, and if we lose, someone else is going to have the problem.
00:40:54
Speaker 2: And these guys are absolutely deluted donkeys. They have no idea whatsoever. I mean, everything they're doing is killing the country.
00:41:01
Speaker 1: Meanwhile, we've got the Reserve Bank governor sitting there looking at all this that going on and think just so well, my job is to reduce inflation. My only only mechanism is interest rates. What chance does she have for not putting rates up and continuing it to do so?
00:41:17
Speaker 2: Yeah, I mean they've been perpetually dubbish, so they will try and avoid rate hikes if they can. So the housing market gives them a bit of a stay of execution because they can look at house prices and say, well, Sydney house prices are falling at a twelve percent on your raid, and Melbourne house prices are falling by the same margin, and that's most of the country. Maybe we'll get a need of wealth effect, and maybe that'll tax or dampened consumption and spending and maybe put down pressure on inflation. But maybe not. Maybe if we keep on inputting all these margarets and the politicians keep on spending like drunken sailors, and there's this huge waste and inefficiency, they will continue to be price pressures and they'll continue to be in productivity adjusted wage growth. It drives high inflation because we're increasing minimum wages by massive margins as another example, And so then you just have this slow moving train work.
00:42:05
Speaker 1: But do you think that the Reserve Bank will actually therefore make a rate rise in August? It mean you're expecting to see a higher inflation number in the June thirty numbers come out there in July. You're expecting that, We're all expecting that. Do you think they'll just sayble to sit and wait. Because house prices are going down, people feeling less wealthy, therefore they're going to tend to spend less money. Do you think that I.
00:42:25
Speaker 2: Don't have a strong view on August. I do have a strong view that the inflation battle is going to be long lived and difficult and painful. So whether they raise rates or not in August is kind of irrelevant to me personally. What I'm much more focused on is where does the cycle go, what's the direction of travel? You know, how high could rates ultimately go and what are the consequences of that? And I think it's going to be pained for property, It's going to be a much lower rate of population growth. I think you're going to see a radical reduction in migration. I think you're going to get a really polarize seeing political debate because everyone, and we're seeing this right now, everyone's going to be blaming everybody else here and now you charmers now being to say, hey, these precipitous has pluce falls. That's not our fault, right, see the RBA's fault. And the RBS say, well, actually, you know you've created an unprecedented investment Uncertainly I mean, you just we had very clear rules of the game that have existed for decades, and you just chucked the rules out the door and said none of We're establishing a new game because we want to control the game, because we're you know, we're the real big dogs, right, We're just going to be mafiosa style, taking money from here, there, and everywhere to feather our own nests and also till the probability is in our favor, because we want to tax and take from the private sector because that's the only way we know how to make money. So I think that's devastating for confidence and sentiment. And you want people to have the comfort and confidence to establish businesses, to spend money to build world class products and services, to high stuff to drive future growth, and that's going to be very difficult.
00:44:03
Speaker 1: It's talk about America because you spend a lot of time over that way. You visit lots of countries. In relationship, you could of our business and you know often pitching, you know your your your how will your products? Your list of products there, which is a growing list. They go on forever. And I actually know Luke ring your bell the other day for an ETF fun, you guys, is easier fine, Luke Bora said, is he Luky? How do you get that one?
00:44:33
Speaker 2: In?
00:44:34
Speaker 1: What are they saying? What are they saying in other countries about us?
00:44:36
Speaker 2: Mate?
00:44:36
Speaker 1: Like, what are they what do they think about it?
