The last rate hike? August 4, 2023

27:17When it comes to some new helicopters and subs, like, yeah, do what you have to do, right? So you get the green flag waved through for this kind of stuff. So on top of all of this fiscal conundrum, you have a scenario where spending is ramping up from, by the way, incredibly high levels already in the US. Their military budget is, I think, is big or bigger than the next three combined. It's pretty massive. So again, I don't see them pulling back on that spending lever, let alone any others, and that just makes it all more diabolical. I think that's absolutely right. I still – the other thing I'm going to take some – I think it's a reasonable – not with your view, with Fitch's decision.

28:03You know, I wonder whether, you know, it's almost a – you know how when Cheryl's done what management are doing, they vote against the remuneration report? Because it doesn't really matter, but it makes a statement. Yeah. That strikes me that that's kind of what Fitch has done because, as you said, there's no reality, there's no real chance to go to default, right? And so to the extent that the credit is worth something and to the extent that the interest rate on that credit, which is what people will start to demand higher or lower depending on the impact of inflation, it's kind of one of those things where you say, well, the rate will tell you how much people want to be rewarded for lending money to someone who may have to inflate their way out of this.

28:43In other words, the money is worth less. The purchasing power is worth less, as you said. So if you've got the credit rating on one hand, which is the likelihood of getting paid back, and the price of that credit, which is the interest rate, it does strike me, Fitch, as being a little bit, I'll say cute. I don't mean it in a particularly critical way, but it does strike me as a bit of a slightly silly thing to do, given you've got those two levers. One is the price of the debt. The other is the likelihood of getting paid back. I mean, if the US literally defaults on its debt, then all bets are off.

29:13literally worldwide. So it's just not going to happen. So part of me thinks, okay, you've made your point. I get it. I don't even disagree with the rationale, but I don't think the US is any less credit worthy than it was. I can price my, the lending I want to do to anyone in the US, in US dollars, I can price that according to my own preferences. What I'm asking you to do is saying how likely they won't be able to pay the bills. I do think the downgrade is a little bit silly from that perspective or maybe slightly crossed wires. Is that unreasonable? No, I mean, I would look at it from the private market perspective.

29:46So there's what bureaucrats and regulators and all of that would like to see. But then there's, you know, then there's the reality. Like there is reality of people who actually participate in these credit markets. You know, the great example here would be the Saudis, right? So we buy all the oil off them. We give them a bunch of, when I say we, the West, give them US dollars. And what do they do with that? They then use that to buy debt because what are you going to do with it? Or acquire US assets. It's a gift certificate for the US or a trade token for the rest of the world. And so you fulfil all of your sort of import requirements.

30:23And what do they do? They recycle it into Treasury, into T-bills and all of these kinds of things. Or US dollar assets like sovereign wealth fund investments in US denominated companies, that sort of stuff. Absolutely. China does exactly the same. Nile Ferguson called it Chimerica, which is a lovely term because it's got that chimera angle to it. But they are. They're very much, of all the geopolitical tensions, it's sort of crazy how wedded those two entities sort of are. But look at it from their perspective or even look at it from a corporate's perspective that trades internationally and has an excess of US dollars.

31:00What do I do with that? Now, inflation is running hot, in my mind, probably down from the peak, but continue to run hot for a while. So it's just a melting ice cube in my pocket. It's like I've got to spend it or I've got to at least invest it at a rate which will compensate me for that inflation. And I know that when I buy this stuff, they're going to pay me back with printed money. It becomes less and less attractive. So whatever the ratings agency want to do, the harsh reality is is that people recognise exactly what's happening. If you borrowed some money off me and you're just creating more Scott tokens to pay me back with.

31:37You know, I just like, wait, it's sort of, it gets to a point where I am just going to demand in the private market a higher rate of interest to compensate. I'm just going to. And this is the reality. There is a lot of people will argue that, frankly, what central banks do is more largely a jawbone. It impacts into bank rates. But at the end of the day, it's the bond market. The bond market is the 2 ,000 pound gorilla in the room that really ultimately determines global interest rates. And the bond market is just a massive, you know, it's like any market. It connects those with an excess of capital that need to borrow.

