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Is government spending really driving inflation? · Inside Politics

0:01
S1: Hello and welcome to Inside Politics. I'm Jacqueline Maley. Now
0:05
S1: in Canberra this week, there's obviously a lot going on
0:07
S1: with the Liberal Party. At the time of recording, Angus
0:10
S1: Taylor had just resigned from the opposition frontbench, clearing the
0:13
S1: way to contest the Liberal leadership. We're going to keep
0:16
S1: you posted on that as the news transpires. But for
0:19
S1: our regular show this week, we're going to focus on
0:22
S1: bigger picture issues like the budget and government spending stuff
0:25
S1: with which actually affects people's lives. Dare we say it,
0:29
S1: interest rates have gone up, and we're hearing a lot
0:31
S1: about how too much government spending may or may not
0:34
S1: have contributed to inflation. So we're going to get to
0:38
S1: the bottom of that today, as well as throwing forward
0:41
S1: to the May budget and what fiscal reforms we might
0:43
S1: be able to expect. And no one has more expertise
0:46
S1: in this subject than podcast favourite Shane Reisz, our chief
0:50
S1: economics correspondent. He joins me from Canberra with Natassia Chrysanthos,
0:55
S1: who is also a favorite of the podcast. She is
0:59
S1: our chief political reporter. Hi, guys.
1:01
S2: I'm just wondering who's the special guest star today. I
1:04
S2: think Taz is the special special guest star. Thanks. Swinging
1:09
S2: into the economic and budget world, she is extra special.
1:13
S1: Yeah, well, she's certainly she's certainly a polymath artist. She can.
1:16
S1: She can talk about politics. She can talk about economics.
1:19
S1: She's about to give us a treatise on capital gains tax. Ah, yeah.
1:24
S3: That's me.
1:26
S1: Shane and Taz. You guys wrote a piece this week
1:29
S1: for our newspapers about the key areas where there is
1:32
S1: major pressure on the federal budget pressure that is escalating.
1:35
S1: What was the genesis for that piece, Shane?
1:39
S2: This is going to the whole argument about what the
1:41
S2: reserve Bank did, uh, a fortnight ago when they took
1:45
S2: the cash rate from 3.6 to 3.85. And the coalition
1:50
S2: and some economists said, right. The inflation that the reserve
1:54
S2: Bank is trying to deal with is being driven by
1:56
S2: government spending. It's one of the key factors. So rather
2:01
S2: than just accept people shooting off at the hip task
2:05
S2: and I decided, hey, let's go looking for some facts
2:07
S2: and see what we can find. And ever since then,
2:11
S2: this issue has continued. I've just come out of, say,
2:14
S2: a Senate estimates hearing where Michele Bullock, you could see
2:17
S2: a clearly frustrated. In fact, it's the most I've seen
2:20
S2: Michele Bullock frustrated, getting asked questions after questions from coalition
2:25
S2: senators about the contribution of government spending towards aggregate demand,
2:30
S2: the pace of economic growth and the pace of inflation.
2:34
S2: So that is that's where this all starts with.
2:37
S1: Yeah. So it's part of a political attempt basically from
2:39
S1: the coalition to blame labor for the interest rate rise essentially,
2:45
S1: which is hurting mortgagees across the country, because it's this
2:48
S1: whole issue of whether or not the government is basically
2:50
S1: pumping way too much money into the economy and thereby
2:53
S1: forcing prices up, or whether or not it's more about
2:57
S1: private spending, which is what the treasurer, Jim Chalmers, sort
2:59
S1: of tried to say after the interest rate rise. Right.
3:01
S1: Is that right, Charles?
3:03
S3: Yeah. And so you've got Chalmers kind of emphasizing the
3:06
S3: role of private spending. So spending by consumers and businesses
3:09
S3: and households. Ted O'Brien, the opposition shadow treasurer, emphasising the
3:14
S3: role of government spending. And so I guess what we
3:17
S3: decided to do was dive into the part that the
3:19
S3: government does have control over, which is government spending, and
3:22
S3: kind of quantify whether it was this kind of big
3:26
S3: runaway budget bill, as the opposition has been characterising it,
3:30
S3: and if so, why?
3:32
S1: Yeah. So what did you find? You looked at the
3:35
S1: sort of main areas of pressure on spending, the big,
3:38
S1: big budget items and the ones that are being pushed
3:40
S1: up where the prices do seem to be blowing out
3:42
S1: a lot. So. So tell us what you found.