00:44:39
Speaker 2: I think the interesting thing is there's a lot of positivity and optimism in the US. So for all the visceral hatred of Trump and the Trump derangement syndrome, which is a real thing, It's amazing how even very smart people can't divorce themselves from their sort of primal distaste for the Orange Man, notwithstanding that some of these policies may be are really quite tractable and durable and important. I mean, he has completely single handedly rewritten the rules of the Middle East, and he's rewired all the relationships in the Middle East. He's kind of created this unwitting coalition between Israel and all of Iran's contiguous neighbors. I was speaking at lunch yesday to one hundred and fifty people, mostly clients, and one guy got up and said, oh, sounds like you like Trump. I mean, he's a coward. He didn't put boots on the ground. The Iranians won, and I was like, dude, the Iranians are all dead. Like that regime was largely eliminated. They've had most of their offensive kinetic military capability destroyed, they have had all of their nuclear facilities destroyed. They have no enrichment capacity whatsoever. They have very limited to any power projection capabilities. And if you think Trump's lost, He's become the biggest export of oil in the world. And moreover the price of oil has gone from seventy one bucks a barrel to one hundred and twenty one bucks a barrel, and whereas it today, it's back down at seventy one bucks a barrel. Trump won comprehensively. I mean, it was the most one sided conflict you can possibly ever imagine. They didn't have a single casualty in Iran. There are a few people that were injured at verous bases around the US. So I would say we're seeing in the US the reassertion in a fairly unprecedented way of US geostrategic primacy and US economic exceptionalism. And people in the US, whether they like or hate Trump, and obviously a lot of people hate him, they I think are generally in agreement that they have the most business friendly president in history, and he's not perfect, like you know, nobody. I don't like the front running and the insider trading that you sometimes see from what it seems to be a vous sporous, very informationally porous administration. So that sort of stuff is quite unseemly. But the reality is, if you want to establish a business in the US, you've got the most business friendly climate that people have seen in our lifetimes. And that's why the information technology or the IT or tech oligarchy, who many of them were Democrat pumpers, have all coalesced behind Trump. So you know, most of the tech oligarchy are now very partial to and supportive of Trump because they recognize that he's out there trying to help them win. He wants to win, that's his game. So I would say if you juxtapose that ostensibly positive economic and business dynamic against say the UK, where the country feels like it's in depression, it's a very very different dynamic. And the US economy is as strong as ten men. I mean, our big economic ideas over the last twelve months have been that ais inflationy notor deflationing, or great jobs rather than destroy jobs, and that Trump's tax cuts would support growth, and that combined with the unprecedented AI cap x, which we argued would be much much bigger than people think, because we thought that the hyperscalas were lying about the true extent of the capex because they didn't want to tip off their rivals how much they wanted to spend, because they've all got to compete for the same people chips, memory cards, compute, and resources to build data centers. We argue that the capex boom, combined with the tax cuts, combined with the massive deregulation dynamic in the US, would power a very very strong economy that would then force the Fed to lift rates. The market a year ago, when we were saying this, and I think I've said it here before, the market was pricing one hundred bases of points of rate cuts from the Fed. No One people thought I was a nut case when I was saying, listen, we think the Fed's going to hike in twenty six street seven twenty eight. The bond market was pricing a zero percent probability of rate hikes in twenty six steeks twenty seven, twenty eight. Today they are now pricing a hike and they're in fact pricing almost two hikes from the FED later this year, probably after the midterm elections. So I think the US is making out like bandits right now. People are positive. I think they look incredulously at Australia and say, why on Earth, as the wonder down owner, the best performing economy in the fricking world.
00:49:04
Speaker 1: Over the last forty years, thirty.
00:49:06
Speaker 2: Like this economic miracle, why have they suddenly lumbered business creators and investors with the highest CGT rate on the planet. And why have you slammed small businesses with a thirty percent tax on their trusts when that's a key vehicle for small business organizations They all do.
00:49:25
Speaker 1: It's not just for rich people plumbers, electricians like shop tax.
00:49:30
Speaker 2: What's the cost of closing down the trust and re establishing and reorganized or getting evaluation or getting evaluation. I mean you're talking about tens of thousands of dollars potentially, So it's just ridiculous. And the conclusion is this is again the stealth socialism that we've seen as send and then fail throughout much of the world. We saw it under buy it and we've sent it in Canada, you sent in the UK, you saw it under a turn in New Zealand and it's all ultimately failed.
