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- [00:01]
A
I'm Jacqueline Mailey and you're listening to Inside Politics from the newsrooms of the Sydney Morning Herald and the Age. We are officially in week two of budget backlash and both sides seem pretty dug in. We're going to talk about what movement, if any, there might be on the CGT changes which have been sort of the most controversial part of the budget. And we're also going to talk later about the tantalising prospect of the teal independence forming a party which was a possibility raised this week by some of those independents. We have our chief political correspondent Paul Sakal joining us as usual from the Canberra studio. And in the Sydney studio with me this week, our very, very, very special guest star, chief economics correspondent Shane Reich.
- [00:41]
B
I heard it was your birthday. I had to come and celebrate it in in the person.
- [00:46]
A
I know I didn't expect you guys to put on this party but here we are. It is my birthday today and I cannot think of a better way to celebrate it than by talking about CGT changes with you guys.
- [00:57]
C
Part of how are you actually celebrating it, Jack?
- [01:00]
A
I have various dinners, lunches and I even had a breakfast this morning of a celebratory nature. So I'm very spoiled. Let's get straight into the backlash. It's gone on for a while. Well, two weeks now. Shane, can you just summarise the main criticisms that business groups in particular are making against the proposals in the budget?
- [01:19]
B
Well, the first one is they don't want to pay more tax. Let's be absolutely upfront because these changes will increase tax on some businesses, on a lot of businesses. So we will put that to one side because there's a vested interest behind every corner. The second one which goes to whether the changes particularly around CGT will affect business aspiration, particularly those at the small or at the startup level. So that's a major one. Then there's another one which is like think of it as a three horse race. This one's down the back but it will make 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 2 million people who are using trust at the moment that is going to come down the tracks pretty soon.
- [02:13]
A
Ok, so that's coming down the pike for us, Paul, the government did state in the budget papers that it would consult with particularly the tech start up community over the effect of the CGT tax changes. Are they Going to make some exceptions. Are they going to fiddle with it a little bit?
- [02:29]
C
Yeah. The budget papers, as you say, did say to quote it, it said that there would be consultation with, quote, the tech and startup sector. So it didn't talk about small business, it talked about broadly the innovative tech startup community. Because late in the budget process, after Shane Wright broke a really good story on the CGT model that the government would opt for, there was some concern from members of the government that this model would hurt startups and other businesses with low cost bases, small businesses as well as. And so because of that concern that was raised, there was this line put into the budget that there would be consultation. But as time has gone on, the government has shifted from talking about just the tech and startup community. And on Monday the Prime Minister did a press conference in his courtyard where he was quite snippy at a question about a narrow exemption for tech firms. And he said, no, no, we've never said that. We're talking to a much wider group of peak bodies. And as this week has gone on, it's become clear also due to the lobbying from labor backbenchers who are quite worried about the broader backlash, that these exemptions could be wider and we might see the existing concessions for smaller businesses who don't have to pay much CGT at all expanded significantly.
- [03:39]
A
So this is confusing though because Jim Chalmers also said this week that once you like use a distortion of the market to fix another distortion of the market, then things get really distorted. I'm paraphrasing.
- [03:51]
B
Tell us what distortionary squared I think you're going for.
- [03:55]
A
Tell us what those Chalmers comments were and what he was trying to say.
- [03:58]
B
Well, this is in relation to the idea that, that it should only be cgt, should only be changes, should be only apply to the property market. Now, within treasury and within most tax literature, as soon as you try and carve out things, you are going to cause problems. And that is the Treasury House view saying, look, if you're going to do it, and treasury does support this, like treasury does say, right, we made a stuff up back in 1999 with the CGT concession that was introduced, we've got to repair it in some way. Don't. The more exclusions you have, the more problems you create. And I'll give you exhibit A is the gst. So the gst, when it was introduced, to get it through the Parliament, Howard had to, John Howard had to exclude fresh food. So fresh food, the finance sector, health and education were excluded. Guess which areas have had the fastest growth in spending since the introduction of the gst, the ones without gst. And so the GST is, weighs more heavily on other parts of the economy as the economy's changed. That's one of their exhibits saying if you go down this path of excluding certain sectors or certain investments, you are going to create the same problems that you're trying to solve by getting rid of the concession to begin with.