32:12And the market sets a rate that is appropriate. So if you go and borrow money from, or if you lend money to Argentina or Lebanon or places that are experiencing hyperinflation, guess what? The interest rate you demand is extremely high because you're not an idiot, right? Because you need to account for that. Now, that's a completely different, much more extreme scenario. but it is still the same scenario. So, you know, unless you're going to find that buyers of your debt and one of the great things about being the reserve currency and the major leading economy is that you have a whole world of other foreign entities who are traditionally at least very happy to buy that.

32:52They're just going to gradually and slowly over time, regardless of what Fitch and S &P might happen to declare, they are going to want a higher interest rate. They are. or they're going to seek other alternate assets, whether that's be let's just buy up some US real estate. Then you get into all kinds of foreign ownership rules or you use what is increasingly being the case, I think, is you use equities as a store of value. And I actually think that it's not too crazy or out there to think that we will on average see higher multiples normalised for interest rates going forward as all this global capital seeks a home, seeks a shelter to protect it from inflation.

33:33And it might actually be that for long-term holders, Apple stock looks a hell of a lot more attractive than an IOU from a government that is spending like well beyond its capacity and is very obviously paying it back with newly created money. Right? Not so. Yeah. I don't know. It sounds really crazy, right? Like it sounds really, holy, what? Is that, you know, this ends really, badly, right? Like, yeah, I kind of think it does. It might not be imminent, but something's got to change and it's very difficult to see what will change. It's a nice time to not be in the US, because we have more options, given that circumstance.

34:12I will say, by the way, to whatever degree you are motivated by Andrew's comments to think about our circumstances here, I would humbly suggest you speak to your political representative about their approach to our national balance sheet because it has disappeared from the national conversation basically through mutual agreement between the two big parties because neither of them wants to deal with a serious conversation about our national debt and budget deficits because that means they'd have to stop spending and that means they'd struggle to win elections so they both just spend up big and that's the challenge of the last few years.

34:45It's absolutely both governments, it's absolutely both parties. The last lot left a mess, the current lot have done very little to improve it. That remains a big issue. There was once bipartisan support, or at least broadly bipartisan approach towards balancing a budget over a cycle, keeping government debt more manageable and more reasonable. That's been thrown out the window to some degree reasonably because of COVID, but the lack of any interest in fixing the post-COVID problems. I'm a big fan. The car breaks, you put the repairs on the credit card, and then you pay the credit card off. We've just put the repairs on the credit card and then kept spending on the credit card.

35:21There is a – and household budgets aren't the same as governments for those people who are yelling at the podcast machine right now. I get that. You get that. We get that. Except that at some point, a la the US, a la the cost of funds, there is always a price to pay. There is no free lunch. No, and you've got to be careful blaming COVID. I know you're not, but like, oh, but COVID. And it's like, well, there's always going to be a COVID of sorts. There is always going to be that black swan, you know, I don't know, an asteroid hits or a pandemic. You know, there will be something or a war or, you know, I don't know what it is because by definition I don't, which is exactly why it's always good to have a buffer.

35:57It's always good to have some capacity on the credit card for the unexpected, for the unusual, for the thing that you need to sort of correct for. And you're right. We're just so far beyond our means. There is a stat that is, I think there is no, actually there's one notable exception, but I'll get to that. There's one exception ever, I think, where the debt to GDP ratio of a country has gotten above 100%, is it, or 120 % where they have not defaulted, right? Right, okay. In history, going right back to - And what was the exception? Japan was the exception. So Japan have had incredibly high debt for a long time.

36:39And they're effectively just rolling things over by printing cash as well. But Japan is a whole study in and of itself. But they have all kinds of demographic problems and the rest of it. So, you know, and it's not a scenario you want to be in. And it looks as though the US economy could Japanify, to coin a term, if it doesn't get there. And it is very serious, I would say. So, yeah, you know, bear in mind that everything has a cost and just pay attention to what pollies are promising and understand that there are just, unfortunately the world we live in is a cruel and unpredictable place. And as much as it'd be nice if everyone just got a million dollars.

