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- [00:02]
A
Hi, it's Samantha Sellinger Morris here, your host of the Morning Edition. And I am recording tonight in Parliament House in Canberra where just a couple of floors away from where I'm sitting, Treasurer Jim Chalmers has just handed down the government's federal budget. And joining me is our senior economics correspondent, Shane Wright. He's got one of the toughest jobs, I reckon, in journalism. Explaining the economy to those of us who don't necessarily always understand what's happening. Shane, how are you feeling?
- [00:31]
B
Just happy to be here. Where else would I rather be, Samantha?
- [00:34]
A
I mean, of course, but like to the point, are you feeling richer, are you feeling poorer?
- [00:38]
B
I'm feeling energised by an interesting budget.
- [00:41]
A
Ok.
- [00:42]
B
It is not a boring budget. So that's the saving grace.
- [00:44]
A
Well, absolutely. Let's get to that point because I'm gonna pin you down here. Cause only two months ago you wrote that this budget will be, quote, the most important one this century. You had good company. The Prime Minister, Anthony Albanese said it would deliver, quote, big reform. And Treasurer Jim Chalmers said this is qu. The most important and ambitious budget in decades. Now, are all of you over egging the pudding here or is this really like for you, the budget equivalent of like a new Kate Bush album?
- [01:12]
B
Well, nothing will ever be as big as a Kate Bush album. Let's get that clear. So put that to one side. In terms of what has been announced, I still maintain it is the biggest and this is qualified by saying if it occurs, if it all goes through. So I think it's a. It clearly surpasses what Joe Hockey tried to do in 2014. Cause he was only focused on one side of the budget, whereas this one has movement on both sides. It is bigger than Wayne Swan's in 2010 because so much of that actually never occurred.
- [01:50]
A
Well, let's get stuck into the nitty gritty because there really are through three groups of people that both the Prime Minister and the Treasurer said they'd really be focused on helping in this budget. And that's young people, the working class and Australians trying to get into the housing market. So let's walk through, you know, whether they are playing footsies with promises or whether they've actually come through for each of those groups. So let's start with Australians trying to get into the housing market. What sort of measures are they planning on introducing and how much would it actually help them?
- [02:21]
B
Yeah, this is like. And this is the area that's going to. It crosses all three of those areas and it's the one that's going to be the most contentious and which is going to create so many interesting headlines over the next couple of days, couple of months. These are around capital gains tax and the concession that was introduced by Peter Costello back in 1999. It's about negative gearing, which was introduced by Joe lyons in the 1930s and the taxation of trusts and the way that they get used by people with the financial wherewithal to effectively choose their tax rates. These three areas. Ultimately, some economists will say, well, they're not that big a deal in terms of what they do. However, the fact that no one has been able to change them. Peter Costello wanted to deal with trusts back in around 2002, but he got shouted down by the National Party at the time. Negative gearing. The intersection of negative gearing with the capital gains tax concession, which treasury has been belting on every treasurer since about 2000 to do something about. They've finally found a treasurer, one who's prepared to do it and two, 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 Ned Gearing trusts, they aren't the cause of the stupidity that is the Australian property market, but they don't help.
- [04:00]
A
Well, just I guess, walk us through, what are the changes that the government plans on introducing to the capital gains tax, to negative gearing and then to the trusts.
- [04:08]
B
Right. So negative gearing. Negative gearing will continue to exist, but you actually have to build.
- [04:14]
A
But explain to us what it is and then what the change is.
- [04:16]
B
Negative gearing is the ability to reduce your taxable income with the losses that you accrue on a residential property. Now, Australia's the only country in the world that enables you to reduce your taxable income by the losses on investment properties. If you're in other countries, you. The loss actually only accrues to what's happening on that property, not the entire income.
- [04:40]
A
Yep.
- [04:41]
B
And people move. And this is what happened in 1999. The capital gains tax concession was introduced. Peter Costello was assured people what this will do is encourage people to buy shares. They did not. They bought property. And there's some beautiful. If you like, if you like graphs, have a look, have a look in budget paper number one, because there's some great graphs from treasury about what actually happened. People really did go into houses, not even units, they went into houses. And houses take up a lot of space. People want them on big blocks and you can only limit the number of people that you can have in a particular area.
