Federal Government Destroys Startups, Negative Gearing Stays for the Rich, is SBF the World’s Best Investor, Droneshield, Hamish Douglass and Marathons

22:11Genesis Digital. Well, you thought that was dead. That might be one out of 10, right? No, that's still seven out of 10. It's still 3X'd. Still worth three and a half billion dollars of money. I mean, the guys basically three years ago picked pretty much the hottest stocks in the hottest sector that you possibly call. It is crazy. I didn't realize he had Cursor as well. That's phenomenal. He was seeing the Cursor. This is like the best Sequoia fund ever and the best benchmark. Sequoia benchmark client considered the three best VC funds ever. None of them come close to this. Even like that great Sequoia fund.

22:43It took them 10 years to get it and they still didn't get this. This is like, I don't know what this guy did in a previous life, but like he must have done something terrible. Not only is he gone to prison, but he has to watch this immense fall. This could be one of the richest people on planet Earth. Yeah, it would have been. Let me tell you one other thing that I think you're going to love and I hate. So, Mike, what's time? I mean, don't lie about this, okay? Because I feel like you're incented to lie here. But try not to lie. What time do you wake up generally in the morning? Usually about 6.30, but I'd probably stay in bed till about 7.

23:20I don't know. That's it. All right. 6.30 and I don't know about the half an hour. Why are you staying in bed for half an hour? What are you doing? Sometimes we bring the dog up and it's just nice. All right. Nice way to start the day. We can say with confidence he definitely isn't lying about that answer. And Joel, give Joel a microphone. What about you? What time are you waking up? 7.50 specifically. 7.50. That's an unusual time. 7.50. Probably you have to leave the house at 8 and you're very quick at getting ready. Yeah, pretty much. Brush the hair, I'm done. I'm out. Yeah, well, that's these 10 minutes of brushing that hair in fairness.

23:51And you, what time are you waking up? Aim for about 5, 10. Okay, 5, 10. Not 5, 5, 10. I want to try and get seven hours sleep now, so I often don't go to sleep until 10. So by the time you get four of sleep, it's like 10 past 10, so I want to try and get seven hours, so 5, 10. So I try and get eight hours sleep. Okay. And maybe I'll wake up at 7, but I'd really prefer to wake up at 8. or maybe even nine if I could. And a sloth. Yeah, but I'll stay up late at night if I do that. And so there was a survey done. There was a survey done by, I actually want to give them credit, but I just can't remember who did it.

24:22It was a coffee brand or something that tried to figure out what, it could have been Starbucks, like what time, I don't think it was. It was Levatsa who's proudly sponsoring LA Live this week in the Melbourne Exhibition Buildings. Come along if you're in Melbourne. Are you part of that? We're running it. Running Australia's biggest travel festival. Well, we can say Levatsa if that helps you. Great friends at Levatsa. It could have been. And so they did this survey. What time do Australians on average wake up in the morning? That's a good question. Good question. Yeah. And so which one of us do you think is closest to the – I hope it's not that.

24:57Mike's 6.30. He's 5. He's 5.10. Well, people have to go to school and stuff. Joel was 7.50 and like – And you're like 4 p.m. I'm like, you know, later. I would have thought Mike's on average. You know what? I think it's Joel. I think it's 7.50. He can't be getting up at 8 o 'clock. And that's why I wake up at 7.15 because I have to get my kids ready, my daughter ready. And so you think it's Mike. And all people get up early. Joel thinks it's what me. Mike. It's got to be Mike. And I know the answer. Well, it is Mike. The average is 6.30. Yeah. And I find that disgusting. There's so many problems with that.

25:33I'll tell you problem number one. I reckon the average contrarian's list is more like 5.10, 5.15. Well, I'm not sure about that. We'll do a survey. LinkedIn poll. Oh, God. What are you going to say about my survey? We have to collaborate on how to ask this question. No, I think this one you got less of a dog in the fight. So I think you'll be honest. No, you say that now because you haven't lost. What? So after you lose what you say? What do you think? Do you think people get up later? No, I don't. I had no. I thought I'd agree here. So these are my grievances. My grievances are number. It's just like that feels 6.30 is, it is the morning, but 5.10 is not morning yet.

26:04That's still yesterday as far as I'm concerned. Well, I can play 18 holes of golf, certainly in summer and be back by 8 o 'clock for kids' school. I'm sure that is true, but that doesn't make it any better. Go for a run. So if you try to go to work, if you leave the house at 7.30 to go to work, 10 years ago, there would have been no traffic. You would have had everything to yourself. A bit of traffic. Now packed. A bit of traffic. Packed. Sometimes I stay in the CBD in Sydney. I look out the window at 7.30. Packed. It's great. If you want to go to Bondi Beach. Have you seen that run club at Bondi that goes like 6 o 'clock?

26:34Well, this is going to be my next point. Oh, really? I love that run club. So good. If you go and see the sunrise at Bondi Beach, It used to be you would go there and there would be like 15 other people. That is the busiest time at Bondi Beach. Packed. Absolutely packed. And the other problem with waking up at 6.30 is that is one of the reasons, the three of you, well not Joel, but the two of you, are the reason that I can't get a coffee at 3pm in Australia. Because everything is opening at 6.30 maniacs and then by 3pm it's all shut down, goodnight, everyone's gone home. What I love so much about this is when we were growing up, there was the people would be hard drinking and whatever, doing drugs or whatever.

27:14Now they're called the Gen Zs and the Gen Alphas, going for runs at 6 o 'clock, putting videos on Instagram. I think the younger generation is such a healthier generation. I think they're just taking drugs at 6.30 in the morning, if I'm honest about it. No, they're going for runs, not drinking. I told you, they'll drink if there's a free bar tab. That's what I've discovered. But, yeah, I'm not sure. I can't afford to drink because the international theft we're about to talk about. Well, that's true. That's true. So I was quite surprised by that and very disappointed. And I think it's definitely a trend.

27:45Like people are waking up earlier and going to bed earlier. I would wholeheartedly recommend that people get eight hours sleep at night. I think seven hours. This idea – well, I know. Well, you do have a medical degree. But like this whole idea of – Seven to eight is generally what's considered. When we were growing up – when I say growing up, I mean like in our early days in business. Yeah. It was really, there was glory in saying you didn't sleep. I didn't sleep for medical school. I slept four hours a night. Not even that's good at all. It's actually terrible for your brain and gives you Alzheimer's.

28:13Yeah. And so, yes, we can say seven or eight. I think you don't want less than seven. You don't want less. And I'm now pretty fastidious on trying not to get less than seven. Yeah. But seven to seven hours, maybe 15 minutes is about my ideal length of time. And anymore, I actually struggle to function too much more. And less is not good, we know. So if you are doing what used to be called burning the candle at both ends. Also quality of sleep is relevant as well. Yes, quality of sleep is relevant, but also you can't burn the candle at both ends. You can't go to bed at 2 in the morning and wake up at 6.

28:44Even if you can do it. I could do it when I was a medical student. I felt fine, but it's not good. It's not healthy. How many hours do you sleep, Mike? I try to get 8. I'll be in bed by 9.30, read till about 10, and then I'll fall asleep. And consistency of sleep is super important, as we know. You've got to get that circadian rhythm to be like, So I'll try and be in bed, ready to sleep by 10 o 'clock every night. I can't pull that off. 9.30 in bed. I mean, I just... Because you're getting up, so you're getting up at 1.00 p.m., so of course. I'm getting up at lunch. You bitch had lunch. Hang on.

29:13If I go to bed at 11 and I wake up at 7, that's fine. That's eight hours sleep. Yeah, I think you should be seven and a half. I should do seven and a half hours sleep. Yeah. So you get up half an hour early. On what basis do you recommend your advice? Like, why should I take your advice? Because it's too long. I mean, that's a bit interesting. You're missing out on 5 % of your life. by sweet, like it's... I'm missing out on life? Yes, 5 % of your life is being slept away. I feel like neither one of us can accuse the other of not packing enough into their days. And Joel must be getting more than eight hours sleep.

