A consequential Budget for investors. May 15, 2026

25:12And I think it's just, again, something worth sort of pointing out because it's very easy to sort of get angry when you have a particular vision of the, quote, unquote, you know, the so-called target, I suppose, of a lot of these policies. Anyway, I just want to make that point. No, totally fair. And I think that's right. I mean, obviously now as a small business person, you're just going in a bat for your people, which is interesting to see. I just, you know, I just want to note that. Hey, we're creating jobs, paying taxes. I'm being silly. No, I am too. I don't have to throw it. No, you make a very, very good point.

25:42So that was a small business thing. And then the three big, I'll put them under costs or losers or whatever. By the way, I wanted to say this before. I speak to Stephen Senatiempo on 2CC in Canberra every morning. And he's a right-wing conservative guy. That's not a surprise. That's not a criticism. It's not a pejorative. He would self-identify that way. And so, you know, you could expect he would be, you know, have a view on the government as well as the budget. And I spoke to him. I just want to – I think it's – you mentioned winners and losers before, mate. And so, every morning, I pick up the phone.

26:12He says, hey, what do you want to talk about this morning? I'll give him two stories and then we talk about it. So, of course, Wednesday morning was budget morning or morning after. and I said, well, we can do the winners and losers if you want. And I hate winners and losers for the same reason you do around. But I thought, well, it's his radio show. If he wants to do that, I'm happy to run through them. And he said to me, he said, no, I refuse to do winners and losers. The only winner should be the country. And I was just like, you know what? Right? Wow, that was so refreshing. And I was like, yeah.

26:34So I made a point of, actually, that was off air. So I said on air, mate, do you mind if I kind of reference what you said off air because it's really important for your listeners to hear. And I just loved it. I thought it was really, really good. So, you know, full props to Stephen. So, anyway, back to the quote, losers, which reminded me of it. Three big tax changes for, I'll say, capital rather than investors. Because it's kind of a bit broader. I don't mean that to sound like I'm trying to split hairs, but the trust thing is interesting. So, I'll do that first because that's easy. Can you very quickly, just because I only – I say these words a lot as well.

27:11And then my wife just said the other day, what do you mean by capital? And it's sort of, I think sometimes you're so deep into the, so like labour I think is very obvious. Like it's people who just earn, I say just, that's the horrible, I don't mean it that way, you know, have a wage or a salary. What's capital? What do we mean when we say capital? Well, I mean, you know the answer to this, of course, and I appreciate the Dorothy Vixer. Capital is also human capital. So at a very big picture level, it's a resource put to work to create more value and or output. Well done. So it's the stuff that goes into producing the output, not the output itself.

27:52So if you're building a machine, you're building capital, the machine gets used for other things. So when we say investing in human capital, we're saying effectively invest in our ability to be more productive or better trained or more able to solve a particular problem or address a particular issue. So that's the broadest use. A nice mental model for me, and it's not nearly broad enough or nearly inclusive enough, but I think it helps to just think of capital as tools. Lovely. Money's a tool. Lovely. It's classed as money and capital get used interchangeably. And that's what I kind of just did, right?

28:28Yes. You know, but one you would call liquid capital or fungible capital. I can move it anywhere. It's half of every trade, really important kind of stuff. And the other is more of a crystallized form of capital. I crystallize my money into a specific apparatus, a machine, a social organization, a social hierarchy. A hammer. Very broad kind of thing. I don't consume it in and of itself. I desire it purely for what it can enable. And in the modern economy, I mean, it's a fractal of layers that is so insanely complex that no one human being could ever get their head around it. But anyway, capital, tools, processes, means to an end.

29:12Yes, thank you. I can only hear the word fractal now and think of Frozen the movie. Frozen fractals all around from the song. It's just in my head. Say fractal, that's what I've got in my head. So massive tangent. Let's get back off that one. Yeah, so thank you for asking the question, mate. So I'm talking about monetary capital here, obviously, rather than those other things. And I say capital rather than investors because it's possible these overlap, at least investors in a direct fit. neither is capital really, but the non-Labour, maybe is a better way to talk about it, right, rather than L-A-B-O-U-R, not Labour as in the party.

29:45So there were three big changes made effectively for money and the way we tax the money, I suppose, at some level. I don't mean the money capital M like a, you know, money, money, but, you know, and they were a taxation on trusts, changes to negative gearing and changes to capital gains tax. I'll do trusts quickly because it's easy and it's upfront. if you have a discretionary trust, the government has decided you will now pay 30 % income on the trust distribution, regardless of the tax bracket of the individual recipient from that trust. Now, why would you do that? The government says, and by the way, there's apparently going to be carve-outs for things like family farms and agriculture.

30:26Trust can be used for a whole of things asset protection genuine holding of assets for multi-generational things like family farms where you're not wanting to sell and you want to kind of pass it down but in a way of without having to break up the structure if you got you're passing a from from one a parent or two parents to three kids you have to split the farm in three to pass it on you pass on inside the trust and so it remains you know a single entity that sort of stuff so it's very real and justifiable reasons like anything however like we talk we talk about taxation for miners all the time.

30:59People then go, so that's cool for farmers. What if I use that for my finances and I streamed the income from the trust to me who I'm working and my non-working spouse? And by doing that, I would halve the income I'm seen to receive. I'll pay less tax probably. And my non-working spouse will pay tax, but have the access to the tax-free threshold. And so effectively what I do is I take a hundred grand worth of income that might've been taxed at, I make up, it's about 20 grand from memory. I think the tax on a hundred grand. if I then have two people earning 50 grand each the total tax on that is probably closer to 5 grand maybe 6 something like that so it's much much much less now that I'm making those numbers up and if you're an accountant out there don't at me so it's used to minimise tax and it's used to legally minimise tax because it's a legal structure the government has said rightly or wrongly that the ability of people to use trust to minimise income in that way is not fair because it's only available to some and not others and it kind of undermines the idea of labour taxation, taxing labour.

31:55If you work and earn this much money, you should pay this much tax. The firefighter can't stream his income to a trust, but the other person, whoever they are, for whatever reason can. That seems unreasonable, so we're going to make sure there's at least a minimum tax of 30%, so it's not used as a tax minimisation vehicle predominantly. And that's kind of the key change. So that's a pretty straightforward, straight up and down one. I'll let you jump in, Matt, but I'll throw mine in first just because I'm still talking. I have zero issue with it, I've got to say. I really struggle to – if I'm – I work for the Motley Fool.

32:26I pay full freight on my income. I can't stream any of that income to my wife or my kids. I can't pretend that my 13-year-old son is working as the office manager on$85 ,000 a year. Used to be able to. You could, right? And so that's – and it's not about me, but other people in my context, again, the school teacher, the firey, the whatever. I think if you're earning personal income or if you're receiving personal income the idea that if you funnel it through one structure not the other one you can get away with paying less tax I don't blame anyone for doing it totally reasonable, legal, appropriate I've said a million times mate I don't have any issue with anyone using the tax rules as they're provided because that's what they're there for but it's a policy I can't find it in myself to be critical of effectively removing what is designed to be nothing more than just, hey, I can get away with paying a bit less tax.

33:18And again, not blaming him for doing it, I just don't think it's necessary to have as part of our tax structure. Why wouldn't you do it? I mean, absolutely. I'll tell you why. Well, I'll tell you why you wouldn't do it. And this is what, yes, I agree with you. And I think the other part of it as well is that it tends to be, like I sort of said, why wouldn't you do it? I was like, well, you know, a lot of you are perhaps not aware of it. Well, there are accountancy costs associated with all of that. So it tends to be the purview of the, you know, middle to upper middle and beyond sort of classes.

33:47The person on minimum wage doesn't have a high-paid accountant who's going to go through all the units of the tax code to find all these different things. So it's sort of like, while it's theoretically available to everyone, it's not practically available to everyone. And I don't like that aspect. It's not really theoretically available if you're on minimum wage because you can only really, you've got to be either a contractor and do your work under a trust structure or have enough money to save and invest and then stream that back through the trust in the first instance. So it is the purview of those who have employment circumstances or excess income that allow them to do that.

34:20It's simply not available for everybody. So, yeah, I can't. I mean, some people are annoyed because they have their tax deduction taken away. I get that. Like, at a personal level. Yeah. At a policy level. For sure. We'll talk about this with the other stuff. But first principles, you start with if I was designing a structure, a tax structure, how would I design it? And the idea of like, what we should do is have a class of tax structure where if you are rich enough, high enough income or a certain particular type of job, you can pay less than someone who doesn't have those options. Yeah. So why would I design?

34:49Like you wouldn't. There's no first principle basis for doing it. So I have zero. What if you're the person designing it? Would you design it to suit you? I might. I won't put the tinfoil hat on so early. Sorry, mate. You know, I. Step out from the shadows. No, my. See, you know what's funny about that? But it's a quick aside, then we'll come back to it. I hear that a lot. And I hear the polis looking after their personal property portfolios and that sort of stuff. I'm sure I've said on the podcast before, I don't reckon that's it. I honestly think if you're a politician, you're in it for the votes.