- [05:19]
A
Ok, but on the other side of that argument, and Paul, you might want to weigh in on this, the government is, you know, the sort of underlying ethos of the budget is that we want to tax some, you know, capital fairly compared to labor. So people who are just wage slaves earning income tax should be taxed at a sort of broadly equal rate to people who can make income off assets and capital. Right. But the other argument is, well, those people making income off assets and capital are the risk takers. They're the innovators, they're the entrepreneurs. They're the people who are creating jobs and movement and productivity in the economy. And if you, if you get rid of this sort of tax incentive for them, then you're going to cut all that off. Talk to me about that and who's sort of making that argument.
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C
Yeah, Jack, you're right. To raise the underpinning issue here that the government is trying to solve. We live in a society where wage earners are getting smashed by inflation and pretty low wage growth over a period of years. And people who own assets in the share market, particularly the housing market, have got much richer over time. So we live in a more unequal society and a centre left government is trying to fix that. What they say is that the 1999 changes that John Howard made to create quite a generous discount on CGT pushed a lot of people unintendedly into the housing market and we've created a huge property price boom. They're trying to solve that. So they're saying that that generous discount should be removed not just from the housing market, but on all assets after they've made those changes. Critics, including in the business sector, some labor backbenchers, former labor advisers, Matt Common from the cba, various economists, quite a large group and growing group of people have said if you're trying to un distort that, to push people away from the housing market into other assets that are actually productive, which would be a great thing for the Australian economy, why have you also removed that generous discount for those other productive assets? Why not narrow it just to the housing market? Now Chalmers comes back and says that will create another distortion and we don't want that. And the new CGT model, he says, will work for some businesses and not others. So there will be a skewing. But the argument is that it would not be as significant as skewing away back into productive assets as if you just retained the 50%. And so there's now this debate about whether you can split productive assets out. If the government did so, it would be a very significant backdown. They're not considering it at this stage, but we'll see how the debate plays out.
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B
I don't know how you can come up with a definition of productive assets.
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A
I was going to say, what does that even mean? You don't know until after the fact. Right. Whether or not it's a productive asset.
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B
And this goes back to.
- [07:51]
C
But, but it's, but it's, it's. You want to stimulate, you want to incentivise people putting their money into businesses that could become productive to increase the likelihood they take the risk to do so. And if you have a lower, if you have a much higher capital gains tax potential. The idea is, and various economists have made this point that fewer people will be willing to take that risk.
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B
That risk gets thrown around like it's fairy dust. I'll put risk on everything. It's not an economic concept in that regards.
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A
What do you mean?
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B
Well, just say, oh, I'm a, I'm a. Let's say. I don't know, I'm not a widget maker but let's say I'm a financial startup and whatever I come up with is going to be change the world and make the world fall.
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A
Yeah. You've got a great idea that you want to.
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B
Except 90% of people who do come up with this fails because it's not. Doesn't work.
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A
Yes. So isn't that the point?
- [08:42]
B
Well, that's the point but I'm talking about the fact that everyone says, oh, we'll stop the risk takers. I'll give you like people have talked, might have heard about New Zealand talking about we are CGT free. New Zealand is not a startup centre. It's got Hopper Town, it's got some cows and it's got some sheep and a record number of people left New Zealand for Australia last year. So the tax. And why would you invest in Sweden which has much higher tax rates? All the scandies. Why would I go to France? Much higher levels of taxation as well. Taxation is important at the marginal level but there are other factors that means why are people entrepreneurs? Is it just the tax system. I think it was Warren Buffett who once said, look, if you think you don't want to come up, go ahead with this great idea because you're going to pay too much tax, just give it to me, I'll make the money anyway.
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A
Right.
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B
And Warren Buffett, fourth richest person in the world, has some idea of what's going on in that space.
- [09:42]
A
I hear what you're saying that people who, and you know, Paul Keating made this comment in his statement that he issued, which he reported that basically, you know, the beating heart of an entrepreneur will continue to kind of be excited by risk and opportunity and will innovate no matter what. Kind of like a creative, any kind of creative person. But there are certain cultures and environments and democracies where innovation, risk taking and entrepreneurship has thrived. I'm thinking particularly the United States. And that is in part because of the government and regulatory environment. Right.