29:41What are you getting? Nine hours. You're getting nine hours. I need a good nine hours. Otherwise, I just don't operate very well. Have you tried having less than that? Yeah, I do burn the candle at both ends at times and it's just miserable. What's that seven-hour sleep's burning the candle at both ends? Adam has a difficult time conception with this. I know you do. but like you know different people are different and so like my son he needs nine or ten hours sleep he does he's young though no he's not he's 19 they should i didn't four hours sleep at 19 like it really is heavily person dependent as i've gotten older like when i was i probably would get up at seven o 'clock when i was probably uh probably joel's age i was early 20s you're early 20s right well just go with it joel yeah just go with it it's a it's a you won't know this until you're older but it's a compliment so back then i probably i was getting up a bit later and i've gradually brought my sleep and the five o 'clock's about it i'm not one of those four o 'clock maniacs that is too early but well i'm not sure you're not one of those four o 'clock maniacs i just think maybe you haven't gotten there yet because by the time you're in the nursing home you probably i do love it when i do get you have jet lag and you go to bed a bit earlier getting up at four is pretty cool actually that's because i've gone to bed at call nine yeah so it's brought everything forward an hour i'm not such a fan of waking up at four under any circumstances it's dark outside.

30:55You do so much stuff though. Yeah, but then you're so tired by 6pm. What's your favourite time difference versus Australian time? I was talking about one of our guys last week. Oh, like when I do when I'm engaging with Australia from an overseas destination. Yeah, from overseas. I haven't really thought about that. I find it all mostly terrible. Oh, so I love Asian, like so Singapore or even Maldives Island time, so four hours behind. So I can get up at 5am it's 9am Australian time. So I can get through the day. You're basically starting at the same time and then by 2 o 'clock Australian day's finished.

31:24You get that free arbitrage afterwards. I love the four hours behind. One of the things I like about staying up a bit later and doing work is I can send stuff to people and then I know when they get into work and start working in the morning, that's the first thing they're going to do. Yeah. And so that I find quite handy. Anyway, that was a nice little bit of trivia, wasn't it? Yeah, it was. Excellent. And very, very disappointing to me. So we talk a lot about drone shield. Not lately, but yeah. Not lately, but – and about whether this product really is globally appealing. And like Steve Baxter definitely had some time for it, although he said he wasn't an expert.

32:01But there is something happening globally in drone warfare, I don't know if you've noticed, that I think bodes very poorly for drone shield. It's the fibre optic thing. Yes. That Steve was talking about. That's right. And so increasingly what's happening is you're getting these first-person drones, which means you put on VR goggles. Yeah. And you see what the drone is. It's pretty amazing. That's how you pilot it. And they're very – like when you see a first-person view, you can do things that you can't do when you're just looking on a screen. The Ukraine really pioneered this stuff, right? They pioneered it.

32:31And now what they're doing is they're combining these first-person view drones with these very long fibre optic cables. Like 30, 40, 100K, right? I'm not sure actually how long they are. But like, yes, like definitely many kilometres. Yeah. Which is actually amazing to think how much – how thin they're able to get these optics and how cheap it must be now. because obviously they're getting millions of kilometres of fibre optics. You know, my dad actually fought in this Yom Kippur war in Israel. Oh, really? Yeah, he happened to be living there when that war was fighting. And he was in the infantry.

33:05And he said in Egypt what you saw was the entire floor, like the desert floor, carpeted. And it looked like it was carpeted, but what it was were these wire cables from the missiles, from the anti-tank missiles that were wire-guided. And that is what you're seeing now in drone warfare. You're seeing basically a carpeted battlefield with these fiber optic cables. And the reason they use these fiber optic cables, as you would know, is because it means that you can't jam them electronically because they're getting the signal down a cable. Drone Shield's business is jamming drones electronically. The rise of this, I think, means that for the time being, increasingly what you'll see is drone shields type of technology ineffective against battlefield drones.

33:52I don't know how much investors think about the actual product that companies are selling. I don't think drone shield investors think about anything, to be honest. It's retail gamblers, really. It's Robin Hood style investors. But I would be very interested to hear the new drone shield CEO come out and explain. Who was the former product manager. Yeah. Presumably he understands their product. Absolutely. To come out and explain, is the rise of this fibre optic based drone, is that really the future? I'll be shocked if the answer is no. Israel is struggling to deal with these drones right now coming from Lebanon.

34:25So this is the country most adept at shooting stuff down, that's struggling to deal with it. And if this is the future, what are they going to do to keep their products relevant? That's the first thought that came to my mind when I was reading about this stuff. That's always the risk that technology changes and they're stuck on one tech and they just can't adjust. Absolutely. So did you see the interview with, you'll tell me his name, the Magellan founder? Oh, with Hamish Douglas with Joe Astin. Yes. Amazing interview. So you saw that interview? Yeah, I loved that interview. I thought it made him look fantastic.

34:54I think it just reminds people. I wouldn't say he looks fantastic. You've heard it? Yeah. I would say. Relatively, from what people thought before, what I thought before to what I think now, I have a much, much higher view of him. Because what it shows is there is much more to human beings that you don't see. Yeah, you only get one side of the story. And so I'll tell you two interesting things about that interview that I felt personally. One is, I don't know if you remember in that interview, but he said there was a guy that asked me, am I okay? And I wasn't okay. So I think I caught up with that guy.

35:27Like I don't want to say who it was, but yeah, I think I know exactly who asked him whether he was okay. It was someone actually close to him that cared about him. But that line was, I think, from this guy, which was interesting to hear. and this particular individual is very positive in his remarks about Hamish Douglas. I think we have to be honest and say the guy may not have 100 % self-awareness the way he comes across sometimes, but I think that what he was dealing with and the way he was treated was terrible and I feel quite sad that he feels like he's a pariah. But now I'm going to say something that I think will – because that's a nice thing to say.

36:01I think also the way society still treats gay people was pretty heartbreaking what he went through there. For sure. Especially, and I think we're much more, if someone comes out when they're 18, 19, I think everybody's very positive about that. But I think the stigma of him coming out as a married guy with kids, if anything, it's obviously harder for him because like, well, it's always hard, but it's especially hard when you've got kids. And what he had to go through - Well, it's harder in that generation than younger generation. Yeah, well, that generation isn't like, yeah. But what he had to go through, it was horrific.

36:32And no one should have to go through that. It was terrible. And since we said all these nice things, Now I'll just make fun of him slightly. And so he made a big deal about catching the bus. And Joe Astin teased him about making a big deal about catching the bus. And he said, I caught the bus here. And so my thing that I don't really understand is why do people think public transport is worse than private transport? Like when you go to Sydney, don't you only catch the train from the airport to get to wherever you go? When I'm in Sydney, I would say almost exclusively unless I'm in a rush or there's no public transport there.

37:06Almost exclusively I catch public transport. We don't live there. You don't have a car, so it's a bit different. But I spend like a lot of time there and like I could easily rent a car. I often say in Airbnbs there's a place to park. Yeah. And the reason I don't do it is – But renting is a bit different when you have a car. The public transport is so good in Sydney, especially with the metro now and the ferries don't run so often. But like I just don't really understand this whole idea that rich people should have the luxury of getting private transport. I think public transport is largely in Sydney in particular more efficient than private transport.

37:41I agree with you, but it's generally thought of that rich people either get driven or drive themselves and park in their expensive car park. I think we agree because we're highly pragmatic, but I'm not sure that the prevailing view is if you can drive in, you should drive in. Yeah, well, I just think the traffic is so bad. I hate it. You're much better riding a bike because you're getting free exercise and it's quicker. sometimes after you make like when you make money you get to do some stuff that's really good that you can buy but you also get tricked into some bad stuff and dumb stuff and i think like saying that oh god thankfully i don't have to catch public transport now that's a dumb thing you get tricked into because generally it's pretty good and melcolm tenber was obviously famous as well when mr harpersite mansion he would get public transport and he was doing because he was smart not because he was altruistic yeah i think that guy is not interested in portraying himself for the everyman.

38:28Let's say that, right? He's doing it because it was a better way to get around. So anyway, I thought that was – that's a weird thing, the fixation that people have got with rich people catching public transport. No, I agree. But I thought Hamish – and I mentioned Joe about it. I thought Hamish came out really well. I thought it was great to you as always. Joe nailed it again. But like especially given that Joe was pretty critical of Hamish, I think for Hamish to come on into the lion's den – and Joe is a pretty sort of gentle – and we speak about it on the pod. he's not going to put you through 10th degree, 12th degree, or whatever it's called.