35:19You're in it for the job. So people say, would you sign it for yourself? I mean, they would, yeah, of course. But I reckon it's more like, hey, you know which group really votes for us and likes us and really we could – if we told doctors and lawyers and high-paid people who are investing that we can give them this tax dodge that they can take advantage of. Do you reckon they might vote for us? Yeah, I reckon they would. We should do that then. Yeah, we really should. I could be wrong. It could be all about them. I just, people say it, but it's like, oh, my personal property. I'm like, I don't know.

35:48I think it's the donors and the voters that care about it more. The groups are far more sophisticated. Yeah, you're right. I definitely agree with you. It's just an aside, but yeah. Yeah, but you can't blame people for making the point of this aside because it always does seem to fall in their favor. It's sort of like, while that is true and also you belong to that cohort that will benefit from it as it turns out. It's both, yeah. So that's my view on the trusts. As long as they protect the genuine trust. This is where someone actually said to me it'll kill ETFs because ETFs are a trust structure.

36:16Oh yeah, that's interesting. I mean it's possible because the government have made some bad blues and stuff they've organised before. I don't think they have enough expert advice on the inside honestly. They've got bureaucrats and policy writers and regulation and legislation writers. I don't think there's enough practitioners and i don't mean to sway their view i mean just to help them understand the potholes so i'm absolutely sure like when you say those words out loud i'm like yeah like you're doing designing let's put a team together what's the team oh we're gonna we're gonna like structure you know the the the finance of the country brilliant what do we need we need speech writers we need uh public relations people hey do we need any experts uh yeah bureaucrats yeah we We totally need some bureau.

37:01Do we need any people to actually inform us about how this works? I guess. I guess maybe a few. Sure. Yeah. If we know, that's okay. We've seen in the past, mate. I don't want to bag Andrew Lee. He's a good guy. But he wrote an infamously article years ago saying that Americans control 55 % of the Australian stock market. Do you remember that one? And it was basically all the – so was the nominee companies. So this is an aside. For those who don't know, you can either hold shares in your own name and most of us do. But if you're really rich and famous and powerful, you don't hold them in your own name.

37:31You have someone who does it on your behalf. And they're called a nominee company. Their job is effectively to hold them for you and then buy and sell and do whatever. Now, the nominee companies are almost always US banks or US investment banks. And that's fine. But because they are literally the legal owners, it shows up that BlackRock or JP Morgan or or it used to be Meloner, someone else now, own 13 % and 12 % and 15%. And Andrew Lee's gone, the Americans own all of our market. This is terrible. And he wrote it. It was not been in a newspaper. Such an easy, an obvious miss, right? Well, I mean, if you don't know, I get it.

38:09That's almost what I mean. Yeah, but if you don't know, don't write an opinion piece. Or you speak to someone and say, hey, this seems bad. Just give me a sense check. That's what I mean by the experts in the room, right? Yeah, yeah. Otherwise, you go, well, look what I've discovered. This is awful. And before you put your pen to paper, you go, this is not my expertise. Anyway, Andrew is a good guy, so I don't want to bag him. That and then the untaxed. Just got every skis. Yeah, the unrealized gains in super last year was exactly the same thing. It's like, guys, come on. Anyway, I say all that because, yeah, we get to a situation, I hope they're going to, I'm sure they will work out a way to not hit agriculture or ETFs, right?

38:49Discretionary trust is almost certainly where they're going to go here. the family trust type structure. Maybe they can't find a way to legally discriminate between the two, but it has to be. You can't, you know, the entire ETF network fall over if you can't, and literally ETF, not EFT, ETF, I call it a network and it sounds like I was talking about financial networks. But the whole ETF infrastructure, the entire issue falls over. It's not going to happen. So they'll find a way to get rid of that. So that's on trust, mate. Before you move on, before you move on, I'm going to play the role of dumb questioner.

39:18And I play it very well. I think you'll agree. Why farms get excluded? And I'm not a loaded question, not a leading question, a genuine question. So farms are usually the ones highlighted. The problem is, I kind of alluded to it at the beginning, trusts were invented not for the reasons of tax dodges. They were invented because you can hold a structure that is things like multigenerational, for example. Because, you know, if I hold, let's say, let's make up straw man for farm man. Apologies to do it. because let's use the Motley Fool. I'll be just wrong, man. That's not fair. The Motley Fool is owned predominantly by two brothers, Tom and David Gardner.

39:56When they die, the shares they own would be distributed to their heirs, whoever they happen to be, and holding different names, and they can then go and do different things with it and all that kind of stuff. Or they could have the Gardner Brothers Trust, which would survive their death. And so the trust continues on and can change its beneficiaries over time to allow for things like multi-generational assets. So imagine a farm, as I said before, we've got mum and dad, and they both dine this three kids. And so what do you do? Well, you've got to, at probate, at the point of time where your estate is carved up, the lawyer goes, well, kid, you've got a third of that each.

40:33Now, at best, they say, let's draw lines down the middle. Let's operate as one entity. I've got a third each. All right, we've got now three businesses to deal with. Maybe sell our shares back to each other. We'll do somehow reconstitute the family farm in a single unit by putting what we owe back together again. Or you can say, mum and dad say, all right, well, this is the Dubbo Farm Trust, and kids, when we fall off the perch, you become the beneficiaries of the Dubbo Farm Trust, but it still runs a single entity, a single business, and a single kind of platform. So in that way, it stops the need for a breakup of an asset upon death.

41:06And farms generally tend to be multi-generational assets. They're generally businesses that are owned by shares in the same way. Maybe that could have turned into the WFAR Proprietary Limited and the company itself could have survived. But either way, having an entity that is not just the individual owners means that at death you don't have to divvy it up under probate. That's why it was designed. I get that. But sticking with the Motley Fool example, I mean, the means in which profit is generated, to me, is almost irrelevant. Let's take it to a family pizza shop. grandma and granddad sell pizza in, I don't know, Randwick, and then they die and the kids took over the shop and then their kids took over the shop.

41:51It's a great little local institution. Okay, they're not wearing an Akuba and a Drysabone and ploughing the land and wiping the spread from the, you know, and all the sort of, you know, visualisations that go around that. But what's the difference? So, no, so I agree with you. Family farms are the ones that often are sited, but any multi-generational business is exactly the same way. The difference would - Oh, okay. It is the same way. If it's a sole tradership as opposed to a company or a trust, that's kind of what I mean. Because I'm no lawyer, right? I'm no probate lawyer and probate lawyers don't at me.

42:25So when I die, the house that I own in my, or my wife, let's say, I'll assume I die first. And then when my wife dies, she's got to give the house to the kids, right? You either have to give the house to one of the children or the other, or you have to have some sort of structure where somehow they kind of all own it either together or they have to sell it and split the money. It's just a single asset. And the Wolliphal is a bad example because it's actually a company with shares, so it's an awful example. But if you think about an easily indivisible asset or asset that would be harmed by being divided, it allows the asset to retain its wholeness and be dealt with as a whole single asset over time.

43:05So that could be the local fish and chip shop. If there's five kids, you sell a fish shop, they're going to sell it or someone's going to buy each other out or you've got to work out how the fish and chip shop keeps going. It's really how – maybe you turn to a proprietary limited company and it's got five shareholders. Now, okay, there's that. And when they die, there's 25 shareholders. It's like, it's just a fish and chip shop, guys. Why do we have to have five shareholders? Or there's just a fish and chip shop trust. That's kind of the – that's the argument. So you're right. It's not just – family farms are most often cited because they tend to be multi-generational.

43:34Generally speaking, businesses are less likely to be, not entirely at all, passed on to multiple generations that kind of, particularly small businesses, I don't know if your kids want to run straw man after you fall off the perch, mate, but probably not. You've got to sell it or shut it down, right? So it's kind of that, whereas farms tend to be, and again, it's a horrible generalisation. It's why you're right to ask, hang on, why farms? The answer is it's a nice touchstone way to describe or understand why a trust structure is used in that context, not just for tax dodging, but actually for things like asset protection or multi-generational assets like farmland, for example.

44:11Okay. That's helped. You're an encyclopedia of bespoke financial and taxation knowledge. I told you I was a nerd. I told you I was a nerd. Are you seriously only believing me now? Come on. There might be something to this. You've known me long enough. Before we move away from trusts, one of the things I'll say is that, Again, with the mental image of how this exactly impacts. When you think of the very, very rich, it's interesting just looking at some of the discussions that I've come across. It's kind of like, oh, it means I'm going to need to do this, this, this and this now. In other words, if you're well-resourced in that, it's still going to be less advantageous, but there are still lots of options for you that are not going to be available for a more middle-class oriented kind of person.

45:04So again, the burden doesn't land where I think a lot of us think we're going to land. Because if I'm worth$400 million, I can tell you right now, I have got a very – you talk about trusts. I've got corporate trustees that themselves have, you know, it was like layers and layers and layers. And sort of like that's what, again, I just feel as though sometimes the target isn't the target that you think it is. And it's the person who doesn't have the capacity to sort of route around these things that, and maybe the, and I agree with your point. I think a lot of these things are a bit of a nonsense, but again, it's not as like, ah, take that, you know, Twiggy.

