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Chapter 1: What is the main topic discussed in this episode?
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As the dust settles on the government's big federal budget announcements, questions still remain about how and when changes will take place. But what do some of Australia's leading economists think of the proposed policies a fortnight on? And power prices are set to fall for most customers, with even bigger drops for some businesses. What's driving that relief? Welcome to ABC Business Daily.
I'm Daniel Ziffer. And I'm ABC business and economics reporter, Gareth Hutchins.
Gareth, lovely to have you here. There's been a lot of airtime, a lot of AI slop, a lot of articles, a lot of chat, including on this very podcast about unpacking the details of the recent Australian federal budget. You've got a great piece which people can read on the ABC News website.
That's got analysis from some of Australia's top economists on the policies that were put forth both by the government and the coalition. So who did you talk to and what did they have to say?
Well, I talked to Chris Richardson, Saul Eslake, Ken Henry, former Treasury Secretary, Amy Oster and Nikki Hutley. So these are five economists that are very well-known commentators on the budget. And they had some interesting things to say.
I thought it was important to get their perspective after a fortnight of this debate because the debate has been swamped by complaints about some of the tax changes. And these economists made the point that we seem to be missing the bigger picture here. What the budget is trying to do, it's recognising...
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Chapter 2: What are the implications of the recent federal budget announcement?
Yes, because as the way that the tax system works, unfortunately, the personal income tax burden is getting worse and worse for that shrinking pool of workers. Personal income tax is the only tax that's increasing in proportion to the growth in the So we have to rearrange these things. These are the arguments these economists are making. Now, if I can just go through them quickly. Please.
So Chris Richardson, he spent decades at Deloitte Access Economics before he moved independently a couple of years ago. Before that, he was an economist at Treasury and at the International Monetary Fund. He said he was very happy to see some big changes.
Chapter 3: What do leading economists think about the proposed policies?
Finally, you know, Labor and the Coalition are talking about big policy ideas. Our tax debate has been tied up on tiny details for far too long. Now, he said he was a fan of changing the 50% capital gains tax discount, but he would prefer to replace it with a minimum income averaging for businesses. rather than the 30% minimum tax.
He said he wouldn't have done negative gearing because if changes to capital gains tax discount is fixed for housing investment, then negative gearing goes away as an issue because the two interact.
So there's been a lot of talk about these two together.
Chapter 4: How are power prices expected to change for consumers and businesses?
So he's actually saying that you didn't have to do negative gearing because it's actually the CGT discount that's been driving housing investment.
Yeah, yeah, yeah. Those two interact in the housing market. So he thinks just fixed capital gains tax and negative gearing goes away as a problem.
Now, I've been fascinated to hear what Ken Henry had to say. He's a former Treasury Secretary. He wrote a substantial attempt at a rewrite, kind of framework of how tax in Australia could work. He took it to government and it has largely sat on the shelf since then. What does he think about these changes that are being proposed now?
He's very happy with them. Generally, overall, he's happy that a government has finally used some of its political capital and had some courage to try to push these things through. He said Australia's tax system should be capable of generating more tax revenue. When the economy's performing as it is today, it's become so fragile that it's just not. What do you think he means by fragile?
Well, the point that income tax, the tax, the revenue that's being generated is only being generated, sorry, it's being generated more and more on personal income tax of workers. It's taxing wages and salaries. when it should be generating more things from resource rent tax, for instance.
But for various reasons, which we all know about, whether it's political donations, lobbying, people working out how to use the tax system to their advantage, the tax revenue from our resource rents is not what it should be. That's a big thing that Ken has been pushing for years.
And so some of the fragility is that we are relying more and more on income tax, which over time, as the working population shrinks, will become a smaller and smaller thing that we can't rely on as the base of our tax.
That's right. And if the GST revenue is even falling in proportion to GDP growth, you know you've got a problem.
Amy Oster started a think tank this year, the Policy Institute of Australia, but has been an advisor to the Commonwealth Treasury, Victorian Treasury, and a partner at one of the big consulting firms. What was her take as the dust has kind of settled here?
