Tell me a bit about why it is that investors and governments and institutions around the world have traditionally been so willing to, to lend the US money and, and why that's now changing.

Well, the United States has always been considered the safest bet in the world.

Like, there's about three countries, four countries in the world that have never defaulted on their debt.

Australia's one, New Zealand is another, and Washington is the third The Confederacy during the Civil War did default, but, uh, look, we push that to one side.

But that's how safe an investment the United States has always been considered, that they will always honor their debts.

The issue partly is the fact that there is so much debt being created by the United States.

The budget deficit this year will be about in, uh, US $2 trillion or about 3 trillion Australian.

The world's central banks have made unprecedented coordinated interest rate cuts, and still the global economy is plunging further into crisis.

But what's so wrong about wanting to use your money that you can't get access to now to buy a big, what people would consider their biggest asset and the biggest purchase in their life now, particularly if you're someone in their 20s and 30s who can't see how they're gonna be able to ever get into the property market?

Yeah, and I absolutely get that as someone who's got two kids going, "These kids are gonna s- They'll come to the bank of Mom and Dad to get money to get to buy property," because we have completely stuffed up the housing policy in this country for the last two decades.

But that is a super series of podcasts that we could do to just debate that on.

And I think part of it, part of it is, yep, right, just give me money, and some money now, and yep, I'll be able to buy a house.

And you and I go off to the auction.

We've both got an extra 10, $15,000 in our pockets.

What have we just done? We'll outbid each other until we push up the price of housing.

Why is the coalition so ill-equipped to be able to argue back on even something that is pretty clear-cut for them, which is we had that policy first?

But what's so wrong about wanting to use your money that you can't get access to now to buy a big, what people will consider their biggest asset and the biggest purchase in their life now, particularly if you're someone in their 20s and 30s who can't see how they're going to be able to ever get into the property market?

Yeah.

And I Absolutely get that.

As someone who's got two kids going, these kids are going to – they'll come to the bank of mum and dad to get money to buy a property because we have completely stuffed up the housing policy in this country for the last two decades.

But that is a super series of podcasts that we can just debate that on.

And I think part of it is, yep, right, just give me money and some money now and, yep, I'll be able to buy a house.

Yep.

Why is the coalition so ill-equipped to be able to argue back on even something that is pretty clear cut for them, which is we had that policy first?

Is that right? Even though they were expected to decline given that the Reserve Bank had begun lifting interest rates earlier this year.

Yeah, uh, it, no one was really sure in terms of how many investors would come out of the market, and we don't know how long-term this is because on Friday the Bureau of Stats, which actually track, tries to collect information on every mortgage [laughs] that gets issued, they also showed, yep, a fairly sizable fall in the, uh, June quarter, so that's covering the l- like the six or seven weeks from between the May budget being released and the end of the quarter.

But it also picked up a, a sizable increase, in fact, it's a record levels, the number of mortgages taken out by investors to build new homes.

Now, that was also part and parcel of the government's changes.

It-- like, the most important in this case is the negative gearing one, which is you can negatively gear as long as you build a new house.

So you can...

It-- these are preliminary, so I'm really reticent to go, "Oh my God, we've got absolute proof of everything." Um, it's like seeing the, uh, a video of a, uh, Sasquatch wandering around, uh, parts of Northern America.

So is now the best time for a first home buyer to get into the market?

And also electricity prices, which is confusing because we keep hearing from the national regulator that wholesale prices are actually going down and they've been cut.

That's right.

And you'll actually see electricity prices fall in the next month.

So this is – just think of it.

You've got – think of inflation as one big pie divvied up into 12 pieces, one for each month.

The July slice from last year will come out in the next measure.

That July slice last year includes a 30% increase in electricity prices in Sydney and Canberra and a big one in Melbourne, which is all to do with the end of subsidies that the states and the feds had put in place.