45:42And it's like, yeah, he's just fine. Don't worry about him. He'll still be getting – he'll have advantages and opportunities that you don't. 100%. So that's trust. And again, definitely a focus on non-labor income distorting the tax base. That's kind of – so that's the theme, right? And that was the easy of the three, by the way, mate. So let's see how long this podcast goes. So that's trust. Negative gearing was the next one. Yep. And negative gearing, there's a couple of details. I'll give people the quick details just because I want people to be informed, but please do your own research as always and see your accountant.

46:17If you buy a property after 7.30pm on Tuesday just gone, i.e. the time and date of the budget, you will not be allowed to offset any rental losses or property investment losses, as in cash flow losses, against your other income from the 1st of July, 2027. So two dates there, the date of purchase and the date you can do it. That's huge. Gosh, that's huge. Massive. Now, if you already own a negatively geared property, own a property, a residential property, you can still continue to negatively gear that property for as long as you own it. So that gets grandfathered, is the phrase or the word. So that's grandfathered in.

46:53But if you buy anything after 7.30 on Tuesday night, and because the tax law is not going to change, you're going to get it written. So if you buy it today, you can negatively gear it for the next year in a bit. But after July 1, you won't be able to do that anymore. So if you owned it before budget night, you can do it. If you buy it between now and the 1st of July, You can do it between now and the 1st of July. After the 1st of July, the only people who can need the gear are those who owned property as of 7.30 Tuesday night. So that is huge. That was the big one. Look, we've said many times before that there is definitely reforms that are needed there.

47:27But also at the same time, I think it gets so emotional that people feel as though that's sort of like the only thing holding everything up. I think it'll definitely have an impact on housing. But I think there's a lot of hysteria around just the degree of impact that it will have in and of itself. But it's huge, not so much from an objective mathematical kind of standpoint, just for the points I just mentioned. but psychologically it is used to sort of frame and rationalize so much of how ordinary people arrange their tax affair. You go see a financial planner, you go see an accountant. I mean, it's just like, you just do this kind of stuff.

48:14And I'm not trying to put judgment in that in any way, shape or form, but it's sort of, and you only, you get a sense of that just by virtue of the reaction that that has had. Apparently, there's going to be no houses to rent to, which was funny, which maybe we can get back to later on. But do you see where, or do you agree with that kind of viewpoint? So when I say it's huge, I don't want to sort of be seen just like, oh, the housing market's now going to crash, although at the margins, like it's definitely going to have an impact. I'm not saying it's not, but it's more just like, Like there's a gap in a lot of areas where it's sort of like the actual reality of it and the perceived reality of it.

48:56And I think from the – both will have an impact, but the perceived impact is going to – that's why I say, oh, my gosh, it's going to be huge. Yeah, I think so. So let's go – I would go back and go through the why or the what, and then we'll go through the impact again. So you're right. So why do it? The answer is that the government's taken a view, and you and I have spoken about this before. I've been – I was asked, why am I supporting the government for doing this? I'm like, I'm not. I had this view well before it was government policy, right? They might have wanted to do it, but this has been an independently expressed view.

49:23I'm not supporting a government or supporting the opposition and just having a view on a policy and it falls where it falls, so be it.

49:31Giving investors a tax deduction gives them extra ammunition against a potential first-time buyer or owner-occupier. And I think if we believe that housing is first and foremost shelter, I don't know how else could be anything else, but everyone could have their own view, I suppose. Go on. Go on. Yeah, right. Well, I'll suspend my disbelief for now. Yeah, that's right. Pull on that thread a bit longer for me. Keep the rain out. Yeah, that's right. If it's first and foremost shelter, and if we believe that increasing home ownership rates to a level that is far more aligned with what people actually want rather than can afford.

50:07Not everyone wants to own. Some want to rec, they're in share houses and they're 17. I chose to rent for years. Yeah. To my eternal regret. But someone would be able to move for work. Someone would just have a different view. Someone would rent a one-bedroom bolt hole in the city when they're 25. They want to rent a three-bedroom place when they're 30 and buy a house when they're 40 because they have lifestyle choices. That's great. Fantastic. So I'm not saying everyone should own. What I am saying is - They want to start a business. They want to invest in other asset classes. Right. But the ownership rate should roughly reflect the desired ownership rate.

50:40And any gap there is, I'd love to, but I can't afford it. And when we say, that's a shame. By the way, investors get a tax break. So they can outbid you. I'm like, nah, that seems like a bad idea. It seems like at a societal level, put the money for a second because we've said a million times, money is just to serve society and it's the other way around. If that's true, then really it's just about that. And so for me personally, I think it's an easy decision to say, you know what? I'm not judging negatively geared investors. I'm not judging property. I'm not judging their accountants. I'm just saying it makes, from again, first principles, should we want to give investors an opportunity to outbid owner occupiers that's funded by the tax system?

51:16No, I don't think we should. It's not immoral. There's nothing wrong with it. Yes, companies can, if they, you know, if the Botley Fool was going to be an investment company and also on the side be a gardening business, they can offset their lawnmower losses against their investment advice income. So it's not even bad to offset one type of income against another within a structure. So none of that, there's no moral judgment, nothing illegal or immoral about it. Just in the impact that it has, it's an impact we can lessen, which means more people can own their own homes and just societally, that's a good thing.

51:44I don't know how it's controversial. It will be for some people. I don't know how it is. So that's my view and that's why. The impact, mate, to your point. So, please. On that though, so does that mean that you, this again sounds like a leading question. It's a genuine question. Go on. Does that mean you subscribe to the, because everyone loves to talk about affordability without ever trying to suggest that that means prices go down. It's this impossible thing to square. Like, I want it to be cheaper, but I don't want prices to go down. I'm like, I don't know what I meant to do with it. Does that mean that you think that that's what it will do?

52:20Like if it's going to allow more access to houses from first-time buyers than it otherwise would? I guess it has to be in that, right? So there's do I want it and what do I think it's going to do? Sorry, not want. No, no, I wasn't saying what. I'm saying it's what those things bound up together. Expect is what I meant. I don't do predictions, as you know, mate. All of the research I've seen suggests that removing negative gearing will mean cheaper houses. House prices will be lower. So yes, I think that will be lower. I think that's likely to be the case. I do think, and I've had someone want to bet me on rents and stuff online.

52:51It's just like, dude, I'm not doing that. And the reason is because this is multifactorial, right? So in 12 or 24 months' time, interest rates have gone up three times. I mean, that's enough probably to flatten house prices or push them down themselves. So will it be a negative year in the desert? We're about to talk about capital gains tax. That's happening at the same time. Is it that? Yep. I don't know. and just the natural state of the economy like is that good or bad or a million things I think we've got hundreds of thousands of people coming into the country on top of that so that's pushing in the other direction so do I expect prices to fall?

53:21yes do I think that's a good thing? yes I'm sorry if you bought yesterday I'm sorry if you bought last year I'm sorry if you bought with a 5 % deposit and prices fall 6 % and you find yourself a negative equity that's a really crappy position to be in and I wish that wasn't happening for you but I don't wish it that hard that I want everyone else to have to pay more for housing that I agree and that sucks because you've hang on I had to pay for it now and someone buying next week is going to get a better price we had that a lot with tax deductions mate I'm here with the capital we'll get capital gains in a minute but people say oh the boomers got to do it GD's got to do it now you're pulling up the ladder on young people they can't do it now so well okay let's say you can do it then can your kids do it well they're going to say you got to do it so I should do it and then do we ever make change if our benchmark is always they got to do it it's like the other Johnny got to go to the movies I should too mum it's like well dude that's not how this works and I want to be really clear I don't want to be, I don't want to be, feel like I'm being non-compassionate here.

54:10And I get it. If you feel like it's like, man, I've been dealt an absolute something sandwich and you're off there in your yacht and you're going, oh, kids these days can't have access to things I used to have. I get how that feels absolutely crap. I get it. It's the only option, guys. Like you're going to have to just be a bit mature. Maybe you can soften the blood elsewhere. Of course you can. Like maybe there's, yeah. You can't not. No, I hear your point. You can't not do it, right? You just can't not. No, I mean, exactly. Yeah, just because we've always done it that way is a really dumb reason to keep doing things that way.

54:40And even if others got benefit from it, it's like, yeah, they did. Capital gains tax is a great one. Before 85, it was tax-free. Well, they got it. We should get it. What, you say there should never be capital gains tax because someone in 985 didn't pay? At some point, you've got to say, all right, well, you know, we're going to have to be mature a bit here and go, this is different. By the way, people in 1980 paid 60 % top-rate tax. Do you want that as well? Oh, no, I don't want that. Well, guess what, dude? And it's the nonsense of current politics, mate, where there can be no losers and everyone's got to be patted on the head and made to feel better.

55:09And it's like, you know what? Sometimes stuff's in the national good and we'll be a better country in 10 years for it. And I'm not going to say to you, back to capital gains, mate, I'm going to pay more taxes as well to the capital gains tax changes. And I'm not whinging about it, right? Because it's the right thing for the country. And you've just got to at some point suck it up and go. I'm whinging about it. It sucks. Are you? Yeah, yeah. I'll get to that, okay. We'll get to that. All right. So anyway, negative gearing. If not the reasons, probably it sounds like. Oh, interesting. Okay. There you go.

