Are we finally about to get fiscal responsibility? December 5, 2025

24:45Right, without going to debt and strip buying the capital and all that kind of stuff. It's hard to argue it's a bad idea. And I think that's... I'm not trying to say... You're right. I'm glad you brought it up. I'm not trying to suggest... But I just... I don't want to do what the talking heads will do in the media and the politician going, look what... Chalmers was up there. Look what we did. That's super important too. But it's a nonsense. That's the point of it. If you want to make a broad, nuanced, holistic kind of comment, I'm all here for it, and that's what you're doing. But not many others are.

25:14That's right. And that's why we get these, I think we get these mixed signals and people just throw their hands up in the air and go, no one knows what they're talking about. It's all nonsense. And in both directions. The same numbers will have one side of politics having one argument, the other side of politics having the other argument, from exactly the same stats. Yeah. And you make the point beautifully, particularly about economists, And I say regularly that economists are better when they're explaining rather than predicting. And you say certain economists, and that's probably true too. That's true.

25:38But the broad idea of explaining how these things fit together is the real value of economics. Because it does talk to some of those things you talked about, which is you can have consumption and erode capital at some point. You've got to pay the piper, right? We did it with Wally with a world full of buildings and nothing else to show for it. It's like, well, we just pretty much screwed ourselves, didn't we? On the other hand, you can have all the supposed capital in the world, no, and you mentioned the point about stock versus flow. All the income in the world, no capital, bad. All the capital in the world, no income, bad.

26:06Sure. Some combination of turning one into the other. But at least the capital will allow you to generate income. Correct. Turning one into the other. That matters. We've talked about this before, but I looked it up and I just want to share for fun. Simon Kuznets, who developed the concept of GDP. Yes. A couple of quotes from him. Firstly, quote one, the welfare of a nation can scarcely be inferred from a measure of national income. Scarcely. Right? Scarcely be inferred. Second one, quote, economic welfare cannot be adequately measured unless the personal distribution of income is known. Yes. And economics is really dry and nerdy for a lot of people, right?

26:42And one of the things that I sometimes, I tweet a lot, and some of my tweets unexpectedly do well, and some, I wouldn't say unexpected to do badly because I don't have that high opinion of myself, but some of the stuff I really want, I want to tell people, he's like, you need to know this stuff. and three people like it. It's like, no, no, but I want you to know this stuff. It's important. And I put a tweet, a small tweet kind of thread together on exactly that kind of idea of what matters more than something else. And it was GDP is less relevant than GDP per capita. GDP per capita are less important.

27:12GDP per capita are less important than the distribution of that GDP across the population. The distribution of that GDP across the population is less relevant than the overall standard of living, which includes inflation. And standard of living is inferior to quality of life, which is all the economics plus all the other stuff that we do. Yes. And yet for all of those things that I just said, we pick the least of those. I mean, people can disagree with my thinking, by the way, but to the extent I might be right. Correct. Thank you. To the extent I might be right, we focus on the least important of those five or six things I just put in order.

27:44Yeah. It's like, really? That's what we choose to think about? Yeah. Yeah. And Kuznetsov was in 1934, by the way, right? Yeah. And a visionary in both senses, no, in both senses, in this he created GDP, which is actually a really big step forward, but also talked about things like GDP as an account for pollution, depletion of natural resources, quality of life. In 1930, these are kind of, to be a little bit controversial, these would be seen by some of those woke ideas in the 2020s that somehow the weird lefties have come up with and the greedy tree huggers have come up with. This was 1934. This is the echoes of the Great Depression.

28:25This is between the First and Second World Wars. And this guy's going, firstly, hey, we've now got the tools, literally computational power such as it was, to measure this stuff and that matters. But also remember things like pollution. I mean, 90 years ago the dude's like, we don't have any pollution. We probably should pay attention to that. Depletion of national resources. We probably should account for that. It had nothing to do with climate change or anything. It came back to a very real realisation and understanding that pollution isn't some external thing that we should worry about because it's like some tragedy of the commons kind of problem, although there are dimensions of that.

29:02It's no, like actually if this goes far enough, it actually, to your point, it impacts our quality of life, which is everything. That's all it is. So it's not like, and he's an economist, and I think farmers get, real farmers get this, right? It's like I can take my land and I can flog it, you know. I can strip every bit of vegetation off that. I can pump it full of artificial. I'm going to have some incredible yields for the first year or two and then I'm going to have a dust bowl. And I'm going to have other people who are just like I understand that I'm not going to nurture my land and show some restraint because it's good for the environment.

29:40It's good for me, right? It's self-interest and in a good way. And it's the same reason as to why I am against dumping stuff into the ocean or into the atmosphere. It's like, yeah, it's bad for us and ultimately it's bad for the economy, which is why the debate is so stupid about it. It's like, well, we could do something, but then that would be bad for the economy. It's like, no, you do something because it is good for the economy. That's why, in fact, and the economy is just there that's going to serve us and our desires to raise our living standards and increase our prosperity. To think of it as a false binary like that is just, it misses the point.

30:23And it's easy to miss the point when all you do is focus about what GDP did over a quarter, right? Now, what does it do over 100 years? That's pretty important, I would say, particularly if you plan on having kids or have kids and grandchildren and you care about the ongoing prosperity of human civilisation. Kind of matters, right? And so, yes, there's all of that. But the other thing I think that's frustrating about a lot of the discourse about these numbers when they come out, g'day, Diesel, glad you could join us. He's happily sitting on his thing barking at a noise he can hear that he doesn't know what it is yet because he's 12, like four exiled.

30:59Go on. Is your, which he kind of hinted at before, which is there is a cause and effect here. And so GDP numbers came out, Chalmers got up there and said, look how wonderful it's us, you know, and then Michelle Bullock in front of the Senate, look at that, look what we did. And it's kind of like, and I've gotten into some arguments on Twitter recently, why do I bother? You know, people go, oh, you can't be too harsh against the RBA because look at the incredible prosperity that they have built for us over the last, you know, I made the point that the purchasing power of the Aussie dollars dropped 94 % since the RBA came into existence, you know.