38:59Not in person. But third degree. Because that's the whole principle is you want to be nice and get the story. But I thought Joe was excellent. I thought Hamish was excellent. I thought it came out really well. I think he righted a lot of wrongs that were out there. Yeah. And I felt guilty for thinking those things and for believing what you heard because ultimately we were all proven wrong. I had no thoughts, by the way. Oh, okay. On that whole Magellan thing. I just felt like I was so far away from anyone that was involved in it. Like I know the people at Baron Joey, but like I didn't really talk to them about it in detail and it just felt to me like you had this guy and something was going on and there were a million rumours and the rumours were contradictory and so you didn't know which rumour was true and I kind of just blocked it out of my mind and thought, well, that's got nothing to do with me.

39:44I really didn't have an opinion at the time, but I definitely felt happy for him that he got the chance to tell his story of what happened. You know what people would call that in Gen Z? What? They would say his truth. You've got to tell his truth. Just for a break, I know this isn't a couple of weeks ago, but I thought it was worth bringing up. Do you watch – are you a marathon fan? Marathon running fan? Marathon running? Not marathon, the Dim Sim company. What do you – oh, I didn't even think about that. I was trying to think about what you meant by marathon because I thought it would be very obvious to you that I would not be into any form of running.

40:17So surely you couldn't be asking me about the marathon running. Do you mean am I a fan of Marathon the Place in Greece? No. Did you see what happened in the marathon a couple of weeks ago? No. Oh, someone ran it very fast with special shoes, right? Is that right? Probably London, New York, Boston. I find this ridiculous, all this special shoe stuff. Yeah. Well, we talked about it. That's why we should be wearing barefoot. There'd be no cheating. Yeah. Well, you know, none of these special shoes of any kind have got any clinical evidence that they reduce injury. Zero. No, they make you go faster.

40:46Yes, that's right. Much faster. But all of these very comfortable shoes. Actually, they don't have carbon. I don't have this special foam. But that is for elite runners. Yes. But you know these shoes that people like me wear to walk around and people wear to run, like Vimero Plus, Nikes, and all these very soft midsole shoes. So they feel great, but there is literally no clinical evidence for them reducing injury. It was pretty amazing, though. So Kenya Sebastian did the first ever sub-two-hour marathon. So the two-hour marathon has been this elite. Remember the 4 minute mile or the 9.7 second?

41:19I remember when you could win a marathon at 2.15. That was not that long ago. Regularly, you still can win a marathon at a time. This is great conditions. It was cool. But yeah, two hours was considered. It was unbreakable. So Kipchoge, who was the great runner, the previous general, as in retired a couple of years ago, I think he's Kenyan, Kipchoge, he ran a sub two hour with like 30 different paces and it was like a special course. People run with him and in front of him. Yeah. He changed the wind dynamics. With the, like, yeah, he had the right sort of win thing, like people running a certain formation.

41:49He did like a 159 something. Sebastian, with none of that, did a 159.30. What's even more remarkable is Ethiopia's Yomif Kajelkar, who had never run a marathon before, never run a professional marathon, never run a competition marathon before, also broke two hours. So imagine no one's ever broken two hours in the history of mankind legally, and the guy breaks it and doesn't even win the race. Both runners were clad in Adidas' ultralight$700 Australian running shoes. I think the shoe rate is like 97 grams. Something's crazy. And so pulled away in the final leg to achieve that one hour 59.30. But it's not just the weight, right?

42:26It's basically a trampoline. Yeah, it's the weight and the springiness, exactly. So this all started when Nike released Vaporfly in 2017, the first super shoe. Adidas' share price went up 10 % after the marathon, which is pretty – like both Adidas and Nike have been absolutely smashed. Nike especially smashed. Nike's got big problems. Yeah, real problems. Nike's, I'm not saying it's terminal, but it's got from real issues. It's not terminal. Yeah. Well, I was never going back to what it was, share price-wise. Oh, well, you say that. But, like, go look at Intel's share price graph, okay? Intel was, do you remember - Nike's not making data.

42:57I know. Nike's not making chips. I know, because it's not going back today. But do you remember how unpopular Intel was one year ago? People said that business was dead. People said that business had lost the game to NVIDIA. Now it is significantly higher than its highs from like 1999. There are only two massive almost vertical spikes. It's also quite bubbly. 1999 and now. It's become quite meme-y Intel. Look at the graph. The graph will tell you exactly all you need to know about where we are in the cycle. So Adidas share price is up 10%. Shares are still 40 % off its recent February peak and less than half their all-time high in 2021.

43:33And they're back to where they traded a decade ago. So Adidas had a tough run. albeit Nike is a lot worse. So Nike's 76 % of its peak in 2020. So this is a share. Remember the market's probably doubled since then. So this is a catastrophic result. This is Atlassian style and it's back to where it was in 2014. So absolutely just, it's basically like almost, the same as what we're talking about, seek.com being back to 2014 level. So these - I did have a look at Nike a little while ago and what I saw is it had the double whammy of falling profits and compressed price to earnings ratios. and so that is really why the share price is the reverse of alchemy yeah you don't want to say that but they kind of go together like you you see a reversal of this overpriced pe bubble and so not only do you have the profits for but investors also go or speculators go hold on i'm having seen growth drop to negative potentially at least it should have a super low multiple so that inevitably happens and this should be the moment for nike and adidas because either you're an AI stock or you're not okay and so they're not yeah but then there are some things if you're not an AI not halo though they're not high they're not they're not heavy if you're not an AI stock then everyone asks this question about your business how is AI going to make things worse for you and the thing if you're a vertical retailer which is Nike basically is now like they do all right they've gone back to selling a lot through Foot Locker but they sell a lot themselves and they own their brand and like they do a lot of research on shoes and so does adidas like right now the answer it with those businesses is ai can't hurt us and maybe it can help us a bit and those businesses should be having their moment in the sun and i'll tell you which businesses are having their moment in the sun from that koala which is down a bit on its ipo but it got the ipo away and um skin candy which is yeah trent peterson is chairing and so that's going to get its IPO away at the top end of the range.

45:23All right, it brought down the valuation. But I think investors are looking at these businesses and they're saying, what can we buy? We can buy AI, but that's run. We can buy things that we used to hate, that are very capital intensive, but they're shielding us from AI downside. And vertical retail is this category that is low capex and also shielded from AI downside. This should be their moment in the sun now, in my view. Well, it's not just Nike. It's pretty much all the shoe businesses have had a tough time. So even the good ones. So look at On Running, which is a great business. That's down not 50%, but close to 50 % off.

46:01What about Deckers? They own what the shoe brand they own? So yeah, Deckers own Hocker. Yeah. That's down exactly 50 % off its high. And the high was only reached. What earnings multiple these things are trading on now? They all seemed to peak about just in like December 2024. So I call it 18 months ago. That's on a 14 multiple. So we're just seeing multiple compression everywhere. I mean, that seems very cheap to me. I mean, unless they've totally, I mean, we obviously haven't looked at this in detail. Yeah, and earnings are up 20%. Why don't we do a deep dive into a couple of these businesses?

46:28This moment of how can I be shielded from AI downside? Yeah. The ways you can be shielded are buying stuff that has lots and lots of asset, like a very asset-heavy business. But those businesses suck. Like, we've always thought those businesses suck. Like, you have to invest all this money into them. and e-cad a return from them. But there's this other category of business that is not capital intensive and shielded. I think that those should be doing really well in this market. Well, it's been some sort of shoopocalypse in the last sort of 18 months. Shoopocalypse. Because they're all, even like Nike's down up to 7, 6%, but even the good ones are down 50.

47:02Well, Nike's a great business. But I think the problem was we're just invested in spending too much money paying for these, call it inverted commas brand. And they're quite, and what On and Hocker have shown is it's quite commoditized this space. But I mean, we'll look into it in detail because it might also be that investors are spending all of their money on AI CapEx and gold and have no money left for anything else. For shoes. Yeah. It could be that as well. We'll go to Super Creek right back with all the budget brew-a-ha just in a moment.

47:42And we are back and the blood is boiling at the Contrarians after the leak so that we'll get the budget tonight uh we've had a lot of leaks and this is what government you said to me when we were chatting on chat appropriately um you said to me i was like i'm not sure we're going to be able to talk about this and you're like now there'll be enough leaked out that we can talk about it and you were right like there is enough leaked out clearly what they're doing is just trying to ease the country into because it's all broken promises in this tax. I think, because it would be easy for us to rant about this for the next seven hours, I think we should have a bit of structure and explain to people first what some of these things are and why they exist.