55:36Keep listening. Yeah, so I don't know what more to add on negative gearing, other than I think it's the right thing to do. Go on. I do have some sympathy for the recent investor. Yes. Because, again - Well, don't forget they're being negative gearing, they're being at least locked in. They're getting the tax benefit ongoing, so at least keeping that. But yes, prices may fall. Yes, okay. Keep going, keep going, keep going. Because prices will fall, so that's right. I don't think we make too much of a deal when politicians change their minds and things getting ruled in and ruled out. It's all a nonsense.

56:11But, you know, there is something to be said because when they were asked on this very many, many, many, many, wasn't one offhand remark. I mean, for the last year and a half, two years, it's like, are you going to touch that? Are you going to touch that? No, no, no, no, no. Oh, yes, we are. That feels, I can understand people feel a little bit hard done. Not that there's any, again, you're not allowed to change your mind. Not that, you know, just because you say something that it becomes a solemn promise that shall never be broken. But it does feel a little bit like, oh, if you didn't lie, you were very disingenuous.

56:49I make the same kind of argument very badly sometimes with gas companies or whatever. whereas who I am not the friend of. But, you know, I do think that we all deserve as much transparency and certainty as we can. Yeah, I think it's fair. Uncertainty is an absolute, it's toxic for investment and growth and prosperity. You know, if you don't know what tomorrow will bring, it just, I'm not taking any risks. If I'm not taking any risks, nothing's going to happen. So I just, it's a small point, but I'll throw it in. I do feel for people who go, well, what? I thought you were... Now, I don't know what's going to happen with price as a result of negative gearing at all, because for all the reasons we just said.

57:30I will say one thing, though. Most of the research suggested a fall of kind of mid-single digits, 3%, 4%, 5%, 6%, depending on which paper you looked at, and largely across the political spectrum, because the maths is the maths. And even those with ideological biases and the think tanks, there's only so much you can really torture the numbers in terms of range of outcomes. So that's the number. I wouldn't be surprised if it's larger. A stock market investor is like, a single digit? Four? Oh, heaven for fend. Sounds awful. You poor little, oh, how does that feel? It's like, that's a Thursday for me, right?

58:02And it's double digit. I do know the word for fend, by the way. Four marks for that one. Well done. Thank you. You're bringing it back. Definitely. You know what I want to bring back as well? All that what is not gold. Do you know the answer to that one? Yes. All that? No. All that glisters is the phrase from Shakespeare. I for years said all that glitters. Everyone does. So that's right. It's not wrong because there's common usage. And every time – you know what I love about it? Every time I write about gold, I – no, almost. I use that phrase. And every time someone writes, he goes, oh, you made a typo.

58:31You wrote Clisters. It's like, ah, let me introduce you to William Shakespeare. He's a thing, which just makes me laugh. Anyway. So we will have – all things being equal, which they're not, we would have had modest falls. They may be bigger because of interest rates. They may be bigger because of inflation. They may be bigger for it. if they are bigger than that I have a suspicion and you kind of alluded to this before mathematically prices should fall by a few percentage points because of the change in the tax affordability it just changes how much you can afford to pay and that's what's been modelled what I've not seen anyone modelled because you can't other than make some assumptions is the psychological and emotional impact of this change because this is the one not where the rational investor says I could have afforded to bid$950 ,000 for the property I'm going to bid$920 ,000 because I've worked out the tax differences and it's this, right?

59:21The rational investor will still do that. The irrational investor, I don't mean that in any way pejoratively, though it kind of needs to be almost by definition, but I don't mean it critically. The irrational investor is the one who says to the accountant, hey, how can I pay less income tax? And the accountant goes, you can equal a year of property. And the person says, is that a good idea? Well, if you want to pay less tax, okay, I guess I'll do it. Now, I don't know how big that cohort is, but I suspect it's very large. And they are not the ones going, let me just work out exactly how much I can get and what my yield should be and what my return should be.

59:50And yes, they're working on how much they can afford. So yes, the capital, the negative gear removal will absolutely impact that for that reason. So yes. But I suspect if it emotionally, psychologically stops a whole cohort of people going, how can I pay less tax on, or stops the accountants going, you can either get your property, we may well see a relative strike by the quote, mum and dad investors, end quote, who go, I would have bought property for the tax tax, I'm not going to buy it at all now. And so we may well see a meaningful reduction in the number of people at the auctions. Literally just kind of the people who don't bother trying to buy an invest property at all.

1:00:25And so it's not just the buying power of the final buyer that goes down by a few percentage points, but it may well be there's simply fewer buyers around. Exactly my point, man. You said it so much better. You said it so much better. That's why I say it's huge. Thanks, buddy. So prices aren't set by the winning bidder, which sounds stupid to say, right? At an auction, the price is set by the underbidder. Second highest. Right, because you're only going to pay more than the underbidder to win the auction. If that person is not there, you're not bidding the same amount of money. So whoever – the underbidder sets the price.

1:00:56So, I mean, again, the bidder pays the final price, so don't at me again. I'm not being pedantic. I'm just making the point that they only go as high as they're forced to go by the reserve price or the other guy at the auction. So if you then wind that back and say there's going to be 3%, 5%, 12%, 18%, 24 % fewer people at the auction, the chance that one of those underbidders is not there, and so your price is lower because that's the way it nets out, is not zero. So a couple of percentage points, 3%, 5%, 6 % mathematically, if it ends up being 10 % or 15%, I won't be surprised if it is. I suspect that'll be because those would-be buyers simply don't turn up to the auction.

1:01:34So well said. What's also really hard about this, and I think you get a sense of this once you've been investing for a while, was it Soros who coined the term reflexivity? I think so. I think it was. And what he's really sort of saying here is that none of these operate in a vacuum, and one movement in one area can stimulate movement in another. So what's really interesting about markets in general, but particularly in this context, is you have this sort of change, which as we've sort of said, is probably more psychological than mathematical. But at the same time, as we already said, it's multifactorial.

1:02:12So you've also got higher interest rates. You've also got a rising cost of living with an oil crisis and a war and all these kinds of macro kinds of things. So when prices sort of start, if, let me be careful here, if prices sort of start to fall, the game theory changes a little bit because you think, well, well, I'll just wait a little. I was going to buy, but now I'm just going to wait a little bit until it goes down or it's going to go down more. And then, oh gosh, I wasn't going to sell, but prices are going down, so I'm going to sell. And you have this, this is why it's so difficult to forecast all of these things because to your earlier point, nothing happens in isolation.

1:02:46All else being equal, doesn't mean anything except on a spreadsheet, right? And that's why it's, that's why I would never pin my flag to any particular near-term forecast with these kinds of things because it's the straw that broke the camel's back. It's the execution of, what was his name, Prince Ferdinand in World War I. You know, it's the seemingly innocuous change that just happens to be the spark that triggers that, that triggers that, that triggers that, and so on and so forth. And that goes up and down too. So I'm not just trying to be a bear here on this case. But I am not forecasting this because I'm just not forecasting these kinds of things in general.

1:03:29But that is the risk potentially here is that what an objective, more mathematically minded person might argue for, well, in and of itself, it's not a big deal. Maybe not. And it feels like I'm hinting that it is. I'm really not. I'm just trying to make the point that you see this all the time. It's sort of like, look at the GFC, right? It was like, there was a couple of little cracks and then boom, it just like the dam broke. And it wasn't those little trigger points that actually, it was the pressure that it's years and years and years sort of building up. And that's the potential, well, worry here with this kind of stuff is it putting a chip in the dam that has a lot of pressure sort of built beyond it.

1:04:12So it could, and this is what the modelers, I think, kind of miss in all of these things. My modelling can be so, you've got to treat it very sceptically, I think. But anyway, I just want to make that point. No, it's a really good point. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

1:05:00Let's move on to capital gains if you want then because we've got The quick – and I've argued for this on the pod before, so if you listen, you know my thoughts, and they've done effectively almost exactly what I wanted them to do, which is a good thing, I think. At the moment, when you sell an asset, you get a 50 % capital gains tax reduction. If you failed it for more than a year. Thank you. Sorry. Very well done. Officially, your tax rate doesn't decline, but half of the gain is tax-free. So you pay your marginal tax rate on half of the gain, which way the maths officially under the ATO rules work for the rest of us you just halve your tax rate so if you're on 47 you pay 23.5 capital gains tax on the profit you made when you sold the asset as long as as you say mate thank you for making sure i was right do it for holding it for more than a year the new announcement is to return it to the pre-1999 version which was indexation and in that scenario you pay your full tax rate on the full gain but the gain itself is reduced by inflation over that period of time.

1:06:02So let me just give you really quick examples for the fun of it. I'll use the same numbers just for the fun of it, and we'll go back to different numbers in a minute, because some people pay more tax, some will pay less. If you bought an asset for$100 and you sold it two years later for$120, you made a$20 gain. Under the current rules, you would only pay tax on half of that gain, so$10 worth. So$100 to$120, you have half the gain, and you pay tax on the half. So you pay tax on the 10 bucks. Effectively, you're paying half your tax rate. But the end, either way, your tax is the same amount of money.