31:34And then all the simps sort of come out and go, well, but yeah, but look what they did for us. And it's just, there's a correlation causation, fundamental misunderstanding here. All of the things you say is true. Over the last 100 years, our life, quality of life and our prosperity and our true wealth, as you and I would, and I think any common sense understanding of it would understand it, has exploded. But then we go, oh, but that's because the government managed the economy well or the econocrats had the right settings. And I'm not going to suggest that they're not important and they don't play a role.

32:11But we, in our current discourse, see that as the beginning, middle and end of everything. It's like if there's something that is good, it's because the people with their hands on the lever made it good. If something is bad, it's because they did it bad. That's right. And it's like, no, no, I'll tell you why. I'll tell you why your great-grandfather would look at you as a modern-day king in terms of your lifestyle. It's because of all of the inventions that happened. It's because of all of the investment that was made by these greedy capitalists producing stuff. It's like the fact I can sit here and look at an LCD screen in high fidelity and look at all of them.

32:51Someone built that. Someone did that. And in doing that, they saved, they sacrificed current consumption and they invested with the risk of losing it all. And I'm not going to try and make these people to be saints, right? They're just people. This is the thing. It's all people and this is what people do is we dream of a better tomorrow for ourselves. And in a proper functioning economy, the best way to make your own lot better is to create value for other people. It's not a zero-sum game. And that's what that last 100 years should tell us. Like the poorest of the poor in Australia today is richer than the richest of the rich in most places in the world 100 years ago.

33:35So it drags us all up. And it's just like to then turn around and go, well, that's just because the government was good. It's like they're the least important in all of that. Do you get the point that I'm trying to sort of make here? It's sort of like, yes, things have gotten better, but let's not point to one or two very narrow institutions run by a tiny handful of people and say it's all because of them, good or bad. It's kind of like you guys are side, you're part players on the edge, as I would say, of all of that. And the counterfactual would be, which we don't know, we can only just assert through our own ideological lens, but, you know, let's do it, right?

34:17Mine would be, it's like, yeah, but our lifestyle would be even better, you know, had they done a better job of administering it. It depends on who and where and what and how and all those kind of things. Can't prove it, right? We have no counterfactual. I just would, and when I say who, it depends on which part, or just the RBA or just central banking or just banking system or just you can go out in concentric circles from there and work out what point you're saying, who is they? And I think this is where, honestly, you kind of talked about this before, the idea of this binary idea, was it business or government?

34:52No. No, no, I reject the question. We're all in together, man. So, you know, do governments do a thing? No. But does the rule of law, the right to property, are those things matter? Yeah. So is it the government? They are fundamentally important. Right. So it's probably not the government program of X that did Y. Thank you. But it's the idea of we have the right not to be, take advantage of at work. We have the right to property. We have the right to safety. We have communal assets that are used by us all in the pursuit of said happiness slash financial improvement slash whatever else. That combination of the, and it's always and ever got to be a feedback loop, right?

35:35Governments change. Policies change. People change. We change what we want, what we value, how we do it. And frankly, this is, it gets really controversial real fast. The kind of question about, you know, are we doing good or bad things by having people work 10-hour days, six days a week in China for peanuts or not? Now, if you care about those people, no, it's a terrible thing that we're doing to those people. On the other hand, are they better or worse if they're in subsistence farming and the back blocks struggling to keep food on the table? Now, I'm not going to rationalise both and say, Therefore, I can be happy that I'm using cheap Chinese labour to get my iPhone and they should just suck it up and be happy.

36:09And it doesn't absolve any responsibility whatsoever because I know that's what some people think and they're right. They're dead right. But it's also the reality of did that, does that give them a better chance of a better future? Was the work conditions of 150 years ago in Australia part of what got us to a point of being able to afford some of the better conditions? And again, am I saying it's justified? No, not necessarily at all. But I am saying there is some element of cause and effect there, which is, you know, we didn't have an eight-hour day in 1789 when Philip rocked up and caused Mary Hell.

36:42We got there in 18-something because we kind of went, okay, well, on balance, we're productive enough. We are wealthy enough. We are caring enough. We have the opportunity to rebalance some of that. That's beautiful. That's beneficial. Same with the infrastructure assets. They didn't. There was, you know, one hospital, a couple of coppers, and, you know, good luck with the rest of it. So those things happen, and it's the feedback loops that iteratively and ever, bit of this, bit of that, bit of this, bit of that, drive that result. And I think when people, to your point, say, oh, the government did it, or even to some point, oh, the businesses did it, it's both true, and it's both horribly, horribly short of any useful, you know, we've said a million times, all these self-made people, did you use the public system, health system?

37:28Yeah. Public education? Yeah. Did you drive on the public roads? Yeah. Did you benefit from the rule of law? Yeah. Yes. And so it's all of those things. It's business doing its thing and society doing its thing and the positive, useful, to your point, the really beneficial interplay of that. Yes. Business aren't the bad guys that have got to be restrained. I mean, sometimes they are. But also government's not either the problem or the solution. Business isn't the problem or the solution. Yes. It's the really thoughtful interaction of those to the best national benefit. But back to your original point, which is quality of life, not even GDP, quality of life, that's where we get to.

38:02A hundred percent. I'm so glad you fleshed it out like that. That's exactly it because usually when I go on these rounds, people just see me as some un-heartless capitalist. And it's really just it's understanding that it is that holistic dynamic which really does matter. And also, more importantly, understanding where the strength and advantage and focus of each of these institutions should be. private business should have no say in big public policy decisions. A hundred percent. Like it's butt out, right? Elon, you don't deserve to be in government, right? Like just keep making electric cars and sending rockets up into space, right?

38:38Like that's what you're good at? You do you. You do you, right? By the same token, you know, government doesn't, I don't think, have a role in trying to do product or service delivery wherever there exists a healthy functioning market. In fact, political incentives will probably lead to very bad outcomes across that. So it's not this ideological big government, small government, this or that or, you know, but unfortunately, again, the discourse today is something's wrong, the government should do something about it. It's like, well, it should, but what it should do about it is to recognise where the value is created.

39:17It is created through the people. It's going to sound really, you know, airy-fairy, but it is we the people that do it. And you are there to serve us and foster the conditions, enable the foundations on which people being people will be creative and entrepreneurial and seek a better tomorrow because that's what everyone tries to do anyway. We don't need you to tell us what to do. We just need you to make sure that the systems are in place and then get out of the way. And, you know, I don't know why that is a controversial kind of statement. It might be. In fact, it is very different if you want to talk about how you might run a police force.