37:22I mean, that's a great example, right? Let's imagine I became king of Australia and I said, my first act is to give everyone a million dollars. Now, I don't think anyone for a second thinks that that is going to help anything. In fact, it makes everything really, really, really bad. And, but that's kind of it, right? Like that's an extreme example. It's the free money. Yes, exactly. But that is still a very, very bad situation, and that is the path that we are on, where we all have wheelbarrows of money. It's called prosperity where you get to buy some votes by assuming everything can be okay until we have to pay the bill.

37:53Talk about the price of bread, right? Like that is Weimar Republic walking down the street with a wheelbarrow full of cash to buy some bread kind of stuff. And again, this stuff happens all the time. We are shielded from it here, and we're kind of freaking out because we're sort of mid-single digits at it. But, you know, right now around the world, there's at least a dozen countries experiencing what I think you could fairly term hyperinflation. And guess what happened? Guess how they got into that scenario? Governments created a bunch of money and spent well beyond their means. And it's a story as old as religion, right?

38:27And it just so happens that what's interesting is that the world's largest economies are now doing it as well. And it's going to be an interesting endgame. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

38:45Mate, let's move on a little bit. Starting with the macro impact, but let's bring it back home. You and I have talked a little bit about real estate in general terms. We've talked a lot about housing. Well, I was going to say, yeah, we're talking about housing. But we also talked a little bit about commercial real estate, so offices, warehouses, that kind of stuff. we saw this week BWP the business used to be known as the Bunnings Warehouse Property Trust now called BWP Trust because it has more than just Bunnings Warehouses by the way for anyone who doesn't realize Bunnings has known maybe not any but certainly not many of its of its own warehouses it leases them and it was spun out of West Farmers at one point in the past as the Bunnings Warehouse Property Trust in other words West Farmers said hey we'll put the property over here we'll keep the operating business it can pay some leases instead of owning the property It was one of the, because Bunnings is such a spectacularly great retailer, one of the highest quality industrial REITs, real estate investment trusts on the ASX.

39:39I don't think it's even controversial to say. We saw this week the company have a 90 % fall in profitability because of the write-down to some asset values because of rising rates. But it's non-cash, mate. Don't worry about it. It's non-cash. Yeah, except they don't say that when the profit goes up. No, they don't. That's funny.

40:04So I actually have half a sympathy, funnily enough, despite your side idea. I have some sympathy for the fact that it is non-cash as long as you treat both the increases and the decreases as non-cash. We would say the same about our own homes, right? If I own my house and the property market falls 20%, it doesn't matter. My personal balance sheet would have to write down the value of my home and I could write up the value of my home when the property market is going up. It doesn't matter until it matters. But it is interesting because, or two reasons. One is, as you say, they only claim it on half of it.

40:39They never say it's non-cash when it goes up. They always trumpet the big numbers. So it's only realistic and reasonable that we trumpet the numbers when they go down as well. But it's also a reminder, I think, of the really broad impacts of interest rate increases across property markets, not just in homes, not just for mortgage borrowers, but for businesses across the board. The way these things are done, there's what they call a capitalisation rate, basically a function of interest rates where the auditors and the valuers will say, okay, well, if rates are this and your rent is that, they multiply those together and that determines the property value.

41:18As a result, a 2.2 % fall of the property value, speaking of leveraged, ended up delivering a 90 % fall in profit such as the structure of these businesses. It's not something you need to worry about if you're a BWP shareholder or any REIT shareholder necessarily, except for a couple of things. One is if you have debt in that structure, then the asset is, you know, the debt never goes down, but the asset values do. That is going to crunch your equity pretty quickly if you're not careful. Again, not BWP, but others. We saw vicinity centers, which is now called something else, and what's called Centro, way back during the GFC, effectively went broke because it has asset values written down, had a truckload of debt and simply couldn't meet the debt repayments or couldn't sell the assets because they were worth so little.