3:45
S3: So on to kind of get a headline figure. What
3:49
S3: we did was we looked at Josh Frydenberg's final budget
3:52
S3: from 22 to 23, where he had projections for this
3:56
S3: financial year. Then we looked at Jim Chalmers first budget
3:59
S3: from later that year, October 22nd, and his projections for
4:04
S3: this financial year. And then we looked at what spending
4:07
S3: will actually come in at this financial year. And that's
4:10
S3: how you can kind of detect, I suppose, that there
4:12
S3: has been a blowout, some might call it, in what
4:15
S3: the government anticipated it would be spending this year.
4:18
S2: The other thing you immediately get into, you have to
4:20
S2: start putting asterisks around some of these assumptions. The first
4:24
S2: one being what Josh Frydenberg was forecasting. Was that accurate
4:28
S2: to begin with?
4:29
S3: What we found is that the total spend for this
4:31
S3: year is still even above Chalmers own analysis. So for
4:35
S3: for our listeners, the government, according to the December forecast
4:39
S3: just from two months ago, will spend about $787 billion
4:45
S3: this financial year. And so that figure is $100 billion
4:50
S3: more thereabouts than then, Frydenberg had predicted from this year
4:53
S3: its $58 billion more than what Chalmers thought he'd been
4:56
S3: spending this year back in 22 when he gave his
4:59
S3: first budget. And it's even $9 billion more than was
5:02
S3: forecast just in May last, sorry, March last year because
5:06
S3: we had an election March last year. But, um, as,
5:09
S3: as we kind of then dive into that's because there
5:12
S3: are some very acute pressures on the budget from a
5:17
S3: range of things.
5:17
S2: Jacqui, you and I have discussed the my anger over
5:21
S2: how veterans and their compensation were treated by the previous government.
5:26
S2: This government actually had to find an extra 13 billion including.
5:30
S2: It's about 5 billion this year. Yeah. That is owed
5:35
S2: to veterans. Yeah. That they'd been clogged up in the
5:40
S2: Veteran Affairs department because not enough staff had been put
5:44
S2: into that department. So it's a false saving. So yeah,
5:47
S2: like 5 billion sounds a lot. And it is. The
5:50
S2: Australian economy is about 2.7 $2.8 trillion. So you always.
5:55
S2: I always try and put it into some perspective. All
5:57
S2: the government spending versus what is actually going on in
6:00
S2: the economy.
6:01
S1: Yeah. Okay. So let's just to summarize what we've sort
6:04
S1: of said so far. Basically there was accounting trickery in
6:08
S1: Josh Frydenberg's last budget that basically made the forward estimates
6:12
S1: seem much lower than actually they were always going to be.
6:14
S1: But even accounting for that, the government has obviously taken
6:17
S1: spending decisions and their big headline items that they promised
6:20
S1: it to elections. But it's stuff like boosting aged care,
6:25
S1: boosting defence spending and also, you know, measures like, I suppose,
6:29
S1: slashing people's HECS debts. And also they had wages decisions
6:33
S1: which you've talked about. So in the childcare and aged
6:36
S1: care sectors which were historically very low paid industries and
6:40
S1: feminised industries, the government's sort of taken a few decisions
6:43
S1: which have led to pay rises in those areas. There's
6:46
S1: also the NDIS. Shane, tell us about the NDIS and
6:49
S1: why that has blown out. So much so to give
6:51
S1: listeners an idea, it's costing 52 billion in this financial year,
6:56
S1: which is 43% more than was forecast four years ago.
6:59
S1: That's a huge blowout.
7:01
S2: It is, again, back to my asterisks. The estimations that
7:06
S2: were made were wrong. They were simply wrong and had
7:10
S2: underestimated what was going on. Because we know because under
7:14
S2: Bill shorten, there's been there had been a lot of
7:15
S2: action in terms of trying to wind it back. But
7:17
S2: it is the third largest discrete program within the budget
7:22
S2: after the GST and the age pension.
7:23
S3: And with the NDIS, I think and both governments have
7:26
S3: found this. It's a very loose scheme, like a it's
7:29
S3: demand driven. So there's no cap theoretically to how how
7:34
S3: big it can grow. And the, you know when you
7:38
S3: have all these structural issues with the NDIS but the
7:40
S3: NDIS kind of problem if you will at its core
7:44
S3: is that when the NDIS was designed and created. There
7:48
S3: was supposed to be the NDIS which gave these individual
7:51
S3: plans to people with, you know, severe and lifelong disability.