39:57I don't think a private police force is a good idea, for example, right? A multiple company ones, yeah. Yeah, there's a, I would say 90 % at least, if not 95 % of things are pretty easy to sort of delineate. It's like, well, that is clearly better in the private space. That's clearly better in the public space. and all the debate happens around the things that's like, well, this is a little bit more complicated, right? And I get that. There's no easy answers to any of this kind of stuff. But, again, we all sort of like pitch our ideological flag and we go, this is it. And to the man with the hammer, everything looks like a nail.

40:30You know, I'm all about, you know, I can't even use the words anymore because the words have lost all meaning. But, you know, I'm a lefty, therefore I think the government should do everything. It's like, whoa, that's a bad idea. We're like, I'm pro-business, so I just don't think we should have a government. It's like, ooh, that's a bad idea as well. What I love about this conversation, mate, is that we've started off with a quarterly GDP number. And I can tell you, I would be very surprised in any podcast or media platform around the country, if kicking off with a 0.4 % quarterly GDP number, anyone went anywhere near this direction.

41:10Here, I'm patting ourselves on the back here, right? But I'm going to do it. You're very lucky. This is what Andrew said. How lucky are you? And I guarantee you within about three sentences, the conversation pivoted straight to, so is my mortgage going up or down? Like that was it. Like GDP, this, that's all that matters. It wasn't matter for interest rates. Yeah, exactly. Where's my interest rate going? And it's like, it's so tiresome. It is so tiresome and so beside the point and so misunderstanding what it is that creates wealth and so misunderstanding the role of these institutions, private or public, and how they all interplay and all of this kind of stuff.

41:43and it's just sort of like if only here's the always the thing that's resonated really well with me. If it was so simple and binary and mechanic and as the RBA likes to say data-driven, we would just write a series of if and logical statements. There wouldn't be any debate. There wouldn't be one group of economists arguing for this or that. It'd just be like this is the numbers, here's the relationship, it's algorithmic, this is what we do. But we don't, right? And we don't because we can't, right, which is just a tacit admission that it is far more complex and nuanced than this. And yet we tend to put that aside somehow.

42:19It's not as if we just like downplay it. We don't even acknowledge it. Right. And I think the reason why it's frustrating, you're right. No one cares. You can tweet this stuff. No one cares. I think everyone cares fundamentally. They care very deeply. It's just that trying to connect all the dots is super difficult without any easy answers, you know? And so it's just easier. It's just easier to go, oh, A, therefore B, therefore my chosen pet hate is wrong and we need to prosecute them. I go to my own hobby horses. And as I say, it's just so tiring. So hopefully, dear listeners, I'm not trying to suggest you think in any way that you don't want to, but understand that just the reality of the world is highly complex.

43:07We stare into the future and it's just very foggy and unknowable. We look at the past and we look at how far we've come as a civilisation and it's just, it's multifactorial, it's complex, full of dynamical feedback loops and the rest of it. And it just, we do ourselves a disservice by overly simplifying it. And not only do we do ourselves a disservice, if we don't understand where this prosperity comes from, How can we possibly foster the conditions for increasing prosperity in the future? I think that's absolutely true. The only thing I would say, only because I just want to say it, is I don't expect 95 % of the population to not think, what does this mean for my mortgage?

43:48Because there are nurses and fireys and coppers and factory workers and taxi drivers and teachers, and it's like, I don't want to. Investment bankers and brain surgeons taboo, right? I don't want to have to think about, no, because it's not relevant or important, because it is, and we're explaining why. I don't blame anyone for like, let me think more about the fundamental components of GDP and whether that matters, how it matters. What I do have an issue with, and this is what you're getting at, is the economists and politicians and policymakers and bureaucrats who are willfully or otherwise ignoring the longer-term purification of this stuff.

44:18Right, exactly. And I'll give them some credit. I'm sure they do it because they themselves don't understand it, right? So it's not probably an intentional gaslight, but it's, you know, well, it's like your point, it's either ineptitude or conspiracy. conspiracy. I'm like, well, I don't like either of those kinds of options. But again, you're feeding these narratives to people, you know, and wondering why there's such a drop off in trust in institutions and the political process. And that's because you're fostering those very conditions by effectively gaslighting us into things. No, no, no. I mean, nothing drives me more crazy than a rich fund manager telling the world how great everything is, you know, from their Bellevue Hill mansion.

44:59It's just like you are so out of touch. It's embarrassing that you would do that. And anyway, the world's complex. The world's a complex place. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

45:20Let's move on to some other parts of complexity, 45 minutes into the podcast. I thought it was fascinating. We've talked a little bit about productivity, about GDP, about what it means and all that kind of stuff. One of the things that was notable this week is the Australian Bureau of Statistics has effectively belled the cat on what has been... We talked a little bit about the tobacco exercise before. They effectively belled the cat on the... I'm trying to decide whether to be nice or not very nice, and I'll try and find a way to thread somewhere between the two things. The ineptitude and the lack of actual action and response to the absolute flood of illegal tobacco in the country by state and federal governments.

46:01Because I've effectively said - Which only reveals a complete fundamental lack of economics. How could it otherwise be? If you understood what you were doing or how things work, you would have seen, like Blind Freddy would have been able to see what was going to happen. I would, yes. Is that a misunderstanding of economics or a preference to put politics above economics would be my other question. Yes, I guess I can. But yes, otherwise I agree with you. They're the great options, yeah. Right. So the Bureau has basically come out and said, well, I guess we're going to have to try and work it if we can count illegal tobacco sales somehow because it is fundamentally...

46:35It'll make the GDP figures look better. Well, but it's also... But it'll make them look real. That's the thing, right? Pretending it doesn't happen and saying, we're only going to count the legal stuff. It's like, well, is the economy just the legal stuff? I mean, are our lives still... But they're not going to do it. If there was any chance it was going to make GDP worse, they wouldn't... No one would be talking about it, right? Like, if I want to be a bit cynical here. I don't know, maybe. Hey, if we counted this, that'd make the economy look even worse. Oh, we should totally do that. No. But I think the other way around, I actually think they're embarrassing the government by doing this.