1:06:36And if you're on the top rate, let's call it$4.70 in tax to make my life easy. So there's your tax. Under the new rules, let's say you sold it two years later and let's say you're in 2026 and 27 and inflation has compounded at 10 % over those two years. You sell your asset for 120 bucks, you bought it for$100, you're a$20 gain. However, when you apply indexation to your cost base, In other words, you increase your cost base by inflation, that$100 goes up$10 to$110. So for tax purposes, you pay tax on$120 less the$110, which is the indexed or inflated cost base. And again, same tax rate, 47%. You're paying$4.70 in tax.

1:07:17So I've made it exactly the same deliberately so you can kind of see how this pans out. You see the differences in the way it's calculated. Now, if you'd sold for$150 after two years, it's a very different story. The tax is very, very different. if your gain is more than double the inflation rate, you will prefer the 50 % capital gains tax discount. If your gain is less than double the inflation rate, you'll be better off under indexation. So by the way, if you're a bank shareholder other than CBA, you're actually better under indexation over the last five years than you would have been under the capital gains tax discount, even though it feels like something's been taken.

1:07:55You're like, half my tax rate, my tax rate is just double, that's awful. It feels like it, right? But it's a very different thing. If, however, as I say, you've 10xed your money and inflation is up 3%, you are far worse off under the indexation method than you are under the discount method. So that's the change. Now, I'll get back to the what do you think about it in a sec, Graham. I'll just say why I think this is appropriate is two things. I don't think you should pay tax on inflation. I think that's straightforward, right? Strong agree. It's not a half-intenside. And people say, why is it different income tax, by the way?

1:08:27The answer is you hold the asset for more than a year. When I work this month, I'm going to get paid at the end of this month. So there's no impact on inflation on the difference between my work and the pay I get. I mean, maybe it's a couple of weeks and at 5 % a year, maybe it's 0.00 or something, whatever. But it's effectively nothing. If I buy an asset now and I wait 10 years, inflation happens during the earning of the gain, which it doesn't happen when you're working. If you're working on a weekly, four-nightly, monthly wage, no inflation happens between labor output and income receipt. So there's no need to index it.

1:09:03But if you earn the gain over a multiple number of years while inflation happens, you absolutely shouldn't pay tax on the inflation. So that's relevant. I also think, and I don't know if this is where you disagree around, but we'll get back to it. I also think that there is no justifiable reason, and again, I'm expecting some maybe pushback for uh capital income which i wrote capital labor before for investment income capital income to be taxed more lightly than labor income both in terms of the cash flows and in terms of the fact that we're talking about who bears what proportion of the tax burden so twiggy shouldn't pay less up at low percentage of his income because it's a capital gain than the firefighter or the nurse or the factory worker or the taxi driver or the teacher so that's that's why I think it's entirely justified while I'm a fan of it.

1:09:50It's going to cost me money as long as I can beat inflation by more than twice. Two quick thoughts, mate, and I'll let you throw it to you. Sorry, long diatribe. First thing is, I want to remind people when you do the maths, I said, remember that double. So double is your benchmark. You might say, hang on, inflation is normally two and a half. The market normally does nine. That's way more. I'm way worse off. That's mostly true. But don't forget, that's your total return, including dividends. Now, Now, if you don't get any dividends, you are worse off. But for the average Australian investor, if the market does 9 % a year and 3.5 % of those dividends, your capital growth part is about 6.5%.

1:10:25Now, if it's 6.5 % and inflation ends up being 3%, the difference there is almost immaterial. So for all of the hullabaloo about it at a national level, now there are very specific examples where it's bad. So I imagine you'll probably get to those, Ram. So I'll let you do that. I might come back. But just a reminder, it's not your total return, it's the capital return because the dividends are always and already taxed differently. So there's that. Second thing is really quickly, the bit I hate with a passion about this, it's a bit like the super stuff, right? I was in favour of them increasing the tax rate on high super balances because it was just a boondoggle.

1:10:56Then they say we're going to tax unrealised again. It's like, oh, guys, come on. You got so close and you just managed to screw it up, right? They screwed this one up by saying the minimum tax rate on capital gains will be 30 % regardless of the... No, this is the final. It's going to rail again. Okay, good. So regardless of the taxpayer's income. So if you earn nothing else, not another cent, and you were to get$10 ,000 in capital gains income during the year, you will pay 30 % on your$10 ,000. If you earn$10 ,000 worth of income, you pay nothing because the tax-free threshold is$25 ,000, give or take.

1:11:30So it's materially and deliberately and stupidly, well, yes, that, but also. That's the right word. So the only thing I'll add, just not in their defence, but to explain it more fully, they are trying to do what they try to do with trust, which is to avoid that. So let's say I work, my wife doesn't work, and all of our assets are in her name, and so she sells some capital and she gets a tax-free threshold kind of benefit out of it. I believe the intention was, like the trusts, to not let people income split and avoid tax. I just think like taxing minors, like taxing unrealised gains, it just goes – in trying to solve the problem, They unreasonably created a hassle for people who are genuinely just living off capital gains and have no other income.

1:12:13It is really and totally unreasonable for those people to get caught up by it. You go. Yeah, well said, mate. We're not a mile apart. We're not. And the thing is, too, what really stuck in my craw is the framing of this so much was to sort of level the intergenerational inequality. Now, there's certain stereotypes that we all think of when we think of investors and the rest of it. I'll use straw man as an example. So, you know, and I know it was the same at the fall and it's the same for most financial organizations. The stereotypical client is male, 55 plus. We can get into why that might be.

1:12:50Yep, yep, yep. That's who it is. And what I have really noticed over the now 10 years I've been running this is that actually it's a bit of a double humped kind of demographic spread. Definitely the dudes, the older dudes, but also a lot of young people coming in. And when you talk to them and it's sort of like most people, it's just like, oh, I want to buy a house because I want to have a family and have security and renting sucks. And like, do I even need to explain it? I want a house, right? It's like, I can't buy a house because despite even with a university education and a good paying job and both of us still working, the median house is$1.2 million in capital cities at the moment.

1:13:37I need to save after tax,$200 something thousand dollars. Now, that's a lot of money. So we've got all these young people who have joined, not because of a great desire to be the next Warren Buffett, but because it's sort of like, they're not idiots. And they're certainly not going to save up their money by putting it into a bank account where they're just going to hold a melting ice cube, which gets eaten away with inflation, even after some interest, right? So I was like, that's stupid. So it's like, what else do you do? Oh, shares, particularly in the age of ETFs. and that. And like, so smart.

1:14:14We've applauded, like on the mailbag episode, we often get younger people write, bastard, as you like to say, like writing in saying, hey, I'm sitting for hours. You know, the share market, as you often point out, provides really wonderful long-term returns. And if I just buy an ETF, I'm guaranteed of that. So I'm guaranteed of a pretty decent return, and it's going to help me work towards my dream of owning a house. And so now you've got all these younger people who are buying ETFs who are going to cop a 30 % tax on all of this without benefit to it. It's just such like that is not fair in any way, shape or form.

1:14:49And yes, you might be able to point to someone over there who's doing it for tax avoidance kind of purposes. But I've got to imagine that's a fraction of a fraction of a fraction compared to the other people who it's going to unfairly impact there. 30 % flat tax regardless just seems - flat to reach fair so it's actually says it's plus it goes up from there sorry just to be that's what i wanted to say it's huge yeah 30 a third let's round it up three percent you know it's like it i i just find that inexcusable in inexcusable and and and there'll be a lot of younger people now it's like oh great so now home ownership is even further away right I agree so yeah I just think it's stupid and it was just again I get the problem with the problem with all tax everything is messy because you can't capture every exception and I'm sure they will by doing this capture those people who are just trying to screw the tax system for their own benefit and I'm awful catching those people if they're just a bit like trust right again not anything immoral or illegal just don't do it please stop doing it we're going to stop you doing it because it doesn't make sense it's not fair okay cool we'll stop you doing it that's reasonable When you then go and hurt the people.

1:16:00I haven't pushed back against the unfair kind of – just quickly. Unfair access to it. Teachers don't do it, but the wife of the millionaire banker who doesn't work gets to claim 45 grand worth of capital gains without paying it sent on tax. It's like that feels a bit – so unfair is a trigger word. It's that millionaire stereotype again, although a millionaire is not what it used to be. But I think it also – I think it unfairly diminishes the contribution of the non-working spouse. Like, you know, it suggests... It's the fairness between different families' circumstances. I'm not saying between the worker and the non-worker.

1:16:36I'm saying the teacher who works and has a non-working spouse who can't share their income versus the rich person with$10 million who says to the non-working spouse, I'll put a million bucks in your name and you can sell 50 grand worth of shares every year and we'll get that tax free. And I get where that's kind of like, okay, well, you know, the non-working spouse of the teacher can't do anything other than just cop at the neck because they haven't got the assets. That's what I mean about the fair bit, not between working and non-working, but between the family unit circumstance that allows one to take advantage of something the other one can't take advantage of.