7:55
S3: And there was still supposed to be other disability services
7:58
S3: run through health education elsewhere in the system.
8:01
S2: Largely at the state level, to.
8:03
S3: Largely at the state level. That never happened. Everyone kind
8:06
S3: of flocked to the NDIS. The NDIS is, I think
8:09
S3: it was only ever anticipated to cater for half a
8:11
S3: million people. It's well and truly past that. The pricing
8:15
S3: system is out of sync with the rest of kind
8:20
S3: of health aged care, disability services. So it's very expensive.
8:24
S3: There wasn't a lot of kind of integrity in the system.
8:26
S3: You know, in many situations people weren't even expected to
8:29
S3: provide receipts. And so you had it grow at 20%
8:32
S3: a year for the last few years. And there have
8:35
S3: been a bunch of changes to try and bring that down.
8:37
S3: It's it's just under 10% now. They're trying to get
8:40
S3: it to 8%, and then they'll try and get it
8:41
S3: to 5%. But that is obviously growing at 20% every
8:46
S3: year for a few years. It makes it a huge
8:47
S3: runaway cost for the budget.
8:49
S1: Yeah. Which which a coalition, a future coalition government would,
8:52
S1: would inherit that same problem. As you say, the the
8:55
S1: labor government has tried to to rein it in a
8:57
S1: little bit and particularly to get people with, I think
8:59
S1: with lower level disabilities, you know, people like kids with ADHD,
9:04
S1: for example, onto different schemes, state based schemes, rather than
9:07
S1: be on the NDIS. There are also childcare costs. So
9:10
S1: they rate a special mention because they're up a lot.
9:13
S1: They're up 53% from four years ago, so they're costing
9:17
S1: 16.2 billion, which is quite a big figure even in
9:20
S1: the context of, you know, a $786 billion sort of
9:25
S1: overall budget. Shane, why have they gone up so much?
9:28
S2: Well, this is government policy. Like we touch upon this.
9:34
S2: The the increase in spending is partly driven by the
9:38
S2: decisions of this government. So the childcare subsidy and the
9:43
S2: increase in wages for childcare workers ultimately hits the budget.
9:48
S2: Bottom line. And you, me and Tars and everybody else
9:51
S2: pay for it through taxes so that that's one of them. Ultimately,
9:56
S2: the if you look at the broad areas of expenditure,
10:00
S2: health is enormous. So the Medicare urgent care clinics, where
10:05
S2: I took my wife at the weekend after tripping over
10:09
S2: at a park run and tried to break a wrist. Um,
10:12
S2: that is government policy.
10:15
S1: And that's to take that's to take the pressure off, um,
10:17
S1: casualty departments. Basically, if you have something like a broken wrist,
10:21
S1: which is needs acute care but is not life threatening,
10:24
S1: then you can go to an urgent care clinic.
10:26
S2: That's right. So rather than clog up Canberra based hospital
10:29
S2: or Canberra, the Central hospital, we went to one of
10:31
S2: these and we're in and out very quickly. But it
10:33
S2: costs taxpayers.
10:34
S3: And the other big one in health is the centrepiece
10:37
S3: of the Albanese government's re-election campaign, which was an $8.5
10:41
S3: billion investment in Medicare rebates.
10:44
S1: Which is controversial.
10:45
S3: As pharmaceutical co-payment. So medicine co-payment being brought down to $25.
10:52
S3: So they have that labor has explicitly campaigned on those
10:55
S3: huge increases in spending in health, which is one part.
10:58
S3: And then the other part of health is, you know,
11:01
S3: for example, in the case of public hospitals, the government
11:04
S3: only at the end of last month finalised a deal
11:07
S3: with the states after after it dragged on for months
11:10
S3: and months and months because state hospitals which gets to
11:13
S3: the urgent care clinic issue as well. But state hospitals
11:16
S3: are being overwhelmed. Um, and the states are then asking
11:18
S3: the federal government to cough up more money because the
11:20
S3: states don't have enough money to meet that extra demand.
11:22
S3: And so you had at the end of last month,
11:25
S3: the federal government agreed to pay $25 billion extra than
11:29
S3: what it was planning to to the states over five years.