- [10:18]
B
But that's. You've just talked about Silicon Valley. If I'm living in Michigan or Ohio, and you look at what's the innovation doing there, this will go. And this is really into Paul's country where we're talking about like the division between capital and labor. One of the reasons I think that is driving the support for one nation independence, angry people have looked and said innovation. You talk about your productivity, you talk about your high tech. I can't feed the kids. My life is going backwards. And so it's not feed. This is all tied up together. And I think both sides of politics understand this quite well.
- [10:59]
A
Yeah.
- [11:00]
B
And they're coming at it the solution in two different ways. Well, we don't know what the full solution is from the opposition, but I know they're thinking we've got to come up with something to talk to these voters.
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A
Joe Hockey, you know, for all his sins, which we've discussed before on this podcast with the 2014 political sins, it didn't go down too well.
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C
He might be a great man.
- [11:21]
A
Yeah. No, I'm not saying I like Joe on a personal level. I'm talking about the budget that he admitted this week when he was at the National Press Club was quite an unpopular budget, the 2014 budget. But he did say that in an uncertain world where you've got a lot of economic headwinds, as Jim Chalmers always talks about, the one thing that a country like Australia, highly educated, pretty successful country, can do to combat or to guard against all the risk and all the problems in the world and all the challenges is innovate. Like, you know, we can innovate to work our way around climate change, we can innovate to work our way around fossil fuel dependency. And if we're cutting that off at the past by not offering tax incentives,
- [12:01]
B
then I would absolutely agree with you. Except that for the last 26 years we've had a 50% concession on capital gains and what's happened to productivity in this country?
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A
Right, that's a good point.
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B
It has slowed. There is no, absolutely no doubt about that.
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C
But the argument is that that 50% discount, along with negative gearing, has shifted people into the housing column, which is highly unproductive. And so the argument from people who are criticising the government's budget is to un distort that you should remove it for the housing sector to try and push people away instead, all assets are being taxed more.
- [12:36]
B
Right, but this goes to the division between capital and Labour, which is should they sh. And there are very good, like economically, there are very good arguments like Paul's touching on for taxing capital slightly less than labor, but the problem is that labor taxation is not going down either.
- [12:54]
A
Well, this is the thing, and I mean this is the big hole, as I see it, in this, in this argument or the narrative that the government is trying to sell. It's like, if you're going to do this to capital, then give us a tax break in our income taxes, which they're not doing, really. Except for the Watto. Watto, depending on which is $250, it's pretty marginal.
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C
We landed on Watto last week. That's our. The House rules.
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B
Why?
- [13:18]
A
Ok, we've got an official pronunciation guide. The Working Australian Tax Offset, I believe is the acronym in case we've got. Now, let's talk about the teals, because we had Zali Steggle and Allegra Spender front up this week in Parliament and basically give a press conference and hold out this prospect that they might form a party with whichever teals are available and willing to hang out with them in a party format. Paul, tell us what happened.
- [13:47]
C
Yeah, I'm actually looking at Allegra Spender speaking in the Parliament right now on the tax bill. So the teals came in in 2022, cleaned up the Liberals in the inner city. There was a great buzz around them for at least a few years and then leading up to the last election, people might remember, which is quite ironic given how dominant labor is now in the House. But there was a pretty not a likely chance. But there was a lot of speculation about a hung Parliament before the last election. Which would have given the Teals this balance of power in the House. And given that obviously did not occur. And so they've become a more marginal political outfit who can get up and give a speech or release a white paper and have interesting things to say, but are not right at the core of decision making power. So Allegra Spender and Zali Steggall, in particular a member for Wentworth and what's Ali Stegglesite? Warringa. Warringa, yeah. Have been talking for months now with David Pocock and others around the Teal movement about creating some sort of more formal party structure. Whether that is a formal party or a kind of alliance where they still have levels of independence, work more closely together. Those conversations have been going on for months. They've done research, they've got some names. There was talk about announcing this party in June. I heard that plan was actually still on track until the story broke on Sunday after David Pocock let it slip a little bit on insiders. And then the day the stories were reported on Monday in Parliament, there seemed to be splits in the Teal movement. Allegra Spender and Zali Steggal talked up the prospect, but others like Monique Ryan in Melbourne, Kate Chaney in wa, and some of the others were a bit less keen because they more intent on protecting their independence. And I think there are also some personal squabbles between some of the characters involved who may not be as keen on working together as we thought.