42:00That's the sort of thing that can happen in these sort of asset price crunches like we're seeing with BWP. Yeah. I mean, so I'm just reading here in the Fin. So the financing costs increased more than 21 % in the 2023 financial year. I mean, at that point for that year, that was a 3.6 % cost on borrowings. Pretty low. but it's already 4%. And I think it's something else there's quoted saying it'll get to at least 4.3. I know that doesn't sound like a lot, 3.6, 4.3. How big a deal is that? It's like, well, actually people with a mortgage will get it. You know, that's quite a lot actually. So yeah.

42:41And again, just look at the private markets here. It's not about some auditor sucking their thumb and saying, I think this. Who on God's green earth would buy any kind of property be it industrial or I should be careful with residential because it turns out half the country would buy a negatively yielding asset. But what sane person would buy a commercial property that is going to give you a yield of 3 % when I can put it into a term deposit that has zero costs, is literally backed by the government, as we were just sort of talking about before, and is going to give me an interest rate that's like 4.5%, 5%.

43:19It makes no sense whatsoever. So guess what happens? People bid at a lower point and things correct in that way. And so yeah, no cash has changed here. But the asset value underpinning your asset, your investment in BWP is absolutely changed. That is a very, very real change. um so i know what's my point my point is is that um i think you you can be more sanguine about it as you rightly point out if you were sanguine about it on the way up it's like wow we're revaluing our property and it's like well there's no extra cash there right just remember that and that this is this has not actually been tested in a market setting this has just been what people assume based on, as you say, cap rates and the rest of it.

44:11But it does have an impact to earnings when it comes to the financing costs and when things need to be refinanced. There's a maturity profile and all of this debt that they have across. You'll see it in their presentations. And that will roll over at some point. And that will absolutely impact the bottom line as well. And therefore, dividend payments, which is really the main raison d 'etre of investing in these kinds of assets. So yeah, it's, we're going to see more of it too. And this is, I think this is the point that you're making. I guess the reason you wanted to touch on it is that this is BWP, right?

44:47This is, this isn't some, it's about as rolled gold as it gets. You know, this is great. This is not, this is not an empty office block in, in, in the CBD, right? Which, which we've talked about before is some pretty serious issues there and, and in the US by the way, and in Europe, the whole that talk about one of the big impacts of COVID there. But there's a reckoning that has to happen there. And I'm not saying the world is going to end, but I am going to say that valuations are going to come down quite a lot. And they have to, right? It is a law of gravity almost within finance because investors aren't that mad.

45:22They're going to be bidding at prices where they're going to have assets that cost money to maintain and is giving you a yield that's a fraction of what I can get in the quote-unquote risk-free asset. I mean, something's going to give. The last point I want to make on this, mate, actually, was the point you kind of referred to on the way through, which I want to pick up, which is the increase in interest costs. We have plenty of infrastructure-based assets. I'll say, oh, so what's – maybe not. Let's call them asset-based investments. And I guess I'm wrapping up – Transurban, Sydney airports. Right.

45:55There's a few pipelines in there. Right. If you think about transurban and people say, well, there's inflation and there's interest rates going up, but the tolls are inflation linked, so they're kind of protected. And I think I've said this before. It's a really, really, really massive, massive misunderstanding. And so for anyone owning an asset that is a hard asset with debt attached, I want to be really, really clear. BWP, as you say, mate, is the rolled gold, the highest quality of these. Let's take transurban. So inflation, let's call it 7 % to be generous. So their tolls got up 7%. So see, they're covered.

46:33When rates go from zero to 4%, the official cash rate, that's four percentage points. Inflation is 7%, so they're covered. What that misses dramatically, and no one does this deliberately, and I'm not criticizing anyone for doing it, but what that misses dramatically is the size of the interest line on the P &L. When your revenue goes up 7%, but your interest bill probably goes up by, I mean, at some point it's going to double, right? So even though the percentage points are the same, the impact of that is so incredibly, incredibly dramatic. I'm going to pick some. This is not Transurban at all, so don't use this as what it's worth.