47:01So I don't know whether they're trying to please their political masters or not. As you know, my public interview tends to be, I hope these bodies are as independent as they're allowed to be. Because if they do that, you've also got to count out the inflation numbers and you've also got to put a value on it. And every time the inflation is imagined, well, this tobacco is this, it's like, really? Is that still the thing? So I don't know. Maybe I don't know which way the political calculus falls on this one. I suspect there's a lot of people in the government who are not happy the ABS is going to count illegal tobacco because they're kind of, by counting it, you quantify it, and by quantifying it, you legitimise the existence of it.

47:33Not legitimise saying it's okay, but you're saying, hey, guys, there's this much tobacco you're not collecting excise on and costing you the taxpayer money, and you're not, law enforcement's failing, and that's a real number. The fact that we have to do this, I hope, is deeply embarrassing for governments because in a perfect world, you'd have nothing in the black market. You'd also be able to count all the stuff and it wouldn't be a problem. Italy is apparently, I haven't seen the numbers, but apparently one third black market, they reckon, with the mafia over there and doing what they do. The one thing I love about the black market, this is going to be controversial.

48:04I don't love the black market. Let me put that out there. But it is one of the few refuges of true capitalism. Yeah, ish. Because it's without distortion. It is purely between supplier and consumer and people coming together and voluntarily trading without distortion. Now, maybe it's cocaine that they're trading with one another and there's a broader issue there. But just as a point of, from the pure economics lens, at least, it's sort of like, and here's the thing. It's really a valuable insight. The fact that black markets exist to really underscore the point we were just making that humans are very ingenuity.

48:44There's a lot of ingenuity, right? Like we are creative. We seek things that satisfy our demands. Even if we can sort of sit here from on high and judge morally the desire for people to want to smoke illegal tobacco, it's like, yeah, okay, but look, the truth is they want to, right? And moreover, frankly, kind of addicted and you've squeezed them so hard that you've kind of forced them in this kind of direction. That's the worst part. There's actually an increase in smoking because illegal smokes are so much cheaper. People are smoking more of them. So even though the – and this is – you're right.

49:19I had assumed – I don't know whether I'm right or you're right or maybe some – truth or some room between. I had assumed that I hoped desperately the governments are incredibly embarrassed that the ABS is saying we're to count the illegal stuff because it's so big now. I don't think they will be because I think what they'll do is they'll go, oh, look at the baddies. It's the criminal. Here's some more money for the police. It'd be different if it was like, oh, gosh, this is a real moment of reflection and introspection for us And I guess we haven't created a proper set of incentives to really fundamentally deal with this.

49:50And actually, what are we trying to do here? Is this a revenue raising mechanism or are we trying to increase the health and minimize poor health outcomes for our citizens? Like there's a bigger, bigger, more important questions. And so you're right. Maybe like the fact that it gets measured, I don't know how you do measure. That's a separate conversation. but let's say somehow we do... Guestimated something. Yeah, I guess someone sticks their finger in the air and sees which way the wind's blowing and guesses it. You probably count the number of illegal tobacco shops around the country and apply some sort of rough estimate of how much they're selling and be roughly right, I would have passed.

50:25But the trouble is, if you knew they were illegal, they'd be shut down. So there's a Schrodinger's dimension to... No, that would assume that police actually cared enough to do it. Yeah, yeah. Here's the thing. I just don't know. I'm going to go buy some drugs, right? After this, I'm going to hang up from you. I'm going to go buy some drugs. I'm going to go on to... for illustrative purposes only. When the transcript comes out. Andrew said. Somewhere in the future an AI is trawling through all transcripts. The police are on their way to your house right now. In a thousand years a historian is looking at this.

50:55Anyway, I'm going to go into an alley and I'm going to use cash. I'm not going to use Bitcoin, funnily enough, because that would be dumb. I'm going to use cash because that's the most untraceable thing. Let's not go there. And I'm going to give it to the dealer and they're going to give me some drugs. Yeah. How on God's green earth does a statistician know about that? Let alone measure it. Yeah. How? How do you even, how much did I buy? When did I buy it? Who else did he sell or they sell to, right? Like it's, anyway. I agree with that. Actually, on the tobacco shop thing, you could send a, I guess I have a website tomorrow and I could offer people $1 ,000 for every illegal tobacco shop that was shut down as a result of the information they provided and you would know exactly how many there were.

51:39Yeah. Enough. Yeah. Heartbeat. Well, to the point of show me the incentive, I'll show you the outcome, right? Totally. Exactly. But to your point, how would you know? Like, oh, you're right. A statistician camera who tries to guess from the phone book is not going to work it out, but who says, you might send me some data, please, Mr. Legal Tobacco Shop. That's not going to happen. I'm going to report it on my tax return. Exactly. Well, I spent$4 ,000 on drugs this year. I guess I should disclose that to the ATO. Or your income. Yeah. Income from selling drugs, X dollars. So payment for standover man, Y dollars, that's a deductible expense.

52:12I mean, there's a lesson in all of this. The lesson is that we've talked about the Laffer curve before as well and I made mention that Gary, behind Gary's economics, got a, what do they call it, honorary degree from somewhere in economics and I just feel as though this guy is just missing the points so much on everything. It's a good example of these first-order type thinking, which fundamentally misses the point and creates a worse problem. And I mentioned that in the context of tobacco and what's called the Laffer curve and Gary, because there are people like him who will go, geez, everything's not going great.

52:55Let's just tax the rich. Now, we had this conversation off air, right? And it's just sort of like, not to segue the conversation too far. Again, you have to backfill everything because people are going to run with it in whatever way that they want. I'm not, I actually think that the wealthier should pay more tax. I'm not against that at all. What I am fundamentally against is people who see that as the solution to these very, very difficult multifactorial problems. And the very... It's a good lot of financial wallpaper. Who cares all the problems? I'll just paper it over by taxing some more and then we can pretend everything's okay.

53:29Okay, I'll tell you what, forget tax. I am going to, as the dictator of Australia, I am going to seize all of the property of Clive Palmer, Gina Reinhart, Kerry Stokes, the top 50 people in Australia with wealth. I'm not going to tax them more. I'm going to seize every single one of their assets. I'm going to liquidate it, and I might fund the government for six months. Right. Let's be generous. I'm making these numbers up. You might go, oh, that's actually... All right, two years. Yeah. Now what? Yeah, exactly. Now what? Right? So it's... That's what I meant by wallpaper. It covers over the cracks.