- [05:19]
A
And this is really central to the problem. Right, because people started buying houses as a means of investment as opposed to just shelter. Yeah, exactly. So, okay, so tell us about the other changes and how this is gonna realistically help or not help young Australians or Australians trying to get into the housing market.
- [05:35]
B
So the capital gains tax concession, the 50% concession that was introduced by Caselo is gone, largely like there's some grandfathering. And I'm not going to try and explain the ins and outs of grandfathering right now. But going forward, if you have a capital gain on an investment property or on shares or on your crypto or your Birkin bags, and there are some people out there who do that, you will have to effectively take into account what inflation has done to the value of that product since you bought it. So this is how the CGT system worked before Costello's change.
- [06:14]
A
So essentially you're being net taxed now
- [06:15]
B
on the real gain, the inflation adjusted gain, and it'll be at your marginal tax rate. But there's a little winkle in that in which they've said, right, there's a minimum tax rate of 30%. Now that's really important. And it's connected to what's happening in trusts, where a minimum tax rate of 30% has also been set. For trusts, discretionary trusts, which are used by people. There are legitimate ways to make sure that you can pass on, particularly in the farming sector. I want to pass on this to my kids, that people put these things into trusts. But there are more creative people who use them to minimise the tax that they pay and their kids pay or things like that.
- [06:58]
A
And how does, so how does changing or how does introducing this tax on the trusts, how does that help Australians to get into the housing market?
- [07:08]
B
This is, it's not in the housing market, it's not even intergenerational equity. It is equality between income. Now, I'll explain it this way. If you and I, we're wage slaves, we get taxed. And the average tax rate for wage and salary earner in this country is about 30%. Remember that number 30% is really important. If you invest in capital, the tax rate becomes lower. And this is what the argument is, especially from tax experts who effectively argue there shouldn't be a difference, a real difference between the tax rates if you are earning income from sweat or from your ingrained ability to pick an increase in the value of Birkin bags.
- [08:01]
A
And essentially this is kind of cuts to the heart, I guess, of what Anthony Albanese has been saying he wants to do, which is realign the budget. Right. Realign the tax system so it's fairer. So this is really tipping it more equally, I guess, to workers as it is to say, investors, at least in
- [08:17]
B
this taxing way, that is, they're upfront about it and Chalmers is upfront through the budget papers that that's largely what you're getting at. And there is a large amount of tax literature saying, right, why is there a difference between income earned that way between working and between investing?
- [08:36]
A
I mean, essentially it was just favouring rich people.
- [08:37]
B
Yeah, yeah. Because they are the ones who have the money to invest and to buy things. That's part of the argument. There are legitimate arguments, don't get me wrong, there are legitimate arguments that there should lower taxes to encourage, like, entrepreneurial abilities.
- [08:52]
A
Yeah.
- [08:53]
B
And there are carve outs here, particularly around startups and venture capital.
- [08:57]
A
Yes.
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B
Which is a recognition that in some cases you do want to give people that incentive to do something.
- [09:05]
A
And housing, it's really shot us in the foot because you've written just recently about how many capital cities in our country, I think now the median house price is a million dollars, and you were saying, this is really quite horrible. But just to focus on the housing cause, Treasurer Jim Chalmers, every year on budget night, he comes down the press gallery where we work and he visits the offices and, you know, he fields questions and tonight he defended the figure of, you know, he says that there's an additional 75,000 homes that. He says that the changes that we've just been discussing, these tax changes, they will provide over the next decade, these extra 75,000 homes. Now, not to sound too critical, but my first thought was, is 75,000 homes, like, is that enough? Because, of course, there are millions of Australians dreaming of owning a home right now. Right?
- [09:50]
B
Yep. 75,000 outwardly doesn't sound a lot. It's about 1% of the ownership market. However, he didn't mention what else is going on. Like there's a $2 billion fund that's going to give councils and utilities organisations the chance to put in the infrastructure to build more homes. The estimate from that is another 65,000. There are other programs like their 100,000 homes for first home buyers. That's in addition to this. During his press conference, he actually said, once you pull in all these things, price growth for homes will fall, will slow by 2% or about $19,000.
- [10:32]
A
Yeah.
- [10:33]
B
Now, if you're a first home buyer, where the first. What is it? I think it takes now, a first home buyer about almost 12 years to save for their deposit. If I go back 20 years, it was seven and a half years. These are some of the. These are some of the things that got them disappointed.