47:11Let's say Transurban has$100 million worth of sales and they get to increase their sales and inflation, so it's now$100 to$107. Okay, they've covered the inflation. Fine. Let's say they had$30 million worth of debt and that doubles. So all of a sudden you've got$7 million more on the top line, you've got 30 million more in costs. Now, I don't want to, I'm not going to talk about Transurban anymore because those numbers are not real. They're not right. No one at me. No one complained. Transurban, if you're listening, I know it's just an example. My point is you've really got to look at the quantum of the costs and how they change when the, because we're not talking about principal plus interest repayments here.

47:47You know, it's bad enough when your mortgage goes up a little bit because you're paying back the principal. The interest bit goes up, I say a little bit, a lot, but your principal repayment doesn't go up much. When these companies effectively are paying interest-only loans, and they are, when they go up, the whole interest, the whole repayment goes up by the size of the interest increment. And that's a really, really, really big deal. So if you're investing in any of these assets that have, you know, the hard assets, capital, there's nothing wrong with them as businesses' assets, just know that a couple of points on the interest line and a couple of points on the revenue line do not in any way, shape, or form act the same way.

48:21Yep, yep, absolutely. Absolutely. And there's a time for, I mean, these are interesting, I think, for put on the watch list because the cycle will probably turn at some point, but I do, I'm sure there's a lot of people who will look at, we'll stick with BWP, right? Very high quality REIT offering me, they don't do franking because of the structure, but they give you a 5.1 % yield. It's like 5.1 % yield, not bad, right? But it's not great. And I look at all the forecasts that have been out there and it's like dividends aren't going anywhere for the next little while. If the calculus here is, okay, I'm going to ignore the swings in capital value because they're non-cash and on the way up and way down, I'm not going to worry about it.

49:04I'm just going to worry about the money, the actual good hard cash that gets put in my pocket. If you're looking around and going, I'll take 5%, then you should invest in it. But I would again say, even though shares have come down from like, gosh, they've come back a long way, haven't they? what is it, 450 to 350 in the last year or so, I would say, again, I've got all the volatility that comes with a listed investment. I've got all the uncertainty that comes with it and I'm getting what's slightly higher than a term deposit. And we're in an environment where interest rates may, maybe the interest rate cycle has stopped, but I don't know if we're getting back to like the stimulatory side of things anytime soon.

49:48I mean, I don't know. I just be careful. I'm not giving advice in any way, shape or form. And now I've sort of indicated this. I'm sure things will go incredibly well for them. But I just, too often people make an appraisal on, well, look at that yield. That's fantastic. 5 % yield, that is brilliant. I mean, I'm going to invest on that basis. When you've got to always look at it through the lens of opportunity cost and what other alternatives out there. What is the risk adjusted return on something like this? I'm not saying anyone needs to be able to predict interest rates because no one can, frankly.

50:22But you know that this is going to be something that is at least more variable than the super risk-free government-issued paper that is out there. And so it's tempting to go 450 to 350 plus I get a really good yield. That thing looks really cheap. I don't know. All I'm saying is I'm not buying any. No, me either, me either. So, mate, let's finish off with a bit of crystal ball gazing, a bit of let's put our policy hats on as we think about what the future might look like. We had Innes Willicks, who is the CEO of the Australian Industry Group, so Business Lobby, let's put that on the table, talk about the need for tax reform.

51:05And Innes Willicks has identified, this is the, so Philip Currie wrote about the AFR, So I'll read the first paragraph of his article today. Again, we're recording this on Thursday. So he says, quote, lower taxes on companies and individuals, fewer state taxes, and increasing the GST or replacing it with a cash flow tax should all be considered to restore the nation's flagging productivity. AIG Chief Executive Innes Willicks said. Wait a sec, got to clarify here. So the AIG CEO is saying that his members should pay less tax. I just want to be clear on this. Funny enough. Is that what he's arguing?