- [15:29]
A
So, I mean, this is what I find interesting about this story, is that, you know, the two. We always talk about the coalition, the collapse in the coalition vote, and there's so much concentration now, attention on one nation rising in the polls, which they've never been able to convert into a lower House seat. Right. Until recently. Meanwhile, the Teals basically have destroyed the coalition, like well before one nation resurged, but they haven't been able to convert it really into like political, commensurate political influence in the Parliament. And so this is surely them trying to coalesce into a party so they can maybe have a Senate, a couple of Senate seats so they can have a say in legislation like the budget. You know, this budget is kind of very controversial or probably not very well liked in the seats of Warringah and Wentworth, but their local MPs are not really able to have any influence on it.
- [16:22]
B
Yeah, I'm just trying to work out like, you get to the issue of creating a party. Yeah, like we don't see that often. And whether like this is what intrigues me because. And Paul's really a good spot to talk about it. Right. Zali Steggle and Allegra Spender, two people don't make a party.
- [16:43]
A
No, no. Have they gone out too early? Because it sounds like actually they don't have enough people to make a party.
- [16:51]
C
It's a bit murky to me. Like I've been trying to figure this out as well. I think that some of the statements that were put out about not wanting to join a party immediately were trickily, carefully worded, I should say not trickily, to give these MPs like Monique Ryan and others some time to talk to their communities about this prospect because the stories were written before these guys wanted to go out publicly. And so the really organic, strong link these MPs have to their volunteer networks, which is quite extraordinary, they've built up these amazing networks in their communities. Those MPs would not want those hard working volunteers who abhor major party politics to look at their MP and camera and think what she's joining a party without consulting us. So I think they want to go back, have a think about it. Allegra Spender and Zali Stegall are still of the view that this will coalesce over time and that some of the others who have expressed some doubt will come into the tent eventually. And yeah, to your point on the Senate, that is one of the key drivers is to get Senate representation where it's easier to have a balance of power position and you need a party to do that. Also the funding disclosure laws that Don Farrell and Labor brought in last year make it more attractive to start a party structure. But I think actually Allegra Spender in particular's key, key driving motivator is that she sees the rise of one nation, she sees anti establishment sentiment growing and she's of the view that all these TLMPs need to unify, to create a more centralised message, split up portfolios, advocate on policy as one to become more powerful and to cement their status as a, as a group that can wield influence. And my personal, very much opinionated view is that I think she's right and I think she's the, she's on the right, she's on the right track.
- [18:37]
B
And as I said, the other thing is whether you can pull in some Liberal MPs or Liberals who are on the left of the party, who there's so few of them, like they are not quite the Tasmanian tiger level, but they'd be on the, they are very much on the very endangered list at the moment. So you can see why you'd. This may be for them, it may
- [18:59]
A
be something and it's like if you build it, they will come sort of thing. I mean, the broader story surely is the collapse of the Centre, right, which, you know, the coalition seems to have abandoned that ground entirely and the Teals have naturally sort of in that space and now they're like, they see a vacuum, they see an opportunity. Politics is all about opportunity and timing. Right?
- [19:19]
C
Yeah.
- [19:21]
A
We're going to be really interested to see what happens there. We've got Zali Steggle on the pod in a few weeks time actually, so hopefully there'll be a few more developments. And it's been a really fun birthday podcast for me.
- [19:33]
B
You've looked, I think you've de aged while you've been sitting here.
- [19:37]
A
It's the effect that you guys have on me. I'm relaxed, I'm having fun. It's been really fun. Thanks so much, guys.
- [19:43]
C
Thanks, Shane. Thanks, Jacques.
- [19:44]
B
Always a pleasure, guys.
- [19:49]
A
You can read all of our political news on our website, ch.comau and smh.com today's episode was produced by Chee Wong. Our executive producer is Tammy Mills. And our podcasts are overseen by Lisa Marksworthy and Tom McKendrick. Before you go, please follow Inside Politics on Apple Podcasts or Spotify. Hi, I'm Jacqueline Maley. Thank you for listening.