00:49:58
Speaker 1: Do you think the US today, whilst Trump is all those things you just mentioned like he's he can be a bit annoying, can be a bit confusing, he can be a bit come across as arrogant, et cetera. The a's a whole heap of things. And maybe we don't like his particular form of politics, But do you think that his view on leading a country's economic might is something that the rest of the Walshall borrow that should is economics, prosperity. Wealth is important, but is prosperity a number one outcome for a country's you know, national pride and strength that a politician should be aiming for economic prosperity.
00:50:37
Speaker 2: I mean, he just wants to compete, win and maximize prosperity. And I think that's the right objective.
00:50:44
Speaker 1: It's pretty simple, but it makes sense.
00:50:45
Speaker 2: A rising tide lifts all boats. And you know, the most prosperous countries can provide for the poorest people.
00:50:51
Speaker 1: Because that's how organized welfare by being prosperous.
00:50:54
Speaker 2: Correct and not by borrowing that correct. And you know, his I think economic calculus is pretty distilled and simple and so far as compete and win, and by winning you can generate income and wealth, and with that resource you can provide for the community more broadly, but I think he has a kind of primal understanding what is required to succeed in the private sector, and what he knows on a human level is that government interference and government's trying to stand in the wheel of entrepreneurial progress is typically suboptimal, and that's what I think he's trying to eliminate. He's also, I think, trying to remove external interference in the US, particularly in his sphere of influence. We've seen this in Venezuela and that campaign's been remarkably successful. He's turned a cross as more recently to Cuba, and you know, Iran was clearly the most misanthropic actor globally. That was threight Western prosperity and they've neutralized I think, around very effectively. So I think his program has been pretty successful. I think as an individual he's a much more complex cap than Australians and particularly give him credit for. It's interesting when you talk to Ozzie's about Trump, almost everyone qualifies anything they say by saying something like both of us have said today, which is listen, I know he's not everyone's cup of tea, or I know he's a bit crazy, or I don't personally like him, and that's fair enough. But when you speak about Trump across the rest of the world, people are much more I think focused on his actions and decision making, progress, effectiveness and the outcomes. And even from Democrats in the US, I think they acknowledge that the economy has been a big beneficiary of the shift. And there's a massive comparing contrast taking place in the US where you've got two systems and two models in the form of California and New York on the one hand, and Florida and Texas on the other, and Trump's clearly aligned with the latter, and the business for only enterprise orientated, relatively free market as solutions are winning, and that's what he's focused on.
00:53:07
Speaker 1: Do you think, therefore, because this is where I'm trying to get to, do you think the government's maybe in the UK and other places, particularly here in Australia, they're overthinking it and it should be more simple. They just say, get the economy prosperous and we can look after all, the people need welfare and help them all out. We can do the you know, if you're disabled, or you're you know, you're you don't have a job, or whatever the case, maybe we can help you. But that's a pretty simple way of looking at things. And sometimes the simplicity of these things we can test that we've got to say, no, that's it's got to be more nuanced. He doesn't seem be nuanced. He just seems to be said, we'll get ourselves to be successful, and we'll make lots of money, and I'll drop the tax rates to make sure everybody's incentivized to do that. I'll get productivity up because their productivity is up relative to ours is incredible relative.
00:53:52
Speaker 2: Like where no, relative to everyone in the world, US productivity.
00:53:55
Speaker 1: Is so this simple stuff has worked. Why does it and why? What do you think it is here in our mentality that our politicians don't accept that were just and or adopted.