51:45Well, blow me down. He's throwing the rest of us a bone, though. He's saying we should pay less tax too, which all sounds very nice because then everyone, you wonder how money's actually going to be made. During a structural deficit. Okay, tell me more. Tell me more. Well, this is the thing. He then says replacing it with, sorry, increasing the GST or replacing it with a cash flow tax. It's a cash flow tax. Should be considered. Yeah. So this is fascinating, mate. I just wanted to get your thoughts on this. I am with Innes Willicks at the starting point. There are too many taxes. I think payroll tax is the most stupid tax in the world.

52:20I think state government reliance on an incredibly volatile stamp duty. I don't mind stamp duty actually as an idea, frankly, which makes me very unpopular, but I'll get back to that if we want. the volatility of that for state government coffers is crazy they get some money from the GST of course from the government they get other funding from the federal government so you know it's not it's not only those things but you're a very very volatile tax base it makes some sense to me and by the way you know people say like you're taxing you're taxing income you're taxing workers why not tax spending instead that conceptually starts to make a little bit of sense The increase in the GST thing is a favourite of business and a favourite of some people.

53:06The cash flow tax itself is fascinating. It's basically a GST-style tax on all company revenues, which I think is also interesting. Not profits, just revenues. Right. Interesting. Right. So it's kind of a quasi-GST to some degree because that's already being paid. The company's paid the GST and eventually the consumer pays the difference and the value added bit, that's why it's called a VAT or a value added tax in the rest of the world or much of the rest of the world because if I buy something for five, I sell it for six, I pay my tax on the five and I've got to pay the increment between the two and then you buy it for seven and you pay that and around and around it goes.

53:43So cash flow tax is not all that different in concept. That being said, it's not just levied on the value added. So there's something interesting there too. I don't know how that would necessarily work, but even people like Dr. Ken Henry, ex-Treasury secretary, are floating that particular balloon. So I've got to believe it's got some serious potential as a revenue raiser. What do you recommend? Is this a solution, is a part of a solution, not just the cash flow tax but increasing the GST, decreasing personal and company taxes? Is that what we need to increase the productivity of the country? So yes and no.

54:17So does the tax system need a massive overhaul? Yes. I mean, everyone who's ever studied it or looked at it, it's just a spaghetti mess, right? And it's just sort of evolved that way because of all vested interests, all arguing for their own sort of self-interest. And you're left with this sort of Frankensteinian monster. And as we've talked about before, accountants love it, right? Because it keeps them in high demand. And I've actually spoken to the CEO of a very large accounting body who's pretty much said exactly that. It's like, oh, this is great. And by the way, his other comment was, it's never going to change.

54:54Like we can sit here in our armchairs and go, wouldn't it be great if, you know, it'd be great if I could ride a unicorn to work every day as well. But there is no way that we are going to see, it's at the point where it kind of like everything needs to be like thrown in the bin and rebuilt from scratch. and I think if we were to do that in a bipartisan, considered sensible way, that we would have a much more efficient system. Absolutely. It's just not going to happen. That's just not. The other thing that I, the thing I do take issue with here, and well, maybe I'll be open-minded for once in my life.

55:36Can you draw a line? Now, remembering that my cognitive ability is limited. I'm not the sharpest tool in the shed. How does this – and let's say I'm running a pizza shop down in my local cell. I'm running a – how does my productivity as measured by my unit output per hour, how does that – or perhaps better said per my unit cost for my workers and everything. How does that improve? That is a perfectly good point, mate. And I think that is actually fundamentally where I agree with you. and you've stolen my thunder perfectly because I have a suspicion that business lobby, like, by the way, employee lobbies, unions, choose to define, it's the old thing of, choose the playing field, right?