11:31
S3: So that extra health funding is spending is coming from
11:34
S3: from demand, from population changes like we're getting older, we're
11:38
S3: needing more care for longer and politics.
11:42
S2: Speak for yourself. Jackie and I are. Jackie and I
11:45
S2: aren't getting older. We know that.
11:47
S1: We're certainly getting fitter because, you know, we're, um, we're
11:50
S1: we're running. We're running a lot. Right, Shane, do you think,
11:53
S1: I mean, on Medicare? Because obviously, one of the huge
11:55
S1: issues that Albanese campaigned on at the last election was
11:57
S1: to bring to to bring up bulk billing rates, because
12:01
S1: it hasn't escaped people's notice that even though Medicare is
12:03
S1: supposed to be free and we're supposed to get free
12:05
S1: primary health care, at least most GPS, it seems these
12:08
S1: days charge a gap fee. Certainly mine does, and it's
12:11
S1: quite a hefty gap gap fee. And I know that
12:14
S1: the government put a lot of money into that. And
12:16
S1: they have brought up bulk billing rates. But it just
12:19
S1: seems to me that at some point, Australians are probably
12:22
S1: going to have to accept the fact that they are
12:23
S1: going to have to, on an ongoing basis, pay gap
12:26
S1: fees or pay a co-payment towards Medicare, which is what
12:29
S1: Tony Abbott said many years ago and was sort of
12:31
S1: like roundly criticised for.
12:34
S3: Um, yeah. I think the the interesting issue with this
12:38
S3: one as well as the equity piece, right? Like there
12:40
S3: are people who'll be able to fork out an extra
12:42
S3: $50 to go to the GP. You know, people earning
12:46
S3: good wages and whatnot. The problem is people who can't
12:52
S3: afford that, who delay healthcare and that becomes a, you know, extra,
12:55
S3: more expensive burden on the health system in crude terms
12:59
S3: down the track. And I think that is where the
13:02
S3: government has done a good job in how it's tailored,
13:04
S3: this investment in that it's not just pumping. It's not
13:08
S3: like childcare, where it's just kind of pumping money into
13:11
S3: a subsidy with no guarantee that the provider is going
13:15
S3: to keep prices low.
13:17
S1: No, in fact.
13:18
S3: That's been the problem, I think, with childcare. Whereas with
13:21
S3: these health rebates, what the government did was tie that
13:26
S3: additional funding to a guarantee that there would be no
13:29
S3: cost pass on to the consumer. So at least this
13:33
S3: one is kind of ensuring that there's a bang for
13:35
S3: buck in that this government subsidy is ensuring that a
13:38
S3: vulnerable person, for example, doesn't pay out of pocket and
13:41
S3: can see a GP.
13:43
S1: Yeah, and it just doesn't push up prices overall. Which
13:45
S1: brings us back to our original question, which is is
13:47
S1: public spending from the government pushing up inflation? Did you
13:50
S1: guys come down on one side or the other?
13:53
S2: No. And that's and that's that is typical economist.
13:57
S1: You know I would expect expect that from you Shane.
14:00
S1: Just weighing up each side.
14:02
S2: Yeah.
14:02
S1: Refusing to take a firm position. You know it's just
14:06
S1: the dismal science incarnate.
14:08
S2: It is a very dismal science. But in this case
14:10
S2: it is very difficult. So let's walk through it. You
14:14
S2: get to I'm sitting in the reserve Bank board room
14:17
S2: on Tuesday fortnight ago and I'm going write. My forecast
14:22
S2: is saying inflation's going up. I've got to lift interest rates.
14:26
S2: Do I. Why is that. And the answer always comes back.
14:30
S2: It's aggregate demand. And aggregate demand is what the public
14:35
S2: is spending and what the private sector is spending. The
14:37
S2: private sector accounts for about three quarters of all spending.
14:41
S2: So let's put that into some context. And Michelle Bullock
14:45
S2: actually made the point saying we've looked at it fiscal
14:48
S2: as in government spending is about what we thought it
14:52
S2: was going to be.
14:53
S1: Right.
14:53
S2: So their forecasts over the last six months, we'll think
14:57
S2: that's what's going on with the public sector. Private sector
15:00
S2: is what surprised us. It is households. They've got a
15:03
S2: bit more income and they are spending it. And we
15:06
S2: saw that in some of the retail data that's come out,
15:08
S2: the data centers that are being built, which are long term,
15:11
S2: really important as a productivity.