1:17:07Yeah, I hear that. It's how you frame it though, isn't it? Because it's sort of like, you know, one team, one dream. Me and my partner, we're out there against the wall. Against the wall, I shouldn't frame it that way. We're out there trying to make the best for ourselves. That's a mask off moment. It is, isn't it? Everyone's out to get me. They're coming to get us, honey. I'm building a boat in the front yard. That's right. You know, here are the keys to the bunker. Crocodiles will be here in a while. You know, like, and a lot of people are in this situation, especially when you roll in the cost of childcare.

1:17:35And we've made often the point that it's just like, generally you do it just because the other party wants to work and have a career. You don't do it for financial reasons because in a lot of, depending on unless you're high paid, it's sort of like what you'll spend in childcare will be more than, you know, more than, will chew up more than what you earn after tax kind of thing. So it's like, hey, I stay at home. I do the washing. I look after the kids. I do all. I mean, these are genuine value generating activities. They're just not in the GDP, which we've long talked about. And it's just like, and one person, I don't want to make it a gendered male, female thing.

1:18:12One person goes out there and work, but they're working for the family unit. And the other person, so actually both parties are working for the family unit. One is recognized officially and one is not recognized officially. So for me, it doesn't actually feel that unfair. It was like, yeah, the wife who's the high-paying lawyer puts the shares into the husband's, say it, I'm husband's name because why not? Is that an unfair tax judge or is that just like a sensible structuring relative to the way that our family unit operates and the way that we share responsibilities? We should talk about that actually in a different podcast because that's an ongoing live conversation.

1:18:51Income splitting generally is a really fascinating conversation. and I think it's one worth doing. Because you're right, there's the couples versus the singles. At the moment, singles benefit versus the couples. But do you, again, there's winners and losers. I wish you were able to do it. It's a really great conversation. It's also, here's the thing I get about tax and we'll finish on capital gains in a second. But the thing about tax, when people say, oh, I'm being double taxed, for example. Or, you know, fuel actually is bad because I've already paid tax on my income. Or GST is bad. Or capital gains tax, I've already paid tax on my income.

1:19:16And it's kind of like, I think it misses the point dramatically. So if this is, if you're listening thinking, and they make a good point. I'm going to tell you why I think you're wrong and you can tell me why you think I'm wrong. Not that they're wrong about any of the facts of that. The simple reality is that the amount of tax that's required to be collected is X dollars. Now, we can argue about spending. I don't want to get into that. But, like, we've decided to do these things this way. And we've got the receipt. We've got the bill. The bill says, right, you owe taxpayers of Australia. I don't know what the numbers are.

1:19:44I'm going to say$380 billion. See how badly wrong I am on that one. It's probably more than that. Oh, it's a lot more. How about the total tax take? Yeah. A yearly tax rate. Oh, it's like$800 billion. It's huge. $700,$800 billion. I looked it up. It's part of my rent preparation. So let's say$800 billion, right? And you say, well, I don't want to be taxed twice. Like, okay, that's fine. So we'll take away the double taxation. The problem is now we've only got$600 billion worth of tax collectors. I'm going to put up your income tax rate to make up the difference. Yeah. And so the idea of being double taxed, it's just a bit of a nonsense.

1:20:13And I don't mean that critically because if you had that view, I get it. And I get that it feels like it's twice. The reality is, and again, you might say you're overtaxed and Twiggy's undertaxed. and we can have all those conversations. It's not about that. It's simply about the case of, at the moment we're saying to you, John Smith, your tax bill for this year is$50 ,000. And it's made up currently of$30 ,000 worth of income tax, $10 ,000 worth of GST, $5 ,000 worth of fuel excise, and$5 ,000 worth of capital gains tax. And you can say, I don't want to be taxed on a tax. Okay, we'll make your income tax 50 grand.

1:20:41That'll solve the problem, won't it? No, no, that's not what I meant. What I meant was I wanted to pay less tax. That's cool, but then we're back down to$600 billion worth of tax collected, and we can't make that. It's either a bigger budget deficit or we've got to work out. Again, we can work out what we spend. I'm not arguing that at all. I'm simply saying when you start the double taxation thing, it's just people have been sold because it makes sense at a first order. You think about it first. It's like, yeah, hang on. I'm being taxed twice. Yeah, you are. But the alternative is I'll tax you once but tax you harder the first time because that's how we make up the difference.

1:21:09It's like, well, no, I didn't mean that. It's like, I know, but there is no alternative, right, in the circumstance in which we find ourselves. That's why I said at the start, like, it's just so depressing. there isn't more of a holistic discussion around all of these kinds of things. That's true. Because whenever you sort of narrowly focus, which is all we do in the commentary in the wake of these things, we look at what about me? What about this narrow thing? That sucks. That's good. You know, that's as deep as the analysis gets. And it's just, you're right. You can't have an intelligent conversation about it because unless it's an entirely anarchic kind of society, well, we need some kind of level of tax.

1:21:43And let's start from there and move forward rather than cutting to the very end and just looking at individual line items in this vast volume of tax code. It's like you're going to see, I'm not feeling well, and the doctor's like, right, show me your left arm because that's all I'm going to look at. Maybe check the other stuff as well. Good news. I fixed your broken arm. You have a doctor with another broken arm and a couple of broken legs. Your arm's fine. I'll fix it. Look, see? It's better than it used to be, isn't it? It is. Again, it's good. Like it's a net positive. So let's fix the arm.

1:22:17But yeah, let's actually make the other stuff as well. Oh, mate. So excellent coverage. Thank you. Thank you. Thank you. I guess I just want to make a couple of points. I said at the start, just a longer sort of lens on all of this. The reality is there's too much ideology in all of this kind of stuff. So I want to start in this time of year that a lot of like, well, Norway does this gets thrown around. You know, there's this sort of, you get into a very quickly and ideological view on the degree of government service provision, which is not understandable, right? Because like, well, you're taxing us and you're presumably spending it.

1:22:56So it's a very logical kind of question. So I would just wanted to make the point that for me, it's not, it is and it isn't, but it's not so much about what the government taxes and spends. it's about the return on that investment and when i say return i don't mean in a narrow financial sense i mean what's the societal dividend for it i don't think any right-thinking australian if they just paused for thought would mind at all if the government came out tomorrow and said hey we're going to double the tax you're paying what however however your quality of life is going to triple now i'm using dumb examples here just to illustrate the point but think about it for a second.

1:23:41It's just like, you know what, you don't have to pay health insurance anymore. You don't have to pay private school fees if that's what you do anymore. Actually, we're going to give you a free car. Everyone gets a holiday. Well, dumb examples, but I think it illustrates the point. It's not what I'm paying in tax. It's what I am getting back. And so it's sort of like, I think the anger a lot of the time comes from the fact, and maybe it's not articulated well, and it's not even overtly understood numerically, but it's felt. And what people feel, and this is what the populists are tapping into, is just like, guys, you have never taxed more.

1:24:18On a nominal basis, the Australian federal government is taxing far more than it ever has. As a percentage of GDP, you have only briefly taxed us at a higher rate. And the reason for that was during the mining boom when we had all this extra royalty income. But so you strip that away, you know, and it's sort of like, so tax is going up, up, up and up and up. Now, the first level take is that equals bad. And I'm not making that point. I'm actually trying to fill that point in and say, actually, not necessarily. I don't think anyone cares if the tax rate was going up and up and up in real terms, in per capita terms, relative to GDP terms or whatever sensible way you want to measure it.

1:25:02if our standard of living and our quality of service delivery was getting better. So I did a little bit of preparation for this. I actually looked up some notes. There's a report on government services paper. One was released this year, I believe. This is produced by the government itself. So I'm not going to a partisan think tank here to sort of get it. And I said, let's just compare how things have changed over time. And I won't read it all out, but you're going to get a flavour for it. You're not going to be surprised by it at all. Things like, you know, back in 2015, 74 % of emergency people who walked up to an emergency care facility in a public hospital were seen on time.

1:25:39Now it's 65%. Hospital bed access has gone from 49 % are seen within four hours to 30%. Surgical backlogs, you know, have gone from, you know, I'm just going down the list. And then outside of healthcare, aged care entry, the wait for home care packages has doubled to a medium of 245 days. back in, where was it? It's gone, yeah, so it's gone up 40 % since 2017, you know. Education, another important kind of thing. School attendance, 63 % of students maintain 90 % attendance rate, sorry, now, and it was 74 % back in 2019. Social housing, oh, rental stress. Here's a great one. There's record spending on rent assistance, 43 % of low-income recipients still experience rental stress.

1:26:30You know, that was 30 % 10 years ago. These are big, big changes. And so I would be the, you know, despite what people like pigeonhole finance bros, I would actually be the first to defend an increasing tax rate. If all of these metrics, the government's own metrics were improving, but there's another part to it as well. Despite the record level of tax, you made the point right at the beginning, the deficits as far as the eye can see, we might on optimistic projections finally get back to a balanced budget in another eight years time. And I don't hold your breath on that. And that's what's egregious about this at a higher level perspective without worrying too much about specific individual policies, not that we shouldn't, but just I think the broader theme here and the broader discontent that feels evident when you and maybe this is just a social media phenomenon and maybe that exaggerates everything.