54:06It doesn't fill the cracks in. It just says, well, let's pretend for a bit of time those that exist because we've got the wallpaper over the top and from all the sense of purpose from a distance, it looks okay. Yeah. Now, again, everyone, whoa, whoa, so you think that the tax shouldn't, people richer shouldn't pay. No, no, you just don't put... Do not make that... Draw that line, right? We can have a separate... And we should, you and I on this very podcast, very often talk about how stupid and overly complex the tax system is and how in dire need of sensible reform. And absolutely, we should have a very intelligent, thoughtful conversation in terms of how we raise the revenue for public expenditure.

54:40And part of that might actually be that the wealthier carry more of the burden. I'm open to that discussion. I'm not saying, I'm not trying to defend the rich for the sake of it, but I'm just trying to point to the stupidity of these, as I say, first-order thinking kind of quote-unquote solutions, which they're anything but. Which is again, just to, where the hell, how did you land on this entry? Well, back to tobacco. Tobacco is something that causes cancer. That is a very real burden in real people's lives, but also for the wider economy and the health budgets and stuff. So we should probably seek to disincentivise that.

55:18One tool in the toolkit to do that is to increase taxes on it to make it less attractive. Is that a reasonable thing? Absolutely, it's a reasonable thing. Is it the only thing you should do? No. Is there a natural point at which it ceases to work? Yes. Is there a point beyond that in which it actually becomes, not only does it stop working, but it becomes counterproductive? And this is the exact point that you made. For the very best of intentions, we've actually found a situation where we're actually generating less in excise and more people are smoking. So we have done it, and this is why you can point to it, you guys do not understand economics.

55:53You do not understand human behaviour. You do not understand the power of incentives because the very thing, irony of ironies, the very thing that you put in place to improve health outcomes and raise a bit of extra money has not only not worked, it's counterproductive, it's backfired, and the two things that you seek to improve have gotten materially worse. That's absolutely true. It's absolutely true. It's madness. I want to go back to your point of laugh at Kurt for a second and then I want to move on. I feel free to add. I had a lot of people who say that the tax excise on, well, tax excise different things, on cigarettes is proof of the Laffer curve.

56:27Ah, see, that's proof of the Laffer curve. And I want to unpack the ideology from the reality, right? Because what they don't then, what they're inferring without saying is, and therefore taxing more is bad. Yes. See, I told you taxing more is bad. Just as first level, just as surface level and shallow as everything else. So what does the Laffer curve do? The Laffer curve says that, and by the way, I don't know that Laffer ever himself put numbers to this. He just described the phenomenon, which I think is a million. It's unquestionably right. It's a qualitative thing. It's not a quantitative thing.

57:00Directionally perfect. So at some point, as you increase taxes, tax rates, I should be very clear, you collect more tax, right? When I go from 1 % of income to 2 % of incomes, I'm going to collect more. Not double because some people are going to earn less or simply stop working, but I'm going to overall, the tax take is going to increase. Now, when I go from 98 % to 99 % of incomes, I'm going to collect less tax even though I've increased the tax rate because people are going to say, well, bugger that. I was still working 98%, but mate, you've finally broken me, so I'm out. Now, at some point, so that's at both ends of the curve, and it goes from down the bottom left corner, it goes up to the right, curves over like a rainbow and back down again, conceptually.

57:36Now, it's not that the curve isn't that clean, but think about that as the broad idea. Somewhere in the middle, you increase tax rates, you increase tax rates, tax revenue goes up and up and up and up, and at some point it crosses some sort of inflection point where people start giving up work, doing less work, earning less income, running fewer businesses because they simply see the incremental tax take as too high and not worth their time and effort. Every one of us lives through the lens of risk versus reward. How much am I risking? What am I outlying? It's just a rational calculation for any person of any political persuasion at a point.

58:12It's like, I'm just not going to do it. But why am I – and even if you're like – I'm not talking about a billionaire business person here. It's like anyone. It's like, well, so you're telling me that I could go to work for an extra 10 hours a week, but I'm only going to get the equivalent of a one-hour's pay? I just won't do it. Right. Right. Now, I might go to work for 10 hours a week for five hours pay or for six hours pay or seven hours pay. So the Laffer curve, it's – I'm going to say it's axiomatic. I don't know anyone who can honestly say the concept of Laffer curve is wrong. That tax take increases as you increase rates from zero and it decreases as you get towards 100.

58:48The shape of that curve, to use the horrible jargon, we don't know. So does the excise increase prove the Laffer curve? Yes, but it also proved it when the excise went from$0.02 to$0.10 a pack. Because Laffer curve says on the left-hand side of that curve, you will increase your tax take. So I just wanted to call out, Matt, because you made the point about Laffer. I think it's really useful. I just wanted to, for those who say, aha, I'm right, Or increasing taxes always ends up with less tax take or always discourages activity or always what? No, that's stupid. No, right. And on the other side, you could say, but increasing taxes always carries more tax revenue.

59:21Well, no, it doesn't do that either. That's the point I want to make. Right, exactly. The curve is the curve. We've got problems, structural deficit, we're drowning in debt, let's tax our way out of it. It can form a component of it. I'm not saying that, but it's not the silver bullet that people presented. And look, those of us who are in completely different industries who have never studied it, it's a very natural kind of thing to maybe, you know, talk about after a few beers at a barbecue. Someone who's paid$500 ,000 a year to be a senior economist who has got four PhDs should know bloody better, right?

59:53Who is advising the government, should know bloody better. That's the thing. That's the egregious part of it, right? And it's been, exercise has been falling, sales have been falling, total exercise take has been falling, sales have been falling and the pollies, again, I don't know why, it doesn't matter why necessarily, but I suspect they are simply not wanting to admit there's a problem and not wanting to be seen to be, quote, soft on smoking. Because if I decrease the excise, I'm saying I'm going to be okay if people buy more cigarettes because they're now cheaper than they were and that would somehow be bad.