- [10:48]
A
Is a big deal. I mean, it's obviously a big or break. Yeah.
- [10:50]
B
And it's better than like the crazy systems that we've put in place, like the Howard government said. Right. We'll give you a bonus, like a first home buyer's bonus, which are just immediately capitalised into the selling price. So this is. And you don't hear, like, the number of MPs who've said, we need slower house price growth. Look, yeah, I've got one hand and yeah, I'm gonna remove all of the fingers to count them all.
- [11:18]
A
That's right.
- [11:18]
B
So that is so just looking at the one number as opposed to what it might do to prices. Price growth, which is what has literally killed the aspirations of every millennial, every zoomer who've looked at the housing market and gone, how the hell am I gonna get into. How the hell am I gonna get a home?
- [11:38]
A
So zero to 10 millennials, Gen Zs, how happy should they be by these changes in terms of it enabling them to actually achieve this dream that for so long they've, they've thought, you know, so many have thought, it's over for me, I just won't be able to get into the housing market.
- [11:51]
B
Oh, they should be happy. But it's not as if there's going to be this rush of every millennial out the door saying, you beauty, give me, give me the keys. Cause the average house price is still 850,000.
- [12:02]
A
Yes.
- [12:03]
B
The average new mortgage in Sydney, it's close. Is about 3/4 of a million dollars. Like it is. This is. We dug ourselves into this problem.
- [12:13]
A
We did, Shane.
- [12:14]
B
And it is going to take a long time to find our way out of that hole.
- [12:19]
A
Well, tell us about renters, then. What do these changes in particular to capital gains tax and negative gearing mean for them?
- [12:25]
B
Yeah. This is interesting because you've had this pushback from the real estate industry and particularly from investors who might have more than two or three homes, saying, oh, this is outrageous, I'm going to sell up. Who are they going to sell to? Are they going to sell to the renter who can't get into the market? The house doesn't disappear. And this is part of the problem with the arguments being pushed, saying, this is end of days for renters. Look, and there is some analysis saying that you might see about 1 or 2, maybe 1 to 2% increase in rents. However, there's also this argument that the house prices will fall like 2 to 4%. So you've got an offset there saying the person who's a renter who wants to buy, which is a large proportion of them, might now have a better chance of transitioning from renter to home buyer.
- [13:21]
A
Okay, so if they can make that leap then. And if they can't, they're stuck buying. And I think treasury has said about $2 per week for a household paying the medium amount is what rent they think will.
- [13:30]
B
Yeah. And there's a large number of programs. We are in the middle of this Government and the states particularly, particularly Victoria, New South Wales are throwing a lot at trying to get housing built in the right places, like around transit centres like railway stations and getting say the superannuation sector and getting more investors in there, which is how the rest of the world like where you don't have huge amounts of public construction, you have companies or non profits investing in housing. We have left it to private individuals to supply it. So we have like it's almost 10% of the population is a landlord. You cannot go to another country and find that sort of proportion. And it's because we've said housing should be rather than being shelter.
- [14:19]
A
Yeah, it's an investment.
- [14:20]
B
It's an investment. And with making an investment there are consequences which are. Is part of the reason this government is trying to deal with it tonight.
- [14:28]
A
Well, tell us about the working class then because the government also was sort of saying in the lead up to this budget, well, we're gonna be helping the working class. So how much is there in the budget for them? There's an income tax to start off with. Right, an income tax cut.
- [14:40]
B
Right. So when you talk about working class, you're talking about working people all the way up, I think. So the working age tax offset, 13 million people will eventually get that. So.
- [14:53]
A
And how much of an offset is that?
- [14:54]
B
It's $250 which will not be paid until 2028.
- [14:59]
A
Right.
- [15:00]
B
However, so we've got the first income tax cut, it's worth $5 a week which kicks in from July 1st.
- [15:08]
A
Now, now that's for everybody.
- [15:09]
B
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 for most people, $300 to $400 plus. And there's a large package of productivity measures in tonight's budget. So there's actually an estimate that the standard tax deduction will save Australians about $380 million in better economic activity outcomes. It costs the budget because people, as many as people say, like people say, your accountant promises, yep, I'll look after you. Standard tax deduction, bang. Don't have to go to the accountant. There's a large proportion of people who will be better off not just in the fact they're not collecting receipts and shoeboxes, but because they don't have to spend time, of course, 45 minutes talking to an accountant. And don't get me wrong, I like accountants. Some of my best friends are accountants.