48:24Why don't I give the background first and we'll go into the sort of the CGT nuances. So in a move that really shocked Australia's fledgling start-up community, the federal government has been backgrounding journalists on removing the capital gains tax discount, we'll talk about that more in a minute, on all assets and replacing it with an inflation adjusted scheme. And this is what he said prior to the Howard government's changes in 1999. The original speculation back in February was that the government was thinking about winding back the 50 % capital gains deduction for only property investors as part of its focus on tackling intergenerational inequality in housing by dealing with supply.

48:55And we actually have been very hot on this. So this is sort of an issue that we think needs to be sorted. And I think there was a lot of sympathy in the market for winding it back for property. Although there's possibly some issues there, but there's a lot more sympathy for property investors who've had a pretty good run. But Australian founders, startup founders, investors were absolutely blindsided by the government's release literally over the weekend amid rising anger that the move will spark and almost certainly lead to an exodus of tech talent from Australia. Lee Jasper, who's one of Australia's most successful founders and a fantastic guy, he sold his construction software company, AconX, to Oracle for 1.6 billion, said the change would be a disaster for venture-backed companies.

49:32And of course, Lee won't be impacted by this. So he's sold out already. So he can be very credible in saying this. Well, he's got a new startup that he's doing. Yeah. And his cost base for his equity is zero. Yeah, but it's minor. He's really got his exit. So it's not a CFE. Yes, you're right. So we'll get to, we just highlighted two problems in one with this that we'll get to. Yeah. So currently a high income earner who receives a 50 % CGG discount, especially taxed at 23.5 % on capital. Under the mood of change, CGG discount will be scrapped and indexed to inflation. We'll talk about that in a second.

50:03Of course, this move will absolutely devastate founders and startup employees because they have no cost base attached to the shares. It's different if I buy BHB shares. Now I've got a cost base. If I buy a house, I've got a cost base. Founders don't have a cost base. So I suspect I just didn't think about it because that's so stupid. But of course, the beneficiaries of Dim Jim's policies are, of course, wealthy boomers who have owned assets for decades and we're able to claim the full 50 % discount based on historical inflation. So they claim that we're going to sort intergenerational inequality, actually making it worse because they are literally that stupid.

50:33I actually found that Craig Blair noted that it's no good having more capital if you don't have the talented founders starting these companies in the first place to make it less attractive and join a business at a time when there's already a structural pullback to the Silicon Valley is calamitous. Of course, friend of the pod, Steve Baxter, said the CGT changes would cause founders to flee to lower tax jurisdictions. At the same time, the government's talking about increasing the R &D deduction above a$150 million threshold, which, again, will benefit billionaires like Atlassian and Canberra. So these guys, they're literally fumbling through life without a clue.

51:04So let's go back and talk about CGT and how this discount works. Well, I just want to give a one-word summary of these people, like Jim Chalmers and the government. Idiots. I would have heard a much harsher. It's pretty weird that I speak like that, right? But, like, it's just – it's not – because there are things that they're changing that will negatively affect me and you but that we think are right for society. Tax housing is my – I'll get smashed with housing tax. I don't care. Or some trust changes they're making, which probably are not very fair. I don't like the changes because, like, it will make me a bit poorer.

51:40But I think they're fair. They're fair changes. And so the reason I wanted to say that at the front end is I don't want people to feel like we're just going on a rant because we personally are going to suffer Yeah, two rich guys going on a rant, which is nothing further from the truth. We're in favour of being taxed in certain ways but not in moronic ways. So if I'm thinking about a tax system, this is how I think about it, just a few headline points. So we need, as a country, we need to make sure that we find a way of encouraging people to get the money they have, we'll call it capital, and put it into assets that are productive.

52:14Create jobs, ideally create exports. That's where we want capital to go. And where we don't want capital to go is in passive assets that just tie up money. and they may make money for the owner, but they don't benefit the country when the owner makes that money. That's not good. So that's objective number one. Maybe a second objective you could say would be we want to encourage people to start businesses that – Employ people. Employ people and create exports or at least some kind of productive output. Improve productivity. That's important. And then the third thing we want is we want younger people to have an opportunity.

52:53to one, own housing, but two, in general, more broadly, have wealth creation opportunities that older people had. That's very important. They call this, what do they call this, intergenerational equity or something like that. They don't really understand what that word means, but they're right with that term. We do want intergenerational equity means young people get the same opportunity for wealth creation that older people have had. So that is important. and the last thing we want is not to spend more money than we're actually generating and endlessly increase the debt that we have because ultimately the interest on that debt is going to mean that the services that Australians get...

53:32We talked about Victoria before. Yeah, we're going to get worse services because we have to use the money to pay debt. So yeah, we'll talk about taxes but we need to talk about spending as well because the two are initially linked. And so one of the challenges... And so this is the only other overarching thing I want to say. So there's a hierarchy of risk amongst – I'm going to just give an example of three investments. And so there's a pretty basic concept in market economics, which is the return needs to match the risk. Higher risk, higher return. Yeah. And one way that you can determine returns is with the tax system.

54:06That determines outcomes. So the lowest risk thing that you can buy in Australia, notwithstanding the risk of collapse, But the lowest risk thing where you're unlikely to lose all your money and you get to use the asset while you've got it is your own house. That's a very low risk thing to own. And so that has – that's the lowest risk. The next lowest risk – It gives you a terrible return but it has the best tax treatment because there's zero tax on it. Well, what we can say is on a risk basis, the chances of you losing 100 % of your equity in your house is very low compared to some other assets.

54:37More like you're getting – if you look at the imputed yield, it's shocking. Before we get to the tax treatment. Just as an asset. Forget tax, but I can rent a house much more cheaper than I can buy a house. Yes, that's right. But you get - But I get a super tax effective, no tax on the upside. And the thing about a house, a residential house is, eventually it will get cheap enough that someone has to buy it from you because people need somewhere to live. I can have a warehouse - No, but you can wipe out your equity if you've leveraged. You can if you leverage too hard, but it's a low-risk asset compared to the other end of the spectrum - It's a low-risk, low-return asset.

55:08Yeah, which is, let's say, a company. So a company, you can lose 100 % of your equity. The company can go broke, especially an early stage company that you're just starting. That's the riskiest asset class that you can invest in. And somewhere in the middle might be investment property. And so what you'd want is you'd want a tax structure if you were trying to align risk and return where starting your own company gave you the most favourable tax treatment all the way up to your own house. You don't need great tax treatment for your own house because it's a pretty low-risk asset. This country exactly flips the risk treatment of the taxation system to make the most attractive asset your own house, the second most attractive asset an investment property, and the least attractive asset starting your own business.

55:59Or investing in somebody's own business. Or investing in someone else's business. but actually investing in someone else's business is still now going to be better tax treatment than starting the business itself. It depends when you invest, but yes. And so that is what I mean, what we mean, when we say you want to encourage people to put their money in the right places. And this is the absolute final thing I want to say before we talk about the changes. So negative gearing is a very weird thing. So if we flip from CJ to negative gearing, so it's two separate. I'm going to talk – so, yeah, we talked about CGT, but now I want to talk about negative gearing because the two are very tightly linked.

56:35So this is before we go to negative gearing because I want to talk about negative gearing as well. So the way capital gains tax works in Australia at the moment, it's potentially about to change to not. Well, you should say, what does capital gains tax mean? Yeah. So basically when you and I get paid for our jobs, our regular jobs, we get paid income and you pay income tax and that's a scale and basically there's tax brackets and you pay at above a certain level 47%. And it's called the progressive tax system because the more you earn, it gets progressively higher tax rates. So not only do you pay more tax for earning more, but you pay a higher percentage of your income.

57:10Above a certain level, which I'm not sure what the highest tax bracket is now, called 300K or whatever it is. And above that, you're paying that higher level. Yeah, I think it might be 360. Yeah. So what happens with income is pretty straightforward. What governments around the world say with capital is we're not going to tax capital like we tax income. Well, you say, hang on, you say income is straightforward, but the only other bit you should add with income is it's not that you get taxed on 100 % of the income you bring in. You can make certain deductions. So if you make$200 ,000, but there are various things that you can legally claim as deductions, maybe that's$20 ,000 worth of stuff, then you'll get taxed as if you earned$280 ,000, not$300 ,000.