1:00:24And that's absolutely true in a closed system where there is no black market. We've just talked about it. People are buying four packets of$10 smokes rather than one packet of$70 smokes. What do you think they're going to do? Yeah. Not because they even want to because they're addicted to them. exercise worked for a period of time. Whether you like syntaxes or not, whether you agree with them ideologically or not, they literally worked. In concert with lots of other stuff, bans on advertising, limitations on purchasing, plain packaging, all the stuff, right? Reduce smoking rates. Education, consent, and can you do a double blind trial against the individual one?

1:00:53No. But I think it's very reasonable to say that price, hey, incentives, as you said, Ram, price matters, right? The higher the price, the less of it I'm going to buy. That's kind of axiomatic, unless you've got a product that you can't, Like water? Probably not. At some other point, you know, everything else. You put the price up, it's going to be enough to stop, to some degree, and to a diminishing degree, the amount of demand. It will happen. Yeah. But the reality is different. Yep. Hey, I'll go. No, no, I agree. I want to move. So speaking of governments, though, it's a really lovely segue.

1:01:23It's why I don't want to jump. Oh, I've got one. I've got one. I don't have to make a clumsy, awkward segue that somehow doesn't make any sense. Let's talk about governments and fiscal responsibility. Because I... That's an oxymoronic statement. Do you like that? Statement. Well, so you know I'm Pollyanna, right? And so I tweeted during the week that I'm probably going to be let down again, probably. But the federal government has said, Katie Gallagher, the finance minister, has said they have tasked ministers with effectively cutting the bottom 5%. They're called bottom 5%. The language, it's a bloody political spin.

1:01:54I'm sure it's been workshopped in focus groups. They're asking ministers to find the bottom 5 % of spending in each of their portfolios. In theory, to get rid of inefficient spending, the unnecessary spending, wasteful spending, whatever phrase you want to use, and that gets ideological fast too, depending on where you sit on the bloody spectrum. Some would say, oh, reduce services. And other people say, well, take out the bottom 50 % because it's all wasted and there's something in between. But I am, I'm Fox Mulder. You know I'm Fox Mulder. I want to believe, right? Not because it's Labor, not because it's the government, not because it's the end.

1:02:23Just because I just, I want the outcome that they, in theory, are heading towards, which is a bit more fiscal responsibility. I'm like, all right, I'm going to close my eyes I'd cross my fingers and hope that when I wake up, you've actually done what you said you're going to do. And so I am at least directionally happy that for the – I'm going to say, mate, this is the first time in, I'll say a decade, and we can make it a number. It could be more or less. It's almost certainly not since COVID or since 2020. I reckon the first time in a decade we have a federal government actually saying we're going to try and find some areas we can stop spending.

1:02:55Because I don't honestly remember the last time that happened. It was probably the Tony Abbott Joe Hockey first budget of that government, which got pilloried for, you know, political and other reasons, there's probably that, that was the last time I think any Australian federal government genuinely thought, hey, maybe we could actually look at spending and maybe cut back a bit. And so I really want to believe that Katie Gallaher and Treasury Chalmers will make this work. And I hope I'm right. I fear I'm not, but I hope I'm right. I also am hopeful that if they do find some savings, they don't just throw it back into other tax cuts, other things that are just not fixing, not that I'm against tax cuts, but fixing the fundamental imbalance of the federal budget because that's the key thing here.

1:03:35We have a structural deficit. We've talked about this before. We have a massive debt. If they are clever, smart, thoughtful, dedicated, committed, frankly, if they're listening enough, any savings would go to exactly that. Now, they won't help themselves. They'll spend some of it because they can't help themselves. But I'm hopeful, I'm hopeful that we're seeing some sort of fiscal responsibility return. I'm also hopeful, only this morning, well, yesterday morning in internet time, but this morning as we're recording, Thursday, the 4th of December, stories that the Victorian government is going to try and save$4 billion to fix their state budget.

1:04:09And again, mate, I'm just looking for confirmation bias everywhere, right? Is it possible that finally maybe governments have decided that maybe it's important to be responsible? I hope so, and two of them doing it at the same time. I'm going to try and find a benefit and kind of try and find some evidence that maybe I'm right. I don't know, mate. I don't know if you have some thoughts. I suspect you'll be more cynical than me and, frankly, probably more realistic. It's just better than not at least talking about it. Oh, yeah, it needs to be talked about. They could have just done nothing about it and maybe they do nothing about it, but at least it's part of the public conversation.

1:04:44That at least, at least a return to, hey, maybe budget discipline should matter. That's got to be, hopefully, if not positive, at least not negative. Can I at least hang on to that one? No, I think you're right. I mean, again, it depends. So one of the other things that really bugs me with most government solutions to economic troubles is that spending is always the solution. Yes. Oh, there's a problem with this. I'll give them more money. Now, it's nuanced. It's complicated. There are a lot of public institutions that are chronically underfunded. Yes. So, yes, more money is definitely part of the picture here.

1:05:21But it's not the main sort of story. the main story is sort of the quality of spending here. So, and you can flip that around in this context. It's like, so you would, I'm sure everyone expects me to go, yay, they're cutting spending. It's like, well, what are they cutting? Yeah. And I'm not, I will make a statement that will shock no one. There's a lot of waste in government spending, but guess what? There's a lot of waste in Telstra and AMP and any number of private institutions. It's not a public-private thing. It's not an ideological thing. They're just very big institutions and small institutions, all of us, even in our households, you know, there are components of wasteful spending.

1:06:02So should we reduce wasteful spending? Yes. Strong yes. Is there a degree of what is the degree of wasteful spending within Victoria or the nation? It's like, well, I'm sure it's not zero, right? So, yes, like you, I see it as a good thing, not because it just comes from a simplistic ideological view that government should be stolen. Not at all. Some public institutions I wish were much bigger. But it's more complicated than that, right? So if you're going to get rid of some stupid waste, absolutely, I bet you there's a lot of fat to cut. We've talked before. This is, again, part of the nuance here.

1:06:47We've talked before as much as an idiot that Elon is and Doge was. Conceptually, it wasn't a terrible idea. And why would any of us who fund all of this through our own labours be against or how could you be against just saying, hey, I'm not saying you guys shouldn't exist or shouldn't do your thing. I'm just, as someone who funds your very existence, I'm hoping that you do it with a degree of efficiency. And not because it's good for the economy or anything, Because the more efficient you do it, the less tax I pay or the same tax I pay and the more services I get. Like that's productivity. That's what we want.