I wonder, did all of that negative media coverage actually impact demand and people's feeling about the economy more generally, do you think, and maybe lead to this result, which is taking a bit of demand out of the economy because people are scared or cautious or anxious?

And also electricity- tricity prices, which is confusing, 'cause we keep hearing from the national regulator that, uh, wholesale prices are actually going down and they're being cut.

That's right.

And you'll actually see electricity prices fall in the next month.

We...

So this is, if, just think of it, you've got, uh, think of inflation as one big pie di- divvied up into 12 pieces, one month for, one for each month.

Uh, the July slice from last year will come out this, uh, in the next measure.

That July slice last year includes a 30% increase in electricity prices in Sydney and Canberra, and a big one in Melbourne, which is all to do with the end of subsidies that the states and the feds had put in place.

Yeah.

Tell us, what does the latest Resolve Political Monitor polling tell us about how Australians are feeling about house prices?

Well, you know that there's been a huge debate about house prices, particularly in light of the budget in May.

And so in June, we actually asked the question, do people think they could live with lower house prices? And in June, 54%, which was a big surprise to us.

Sky News did its own poll.

They actually went, "Yep, that's where it is around." We actually have just asked it again.

So in this new poll, 2,200 people, 61% say thumbs up to lower house prices, and a drop in the number of people who are opposed to lower house prices.

Like, it is in single figures.

So how does this, do you reckon, land? Or what are you hearing there in Parliament in terms of how this is landing with the government and others?

Mm.

Uh, negative equity, I, just four weeks ago, it was, uh, Michelle Bullock said practically no one is in negative equity.

Uh, I think the ratio is about 0.3% of all loans.

2019, 2% of all loans, and the world did not f- collapse.

So there's a lot of catastrophizing around this.

The Reserve Bank actually wants a slowdown in house price growth.

[laughs]

Mm-hmm.

Mm.

And the unemployment rate's four and a f- 4.4%, record number of people in work and a record s- share of the population.

Now, to go to your further point about a property market falling apart, this country does have a v- a telling example of what happens when the property market absolutely craters.

We have to go back to the 1890s and I, I know I'm old, but it even predates me, Jac.

Melbourne was the largest city in the country, the biggest financial center, and its, its financial sector, and its, an overexuberance in the property market led to an almighty crash in the Melbourne property market.

It precipitated the 1890s depression.

Melbourne did not recover from that really until after World War I.

That's true.

Yeah.

Just four weeks ago, the governor of the Reserve Bank, Michelle Bullock, was asked this question.

She said, it practically does not exist in this country.

So if I go back to 2019, after the Sydney dwelling values had fallen by 15% over about 18 to 20 months, people have forgotten all this happens.

The About 2% of homeowners in the country had negative equity.

And last I checked, the world did not fall apart.

And negative equity is a real issue only if you are forced to sell your home.

So at best, isn't this policy just going to be a little bit of fiddling around the edges? I mean, maybe it's something that is better than nothing, but it's not going to really fix the problem, is it?

It's the fact that wages haven't kept up with what you need to buy a house.

Well, thank God, because if wages had kept up with that, I think we'd be looking at even more extortionate prices.

There's a whole host of factors.

I mentioned 94, 96.

That's where Aussie John Simons comes along with a non-bank lender.

And the interest rates that banks started charging actually started falling.

So that financial change contributed to what was going on.

Shane.

So is the fear of losing your job to AI justified?

Well, I'll take, I'll take you back two or three hundred years to the Luddites who [laughs] campaigned against looms.

They weren't wrong.

They... at the end of the day, those craftspeople, uh, who were really intrin-intrinsic, uh, to the, uh, to the, um, textile industry did lose their jobs.

Absolutely.

That's what they were fighting against.

Um, but they got rolled over.

Yes.

Is that comparison fair? Or is AI fundamentally different?

Well, I think the argument that the BIS is arguing is that it's the amount of money that's spent on the tech that's So around dot-coms, it was...