15:13
S1: Kind of like infrastructure spending really.
15:15
S2: They are. And the private sector, that's all private sector,
15:18
S2: for instance. And you go, okay, that's been the big surprise.
15:22
S2: And what's the overseas what's going on overseas? Donald Trump
15:26
S2: has not destroyed the global economy. China and the US
15:29
S2: are not in a global trade war. That means the
15:32
S2: global outlook is pretty good. That's probably influenced our economy
15:36
S2: a bit more as well. So you go right. So
15:38
S2: ultimately what's changed? It's the private sector. And so right.
15:43
S2: Interest rates are going to have to go up. However,
15:46
S2: the political argument is, well, if the government had known
15:49
S2: that this was coming, well, you should be cutting back
15:52
S2: on their spending. So it would give the private sector
15:54
S2: more space to grow without putting that pressure on interest rates.
16:00
S2: Of course, that is, we have to go back in
16:02
S2: time to March, April, May and go right the the
16:06
S2: second half of 2025, the world's not going to come
16:10
S2: to an end. Uh, all these data centers that we
16:13
S2: didn't know existed are we should have guessed that the
16:17
S2: private sector is going to say we're going to spend
16:19
S2: an extra $25 billion in six months on data centers.
16:23
S2: We should have known that. So this is why I go.
16:26
S2: You can't tell because there are so many different things
16:29
S2: going on. That's why I love economics. Yeah, I can
16:32
S2: I can skip out on a hard core answer just
16:34
S2: for you.
16:35
S1: Um, no. And I don't mean to criticize you because
16:37
S1: we value nuance and uncertainty in this podcast. We sit
16:41
S1: we sit in the space for it. We do. But
16:44
S1: I mean, it's just interesting because that's the sort of
16:46
S1: that's the economics. And that sounds extremely sensible to me
16:49
S1: and extremely rational. And then there's the politics of it,
16:52
S1: which is this is a weak spot for the government.
16:55
S1: They do have a lot of these big spending items.
16:57
S1: Labor is always vulnerable to cries of, you know, being
17:00
S1: a big spending, big taxing government, which is exactly what
17:04
S1: the opposition is saying now, if and when it sort
17:06
S1: of has its act together on its own terms. I'm
17:09
S1: just wondering what the political vulnerability is here for the
17:12
S1: government to us, particularly as we go forward towards the budget. Like,
17:16
S1: do they need to make some big spending, cut decisions
17:19
S1: to give themselves a little bit of credibility as fiscal managers?
17:23
S3: I think, yeah, I think the in that context, a
17:27
S3: big criticism criticism, sorry, that is thrown at the government
17:30
S3: is a lack of restraint. Yeah, and I think that
17:33
S3: is interesting. And I think, you know, you do look
17:35
S3: at these items. It's like, yeah, okay, where where are
17:37
S3: we kind of trimming back or where are we making
17:40
S3: a hard sell to voters and Australians that, you know,
17:44
S3: this is the economy we find ourselves in. And so
17:45
S3: we do need to cut in like trim a bit
17:47
S3: here and trim a bit here instead. You know, we
17:49
S3: had a we had a spendathon election, as many people
17:52
S3: called it, and that was coming from both sides as well.
17:54
S3: You know, you had the coalition matching a lot of
17:57
S3: Labor's big spending promises, particularly on health. But if this
18:01
S3: pressure continues to be in the economy and we see
18:03
S3: further interest rate rises, I think it will be politically
18:07
S3: incumbent on the treasurer to show what he's doing to
18:11
S3: bring that down. That doesn't just look like we're pumping
18:14
S3: money into this, pumping money into that. And I think
18:16
S3: that's where we've got this bubbling conversation about tax reform. Yeah,
18:20
S3: that that the government is kind of flying the kite
18:23
S3: for including as Shane's going to talk about, I believe
18:26
S3: are Uh, capital gains tax, you know.
18:29
S2: And yeah, I was gonna say. But ultimately, governments are
18:31
S2: always blamed for inflation. Yes and no. And that and
18:35
S2: that feeds into interest rates. That is why John Howard
18:38
S2: went to an election saying interest rates will always be
18:40
S2: lower under a coalition government. Famously, of course, the cash
18:44
S2: rate at that time is is three quarters of a
18:48
S2: percentage point higher than it is today. So our feeling
18:52
S2: and you can see it in the Liberal Party, uh,
18:55
S2: criticism at the moment they keep saying, oh, there's been
18:58
S2: 13 interest rate rises under this government, which is a
19:01
S2: great killer line. Yeah. Except of course, that's from when
19:06
S2: the cash rate was 0.35. Yeah. And that historically and
19:11
S2: had been point one, you go the world where interest
19:14
S2: rates are at point one is a terrible world.