1:07:25So I don't know. I don't know, mate. There is, it is good, I suppose. I just hope that the cuts that are made are sensible and I hope it's not something that just instantly gets reversed in three years' time. Exactly. And all the cuts are then wasted on something else instead. Like, so the Libs took a lot of money out of government a while back. But did they? Put it back into contractors. Yeah, that's right. I mean, yeah, there were less public servants, but then you just, like, shuffled that to the private sector and there was a whole bunch of consultancy expenses. It's kind of like, well, so the money was still going to spend.

1:08:06It's not the fix you think it is. Yeah, that's right. And actually a lot of those were just your mates and there was a whole bunch of grift and, you know, I don't want to use too much here, but it's sort of like, It's sort of, it's fiscal discipline theatre as opposed to genuine reform. Look, I did find something when you were talking there. I Googled it. This comes from AMP. Oh, just last week, in fact. The deputy chief economist there. Just put a chart, which is really interesting. It goes all the way back to the 60s and it plots government spending as a percent of GDP. GDP, but interestingly enough, it breaks it between consumption and investment.

1:08:49Now, when we say government consumption, that's a bit tricky because that includes things like pensions and unemployment benefits and other kinds of welfare payments, but it also includes public sector wages as well. And within public sector wages, you've got things like nurses and teachers, and I can tell my wife's a teacher, they are chronically understaffed, like we need more teachers, right? So I'm not saying get rid of all the teachers, but even within that category, there is like 800 people at the RBA, which could all go, right? So it's sort of like we're dealing unavoidably with very big aggregates in here.

1:09:28So I get that. Nevertheless, directionality here is interesting. You go back to the 60s and the consumption side of things was about 14 % of GDP and it's now nudging 24 % of GDP. So this obviously factors in inflation because it's all consistent with the GDP of the day, the level of spending in the economy. It's just gone up quite a lot. The investment line is flat and doesn't - As a percentage of GDP, not total dollars. Sorry, sorry, as a percentage of GDP. Yeah, yeah, yeah. No, no, good clarification. Isn't that interesting? Now, I would say, I think any rational view of economics would say that it's the investment that enables the consumption.

1:10:15Everything's a circle, right? It's back to our earlier conversation here. It says that's government investment, not necessarily private investment. So I don't know you're wrong, but I also would suggest that that's not the whole pie we're looking at. So you kind of have to add them both together, I suspect, to get a full view at an economic level. It's possible for government to do all the investing in us to do oil consumption or vice versa if the feedback loops are working. Absolutely. Not just to go to your point, just to tease that a little bit further. Yep. But these public assets, whether it's sort of the archetypal sort of snowy hydro scheme or roads and bridges and stuff, these are, again, to your earlier point, these are enablers of higher levels of economic activity.

1:10:56Exactly, yep. And I would say, again, it's very hard to deal with these averages and that, but I would say, a more healthy direction would be a flat consumption and almost growing investment. Like those curves need to be going the other way at least. Or maybe just the easiest thing to settle on is as a percentage of GDP it stays the same. And this is a long run-up for me to sort of say, well, how do you fix the problem? I think there is something to be said. Accounting for various, maybe you include various necessary exceptions to the rule with things like pandemics or war or unusual situations, that a really good way to contain all of this is not to have it set in absolute dollar terms, but have it set in percentage terms.

1:11:43And probably over some sort of decent average time, if you need to have some of those periods where COVID or something happens. Yeah, that's your budget. You get to spend this much. If you want to spend more, you have to foster more economic activity and growth. And then that will create more wealth that you guys can then spend. And it's not just for the sake is spending, it's because you're delivering real improvements in our quality of living. But I don't know. What am I saying here? Yes, good, cut it, a lot of waste. We'll see if it's A, lasting, and B, effective. Yeah, I agree with the last point.

1:12:17I disagree with you a little bit and probably not even significantly on the government spending thing because I've said before, it's a clumsy line, I'm neither a big government or a small government guy, I'm the right size of government guy. Yeah, me too. And if we as a society have a grade - What's the right size? We might disagree with, but that's - But that's kind of my point though, which is why I wouldn't actually personally limit the percentage of GDP to an arbitrary number for the sake of it. Because we might decide at some point, well, firstly, because there's no incentive to spend below that.

1:12:44It becomes, like everything, right? That's true. That's a good point. The speed limit becomes a recommended driving speed. No one drives a 60 and 80 zone, right? Yeah, good point. But also on the upside, if we as a society say, actually, you know what? We think childcare should be paid for by government for social and economic reasons rather than out of private money, which is effectively what the government said over the last four or five years is effectively universal childcare or close enough to it. That's societal. NDA is another example. Now, I think the NDA structure is atrocious, right?

1:13:11But putting that aside for a second, if we as a society agreed that we wanted some of these things to be funded by government as social safety nets and it wouldn't be classed as investment, even though it would be an investment in human capital for early childhood education, for example, We could decide that we wanted certain tasks performed by governments for whatever reason seemed to make sense to us as a society. And that's why I'm kind of against the arbitrary either a set percentage or some sense of government spending is higher as GDP equals bad. No, I'm not saying it equals good either.

1:13:44I'm genuinely completely agnostic. I think it's the wrong lens. I think it's a little bit too simplistic. It may well be the least worst way to do it for the reasons you've highlighted because if we don't, then we get worse outcomes. but I just think if you were to say, and go back to 1800, right, just pick a time when there was no dole, there was no public health care, there was no social safety net at all, there was no care for people with disability, there was no, you know, roads were dirt and not tar. We didn't do anything in rural areas because you couldn't be bothered and, you know, stock routes just kind of emerged because people tramped over contested lands for a period of time.

1:14:20I don't know what the numbers were back then. And let's say in 1800 it was, like 1950, right, because Australia is a country or a series of colonies ran long enough to have done that. Maybe it was 10 % of GDP. Now it's 28. And someone, I'm sure someone at 1850 went, we can't let government spend any more than 10 % of GDP on stuff. It should be. It's already too big anyway. Let's make it smaller. And maybe that was right. Or maybe it should be double or maybe it should be half. And I guess I'm just making the argument that I think the thinking that says X percent of GDP is somehow right or wrong or better or worse or growing is bad and falling is good.