57:50That's going to be relevant in the negative hearing discussion. The way capital gains tax works around the world is governments simply say, you've probably been taxed initially. So when you've earned income, you've saved that money. You then invested it. You're basically getting taxed a second time. So government said, we want to encourage people to invest in, rather than put the money under the bed or invest in really low risk staff or simply buy a house. We want people to invest in other people's businesses. Productive assets. Yeah, productive assets. So we're going to give a discount on productive asset investments.

58:18And if you look, I took and looked at basically OECD countries and the highest country I could find on capital gains tax, what do you reckon the highest taxing capital gains tax country was? What country was it? In the OECD? I'm not sure, but I doubt it's more than 30%. Well, it was Denmark because they're basically socialist. They were at 42. They were at 42 on – But this is Denmark. So these are basically communist countries in Scandinavia. And you've got Chile at 40, Norway, another communist country at 37.8, Netherlands at 36. These are all Finland at 34. Then you've got France, which is basically socialist.

58:50down at 34, Ireland 33, Sweden, which is a socialist down at 30, UK is at 28, Austria is at 27.5, Australia is at 23, US is at 23.8, basically the same as Australia. And then you go, then there are heaps of countries at 15%, like Hungary, Poland, Greece, Colombia. Then you've got a bunch of countries at zero, like Dubai and Singapore. Well, there are two countries at zero that are very close to Australia. New Zealand is at zero. One is New Zealand, which is basically culturally the same as Australia. And their income tax is a bit lower than Australia, but not much. We should say in New Zealand, the Labor government has said they're going to add a capital gains tax.

59:29And Singapore, that has a maximum tax rate of 22 % on a hell of a lot of income and has zero capital gains tax, and is very encouraging for founders to move there to set up their businesses. So it's not like we're in a part of the world where you'd have to sacrifice everything to stop being a tax resident. There are two very good countries nearby that have zero capital gains tax. Yeah, and so Australia, if this mood of change goes through, will have the highest capital gains tax in the world. Like not even like the Scandinavian countries' tax is high. Sweden's at 30%. This is just like the most outrageous suggestion I think I've ever seen in my life.

1:00:09And just so out of touch, this appalling government has become. So we should talk about how are things taxed now and how will they change. And so you've talked about how they're taxed now. I like to use numerical examples. So if you go, I'm going to use an example of an investor and then a founder. So an investor invests half a million dollars in something and they sell it five years later for a million dollars. Let's assume that there were no other expenses. They've made a half a million dollar gain. So you have to do something with that half a million dollars. Now, if you said you should just add that to their income, the problem with that is as follows.

1:00:46The first problem is what you've already said. They've already been taxed on the money they've invested. But the second problem is this. That income, that gain was really earned over five years. If there's someone that's earning$200 ,000 a year, they're not paying the top tax bracket. If they divided the gain over five years, it would be$100 ,000 a year, unindexed. That still wouldn't put them into the top tax bracket. But if you dump it all into one year, it goes straight up to the top tax rate. Yeah, it's a great point. So that's the first problem. I've never even thought about that. With dumping it all in one year.

1:01:15Yeah. The other thing – So at the very least they should be averaging it over the – Absolutely. And then what they say is, but we're going to have to make you pay capital gains tax on this because I'm a fan of capital gains tax. I think if you want to have funds – I'm not a fan of government spending at these levels, but I do think if you want to have free hospitals and free education and other things, You do have to pay for it and you can't only pay for it out of income and corporate tax. Actually, corporate tax should probably come down. I'm not a fan of capital. I much prefer like a property or a wealth tax and a capital gains tax.

1:01:47It could be. So they're trying to use a capital gains tax as a proxy for a wealth tax, okay? Yeah, exactly. Because it only came in in 1987. Yeah, exactly. If you're Solly Lou and you own Premier Investments, when you sell that, you're going to pay zero capital gains tax. Zero. Zero. So it's all grandfathered, they call it. And so we'll come back to that. Because grandfathering is how the young are really going to get screwed in this budget. We'll get to that. We'll get to negative gear in a second. And so the thing is that they say, well, you're going to have to – we're going to get you to pay tax on this.

1:02:17And we're going to make it part of your income. But it's not really fair if we just dump it in there. So we'll say that$500 ,000, if you've held it for more than a year, which you have, we're going to cut that in half. So you're only going to have to say that you made a$250 ,000 gain. And you're going to put that into your income. That's the way the system works. When people say it's a 50 % discount, that's what they mean. You only have to get half the gain and put it on your income. And this is still higher than a lot of countries. Like I'm in favour of maybe a sub 10 % of the gain stacks. Well, how high it is.

1:02:48The beauty of this system is as follows. And the size of the discount kind of follows the amount of tax that you're paying. And so, like, you could argue, well, it's not progressive because if you're on a lower tax rate, then you're going to be paying less. It's less of a benefit, right, because you're saving less tax. But the thing is the people on a higher tax rate, they paid more tax going into it in the first place. It's kind of fair, right? And so if we look at the founder, though, this is the beauty of this system. A founder gets their shares for zero. They just started the business. And now they sell them for a million dollars.

1:03:26Well, hang on. They've made a$1 million gain, so they're going to have to pay more tax than the person that invested at half a mil. That's fair. But they get the same game. It's like you get the million dollars, you divide it in two. Okay, you made a half a million dollar gain you need to put on your tax. And now we put that on your tax. It works whether you're the founder or the investor. It works the same way. It does, but I think it's still a bit harsh on founders in a sense that, to your point on the non-averaging, it's more impactful for founders. I actually think the existing system is harsh on founders.

1:03:56It is, but what you can say is at least the system gives founders a very big discount relative to if it was just income. I'm agreeing with you. It should have gotten better, not worse. But the founders could have been getting 30 % income and paying themselves 200 grand a year. That's right. The current system is, I'd say, semi-bad for founders, and the Moody's system is a catastrophe for founders. So that's what happens today. as of now. And so you can do that for any asset class, for any asset class. And the beauty of this system is as follows. If an investor put$500 ,000 in and then the company was running out of money and they put another$250 ,000 in, now their cost base is$750 ,000 when they sell it for a million.

1:04:38The gain is$250 ,000. You divide it in half. Now they claim$125 ,000. The system works really well. It works for shares. It works for property. Like it actually – there's some inelegance in the system but not much. Like it's a pretty good system. I don't love it for – like I say, if they simply got rid of it for property, I actually wouldn't have an issue. It's the getting rid of it because probably, to your point, it's a non-productive asset. So that's where I have the – and that was what I promoted originally is only property. So let's – before we go and talk about what they're doing to founders with CGT and young people, I just want to touch on property for a second by saying this.

1:05:15The number one challenge with property is that the house that you own and live in, you will never pay any capital gains tax when you sell that house. That means the now 90-year-old grandmother who just passed away, she bought her house for$25 ,000. It just sold for$5 million as an estate sale. There's no tax on that. And her two kids get$2.5 million each, presumably, from that tax free. There is no cap. There is no limit. So number one, that is ridiculous. That's ridiculous. Which we've talked about repeatedly. But it's very unpopular vote wise to bring in a tax on a primary residence. The next issue.

1:06:02And I think like if you are going to tax, I would probably do something like caught a sub 20 % tax rate and indexed. So it's still a much more gentle form of how you use it. And admittedly, I think taxes always go up, not down. But I think you've got to tax the primary residence somehow. But you've got to be – obviously, it's hard because then you've got to completely crater the property market really quickly. Or you can have a ceiling or – there's a hundred ways to – I generally prefer simplicity to complexity. But your point is there's a hundred ways to solve that problem if you wanted to solve it.

1:06:29But they love all rich people, these governments. They pretend they don't, but they do. They love them. Well, I think these – you know – And they all own properties. Like Jim Chalmers owns a property investment property. Well, we'll get to that. But part of this, I think, is class warfare. But part of it, I think, is just straight incompetence and stupidity. That's my honest view of what's going on. I think it's both. I think they intermingle beautifully with this government. So remember I said if you had a business and then you were losing money on that business and you had to put more money in that business, or the business just lost money that year.

1:07:00Let's say a business just loses$100 ,000. You own a private business. You're not a sole trader because a sole trader is different. But you own your own business and you lose$100 ,000. loss. What happens to that$100 ,000 loss? Maybe you paid yourself an income of$300 ,000 and you lost$100 ,000. Well, that$100 ,000 stays in the business and it can be offset against future profits. That is what happens to that. Actually, one of the things the government's doing is letting you say if you made profits in previous years, you can get a tax refund on some of the tax you paid if you're a small business.