19:16
S1: Yeah.
19:17
S2: The world is utterly in absolute, uh, crapola.
19:21
S1: Yeah. That's where everyone's hanging on by their fingernails.
19:22
S3: At the same time, when things are good and when
19:25
S3: inflation is coming down, the government is taking credit because
19:27
S3: inflation is coming down. You know, like that was their
19:29
S3: key line during the election when we came into government.
19:32
S3: Inflation had a six in front of it. Now it
19:34
S3: has a two in front of it you know. So so.
19:36
S1: Yeah they're happy.
19:37
S3: That they said that was a win. So it kind
19:39
S3: of does end up you taking the flip side.
19:41
S1: Absolutely. Absolutely. I want to talk quickly about the possible
19:44
S1: changes to capital gains tax. We're hearing now. I think
19:47
S1: I saw a report this morning that they might make
19:50
S1: capital gains tax changes just on property, because that's sort of,
19:54
S1: I suppose, where the most egregious examples of people taking
19:56
S1: advantage of it are. And also property is the, the
19:59
S1: headline issue, property affordability, you know, equity issue if you like,
20:03
S1: in the economy today. Shane, do you have any tea
20:05
S1: on what they might do if they're going to do
20:07
S1: anything at all?
20:09
S2: There are 5 or 6 different options that are being
20:11
S2: examined here.
20:12
S1: Because again, with your careful analysis. No, no.
20:15
S2: No, because there.
20:16
S1: Are.
20:17
S2: There are very different things that you can do around CGT.
20:19
S2: Leaving it just on housing then. But again you can
20:24
S2: actually do it for how long you can hold a
20:26
S2: property asset. So at the moment, at the moment it's 50,
20:30
S2: you get the concession 50% off. If you've held the
20:33
S2: house an asset for 12 months, you can change that.
20:38
S2: It is not very long and that's why you get
20:40
S2: people who flip houses. Like there we had there's been
20:43
S2: TV series all around flipping houses in short periods of time,
20:47
S2: and that's what they're picking. I know you do. That's
20:49
S2: why I wanted to reference it for you. But that
20:52
S2: so you can do right. You can exclude or restrict it,
20:55
S2: change it to housing. You can do the timing, you
20:57
S2: can do the rate. So at the moment it's a 50% concession.
21:01
S2: There are different options for reducing that concession, maybe to 25%,
21:07
S2: maybe to 33%. Or you change the way in which
21:10
S2: you calculate the concession. You could write a tiny story
21:14
S2: about all the different options, but there are a large
21:17
S2: number of options that are going on. And to go
21:19
S2: to the politics. Susan Lee immediately says, oh, Jim Chalmers
21:24
S2: has got a secret tax for housing and you can
21:29
S2: see where the opposition wants to go in terms of right,
21:33
S2: this is this would be a tax on housing. It
21:35
S2: would be a tax on investors in the housing sector
21:38
S2: who clearly influenced the the lift in housing prices that
21:43
S2: took off this century because of the concessions. Introduction.
21:47
S1: Yes. But I mean, I would make the point that firstly,
21:50
S1: a lot of economists I've seen modelling on this that
21:52
S1: they say it will knock, you know, at best if
21:54
S1: they if these arrangements are changed, it will knock, you know,
21:58
S1: a few percentage points off housing prices, which like it
22:01
S1: won't make a huge material difference to housing prices. So
22:04
S1: it's a little bit of a token gesture in that sense.
22:07
S1: And the other thing is, as you said, there's a
22:09
S1: huge political risk for the government, right. Because they're just
22:12
S1: going to be painted as big taxes that they don't
22:15
S1: have any ideas for fiscal reform. They don't have any
22:19
S1: ideas for raising revenue except to hike up taxes. That
22:22
S1: is such an easy claim to make, even if it's
22:25
S1: like a really valid reform. Is there any way that
22:27
S1: the government could counter that or to, you know, to
22:29
S1: argue against that?
22:30
S2: This will be part of a broader tax package. So
22:33
S2: this is how.