1:27:26but it higher tax and you still can't live within your means and you're and you and not only can you not deliver to the same standard you're you're getting worse in the service deliveries like help me care here help me help me understand you want me to get behind some bold vision for the future you know and you want me to understand that you're doing this for the fairness of different generations and for our children all we're doing is paying more and more and more debt to younger generations and we're getting worse and worse and worse service not a right-wing jock talking point spray here based on the own government's figures that's what i think people are so angry about with with all of this kinds of of nonsense you know um yeah and also on the point of of capital versus labor i hate this class war stuff right no no capital is more important if you didn't have people investing there wouldn't be any jobs you need to thank us and the worker goes well if if there was no one to work in the factory you know i mean how many people actually work in a factory in modern australia you know if there wasn't workers in the factory you know you wouldn't and and you know what they're both right capital and labor are vital like you you can't remove one from the other right they they are both essential and so i just i really hate the distinction i you said before it's part of something that you were saying, which is they shouldn't be preferentially treated.

1:28:56I just think it's reasonable, at least as a starting point, it's like, it's the same, you know? I think those that sway more towards the labor argument, again, not the party, but the economic unit of labor, look at these rich, greedy capitalists as being, you know, a drain onto a negative for society. and I think no that's not true people have saved money they have made investments they have taken big risk you know and they they have they have literally created a job this isn't an ideological standpoint this is just an obvious blindingly obvious statement of the facts it's like if there's no one starting a business there's no jobs bro that's it it's as simple as that now that that argument can be over egged and and twisted into stupidity and it off and it often is, but as a basic statement of fact, it is true.

1:29:49Likewise, without the workers, I mean, if you can't employ that human capital, to use the term you mentioned before, then none of the capital, unless you've got pure robots, you know, it's, so I just, I hate, I hate all of that kind of stuff there. We have got to stop demonising different parts of our society when it's one team one dream i just or holding up other parts as somehow more noble and better and yes exactly what you said i just it's both right the whole idea of like and honestly it's it's also really important to cut through the self-interest and the ideology and actually talk about policy and whether that's ourselves like really look at yourself if you're someone saying oh i think capital should be oh are you an investor yeah okay are you kind of right with yeah okay totally I had to bother about labour.

1:30:37Oh, okay. You kind of, you know, you were a bit envious. You haven't got the money. You're all about – just really think that through and then think – again, first principles should be a difficult phrase. But it's not like – how does it feel like it should be taxed? Now, here's – I mentioned it before, mate, but just to – because you're given the opportunity to just dive back into the gap a little bit. The only question – so I've written about this. I've tweeted about this before in one of my kind of reference tweets. Everybody gets our tweets and I save the links. So when someone raises, like, actually, here's just – I have to repeat myself.

1:31:05Here it is. And you made the point about waste and spending, right? And that's absolutely right. So the first question for us as a society is to say, what is it that we want to do? What is it we think government should do? And what is it we think government should not do? And you list those things. And then you say, right, it's more complex, but let's keep it simple. You list those things. You go, right, okay, can we get some smart people to know how much that costs? Yeah, let's do that. Cool. All right, so here's the number. Good. Okay, got that. Now the next question is, we've got to raise that, and we shouldn't be using debt.

1:31:34it should not be controversial but it is shouldn't be using debt right so we're going to pay the bill alright well we're going to have a whip around and you can sit at the old restaurant table with a bill and say right do we all chip in evenly you can say that you ate the bloody lobster I ate some bread and some more you're drinking the$300 bottle of wine eating your lobster Thermador over there and you want to split the bill with me up yours buddy but you can say that you can say it should be even we've all got friends like that of course oh of course so for some people's sake it should be a flat tax.

1:32:04You can argue that. But again, the analogy breaks down. My point is just simply that you decide what you want to do. You decide how much it costs. And then you work out the appropriate and words like fair and reasonable get triggering really fast, right? So I'll say appropriate because it's hard to make appropriate value judgment. Work out the appropriate burden of the tax based on the individual person's circumstances. And you can use wealth or land. You've talked about those before. You can use consumption. You can use income. You can use whatever combination. And that's where the conversation is, by the way.

1:32:37It's a good conversation. Let's say there's an easy, simple answer. Andrew will disagree on how we would structure the tax system from zero. A little bit. Not lots, but a little bit. And so that's cool. That's a great conversation. But starting with I should pay less tax or, you know, capital should be taxed more lightly. So, okay, what the question really is, and this is where I come down at, this is why I think the tax rate should be equal. is equal to simply who bears the proportion. Is there a justification for saying the fiery should pay twice the tax rate of the investor? I can't. Personally, this is a value judgment, right?

1:33:12So I'm not saying it's objectively true. It can't be objectively true. But with my lens, I don't know how I could say to the fiery, dude, you're paying 35 cents on the dollar for that. I'm going to pay 17 cents on the dollar for the same gain, the same income. Why? Because I'm a capital and you're a labor. by the way the same in reverse we talk about the 30 minimum capital gains tax rate how do we say to someone who gets a 50 grand capital gain someone who works 50 000 for income and say yeah you're nasty you've got capital you have to pay 13 grand in tax that guy he gets he has to pay five grand tax because he's so he's just labor your capital but it's the same in both ways and this is where i just don't think there is any justification other people you know if you if you screw on the system and we can close the loopholes we should close every loophole we can We should have a permanent loophole closing task force.

1:34:01But, yeah, exactly what you said, which is just taking your own self-interest or ideology and going, well, no, I'm better because you're better because you're worse because it's just it's a nonsense. Absolute nonsense. Yes, thank you. You've rounded that out far better than I was able to do. So a couple more things on my little page here that I can tick off and then feel a bit better about myself. um the first is man i wish we had some vision like can we think beyond an election cycle i've always been so envious of china and their five-year plan you know and i was like i just i know it's a small point i just wanted to make that point it's because none of these things in the budget are really really sort of thinking beyond that kind of time frame how can i but the calculus is how do i get re-elected yeah why what have you got some big bold plans no i just like power i really like having power for the sake of power just yeah you know i don't actually know what i'll do once i get there i'm certainly not going to be making any you know i'm not going to be thinking about what australia looks like in the year 2050 and that's just that's just a general amendment it's true every week but it feels appropriate at this point to chuck it in yeah um i really am a little bit worried that we are there is a spectrum here between full-on communism and laissez-faire capitalism there really is and i don't think either end of the spectrum is where you want to be but it feels like we're going very much more towards a redistributive path than an incentivization path that's fair and again there's a i really i like to think i'm balanced on this i i am i am for welfare i am for trying to sort of level the playing field uh in in certain ways, but you can't tax and redistribute your way to prosperity.

1:35:48You just can't. Maybe it's just the echo chamber that I'm in, but it feels as though it's sort of like, just to use those classes of labour and capital again, that capital is getting increasingly demonised. My evolving view on this, not evolving, my refining view on this is that people hate, increasingly hate capitalism, but what they really hate is their understanding of capitalism. They hate the bad things that happen under the guise of capitalism. Yes, yes, right? And there are very bad things that happen. Now, there's a great article by an author I quite like, what Alan Farrington called, This Is Not Capitalism, which goes back to the COVID era days, He references that old Reagan-era drug campaign.

1:36:41Like, this is your brain on central banking, fiat, fractional reserve lending, and crony capitalism, or regulatory capture. And he goes through the article and he sort of lists, these are all these really bad things that we see in society, all these big bastard companies doing that, but that's not capitalism. And I come back to, you know, Bob the plumber and Ted the hairdryer. Like, all we're saying is that people should be able to create dreams and trade things freely and just like you know and the interesting thing about that is that whenever we've allowed that to flourish everyone gets richer not everyone's the same everyone gets richer where the poorest poorest person in society lives a life that king henry iii could have only like dreamed of right so it's just and again that doesn't mean that you go laissez-faire all the way and you know screw the poor there's these stupid distracting kind of points that make.

1:37:32My point is that people are very much feeling pain. They're right to do it for all the reasons I mentioned at the start of my little ramble. But can I just make the case here? It's just like, we are not going to tax and redistribute our way out of this mess. We're just not, right? There's a lot of stupid comments that get me, well, if you do that, I'm not going to start a business anymore. I say, well, really? Because if you've got a great idea, I love my hoverboard example. Scott's invented a hoverboard. I can make$10 billion for that. Actually, I'm going to go live in you know bermuda because it's not worth doing it i i think some of those arguments are a little bit silly yeah nevertheless you know we have to remember that people with great ideas willing to take risks and do that actually are vitally important i mean without that without that person and this is i'm very aware really well as a business owner i fit them old i get it i get it but but but it's somebody love me when somebody it's true every every wage earner out there is there by virtue of someone at some point in time starting a business and that doesn't mean that we should worship them like living gods but but there's so don't don't don't demonize them and and and like the rhetoric is just getting a little bit scary i think i so So that's another point.