00:54:05
Speaker 2: Well, I think we've lost sight of the fact that what powers prosperity and living standards is success. We want to take and tax success, whereas in the US they have a deep set of genetic understanding that everything is about success. You know, Musk has probably created one hundred trillion dollars plus of welfare for the community at large. I mean, he's the guy that has electrified automobiles, he's given us electronic payment systems, he's given us cheap Internet connectivity for every person on the planet, and he's now giving us the capacity to develop an interplanetary species. So the welfare he might have made a trillion dollars, but he's gifted to the rest of the world one hundred x that, possibly more. And we want to motivate and mobilize and incent every Musk out there. And you don't do that by crushing productivity and prosperity, which is what the other side want to do. And I think you lose sight of the need for productivity and prosperity and the need to cultivate success when you're so wealthy and you're so rich that you just want to argue about cutting up the pie rather than growing as a country, US as a country. Yeah, And I think that's what we've been doing prevince Ball. Yeah yeah. And I think these entitled professional politicians are just you know, want to rape in pillage from the private sector in order to buffer their own pockets, and that's the problem, and you only realize it's a problem when you start to pay the consequences of that problem in the form of rates, taxes, cost of living, which is I think what's playing out right now.
00:55:44
Speaker 1: You've had a lot to say in the past about cryptocurrency too expensive. We've seen bitcoyn more recently come back and really sort of for quite a lot later over the last of six to two months. What is your hypothesis on crypto now where you stand, Yeah, I think it's pretty worthless. I don't really see any utility from crypto at all. It's not a stable store of wealth. It's the most volatile a set that exists.
00:56:10
Speaker 2: It's not government guaranteed, so in any crisis it can get eliminated. It's not cryptographically secured. I've argued for years that quantum computing could threaten the encryption that protects blockchain and bitcoin. I think people are getting very nervous about that right now. And it's not an inflation hedge. In the first big inflation crisis, after the pandemic and after the GFC, bigcoin fell eighty percent, and I note now this week it has been trading down around fifty eight thousand dollars. So I think you're going to see the momentum and fidelity to the crypto cause over time decay, and I just don't see what the value of crypto is period. If you want digital currencies, nation states and central banks will over time create government guaranteed digital currencies. But you know, I think it's pretty preposterous that this cryptocurrency, bigcoin, was created by a guy Satoshi San who apparently has billions and billions of dollars is stuff but has never utilized it, and protected blockchain with an encryption technology SH two five six, which was developed by the National Security Agency. And my best guess is that it's a Western intelligence honey trap that around the dawn of the time of the Internet and the widespread adoption of the incident and the advent of the idea of digital currencies, they thought to themselves, well, any non democratic actor is going to want to keep wealth outside of the banking system, outside of the reach of nation states via these cryptocurrencies, so why not try and control them. But yeah, I have no cryptocurrency, have never had any exposure to it, and I don't really understand it.
00:57:57
Speaker 1: Well, it's going to say it's because you don't understand it, and by the way, I don't either. I find it incredibly difficult to understand the point of it. Board about gold.
00:58:07
Speaker 2: Well, one of our big ideas a year ago was everyone in the world was talking about how much you know, the hated Trump and how we're going through this forever dedollarization trait. And then the AFR I wrote a year ago forget de dollarization things. You wrote this, Yeah, I wrote, I don't know anyone else globally who uses this term, but I said, you should be talking about not de dollarization, you should be talking about redollarization. Why because Trump is going to go out there and swing hard, and he's going to reassert his big dog, hegemonic, geostrategically dominant status, which is exactly what he's done. The US economy is going to be the central clearing house for all AI spending, AI research, AI innovation, and AI profits. They're going to be the big beneficiary, not China or not Russia, or not France or Germany. It's all about the US and this revolutionary technology and that ultimately is going to create a lot of economic success and inflation, which is going to force US interest rates higher and higher interstrates should push push the US dollar higher, and just more recently we've seen strong US dollar appreciation. And what was happening under the de dollarization dynamic is when Russia invaded the Ukraine, the West froze pudins US dollar reserves, and at that particular point in time, every non democratic state in the world woke up and realized that they could not keep US dollars as their liquidity source of last resort, and so they had to sell it. So all the non democracies of the world have been selling dollars to buy gold and crypto in some cases, and at some point that runs its course. At some point they sell the dollars, they buy the gold, and they're done. At that juncture, the natural economic forces that determine the price of gold and the exchange rate reassert themselves.
