Q+A: Winners and losers from the Federal budget
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What is the main topic discussed in this episode?
Welcome to Fear and Greed Q&A. I'm Sean Aylmer. Last night's budget has received a mixed response, and with so many changes to tax regimes around capital gains tax and negative gearing, the devil, no doubt, will be in the detail. To help make sense of it all, I welcome our resident economist and managing director of market economics, Stephen Koukoulis. Bleary-eyed, Stephen?
bleary-eyed, but I always love a budget. Nothing will keep me away from looking at the budget papers all day and all night.
Righto. Let's kick off with the economic parameters.
What are the key changes in the latest Federal budget?
What is Treasury saying about what's going to happen to the economy? And my following question after that, is it an expansionary budget?
Well, the first point is Treasury have got quite significant differences in their macro forecasts than the Reserve Bank put out just a week ago in the Statement of Monetary Policy when they hiked interest rates. So, for example, the critical one that underpins everything else in the Treasury forecast is an assumption that productivity growth will be higher than the RBA is thinking. Treasury's got a number in there for the near term of 1% or a little bit more in terms of productivity. The RBA is at 0.7. And because of that, because of that, Treasury have got inflation falling back to target a little bit sooner. Sure, it's going to hit 5%. We know that's pretty much baked into the CPI for the next few months.
But falling back to 2.5% by the middle of next year. They've got a lower peak in the unemployment rate. They've got stronger economic growth. And it's all about productivity. Now, one part of me says, obviously, the Reserve Bank Board didn't know what was in the budget, unless Jenny Wilkinson, the Treasury Secretary, sort of gave a few little whispers under the mat or whatever. But basically, Treasury have used the extra information that they have seen in the budget measures, the various tax changes and things that you mentioned, and produced a set of forecasts that that are more optimistic than the RBA based on, fundamentally based on a more optimistic beyond productivity.
Okay, so we'll come to the expansion in a bit in a moment, but let's keep going with productivity at the moment. Jim Chalmers last night said that it would boost productivity. From my reading of it, Stephen, it's not exactly going to light a fire under productivity, but there are changes, sort of national regimes and kind of less red tape and stuff like that. Do you think it will do much to productivity?
Yeah.
It'll help. And productivity is one of these things that's very, very hard to get a handle on and what makes productivity click in a sense. So a lot of the focus, and it's actually been the focus prior to the budget, prior to last night's budget, but a lot of it is in the codes and the rules and the red tape and regulation about construction activity. that there's so many magnificent documents, hundreds of pages long, that a builder's got to look at when they're just building a house, for goodness sake. So they're trying to reduce that red tape to make it a little bit smoother. And, of course, that increases the speed at which a property's built, lowers the cost of the property, which is productivity.
On some of the other things, they're more – Look, they're more longer timeframe.
How does Treasury's economic forecast differ from the Reserve Bank's?
Anything that can sort of change the efficiency of the tax system is good, but the tax changes, while they might be big for some individual components of the economy, trusts, the capital gains tax issue, negative gearing, they probably add a few micro decimal points to the productivity equation, but that's over a very long period of time because they don't really kick in for a couple of years.
What about this tax changes? So we've got changes or negative gearings dropped on existing homes. We have changes to the capital gains tax regime with a minimum rate of 30% and index to inflation going forward. We have a discretionary trust taxed at 30%. What's the plan behind all that? What's the thinking behind that?
My reading of the thinking and the way that the Treasurer articulated it, both in his public comments associated with the budget and the media comments afterwards, and an assessment of what they were on about, is that very...
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