1:07:33I like that. So that's how it works if you lose money in a business. But if you buy an investment property and you lose money, well, that is a whole different world. If you buy an investment property for$2 million and you charge, I don't know, like$50 ,000 of rent, but the property with the interest and the maintenance cost you$100 ,000, you just lost$50 ,000. Good news. We are going to let you make that$50 ,000. One of those expenses, you can just take off your income on your income tax. Now if you're, and that is the most regret, that's called negative gearing. Yeah. And that is the most regressive piece of taxation you can have because the richer you are and the higher the tax rate you pay, the more you save.

1:08:24And that encourages people to buy investment properties and charge low rent. They can charge low rent because when they lose money on the investment property by not charging enough rent, they can claim it back as a tax benefit. I think you've got that slightly wrong. Landlords will always charge the most rent they can. What happens is they overpay for the property and cause the interest bill to go up higher. But now that they've overpaid, the negative gearing lets them continue charging rent that doesn't cover the property. Where you sort of got misspoke a bit, and everybody does, is landlords don't undercharge rent.

1:08:58Landlords and property managers are irrational. They always charge the most rent they can. But what happens is the interest is above that. They're not discounting for tenants. No, I agree with you. But that is the system that you've just outlined is correct. They can overpay. Yeah. But if you suddenly changed the system, for example, because this is one of the things we're going to get to is that they're not changing negative gearing on existing properties. Yeah. If you suddenly change the system, all of a sudden, they can't claim these losses. Either rent needs to go up or they need to sell the property, right?

1:09:29And so the change they're making - Well, they sit on the loss and don't claim it. Yeah, but most people can't afford to do that, right? And they've also lost the discount. So the reason people do this negative - The reason why people overpay for investment properties is two reasons. They work together and they were somewhat tackling them. That's why I say they're integrated problems. Yeah. So basically what property investors have done for the last 27 years is overpay for properties and lose money because the interest doesn't cover the rent, knowing that they can deduct against their 47 % discount on the loss.

1:10:00So instead of losing 50 grand a year, you're losing 25 grand a year. So if you're on the top tax bracket, the government subsidizes 50 % of your losses without taking any equity in your property. Yeah. And when you sell it, you get the discount. So basically people are sort of overpaying initially knowing that somebody will overpay when they sell it because of a discount. So what the government's done is obviously removing the 50 cents of the extra discount, which we don't have a huge issue with there, They're also removing negative gearing unless it's an existing property or you already own the property.

1:10:30So if I was to buy an investment property in six months' time, I wouldn't be able to negatively gear it. Unless it's a new build. Unless it's a new build. Forget new builds. So they've kept it on new builds. And so let's just say this in the simplest possible terms. So Mike does not own an investment property, I'm guessing, because you're not of the age that generally owns investment properties. And so Mike is younger, let's call him. And Joel, do you own an investment property? And Joel doesn't. Joel's younger. Joel might not have been in his own house, right? Joel's in his early 20s. Yeah, Joel's in his early 20s.

1:11:00So you are meant to be the beneficiaries of generational equity. Well, I've got bad news for you. This government has just permanently screwed you because all of the - And the Greens help him, by the way. Greens are vociferously going on with this. So if you're voting Greens or Labor, you're signing your own death warrant. Yes, you're shafting yourself as a young person. So this is why I say this. all these politicians in parliament they're older and they own investment properties in a case like three four five six investment because i think something like 2.2 million australians own an investment property mostly they own one it's a bit more than one on average okay and so i think 20 of the total residential property stock is investor owned and so all these politicians sitting in parliament with these existing properties they get to keep their negative gearing because it's being grandfathered.

1:11:50That means you as the poor taxpayer, you are going to continue subsidizing 50 % of the losses that they make from owning their properties. But if you now try to buy an investment property, guess what? You can't get the benefit of the government subsidizing any percentage of your expenses because negative gearing is going to be scrapped for people that are buying rental properties after the budget. I will just say it's interesting because on last week's Q &A episode, I believe there was a question around sort of this world about how younger people are falling behind. And do you think this contributes more to that?

1:12:29Yes, this will put you further behind because this is the situation. People that are boomers, they got the benefit of no CGT and low housing prices. We came along, Gen X, you think you're Gen Y, but let's say our kind of age. And we got the benefit of negative gearing and a 50%. Well, I've never actually negative geared a house because of my youth. But this generation got the benefit, right? Well, your generation did. I mean, me and Mike's generation haven't had that. Not Joel's though. Look like Joel. Look at your alpha over there. Your poor choices and Mike's generation. But they got the benefit of negative gearing, government paying half effectively for higher income earners, half of the losses and a 50 % discount on capital gains tax.

1:13:13And so boomers and Gen X, they've had this chance to compound their wealth by using the tax system effectively. There is no faster way to make money than not having to pay tax on the profits that you've made and being able to compound those. Now you come along and guess what? We've got a special surprise for you. Because you're poorer and you haven't yet had a chance to compound wealth because you haven't been alive long enough we've got a special surprise for you as the government we're going to take away all the compounding benefits from you we're going to take away negative gearing which we don't oppose but that's a compounding benefit away completely we're going to take it away from you but not but not from older people who already own properties not from us who own six properties we're going to keep it for ourselves but you young people you idiot greens voters who voted for this are going to get absolutely shafted well done greens voters you've shafted yourself And when boomers go and sell their business, they get to keep 100 % of the profits they make from selling their business.

1:14:10But you, you're not even going to be allowed to discount it by 50%. That's a great point. Why on earth won't they get rid of this pre-CGT? They're going to get rid of that as well if they wanted to. Well, they're not. And so you are going to get the worst tax treatment. And I'll tell you, the worst tax treatment of all for you. This is the great thing for you, Mike, running your own business. You're going to love this, okay? Okay, basically they're going to say we're going to index. So what does indexing mean? It means you take what the inflation rate is and you just keep – so you start at 1.0 and if the inflation rate is 3%, now it becomes 1.03.

1:14:45And if the inflation rate is 10 % next year, it will be bad. But heading in that direction, then you multiply 1.03 by 1.1 and that puts another 10 % on. And so you end up trying to say, what's the real value of the money when you finally sell? But think about this. So that person that bought their investment for half a million dollars, there's now going to be an indexation factor. They multiply that half a million dollars and they say, well, the value of that half a million dollars today is really$700 ,000. So our cost base increases to$700 ,000. We sold for a million dollars. okay instead of saying we made$500 ,000 profit and dividing it in two which is the current system we're going to say the cost base has gone up from 500k to 700k so we've made$300 ,000 profit now we're going to take the whole$300 ,000 and put that on our tax and so it's not that different but this is the problem Mike how much did you pay for the equity in your business?

1:15:43Zero. So I'm now going to multiply that by infinity as an indexation factor. And what is now the value of the equity that you pay? What's your cost base? What's your cost base now? Zero times infinity, it's still zero. And so you, whatever you sell your business for in future, instead of getting a 50 % discount on the capital gains tax, you will get a big fat 0 % discount on the capital gains tax and you will now have to pay, presuming you sell your business for more than, for an amount of money that takes your tax, to your total income above$360 ,000, which is the highest tax bracket, instead of paying 25 % tax on the profit you make from selling your business, you will now pay 50 % tax on that.

1:16:26And so what is the chances of you being, as a young person, being able to compound your wealth to get rich? No chance. No chance because all of the benefits that previous generations have had are all being stripped from you in the name of intergenerational equity. Even worse, The whole way indexation works is if I put a million bucks into BHP, I've already got – I'm already wealthy. I'm a boomer who's put a million bucks into BHP or whatever. I get to index that. Of course. So I get the discount. So the older people get the discount. Every single thing they're doing, the so-called friend of the young greens, the greens are spurring this, and idiot charmers and Katie Gallagher who can barely – so dumb she can barely talk.

1:17:05Like these morons are completely ruining it for young people. Well, I would say you could not come up with an idea. It would be hard for me to think of a way to make the rich get richer and the poorer be worse off than these changes. It is so catastrophic. And this is why we talk about the flight of founders overseas. So, Mike, you're now going to start your podcasting business. And I just say to you, and you don't own property in Australia, and so that means that you can leave Australia and as long as you don't own and live in a property in Australia and don't spend more than 180 days a year here, you won't be a tax resident of Australia.