56:27If you're going to be in a battle, choose where the battle happens. If you get to say it's all about tax reform, it's all about productivity, then everyone goes, oh yeah, of course it is. Of course it is. Yeah, that's right. So we should fix it. Okay, well, these fix that product. Okay, good. Let's do that thing then. And as you rightly point out, mate, there is no hard line. Now, some people out there might think there is and there may well be. We might be wrong. But there is no obvious hard line between those two to my mind. There isn't. With one exception, which is that we know that taxes tend to dampen the activity they're levied on.

57:03And so there is some very, you know, for all of, I'm not a trickle-down guy. I'm not a free market capitalism guy. I'm a well-regulated capitalism guy. But there is some reality that at some point the taxes levied have a depressing effect on that particular activity. So do you want to have people paying less tax on incomes? Are they more likely to work more? I guess at the margins, yeah. Do companies reinvest more if the tax burden is lower on the profits they make at some point probably now i think it's relatively um uh relatively modest that that relationship i'm not at all convinced if i i wouldn't reduce taxes like some u.s states did on the assumption if we just reduce tax the extra volume will pick it up yeah make it up on volume as they demonstrably demonstrably doesn't happen like correct except that if you were to replace it somewhere else and say you know if if the if the if the a bit like gst itself right we got a wholesale sales taxes.

58:06We got rid of some other taxes. Not all of them. State governments were supposed to get rid of other taxes. They didn't. But in 2000, when GST was introduced, there was some point of saying, okay, this is a growth tax. There's value in doing it for these reasons. We'll take these off, put this on. I can actually see some value conceptually in what he's talking about. We should always be skeptical of anyone who's arguing their own point of view, whether it's financial services people like you and I and our peers, whether it's industry, whether it's unions, whether it's governments. Let's not talk about consultants.

58:37We haven't got long enough for that one. But, you know, that is the kind of conversation that we are having and should be having. I am not – by the way, increasing the GST I think is a dangerous one unless we compensate people accordingly. And if we do, I'd have no problem with that either. You know, this is – there is some value, as you said, about if we started from scratch, what would we build? I'm not sure it would be what Innes Willicks is suggesting. I'm not sure it's that much worse than we've got now, honestly. And I do think at some level – by the way, from a multinational tax avoidance evasion way, we will potentially grab more of the revenue from an Apple, Amazon iron shares, a Google iron shares, Microsoft, BHP, those companies that are able to and incentivised to move their domiciles around to minimise tax.

59:22Some cash flow tax effectively that looks at money being spent by them and with them may actually have some more benefit than trying to relate a tax base, if you like, to the earnings of profit, which can be gamed meaningfully by some of those businesses. So I think there is some potential value there, mate. I'm not sure this is the only solution. I'm not sure it does meaningfully impact productivity, but I'm not sure it's on the wrong track. Yeah. I mean, yeah. Look, so again, I'm happy with re-examining how we tax and how governments raise revenue. I think it is needed. Yeah. I just, I just, I really, it's one of my pet peeves at the moment.

1:00:00And I've got more than a few pet peeves, but it is this, you hear it in the media all the time, productivity, productivity, productivity. And it does sort of like, look, I was at a mate's property a couple of weekends ago and he got a log splitter. It's just a machine that you throw your log, you chain throw it up and it just, it's brilliant. Right. So what would take all afternoon with an ax took us 15 minutes and we just probably, you know, just like chuck these logs in and go split, split, That is a productivity enhancing bit of capital equipment, right? That is amazing. So what two guys could do in an afternoon, it may have, you know, would have taken us days, I would say, with an X.

1:00:41That's productivity. You try and get productivity boosts out of a hairdresser. I mean, how? Yeah, exactly. How? I mean, or a cafe worker. I mean, I'm sure there's small incremental things, but like it just takes what it takes to get a pair of scissors and cut someone's hair. I mean, yes, we could just like – we could just give everyone the Sinead O 'Connor and like zip it all off and that might increase productivity but it's not going to be what the consumer is sort of demanding there. And that was a bad example. I'm sorry about that. Anyway, moving on. But do you know what I'm saying? Let's use my hairline instead.