00:59:58
Speaker 1: That's like any outset class we're going.
01:00:00
Speaker 2: Yeah, So the de dollarization theme was like a picture of Python, and I argued a year ago that eventually you're going to see redollarization as people wake up and realize that the US dollar actually is the global reserve currency. It's not Chinese currency, it's not crypto it's the US recond dollar, which is backed by a military that's stronger than the rest of the will combine, and that is completely unassailable and also is currently being run by an administration that is hell bent on asserting not just geostrategic but also economic promising. And so that's bad for gold because you know, the bid for gold at some point deteriorates and that demand disappears because the diversification is done. So I suspect that's what they've all bought. They've bought, it's done, and gold prices are normalizing in the same way that you know, the people that were the crypto junkies have done what they needed to do, bought their bigcoin a one hundred and twenty thousand dollars, and now it's normalizing back down to colose to nothing.
01:01:00
Speaker 1: It's interesting you say that because, like you know, the old saying was when the dormant of the Wentworth Hotel which is now the Sofhotel hotel, but when the dormant that went with hotels starts talking about buying shares, that's when you know you should sell out. That was an old saying in the eighties. And what's interesting about that there's there's a gold bullying company I won't name the name, but in a Martin place and up until about two months ago, there was a line there every single day of one hundred meters of people lining up to go and they buy by Gold and I walked past their often. And over the last three to four weeks that line has gone disappeared, does not exist, none, zero people. And that's the dormant of the Wentworth. That's that's that's the canary in the coal mine for me, and that's a big indicator of that particular set class. Well, I just wanted to say one thing is before we finished, because you know, it's funny how moments were celebrating tend to have a few things in common. Good company, something worth toasting, and something that makes it feel like it mattered. Seventy five years of pan Folds Grange, once tasted, never forgotten. Now let's die back in a lot of people, you know, watch these shows and all things that you write or I might write, and they sort of want to come at you for a whole lot of reasons. And I've known Chris Joy for a long time. Chris is a pure pragmatist, so when he is here talking about the USA, Trump, whatever, any asset class you want to talk about. It's not because he's a fanboy, that's not him. He actually can give a rats ass about any of those things those people because he's because he's pure economics. He's feel purely interested in what asset class is going to be the best outcome for me, for your business, which is Cooliba and for Chris And you know, because a long long time.
01:02:54
Speaker 2: Yeah, I mean it's true, it's factual.
01:02:56
Speaker 1: We're talking about facts.
01:02:57
Speaker 2: I can't help myself. I just say what I think. Yeah. People often say to me after I do these podcast interviews, and I was on Carls a couple of times as well, and they're like, oh, why are't you going to politics? Mate? I could not think of anything worse because you're not political, not at all. And the other thing is that if you deal with these politicians, they're all narcissists. But these dudes are the student politicides who have never worked down in their lives and all they're interested is in their personal power. And you know, it's just the worst thing in the world. I mean, when you're a kid, you're very idealistic and you knew me during my twenties, I wanted to change the world. I had all these great ideas and I thought, wow, this is amazing. You go to Canberra, you convince people that there are some demonstrably good ideas maybe're doing.
01:03:40
Speaker 1: John Howard, Yeah, I wrote, she had Equity.