1:17:45Now, if we try to leave Australia as a tax resident, the government and the ATO does a bit of a nasty thing and they say, we're just going to value your assets on the day you leave and we're going to work out how much tax you owe us based on the value of your assets. But you have no value of your assets. You're young. You haven't accumulated assets. And by the way, with this government, you won't be accumulating assets. Well, you might be accumulating. You should have paid all back to the end of the day. Yeah, and so you say, hang on. so I'm going to start this business and I'm hoping to sell this business and I'm let's say I'm hoping to sell it for some millions of dollars in a few years time and like I don't really have to be in Australia more than 180 days a year maybe you do but if I'm doing a software business or another business I don't and so I look around and I say hang on a second why should I start this business in Australia I don't want to be a tax resident in Australia and I look at New Zealand and I say New Zealand that feels a lot like Australia I'll pay a bit lower income tax and also they've I've currently got no capital gains tax.

1:18:34I'll pay no tax. Very nice place to live. Or what about Singapore? It's seven hours away. It's closer to overseas markets that I might be targeting anyway. Brilliantly run. Brilliantly run. Has a maximum tax rate of 22%. As a founder, you're not going to be paying anywhere near that because that's a high thing. And it has 0 % capital gains tax. And they'll give me incentives as a young person for starting a business in Singapore. And so when they go and work out the cost of this to the economy, they can't work out the cost of all of the founders that now go overseas to start their business. There's not even that.

1:19:06What actually will happen as well, when you found it, you don't know how well your business is going to go when you're found it, but you know, within a year or two, you know you've got product market fit. Yeah, that's right. So what everybody's going to do and what the PwC's is what I'm going to tell you to do is as soon as you start getting product market, they'll get a super value on the business and you flip straight to Singapore or New Zealand. You may be moving, maybe you don't. There's ways around this. Every great business is going to flee the country as soon as it looks like they're going to be having great.

1:19:30and these warrants are going to lose all this revenue. So let me tell you three theses that I have on this about what you should do. And you tell me if you agree or disagree with these theses. Thesis one, if you're a founder, at least with product market fit, if not starting a business, and you don't need to be in Australia for running this business, you absolutely should not be a tax resident in Australia growing your business. Agree? Go to Singapore. I think certainly as soon as you hit product market fit, you flee. Get out of here. And so that has to happen because if it doesn't happen - Of course, people are rational.

1:20:04Of course it'll happen. And that has to happen. So we have to have a flight - We already have - Of productive enterprise out of Australia. Just to be clear, we already have a very high CGT regime. We have one of the worst in the world already. And they're going to have the worst place for founders to start their business or to run their business is Australia. Thank you, Jim Chalmers. You've made Australia the hellhole of world startups. So you have to say that businesses that are producing jobs, which is predominantly new businesses and growing businesses, you would have, unless there's a reason you have to stay in Australia for family or other things.

1:20:37But if you're young and you're unencumbered, you've got to move overseas, right? Yeah, founders are risk-seeking. Get out of here. Okay, that's number one. Number two, let's talk about the most logical place for protecting generational wealth under this regime. Invest, unless you think the property market is going to crash. I think the property market is not going to like these changes, by the way. It's going to be pretty bad for them. I'm not going to send any tears over, but it's not going to be good for property. Well, the best way, though, over the long term, over 30 years, that you could create a tax-effective generational transfer of wealth is to overcapitalise your primary residence.

1:21:18Yes, but I think that changes now that investors are about to get smashed. Well, maybe. So let's talk about what happens to investment property. But let's say if the property market didn't change, let's make that a constant. Everyone should go and buy the most expensive house they can possibly afford because there will be no tax on that when you transfer that to whoever you sell it to. Yeah, I think the assets that benefit the most from these changes are existing companies that pay dividends. Oh, well, we'll get to dividends, absolutely. So you get, obviously, you still get the dividend invitation, but you also get the indexation of cost base.

1:21:54So I can invest in, Luxury Escapes now, Catapult now, established businesses, people who invest in us are going to have a great run. You get an index of gains, you got, we're paying dividends, so you get the great dividend invitation. So business like it, we're going to benefit from these likely personally, but everybody else is pretty much stuff. Okay, so let's take that as a thesis. Now I've got a few more, I've got five. So let's take this as the next one. The thing that people are going to be doing is saying, what's an established business paying dividends? Because the treatment of dividends is really good in Australia.

1:22:21And so, yeah, I'll set my cost base. I'll still pay more capital gains tax probably than I otherwise would have. Oh, maybe not. Not with inflation rates like these idiots are managing now. I keep paying less. They're all the same. I don't know if they capped out at 5 % maybe. To get to a 50 % discount though. Do they cap it at 50 % or do they keep going? Well, who knows? That's a good question. We'll find out tomorrow. But even if it grows at 4 % a year, It's still going to take you 10 plus years. I know, but if you hold an asset for 25 years, you could pay zero capital gains. I agree with that.

1:22:46So people are going to flood into existing, maybe low growth businesses paying high dividend yields that are being taxed in Australia so they're fully franked. And so there will be a lot of pressure on companies to start paying dividends. Totally. I think in Australia that's going to be a big push. So yes, that's another thesis. I think investment property is going to absolutely hammered. So that means all property is going to get hammered. Well, let's talk about what happens to investment property. So there's a pool of X number of investment properties today that are being held. It's 2.2 million, okay?

1:23:18That's the number. Now, if you own one of those investment properties, for as long as you own that property, and presumably if you pass it down through probate when you die, that is going to be entitled to negative gearing, correct? Yeah. And so you would not sell that property. And so if I sell an investment property and buy another investment property, I lose the negative gearing benefit. So I think the 2.2 million people that own those properties, they will be holding onto those properties for dear life. And you don't get the discount anymore for CJT. So all of those 2.2 million properties, they were going to come onto the market.

1:23:56They're not coming onto the market. And if they come onto the market, then this is the other thing. To park that for a second, you've got this 2.2 million tied up. Now, imagine I'm in the market to buy an investment property. I'm looking right today. I'm looking to buy a$3 million investment property and rent it out. As of tomorrow, I would be crazy to buy that investment property. I'll get no negative gearing and I'll be penalised on CGT. So the whole economics don't work. So you can say, well, the price will fall. And I think you're right, but I think this. a whole lot of people that were going to buy investment properties will not buy investment properties.

1:24:36And guess what happens to investment properties? That's the rental stock in the market. And so I think the rental stock is going to be these 2.2 million that exist today, that rental stock will stay in the market. Well, do they buy new properties? Well, they can't buy new properties because they get no negative gearing on the new properties. No, you get no negative gearing on new properties. Oh, a new dwelling? New builds. Well, then we have a pink bats bubble. Remember pink bats? So you put great tax treatment on something, it instantly gets rorted. Yeah. And so – Yeah, what's going to happen is the price of new properties goes up.

1:25:07That's right. It's going to go up. So just the price of new dwellings is going to rise because the economics will look so much better because of the tax treatment. And so I think in the short term, there will actually be fewer rental properties available on the market. Oh, 100%. Because investors are not going to buy properties. And you get the full CGT discount if you buy the house yourself. That's right. So when it comes to an auction – So if you can't afford a house, So if you're a renter who can't afford a house, see you later, mate. Good night. That's good night. So I want to say it like this.

1:25:34Greens again is the enemy of the renter. When there is a house on the market, there's an investor looking at that property and an owner looking at that property. Let's say there's two owners and an investor. One hopeful owner rents today. They can't afford the property. Yeah. So they're at the mercy of the rental market. They drop out of the auction. Maybe the investor would have won that auction because of negative gearing. but the investor's price that they can pay now is much lower because no negative gearing. And so that's nice. It goes to a buyer, an owner-occupier. And so I think there will be some benefit for people who are on the margins almost able to afford a property but couldn't quite afford a property.

1:26:13I think they'll be able to buy a property. But I think if you're deep in rental territory, this is a disaster for you. And, you know, there is such a thing in markets called the supply and demand curve. I know this government doesn't like the idea of supply and demand curves but if there's less supply of rental properties then the price of rentals will go up to the upper limit that people can stretch to pay and so i think that um this is going to be a disaster for renters and can we just talk about the other side i think i agree but this whole debacle that we're 40 minutes talking about this is something going to raise like six billion dollars a year so it's not even a significant revenue generator for the government because it's only a small number of businesses create all these jobs and all this prosperity and i know i like to bang on about the NDIS.