1:14:54I just think, and to your exact point of it depends what we get, what return we get for the money we're spending. Is it spent well on an economic and a societal level? If it is, go for it. If it can be done better, to your point before, outside government, then make it smaller. That's why I genuinely know I'm not defending the current level. I'm not defending half or double the current level either. It would be, for me, just a case of rather than, and the reason, you know why? Because we get this bloody debt ceiling, stupid, you know, performative crap we have in the US where the government gets shut down for a month every couple of years because they hit some stupid number they put in place 48 years ago.

1:15:29I'm just a, and again, maybe nuances lost on parliamentarians, but I'd rather, in a perfect world, an economy run, sorry, a government run on the basis of, to your point, we will do the things that private sector can't do well enough or properly or at all, and that will cost whatever it costs, whatever that costs is what we spent, rather than it must hit a set percentage, higher or lower, based on some arbitrary number that we chose 5, 10, 100, 150 years earlier. Yeah, that's a fair point. I can see that. It's trying to just put a handbrake on things, I suppose. Yeah, 100%. One of the, there's no such thing as a solution, but one of the options, thank you, I was going to say remedy, that doesn't work either, is that I've heard proposed before is increased localism.

1:16:17So when you have, the further you are away from the front lines, the harder it is for you to make an effective decision. If I'm a general fighting a war on the other side of the world, but I'm doing it from my air-conditioned office in downtown Brisbane, I'm probably not as effective as the commander who's on the ground looking at the battlefield right now. And the argument that I've heard is just sort of like we have three tiers of government in Australia and, you know, the local council will sort of collect your bins and make sure you're not chopping down trees and that kind of stuff and, you know, development approvals and that.

1:16:50And at the very top you've got military and very big kinds of things. I think who, how many people do you reckon could name their local council members? Oh, very few. I can't. 1 % no, me either. No clue. No clue. I'd struggle to tell you half the state politicians. Yeah. Right? And the argument is that when it's local, you get very good visibility on where your money is being spent because you see it, right? And in a smaller community, you're far more likely to be rubbing shoulders with the people that are making these decisions. They live in the community, right? So it's very easy to screw over a bunch of people who are halfway around the country that you're never going to...

1:17:35Remember ScoMo walking around after the bushfires and the reaction. Forcibly shaking hands. Which was so good, man. It was so good. But it is like that. As a local politician, he would have been turfed out in an instant, in an instant. And, again, this isn't a fix-all, cure-all kind of thing, but some kind of handcuffing of the spending in some way and directing it to far more local levels, I think just helps mitigate a lot of these problems because I can see it. Now, my tax, the mix of my tax payments would change. And at the moment, I don't pay a huge, relative to the tax I pay, council rates are tiny.

1:18:14You know, I don't know what I pay, like 800 bucks a quarter or something like that, which I think is a little bit more recently. My income tax is a lot more, right? But if that was flipped around and I could see that it's sort of like, hey, why are you guys only, you know, that one street where you all happen to live is that's getting all the great roads and infrastructure, and I become far more engaged. I've got a far clearer idea of where my money, my money, our collective money is going, and I'm far more incentivised to take a notice of it. I like that. Yeah. I like that. Here we go. The trouble is, and this is the trouble I think we find ourselves in, is that when you start, like whether we're talking about the tax base as we were before with excise and tobacco, going to like, I think we're at the point now as a society where tinkering is just not going to do anything.

1:19:09Like we can move things in the right direction and we can tinker in effective ways that lead to positive outcome, but it's almost like we need a structural overhaul. And the fact that we need that is the reason why it will never happen because it's just too big a hump to get over. So it's fun to talk about, but I also, I say it and then at the same time go, yeah, that's never going to happen. I like the idea. I've traditionally had two objections is the concerns. I'm not saying it shouldn't happen or it would stand necessarily in the way. I think if you look at the amount of council corruption, even state government corruption, and imagine that the fourth estate, i.e.

1:19:48the media, has a role to play. I think devolving any more spending to smaller, you're right, conceptually, if we had a village of 100 people, you'd see all the people. But a council of 40 ,000 people, I don't know what the average council size is. You're still not really rubbing shoulders with those people and think about the corruption at state level that's been found and largely thanks to bloody Kate McClymouth of the Herald in Sydney or New South Wales, right? Imagine what doesn't get found already at council level then imagine giving them more money and more power. It's like, oh, I kind of...

1:20:18Maybe that would increase more scrutiny though. It's not as invested in journalism as it is. The same amount of money being spent locally, are there going to be X number of more journalists? I suspect the numbers work the other way i could be wrong but that's the other one for me is just the localism of the and this is a bit kind of um redistributive if you want to put labels on me um but if you you know the it's like the old story if you know the big states get more of the gst revenue but more of it gets spent somewhere else you know that kind of idea of you know if if you're only ever given the money you raise in tassie and spend on tassie tassie becomes poorer permanently than sydney because there's just a lower density of people and all that kind of stuff so there's some element of maybe the taxing and the spending are different regime levels and maybe they're allocated differently maybe that's the solution but they'd be the two things i'd probably just raise as worthy of consideration when it comes to how you might do more local stuff um that's not because i not because i'm against it conceptually i just i wonder whether the upside potential is enough uh to allow for some of those potential drawbacks i don't know the answer but i said there's so little money being spent on journalism at national and state levels to imagine that somehow there'd be more of it spent if the money was spent locally.

1:21:29I think it'd be a nice idea. I would bet against it. I could be entirely wrong. We don't know. We don't know. And as I said, it'll never happen. Yeah, exactly. It'll never happen. It's a nice idea. It's a nice idea. Speaking of nice ideas, will you come back on Sunday? Hell yeah. Excellent. In that case, we will have another Mailbag episode. If you're still here, God love you, but also info at fool.com.au. If you have any Mailbag topics you want us to cover, please let us know. That's the best way to do it. You can, of course, also follow Andrew on Twitter. where occasionally you'll get something other than Bitcoin, but not very often, at Sage underscore Simeon or at Strawman Invest.

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