01:03:41
Speaker 2: Three hundred and eighty report for the premise on Affordable Housing. YEP. I convinced Kevin Rudd during the GFC to invest fifteen billion dollars into residential mortgage back securities. But at the end of the day, you sitting in Australia come to the conclusion that these are deeply flawed and conflicted processes where you very very rarely get good decisions. And to your point earlier about well what's the best operating model? Should government step aside and just let businesses do what businesses do and drive as much innovation, investment, endeavor, exertion and progress as humanly possible. Let the collective wisdom of the economy do its thing and try and minimize interference. Just set the stable rules of the game such that we maximize the probability that the Australia will win in this global market. Or should they try and pick the winners and losers. Should they try and act like those benevolent dictators and divine what the outcomes will be. Now, they're never going to make the right decisions. It's like those idiots sitting in that private jet saying, hey, why don't we just take fifty to sixty billion of other people's money and put it into the NBN, only to be absolutely eviscerated by Elon Musk. And you can name countless snowy hydro two point zero all of these white elephant infrastructure projects that they've spent hundreds of billions of dollars on, just total extreme wasts.
01:05:09
Speaker 1: So no accountability, by the way.
01:05:10
Speaker 2: But your point is, I don't have an agenda.
01:05:13
Speaker 1: I really don't look and I want people understand because.
01:05:15
Speaker 2: I'm just telling people what I think.
01:05:17
Speaker 1: Yeah, well, no, it's not what you think is what you've You've analyzed it. So you know, people don't realize is you've got all these PhD's working for you. You're all sort of looking for a base point here and there, literally because your business.
01:05:28
Speaker 2: I'm trying to make money out of this conversation. No, no, I'm saying you what I believe.
01:05:31
Speaker 1: But this is why I get you in is because you're doing the work which I think our listeners need to hear. But it's not politicized. I don't want this to be anyone to think this is politicized. And because I mean we've seen what's happened to you know, lots of people holding podcasts now, they tend to think, oh, well, you're just trying to take a sidemark, and or Chris Joy's trying to take No I've known you for a long time.
01:05:56
Speaker 2: He's not that.
01:05:56
Speaker 1: Type of person. I'm not going to get rats asked about it. I like to be honest with you. I don't reget any of the parties can do it. I think it needs to be sort of somehow left to us, not you and me, but Australia to fix it themselves. I don't think anyone got the ability to fix it.
01:06:10
Speaker 2: I just don't.
01:06:11
Speaker 1: And I mean I've made suggestions to both sides of politics about the GC. I get dismissed every time we keep saying it should go up to I don't go quite as far. I have done the numbers that I don't go quite as far as fifteen percent of sage, but it should be a fungible g T should we go between ten and twelve and a half. Every time the RBA is put the rates up, we put just out in lockstep. We put it back down, but never below ten percent. And whatever we raise above ten percent, it doesn't go to the state. Somehow we say, you're not going to get anymore if you or you only get more if you can reduce your spending, you know, as a reward type basic I've been dismissed by both sides of politics because they and they tell me straight in my face, Mark, we'll never gather through.
01:06:52
Speaker 2: Well as we've spoken about. I think before you and I rocked up to Wayne Swam rocked up to Wayne Swim, we was treasurer and said, listens the deal. We understand banks probably better than anyone in the world. And the banks benefit from a taxpayer substity where they can raise money artificially cheaply because of the perception of their government guaranteed. And there is a case to whack a tax on the banks to price the fact that they get to raise artificially cheap money and they go straight to not taxpayers, but to their bottom line, and that basically fluffs their return on equity, and so we're actually arguing for higher taxes. And what was his response, and a price on and a price on this taxpayer subsidy that we were gifting to the banking system. This is like heartland labor policies.
01:07:43
Speaker 1: Is straight off to GFC.
01:07:44
Speaker 2: Straight up to the GFC. And but this was this is central casting labor. Yeah, totally. You know, taxpayers helping out banks, they should be appropriately recompensed, and you need to price the free gift to the financial system.
01:07:58
Speaker 1: You know, of those tax the banks for the government garn you so called guvernment garn.
01:08:01
Speaker 2: Sewe said, oh no, I couldn't take on the banks. They're too powerful.