- [16:08]
A
Yes, I'm sure, I'm sure.
- [16:09]
B
So we're coming back to tax. So that kicks in from the coming financial year.
- [16:15]
A
Okay.
- [16:16]
B
There's another tax cut that starts on July 1, 2027. And the, the Watto, the working age tax offset kicks in for that financial year. The surprise tonight was the fact that that is going to be ongoing. There was speculation that this would be just a one off. It's now been built into the budget. And look, I, for the last eight months I've been saying there'd be a tax cut announced in this budget. There's a tick for me because that's what's occurred. I would pull money that, that working age tax offset gets increased over the next two years somewhere. Really, Particularly in the run up to the next election.
- [16:56]
A
Okay. Now we do have to address all of the investors out there, all the people that are thinking, dear Lord, I've worked really hard, I've got a fair amount of money. So have the rich been robbed in this budget or is it something more along the lines of what our colleague Peter Harcher has written this evening, which is that it's not so much robbing the rich as it is robbing dad to pay son and daughter.
- [17:16]
B
How dare, how could I contradict Peter Harcher? But he's right. Yes, we know that the fifth largest lender in this country is the bank of Mum and dad. And it's because one, they've been able to benefit from the tax advantages that have flowed to them. That's pushed up property prices, as in
- [17:37]
A
through capital gains and through capital gains and such.
- [17:39]
B
Yep. And the demographic tailwinds that the boomer generation really enjoyed. And good luck to them because, like, where they started from and where, like they have bent and shaped the tax system to their gain, which every generation wants to do.
- [17:59]
A
Yeah, but does everyone do it in the same way that the boomers. Have they been as successful as the boomers?
- [18:04]
B
Oh, no one's been as successful as the boomers. Why?
- [18:06]
A
Why is that? Shame.
- [18:07]
B
Because it's such a large bulge of.
- [18:10]
A
Oh, it's just a large cohort.
- [18:12]
B
Like, we haven't seen such a large generational cohort as the boomers. And I think there was some analysis in the budget just in terms of the number of working age people that the budget is relying on. Peak boomer. It was about 5.6 taxpayers to everyone who's requiring financial support. As the boomers die and then exes start moving into aged care, it's falling down to 2.2, 2.4.
- [18:43]
A
Okay, so tell me if I'm reading some punishment for the boomers in this budget in this one particular measure, because the government's removing the discount on private health insurance rebate for people over 65, this is going to save the government $6 billion. So their bills are going to increase by about $240 a year. Is this punishing the boomers?
- [19:02]
B
It is like, there's no, like the government. Mark Butler, who made this announcement a couple of weeks ago, trying to couch it as like, why would, why would you offer this incentive? It's not an incentive. You are giving older people a discount on their health insurance when they are the biggest users of health insurance.
- [19:21]
A
Who did, who brought this in? Shane John Howard.
- [19:24]
B
At the time when the great generation, the greatest generation, so the prediction, World war, World War II, pre World War II generation were moving into their later years, that government did have a lot of money and look, and they really focused it on the boomer population who were their electoral base. The problem is the boomers are dying. There is no. They've moved into aged care and the cost of aged care continues to explode. We have to look. And the way that we were trying to deal with look after people in aged care was an abomination. And there's just not. There are not enough millennial zoomers or exes to pay for what boomers deserve, which is good care.
- [20:10]
A
Okay. And so if the rich haven't exactly been robbed in this budget, and it's more, you know, the moms and dads who are being robbed to help, you know, their sons and daughters. Is there anything else in the budget that's sort of that in which that manifests, you know, that mum and dad are being robbed? Like, are they, are they coming out worse from this budget, these mums and dads?
- [20:28]
B
Some of them, some of them are like it's interesting, there's so many grandfathering elements around, say cgt, negative gearing. If you build a new home, you can still negatively gear that.
- [20:40]
A
Yes. It's existing stock which you can.
- [20:43]
B
It's existing stock which is part of the problem. It has been always the problem, ever since Joe Lyons introduced this is that about 85% of negatively geared properties exist already. So the people who are buying them are competing against first home buyers largely. I think there was some analysis tonight showing that from treasury showing a third of all landlords are subsidised for the entire time they hold their asset.