I think I can remember the time there were, like, these whole dot-com things about for pets.

That would be the next great thing.

So people were throwing...

And it was underpinned by the huge rollout of broadband that really took off in that late 90s.

That was what was going to underpin it.

you know talk to me about running fire drills and potentially cutting rates faster next time can you explain exactly what that means and what you're actually proposing there

Mm.

So that's a, that's a major one.

Then there's another one which is, it, like, uh, think of it as a three-horse race.

This one's down the back, but it will make, uh, fair progression pretty quickly, and this is around trusts because of the government's decision to impose a 30% minimum rate of tax on trust dispersals.

That will get some credence, not from the business community, but from those who, the two million people who are using trusts at the moment.

That is gonna come down the, the tracks pretty soon.

Mm.

If I'm living in Michigan or Ohio and you look at what's the innovation doing there, the, I...

Mm.

So that's a, that's a major one.

Then there's another one which is, it, like, uh, think of it as a three-horse race.

This one's down the back, but it will make, uh, fair progression pretty quickly, and this is around trusts, because of the government's decision to impose a 30% minimum rate of tax on trust dispersals.

That will get some credence, not from the business community, but from those who, the two million people who are using trusts at the moment.

That is gonna come down the tracks pretty soon.

Mm

...

Is it a Keating-esque budget in any way?

Well, Keating, talking about gold standard, the gold standard is 1985 when Keating introduced the capital gains tax, the fringe benefits tax, slashed company tax, slashed personal income tax rates.

in terms of the history of tax policy in this country nothing is bigger um i not quite this is a long way behind that but i described the the three issues that they've talked about negative gearing capital gains tax concession and trusts as the the tax shibboleths that dare not be touched and like even within the liberal party there are elements who know that this actually can't go on And yes, I did read all the 50 pages.

It is the largest part of a budget that's gone straight to explaining tax policy since the Wayne Swan tax policies of 2010.

And this is much larger in terms of the explanation.

So yeah, they've got to this point.

I think internally, the Labor Party is already getting feedback from their polling that yes, people have actually warmed to this, that there is an understanding because this has been coming for several months now.

Is it doable, Shane? No.

Okay

... negative gearing, the neg- intersection of negative gearing with the capital gains tax concession, which Treasury has been belting on every, uh, Treasurer since about 2000 to do something about.

They've finally found a Treasurer, one, who's prepared to do it, and two, ha- is part of a government that has a monster majority in the Parliament with which to deal with that.

And also, going straight to young people, a growing number of people who are just absolutely priced out of the housing market.

Now, CGT, neg gearing, trusts, they aren't the cause of the stupidity that is the Australian property market, but they, they don't help.

Now, that's for everybody?

That's for everybody because they're reducing the bottom tax rate from 16 to 15 cents.

And there's also the standard tax deduction, which is estimated to be worth, uh, for most people, 3 to $400 plus, and there's a large package of productivity measures in tonight's budget.

Can you remember a more difficult rates decision than the one next week, Sean?

In terms of difficulty, the 2007 election decision when the Reserve Bank lifted interest rates two or three weeks out from an election, that was a particularly tricky one.

2019, where they decided not to cut interest rates just before an election and then did it straight after, that was also a tricky one.

This one, it's tricky because it's not the politics or the budget That's to one side.

It is the fact.

And you've touched on the fact it was a 5-4 vote.

There were four people around that table last month who said, let's hold on.

How definitive was his ruling out or ruling in?

Can you remember a, a, a more difficult rates decision than the one next week, Shane?

Uh, in terms of difficulty, the 2007 election decision when the Reserve Bank lifted interest rates, uh, two or three weeks out from an election, that was a particularly tricky one.

2019, where they decided not to cut interest rates just before an election and then did it straight after, that was also a tricky one.

This one, it's tricky because it's not the politics or the budget that's to one side, it is the fact, and you've touched on it, the fact it was a 5-4 vote.