22:34
S3: You'll be offset elsewhere or you'll get more elsewhere.
22:37
S1: Right.
22:37
S2: This is we go back to when the capital gains
22:40
S2: tax was introduced by Paul Keating. He introduced a CGT.
22:43
S2: He introduced the fringe benefits tax. But he at the
22:46
S2: same time cut the company tax rate and at the
22:50
S2: same time cut the top marginal rate, which at the
22:53
S2: time was 60%. It was reduced to 49. This is
22:58
S2: this is how you sell it. And this is the
23:00
S2: political danger for the opposition at the moment. Right. If
23:03
S2: and we saw this last year, which is I keep
23:05
S2: saying we got a tax cut in the March budget,
23:08
S2: which no one had expected. Mhm.
23:11
S3: So question for you, Shane. If they do go ahead
23:13
S3: with some kind of extra personal income tax at this
23:16
S3: budget because you know they all the last few budgets.
23:19
S3: They've been very careful to say this measure is a
23:22
S3: cost of living relief, but it's not inflationary. It's not inflationary.
23:25
S3: Given that inflation kind of threatens to be spiking a
23:27
S3: little bit. Is there a risk to giving people more money?
23:30
S2: There's always a risk giving.
23:31
S3: And how does the government manage that?
23:33
S2: The reserve Bank got asked about this. I've talked to
23:36
S2: them about it. Like the tax cut that's coming is,
23:39
S2: to paraphrase Amanda Vanstone, it's not worth a milkshake in
23:45
S2: a sandwich. It is that small. It's about $5 a week, right?
23:49
S1: You've barely even buys you a coffee in Sydney.
23:52
S2: That's right. But if you say you doubled that to $10,
23:56
S2: you you'd argue, right? It is. Cost of living relief.
23:59
S2: The reserve Bank will go. Okay, that's that's not much.
24:02
S2: And you would argue as well on the, the economics
24:05
S2: that this is actually good for the labour market, but
24:09
S2: you'd be bringing in more people.
24:10
S3: But do you think something like that will be enough
24:12
S3: then to offset politically, you know, any any scare, campaign
24:17
S3: or attack that comes with.
24:19
S2: I go to the stage three tax cuts where they
24:21
S2: reformed them and they ended up with the top. About 10%
24:27
S2: of the population ended up paying more tax, and 90%
24:30
S2: of the population got bigger tax cuts. I would I
24:33
S2: would never get in the way of you make this.
24:35
S2: Capital gains is paid by 1 million people. There's another
24:39
S2: 16 million people who would get a larger tax cut.
24:42
S1: Who could get a milkshake, a milkshake and a hamburger
24:44
S1: out of it. So basically, the government would put through
24:47
S1: a suite of reforms and they would chuck them all
24:49
S1: into the same legislative package. So if the coalition was
24:52
S1: going to vote against the CGT changes, they would also
24:56
S1: have to vote against a modest but appreciable tax return
24:59
S1: or tax cut for ordinary Australians. Is that the idea?
25:03
S3: It's all very political, isn't it?
25:05
S1: Yeah, yeah. Um, listen, it's fascinating stuff. I actually find
25:09
S1: this stuff really, really interesting because it goes to basically,
25:11
S1: you know, the government's spending priorities, which is a lot
25:13
S1: about the values that they hold and they think Australians hold.
25:17
S1: And we fight that out every year when we talk
25:19
S1: about the budget, which I'm really looking forward to. Guys,
25:22
S1: thanks so much for coming on. Thanks for doing this
25:24
S1: incredible research that you did about all of the spending.
25:27
S1: It is really dry stuff, but you managed to make
25:28
S1: it really interesting and accessible. So thanks.
25:31
S3: Thanks, Jack.
25:32
S2: We'll try not to do it again.
25:35
S1: We want you to do it again.
25:37
S2: Sure.
25:42
S1: You can read all of our political news on our website,
25:45
S1: theage.com.au or smh.com.au. Today's episode was produced by Kai Wong
25:51
S1: with help from Debbie Harrington. Our executive producer is Tammy Mills,
25:55
S1: and our podcasts are overseen by Lisa Muxworthy and Tom McKendrick.
26:00
S1: Before you go, follow Inside Politics and leave a review
26:02
S1: for us on Apple or Spotify. I'm Jacqueline Maley. Thank
26:06
S1: you for listening.