- [21:13]
A
And does this change any of that?
- [21:15]
B
This act really does change the financials around negatively gearing. So there's nothing like about half the population is still positively geared. Yes, but. So we're talking about those who negatively geared and those who are. They are using the tax system to reduce their taxable income, subsidise their life choices and then get this great capital gain further down the track.
- [21:40]
A
Now I wanted to ask you, Shane, just about the overarching framing, I guess, of this budget, because we know that Jim Chalmers and Anthony Albanese, when they. When they were basically flagging that they were going to roll back negative gearing and capital gains tax, obviously this is the plans that really did in Bill shorten, he essentially lost. Well, he lost an election over. Yeah, he lost the unlosable. Yeah, he lost the unlosable election, I believe. And I think the way that they've sort of pitched this is very much. This is going to be about intergenerational change. And I think that's how they're trying to get support for it, I guess. So how far do the changes that we've discussed in the budget or whatever else is in there, how far do they go to really accomplishing this? Does this really realign the tax system? I know our colleague Jack Maley has written it's an attempt at realignment from old to young, from wealthy to wage earners. How much does it accomplish that?
- [22:35]
B
Well, unless you were going to seize everyone's wealth, there's only so many ways you can do it.
- [22:42]
A
So absent Robin Hood, literally.
- [22:44]
B
Yeah. Or Ned Kelly, given. Let's see, we're in Australia, we may as well go with the local.
- [22:50]
A
That's right.
- [22:51]
B
Yep. The options are relatively limited in terms of the tax system. Cause at the end of the day we just need to build a hell of a lot more homes.
- [23:04]
A
So how much in the budget is supporting that? Other than what we discussed actually providing supply?
- [23:08]
B
We're talking about Billions. There are this government enough billions.
- [23:13]
A
Because, you know, often they put these large figures in budgets, but then, you know, in a. You know.
- [23:17]
B
Well, this is why you aren't. You aren't on the Reserve Bank Board, Samantha.
- [23:20]
A
Correct.
- [23:21]
B
I know it's surprising to bring this up, but if we know that there are some capacity constraints at the moment because so much is going on trying to get homes built.
- [23:31]
A
Yes.
- [23:32]
B
The war in Iran is just sprinkles, more than sprinkles on top. It's pushing up the cost that builders are facing. Anyone who's got anything to do with the plastic, like, think of a sewer pipe. As much as people might not want to think too much of that early
- [23:48]
A
morning, I'm glad we have sewage.
- [23:50]
B
Yeah, sewage, sewer, sewer pipes. They are going up in price because the hydrocarbons that you make them have gone up in price. So you've got that aspect. But you're trying to build a lot all at once. Because this government is spending literally tens of billions while the states are also doing something similar because they've woken up to the fact that one of the reasons, one of the reasons we saw the Farrow result just a few days ago is that people are damn angry. They are angry at what life is delivering them. And they are absolutely within their rights to be angry because they've been stuffed
- [24:26]
A
around, like, reaching a breaking point.
- [24:28]
B
Angry beyond that.
- [24:30]
A
Yeah.
- [24:30]
B
And you can, you can argue, right, we must do something for older Australians who are particularly angry, and regional Australians, or, and they're like, to be blunt, they're a smaller cohort than the millions of millennials and zoomers who are going, how the hell do I get a house? And ultimately, you have to make a choice. What's more important, investment returns or a roof over your head?
- [24:57]
A
Yeah.
- [24:58]
B
And like I, like I write extensively about this. As you know, Samantha, we have got to the point that couples are putting off having children because of the price of housing now. And you can see that in the fertility rates. You can see that in the surveys that keep coming through now. That's a terrible situation. That is a terrible situation where we're telling young people, right, you've got a choice. You can negatively gear or you can have kids. You can't have both. Yeah, that's where they've got to.
- [25:29]
A
Well, Shane, I love spending bedjet night discussing this with you, so thanks so much for your time.
- [25:34]
B
Very happy to be here with you.
- [25:39]
A
Today's episode was produced by Chee Wong with technical assistance by Debbie Harrington. Our executive producer is Tammy Mills. And our podcasts are overseen by Lisa Muxworthy and Tom McKendrick. If you like our show, follow the Morning Edition and leave a review for us on Apple or Spotify. Thanks for listening.