01:08:03
Speaker 1: He also said at the time, do you remember I don't know if you remember this, but he said to both of us now and we went there, you know, in good faith. He also said to us, because look what's happening in the mining lobby. I don't want to have to take on the bank lobby at the same time, mistake in the mining lobby, because there's election coming up. You know.
01:08:18
Speaker 2: The irony of all of that is another person who's villified, who's actually you know, in all my dealings with him, he was a very good guy. Scott Morrison, he actually did when he was Treasurer whacked this tax on the banks. He introduced something called the wholesale Liability Levy and there is a zero point six percent tax that the big banks pay every year and it generates billions of dollars in revenue four taxpayers. And that was our idea. That was the idea we put to Swaney.
01:08:45
Speaker 1: Yeah, but he didn't want to do it, didn't have the balls, Yeah, because he didn't he thought it was a gonn affect winning election the next election.
01:08:50
Speaker 2: Correct. Whereas Scott Morrison didn't do that for any reason related to politics. He did it because he thought it was actually the right thing, whereas Swaney all he cared about politics and power.
01:09:01
Speaker 1: I recalled there was another thing that you mentioned to that they should do, and you said we should have a royal commission into the banking system and he said there's no way. And then, of course Hockey you then put your limp point plan out to Hockey which called for the same thing. He said no way. And then following that it was Scott Morrison actually who put them up.
01:09:22
Speaker 2: Well, no, it was actually I put it to Hockey. He backed it. He backed back and Hockey as treasurer help the walls of the son of Wallace.
01:09:28
Speaker 1: That's right, you're right. Sorry, you're right, you're a son of Wallace. I forget that because the original Wallace inquiry was original banking inquiries the son of Wallace.
01:09:35
Speaker 2: And that was the Murray Inquiry.
01:09:37
Speaker 1: Yeah, yeah, which I wrote the terms of reference for Sir David Murray.
01:09:40
Speaker 2: Yeah. It's funny the people that would criticize I think a lot of the things I say are actually projecting their own political prejudices. And yeah, I think that's a key takeaway. We don't give a freaking and I couldn't care les. All I care about is figuring out solutions to problems and getting to the right answer.
01:09:56
Speaker 1: And all I care about is bringing the best people to the show who know the problems. Can I articulate the problems like you do and come up with some solutions, And that's all we can never hope for. But the problem is, mate, the politicians that listen to us. The country is so divided at the moment. The politicians know there's division, they're going to play the division because they're unfortunately you know, and I respect this part of it. They're fighting for their life. They are fighting for their lives, and you know, good luck to them. But it's one of the reason why I know a lot of people say I'm not going to live in this country anymore because the place you've heard people say that hundred percent. Heaps of people heaps heeps to me, and they want to take their capital, not only their money, but they know how and what they've.
01:10:38
Speaker 2: Developed, intellectual property and they've created it.
01:10:40
Speaker 1: Take some other place and they'll build businesses in New Zealand.
01:10:42
Speaker 2: They'll go to Sea a place, or Singapore.
01:10:44
Speaker 1: Singapore people saying to me, I will mark, there's only a few, there's not that many. Yeah, but these people when they set businesses up, they employ tens of thousands of people, So.
01:10:54
Speaker 2: There is many, isn't it charmer statistic? I don't know if this is right, but I thought I read it somewhere that is zero point one percent of Australians sixty percent of all capital against tax. Yeah. Well, if the zero point one percent up and leave, what's going to happen to your tax revenue? Buddy? Yeah, same thing happened in the UK. They basically changed the tax incentives for successful people in the UK. They basically all left.
01:11:12
Speaker 1: They were going to Dubai and Abadhabi in those places like that. There's been a massive exodus. So like tens of thousands of people have left the UK. It's the biggest exodus.
01:11:21
Speaker 2: You might say, well, who cares about tens of thousands, but if that zero point one percent of six percent correct, that's a pretty problem.
01:11:26
Speaker 1: And they were employing all the people. Yeah, as usual, makee Chris Joy awesome, mate, that was fantastic things, mate,