1:01:21I have a similar – a little less than Sinead did And that's – look, you're right. And that's the challenge, I think, of – look, Willis says, and again with some validity, that international competitiveness matters and there are some things that would make Australian businesses more cost competitive compared to international players. If you could lower the cost of the things that we do – we talked at the very beginning of the podcast about, you know, rocks and digging holes. If other things were more cost competitive and government could have a role in that, there was some opportunity. I don't think we should rule it out entirely, but you're absolutely right to be cynical.

1:01:54Whenever anyone sticks their head up and says, hey, this thing should be different, whether it's actors arguing against AI, the union movement blaming Woolworths for inflation, it's always a case of incentives, as we say regularly. It's a question of how and where that is applied. I think a look at tax policy, as you say, is important. I don't know that we've got the right... Well, yeah, he's one of the right people to have in the room. He's not the only voice should be listening to. And I don't mean to make it about him personally. No lobby group is ever the sole voice of reason in anything. Andrew's Law, put it out.

1:02:32I'm going to put that in stone. Like that goes for any kind of lobby group, right? Like absolutely hear what they've got to say, but don't ever, ever listen to them alone. The point I'm - Except if you're listening to the Motley Fool Money podcast, in which case you are absolutely on the right - Can I just add a final point? Because I know we've got to wrap it up. Go for it. The point, again, is Captain Obvious here, but it needs to be said apparently, is that it presumes that businesses and entrepreneurs are deliberately not being productive or maximizing their productivity anyway. So, you know, whatever business you're running, you have an incentive to be productive, to be competitive.

1:03:11If I can do more with less, I make more money. Or I can run at a lower cost. I can out-compete people and I stay in business and I prosper. So the insanity of thinking that all these businesses are here with their thumb up their backside going, oh, you know, I'm not going to take this productivity dividend, to use a horrible term, because of the tax structure or because of this is the most stupid thing you could possibly think. Every business. I mean, if you want to do that, let's you and I start a construction firm, but we're not going to use cranes, right? or we're going to mix our cement in a wheelbarrow, right?

1:03:49And we'll blame the government. And we're not productive enough. I was like, no, the free market will crush us under its heel, rightly so, right? And so we are going to maximise our productivity anyway or we're going to do the best that we can on that front because we already have the incentive. So for bureaucrats and academics to come out and say, if only we did this, businesses would be more productive, I think is, I think it's naive in the extreme. Or self-serving. Or self-serving. And again, it's not that there aren't, as you say, there are things that can be done on aggregate to sort of help us with our productivity.

1:04:28But there are some things like if you're a spreadsheet jockey or a hairdresser or so, services-based things, they are already really maximally productive. And where the productivity gains come, if we step back, it's come from farming. You know, 10 people can produce as much food as it took like 10 ,000 people to produce, you know, 100, 200 years ago. That's massive. You know, the Henry Ford production line has meant that we can have like – the goods economy has come down. So, you know, we can produce things so much more efficient because we now use robots to build cars. And there's not a person there with a ball hammer trying to knock out a frame and, you know, do it all by hand.

1:05:08Those are the productivity gains that we've really enjoyed lately. But for economies like the US and Australia, which is very, very heavily services-based, there's just not a lot of levers to sort of pull that are there. And I think people lamenting all of this kind of stuff just really need to go back to first principles and some basics here and think about it. And we've just got to stop throwing this productivity word around as cover to meet all kinds of other agendas. Anyway, rant over. Speaking of which, will you come back and be more productive on Sunday? That is a great example, actually.

1:05:42Like, how do we possibly be more productive? Like, anyway. Yes, I will. I will try. True, true. Tune in on Sunday to find out how more productive we can possibly be. We will do our level best. We'll talk faster or something. I'm not sure. We'll find a way. We'll find a way. Until then, Mr. Page, it's been an absolute pleasure. And listeners, thank you for joining us. See you Sunday. Always fun. Cheers. Fool on. 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.

1:06:16Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under financial services license 400691.