1:38:50Final thing is my favourite topic is inflation. Is inflation. And I'll be very quick on it. Go for it, mate. And this is not a hot take. It's certainly not an original take. This is a massive cost of living crisis. Inflation that's been above what's been targeted forever is only getting worse. The RBA, who I've got zero respect for, even them jumping up and down saying, guys, help us out. And they turn around and they do a budget that is borrowing ungodly sums of money. I even looked this up and I'm going to lose it now because in my rage, I've just scattered my pages everywhere. So the underlying cash deficit is$31 billion.

1:39:39That is not a, and your point, this is not a cyclical kind of thing. because we just happened to have a bad year and there was some one-off sort of cost. No, this is just structural. That is it. You have to put in the off-balance sheet kind of investments too. So the housing guarantee fund and there's a whole bunch of big spending items there that don't get captured in this. But any sane person goes, well, it still counts, right? So where does the money come? Oh, we borrow it. So we create and stimulate. Yeah, yeah, yeah. Okay. So that's$64 billion annually, right? In an environment where it's like, oh, we've got to tackle inflation.

1:40:12It's like, you do know. No, I don't think this isn't even a distinction between various economic schools of thought. Like all schools of thought in economics are going to say stimulatory and inflation inducing. That is exactly what you are doing. So I mentioned it because everyone is, you know, cost of living is the topic du jour at the moment. It is the challenge of our time. And here's a government that comes out and says, we're going to solve intergenerational inequality and we're going to help you with your cost of living. Here's$250. I can't even say it without laughing. It's$250. Like, what?

1:40:46Oh, yeah, we're going to give you much, much, much crappier services. Oh, by the way, we're going to borrow. Like, we're going to spend so far beyond our means. We're going to borrow the rest. Your kids and your grandkids will pay that off. In fact, they won't even pay it off directly. We'll just inflate the buggery of it away. And we are going to add. And then the irony of ironies is we are going to actually make the very situation we purport to fix. We're actually going to make it worse. Yep. And it just blows my. And a non-partisan thing. all of these things that you go back any part they're all the same i noticed in the uk starmers um after they're just knew my gosh there's a whole there's a vision of the future for australia by the way with uh with all of that you know he's going to get kicked out because they're not doing enough they're going to put someone else in they're going to do exactly the same thing here because none of them can think beyond the immediate and and get to more fundamental levels and i think at least we're trying to sort of put out there you know for people to consider and and what has frustrated, I think, both of us in terms of the coverage that is out there either being very partisan or very shallow or very short termism.

1:41:47I just want to sort of put some of these other things out there because I don't think it's even a political thing to sort of state. In fact, I think it's a very objective, rational, fact-based statement. We're taxing more and yet deficits are getting higher. Service delivery is getting lower. Cost of living is getting higher. Wealth inequality is growing larger. Again, I sound like a doomer and that's my brand. I know. Yes. But tell me why I can't be doomerish on all of the things that I just listed. And then the government comes out and gaslights us by saying, don't worry, we're going to fix it.

1:42:25Oh, thank God. What are you doing? What? No. Do the opposite of that. We'll do the other things. Yeah, yeah. I got out of my system most of them. No, you're dead right. And that is, it takes us back full circle because we started by talking about the size of the deficit and the reduction of the deficits over time. And it is directionally right and better. We're not making it worse for a change, which is lovely. Sure. So it is directionally right. But every single dollar of a deficit stimulates the economy further at a time when we've got 4.7 % inflation, and that's before we get the next lot of inflation numbers and however long this goes for all that kind of stuff.

1:43:04It is just... Now, I will say, by the way, we just talked about the amount of spending and we talked about the amount of taxes and if they're going to raise or cut, or both, $31 billion from the budget, there's going to be a whole lot more squealing than there was last on Tuesday night. And so we've also got to, you know, it's not... I'm not ever going to excuse a politician for making hard decisions. I never have, I never will. People say, oh, well, the opposition will do it. I don't care. Oh, people will say, I don't care. It's their job to manage the country correctly. But I will say, if we're going to want a politician to be gutsy enough to do that we are going to have to actually acknowledge that making their lives a little bit easier not because they deserve it just because we actually want to get things better does require us to go okay i will cop frankly higher taxes i mean here the pod machines is blowing up right higher taxes what are you kidding we're gonna have to take lower lower spending no i want all that stuff have you seen my actually you know go on yeah i agree there's one other point i thought box i didn't tick you just reminded me then but that that that is that is the one glaring thing that is missing from all of the uh analysis and commentary it's just like it's all about the tax side of the ledger can we just have a conversation about the expenditure not not not to you know go too far down the political spectrum but it's like there is another way to get to a structurally balanced budget you know it's not it's framed as in like well the only we have no choice we have to tax more that's the only thing we can possibly do.

1:44:29It's like, it's like me having three Ferraris parked out the front and a yacht, you know, berthed in the Harbor and just saying, Oh my gosh, you know, I've got to do something about this deficit, but doing everything except getting rid of the sports cars and the toys and the, and the exorbitant lifestyle. I was like, how about rather than trying to figure out how to make more money, I just live within my means. Like, isn't that like you, you said that, uh, you, you would, you would mandate for a structurally balanced budget. I would too. I've talked before about, I think, this is one of the many things that Singapore gets right.

1:45:00They have, that is constitutionally mandated, except in times of war. I think there's various exceptions and pandemics, but they must be balanced over a five-year period. You know, right up there with the Sovereign Wealth Fund. That is like, you know, that is one of the first things that I would do. Sorry, I interrupted you. No, I love it. I think, it's why, I think the great thing about the structurally balanced budget, and it's where, it's just a nerdy thing to say right people say oh we should balance the budget every year it's like well you could do that but then that means you're cutting stuff at the wrong time you're spending stuff at the wrong time you don't need to spend the money you are because you've got it I mean it's honey you've got a bonus good let's not save it let's go and spend it why?

1:45:39because I have to have a structural I have to have a balanced household budget it's like every marketing team three weeks out from the end of the financial year yeah yes or it's gotta spend our budget yeah honey the fridge blew up we should put in the credit card no no can't do that you have to not eat for three weeks while I save the money for the fridge It's like, no, that's a stupid idea too. But the benefit of structural balance is it's not perfect because you can never know exactly what it is. But we have some really wonderful independent – the Parliamentary Budget Office, the AEC, there's some great – the RBA, as much as you don't like it, mate, at least has operational independence.

1:46:10And I think we have the facilities to say legislating, mandating a structurally balanced budget. That is, these things are – we are in deficit this year because of this part of the cycle. Unemployment is unusually high. Company taxes are unusually low. In that circumstance, yes, structurally, when they get back to average levels, this would have been a balanced budget, that structural balance, perfect, great. Other way, company tax rates are unusually high because the commodity prices are booming and unemployment is unusually low because inflation is through the roof. All right, cool. I mean, okay, lower welfare spending, more tax revenue, great.

1:46:45But guys, you're going to have to save that money because you know it's a one-off and that'll go towards helping next time we have a deficit. it's not we just cut taxes in that environment which is exactly what we did yes that's honestly the this is what I want to be political Howard and Costello and then Rudd who supported them they gave us permanent tax cuts in a temporary mining boom and that actually started this frankly generation worth of structural imbalance and ongoing deficits yes Howard brought the budget back to yeah Howard brought the budget back to actual balance by taking advantage of some of those benefits like the mining boom and lower unemployment, which is, again, great we had those things.

1:47:24Sure, yeah. But rather than saving the proceeds because it was always going to be temporary, they locked in permanent tax cuts and Rudd said, yeah, good idea, we'll do that too. It's like, well, there you go, guys. Exactly, and it makes sense. It's not irrational when you're operating over an election cycle. I mean, what's Rudd going to do? They're going to give you a tax cut. This is why we're destined to go further down this path because it's going to require someone to go up and go, actually, no, we're not giving you a tax cut. We can't do it. Yeah. Well, okay. Have fun staying in opposition, right?

1:47:57100%. Yep, very true. All right, I reckon we're done. Do you think we're finished? No, I think we scratched the surface, but yes, we are totally done. I think we are totally done. I think we hit a new record too, a new post-war record. So episode 2002, I think we're up to. There you go. You're welcome. Oh my gosh, 147. Andrew goes at an hour of four. We're only now four minutes in. We've got two capital gains stacks. I'm thinking 15, 20 minutes. We should be out. There you go. Two hours of power. Thanks for listening if you made it to the end. Give us your thoughts. If you disagree, let us know.

1:48:27If you agree, let us know. If you've got different ideas, let us know. It's just our take on what we think of the budget based on what was announced and what we hoped should have been done. One day we might even do a bit of a how would we balance the budget conversation, Matt, which might be just some fun for the sake of it. Yeah, yeah, yeah. And we should actually dig back into that kind of... Great way to annoy half the audience. I love it. Well, no, the whole audience, because everyone will disagree with the police part of it. So that's great. That's the other policy, right? It's something for everyone to hate.

1:48:52That's annoying absolutely everybody. All right. We are done here. We will be back on Sunday with your questions. Until then, have a great weekend and full. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.