There were four people around that table last month who said, "Let's hold on.

We're not sure how this war's going to play out.

We may have to make some tougher decisions down the line." And if you read the minutes of that meeting-All nine said, "Yep, much depends on if the war comes to an end, then yeah, we'll continue on tightening monetary policy," but they know six weeks on, there is no one in the world who thinks that this war is over.

Mm

Uh, I don't know, I don't think you have to have an economics degree or even basic, um, mathematic literacy to know that 4.6% is definitely not in that area.

It is not.

Uh, of course, if the big driver, as you two have mentioned, is petrol, um, if it, the petrol prices nationally lifted about a third in that month.

If it wasn't for petrol, inflation would've fallen.

It would've gone from 3.7 to 3.4%.

That is telling you a whole lot about [laughs] what's going on, um, about the inflation figure and petrol.

Look, I know you girls are talking about how sexy you are.

He did.

As you were.

Thank you.

So he introduced what was the, Australia's first capital gains tax, and this was occurring across the world at that time because, uh, eco- economists, treasuries were working out that there was this whole amount of wealth being created with, that was untaxed, and it meant that the income tax system was doing a lot of the heavy lifting.

So he also introduced, uh, fringe benefits tax at the same time, which helped Keating introduce the deepest cuts we've ever seen in personal income tax and the biggest cut in company tax.

So when he introduced it, one of the most important elements was that he didn't want to tax the increase in the value of an asset that is w- actually just moving in line with inflation.

So just because something goes up in line with inflation doesn't mean you're, you're making away with money.

It's the excess that you're trying to tax.

Is that right?

Mm.

Well, as you can see it in the report today, you read it, you go, "This whole theory, this will encourage people to go into shares." So we'll, we'll make it simple, so we'll just have a straight rate of discount, and we'll make it substantial.

Like, this was...

Remember, the Reserve Bank at the time was still ta- was targeting inflation two to three.

The discount was made very, very generous, perhaps too generous, that's the argument, and off we'll go.

And the theory was, yep, people will go into shares.

They did not.

Yes.

Mm.

Well, and you can see it in the report today.

You read it, you go, the whole theory, this will encourage people to go into shares.

So we'll, we'll make it simple, so we'll just have a straight rate of discount, and we'll make it substantial.

Like, this is...

Remember, the Reserve Bank at the time was still ta-- was targeting inflation two to three.

The discount was made very, very generous, perhaps too generous, that's the argument, and off we'll go.

Yes.

Do you have any sense of what his approach to increasing productivity is likely to be?

I think you'll, you'll see a fair bit about regulation.

The productivity story is really interesting because this has been a global problem since the global financial crisis.

In fact, just a little bit before that, because productivity is never driven by governments, as mat- much as some people might want to argue.

It's driven by businesses innovating and using new tech.

And the new tech on the... right at the moment is AI.

And with...

So do you think they'll use it, and will there be any significant reform this budget, or do you think they're spooked and a lot of this budget might wind up being crisis management?

why did Morrison do this deal? Surely it must have been clear to him and his advisors that this was going to cost major cash.

I wish I could say that was true, but that is not what was going through the minds of Scott Morrison and his advisors going back all those years because we have to go step back a little bit of time because in 2014-2015 the resources construction boom that had kept WA afloat for so long which had pushed like house prices in a place like Port Hedland were actually higher than they were in Sydney so much money and it just stopped the state went into a recession for two years But because of this really complicated GST allocation system, the amount of GST that the state was getting back was actually collapsing.

So huge holes in the state budget.

The Premier at the time, Colin Barnett, decided that he and his government had been complaining for a very long time and had effectively been budgeting that the system would get fixed and no one was fixing it for him.

So he'd put up some pretty tough decisions himself and ramped up the political pressure.

And both Labor and the Liberal Party were looking at different options.

Bill Shorten had come up with his own plan, which was effectively just to give extra money to the state to help build stuff.

But you have.