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Chapter 5: What are the long-term trends affecting Australia's budget?
Yeah, that's true. You can't help but think of John Howard's famous core and non-core promises, right? He famously broke some promises after the 96 election when he was first elected, did some things that he swore black and blue that he wouldn't do.
The way that he characterized what he had done is that he was delivering on his core promises, and these were non-core promises that needed to be changed, blah, blah, blah. Now, John Howard then went on to be prime minister for 11 years, and he is universally held up as one of Australia's greatest prime ministers by the media and by the public.
Um, and so he was forgiven for those things and it didn't seem to tarnish his reputation. So governments just have to do what they have to do. If they think that they're going to break a promise, then they're going to wear it.
Um, but they're going to also have to just hope that they can explain their way through it and get out the other side and have people think positively about them in a few years time.
Gareth, I made a core promise at the top of this podcast that we will discuss power prices. With CPI data set to come out tomorrow, there's something very interesting happening with power prices. I haven't been able to say this for a while. They're set to fall for most customers, up to 10%, some even bigger drops for businesses.
This is the kind of event that the RBA will be tracking along with the inflation data that comes out tomorrow as it weighs up what to do with rates as it keeps trying to fight persistently high inflation. part of what is so fascinating about all of this. So this comes from our energy market operator.
We're talking about the, they call it the national energy market, but essentially it's everyone except for WA. This is a fascinating element. Yeah. Why do you think prices are falling? Well, there's a few factors. There's a huge surge in renewables. Now we're aware of that massive penetration of solar panels and
big uptake on the battery program where the government was massively subsidising home batteries. We're seeing more industrial scale batteries. All of this stuff, I find it absolutely fascinating because we really are building the plane while we're flying. I grew up in an area that's next to where most of Victoria's power is generated through coal-fired power stations. These are ageing machines.
They are quite literally buying the parts for them on eBay or making the parts through the ingenuity of the workers who are there. These are far beyond their lifespan in many cases. And the reason that we are transferring to renewable power is, first of all, It's cleaner. It's also cheaper to produce power.
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Chapter 6: What changes are economists suggesting regarding capital gains tax?
There's this massive spike in the middle of the day. We have too much, so much so that in the middle of the day, a lot of coal-fired power stations are paying when they send electricity into the grid. They're paying a penalty because there's so much juice around. What batteries are doing is moving that excess, smoothing out the picture so that we have a more stable grid.
And as we're getting this time, at cheaper prices in most of Australia. To wrap up, something fascinating from this week has been the exit of Mexican food chain Guzman and Gomez from the US. You've got to admire an Australian chain taking on the US, such a massive market in fast food, the chutzpah of launching a Mexican chain. Like I admire it. Maybe it was never going to work.
Investors are delighted that they've stopped. But it doesn't appear to have stemmed the bleeding of losses of money that they're spending over there, Gareth.
Yeah, it's like an American company coming here trying to sell kangaroo meat, isn't it? Yeah. You just think, okay, good on you for trying. So a class action lawsuit has been filed in the US District Court in the US state of Illinois, alleging that Guzman has failed to provide the legal minimum notice of 60 days advance written notice before firing its employees.
Now, it only told its employees a week ago that this is what it was doing and that it would be basically closing the next day. And so a huge shock to these employees, especially, you know, you know what this means. These are people who are working for $20 an hour US, I guess $30 an hour Australian. Their life has been built around this and all of the restaurants are closing tomorrow.
It's really interesting to look at it.
They had about 300 staff in eight locations around Chicago. They tried really hard. In fact, the co-founder was there for the last three months trying to make it work.
Is there a flip side in the fact that the American chain Taco Bell, which sells Mexican food, has had three goes at Australia, is currently in its third iteration, and the best it's got out to at the moment is 20 stores having already – in fact, it was going to be the third and done, but someone rescued it right at the end – Is it just really hard to break a new market?
I think so. I mean, think of how there seems to be something proudly patriotic that Australians feel about the inability of Starbucks to really get a foothold in Australia. Because I think, are you kidding me? Our coffee.
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