1:26:57I did a little bit of research on the NDIS. Of course this is because of the NDIS. Well, it's because of all the shit they spend money on, the SRL, the NDIS. But look how much the NDIS, so NDIS cost about 50 billion. So call it eight times all this savings. We don't have been saving much from this. If you look at the NDIS, so we talk about the NDIS and I do a bad thing about the NDIS. So NDIS, where it got the social, the government got the social license to spend all this money because pre-NDIS, pre-Gilab, it was all a bit of a hodgepodge of state government. There was charities, all this kind of stuff.

1:27:25So they kind of streamlined it, which kind of makes sense because it was a bit all over the place. So what the government basically said is if you've got a disability, you're really unlucky. And I think we all kind of agree. Someone's quadriplegic or really seriously MS. And we believe in a safety net as part of the nature of the social fabric of our society. So someone's got to be quadriplegic. We absolutely think they need to get protected by the government and you've been really unlucky there. we're going to give you a bit of luck back to make up for all that. So I think that's understandable.

1:27:58I think the issue with the really seriously disabled is how much money they get. It's about$500 ,000 a year, up to a million dollars a year. Really? Which is pretty extraordinary. I'm shocked by that. Yeah. So I think the average quadriplegic is around the$300 ,000,$400 ,000 mark and up to a million. Because presumably it's very expensive to take care of them. I know, but that's like six carats. It sounds like high. I can't really comment on whether that – I can say this. It's a lot of money. Because you know it's being rorted and frauded. So what happens is you need a wheelchair. I'm going to charge you 80 grand for a wheelchair because the NDIS is paying.

1:28:27So there's a huge amount of rorting. That's absolutely true. And definitely there is a big push. I've seen this push. Someone said to me, it's one thing to know this is going on. It's another thing to meet the people that are rorting it. And so I know some people that know the people that are rorting it. And so the thing is, there is a huge push to say, it's use it or lose it money. That's exactly what happens. You can't carry it forward. So just a tip. So you've got, I think we all agree, if you're quadriplegic, If you've got MS, you need support. I'm all in favour of taxpayer support. So that should cost about$5 billion.

1:29:00I think it costs about$10 billion for the really genuinely disabled. We're probably wasting about$5 billion there. That's$5 billion, bang, gone. So I can't comment because I don't know, but I take your point. At least those people are deserving of something. Then you've got the intellectual disability group, which is another group entirely, which is not autism. That's sort of a different level. So it's not quadriplegic, but you need – Maybe cerebral palsy and things like that. Cerebral palsy, exactly. So you definitely need help. Well, they need money, for sure. And no one's sort of criticising that, but that's$13.5 billion.

1:29:30$13.5 billion. $13.5 billion a year. Yeah. And this is money that wasn't being spent previously, like a fraction of it was. Then you've got, of course, the autism,$10.2 billion. And we could say this. We could say even if 70 % of it's genuine, I'm going to say 70 because we'll get no hate mail and still be able to have this conversation. That's three bill a year that's rorted, not overspent. Oh, you're talking about autism or intellectual disability? Oh, forget. Autism is all rorted. Well, it's not. I totally disagree with that. You need to see intellectual disability and autism. So go back to my first point, is when someone's been really unlucky, we need to support them.

1:30:05Someone's quadriplegic, we need to support them. If someone's got autism, which is learning disabilities, speech issues, why is the government funding this? We've got to draw the line and it's there. Well, let's say a couple of things here. This is$10 billion a year. But let me tell you a couple of things. So there's maybe multiple arguments that you're conflating here. One argument is, should the government be paying for ASD, autism spectrum disorder? That's argument one. You can debate that independently of whatever you feel about the diagnostic criteria. The average is$30 ,000 a year, by the way, for every autistic person.

1:30:37$30 ,000 a year. That's a lot of money. That's extraordinary. The next question is, when people are, let's say, far down the autism spectrum, like would i say they fall into the i don't like to say unlucky because i kind of feel like it's condescending but in your bag of unluckiness they need help i absolutely would put them in that category and then the next question is where does that line end and how many people really shouldn't need to get any kind of help from the government even if and it's not mean tested so it means senses correct well that's why i'm saying i don't think we need to say i think it's wrong to cast dispersions on people that are significantly down the autism spectrum i'm not casting person on those people i'm casting the government for giving the money it's not the autism so i think those people so i personally would be in favor of some money going to those people because i think you're underestimating what that looks like and maybe it's very a couple of thousand dollars a year how much should it be yeah not a thousand that's like some people earn that much working so that's That's why I say they're separate issues, right?

1:31:38Like I'm saying this in kind of – I'm not actually – I'm not really trying not to attack you or be critical here. I'm not. What I'm saying is because we've had slightly different life experiences in where we've come from, like I think I've got more visibility around what autism spectrum disorder looks like from a medical point of view and I think I'm much more sympathetic to those people being – deserving is again the wrong word. I support our society helping families like that. Is it 30K? Nothing's free. So if we're going to give money to someone who's a kid with autism, we're taking money away from a kid who doesn't have autism.

1:32:12Yeah, I'm all right. So you could be earning$300 ,000 a year and you get this 30 grand. So I'm not all right with that. And you're earning$60 ,000. You're paying for it. The whole thing. Zero dollars. Zero dollars. We've got to go back to the square one and get rid of it and start again. That's why I'm saying to you. Quadriplegics, definitely support. Serial palsy, support. MS, support. Why do you not make the same argument? It shouldn't be on the same thing. If a quadriplegic is like the kid of a billionaire, you still want to give government money to them? I think they should still get something.

1:32:38So I think this is what's interesting about this debate is like – I'm not going to sound great, but like there's hypocrisy on every angle of this debate and you're going to draw lines somewhere, right? And what I'm saying is I think if you had to say where is the – what are the problems with NDIS? Because all of our problems in Australia dollar-wise, like a large proportion of them are being caused by the NDIS. That's absolutely correct what you're saying. And you also sound like an orcas, which is ridiculous. But yeah. And so part of it is stretch diagnosis, predominantly in the ASD space, and part of it is straight rorting where people don't even bother going to the doctor.

1:33:17They just get a pretend piece of paper and go and get NDIS money. And I think your overarching point is the strongest of all points, which is all of this pain and suffering we've spent 40 minutes talking about is how much a year extra? Six billion. Six billion. I think it might be – so these are my last two quick theses. It might be more in year one because I think what's going to happen is recycling of assets. So if you own – if you've made a big gain on a stock today, you should sell that stock and buy it back at a higher cost base and get the 50 % discount. And so the ATI will get a flood of capital gains taxes in the next 12 months because people are just going to recycle assets on the same day, right?

1:33:53And then my other point that I would make is – That is risky because there's a high chance I think Libs come in and when One Nation Libs come in and they reverse it. And reverse it. Yeah, well, maybe. But, like, when you say there's a high chance, I mean, there was a predictable election result on the weekend in... Farrah. In, yeah, what's it called? In Albury. Albury, yeah. And, like, it was predictable. It's bad news for the Libs, right? Well, we say that because Labor didn't run. Jim Chalmers, the treasurer, got on TV and was gloating like a Cheshire cat how good it is for Labor. Labor was too gutless to even run a candidate.

1:34:26So I think they would have been smashed just as bad. But we have to figure out what the right in this country is going to look like. I think they're still figuring it out, right? It's transferring it. But I think there will be a lot of recycling of assets. And this is my last point. If you're a founder today and your business is worth a decent chunk of money, then you should find someone to buy a big secondary round off you and sell a chunk of your shares to someone and lock in that capital gain because if this is not reversed in the next five years and if you're planning an exit in the next five years, your tax rate just doubled.

1:35:03And so if you've got a vertical integrated retail business, come talk to me. Because now is the time to sell down ahead of these changes. There's a one-year window, right? Yeah, exactly. There's a one-year window. And so I think we're going to see a huge amount of selling activity by founders in the next one year. For discounted prices. So you said a cop there. Of course, because it's supply and demand. Yeah, exactly. Remember that thing? Yeah, exactly. And so there's all this new supply that's going to come into the market. Yeah. Like, I think it's a good time for investors to buy assets. When I'm talking about how the whole autism thing, I'm not criticizing people with autism.

1:35:36I know that. And I never want to comment. The people who always have a go at me are people who are getting money from the government. So what's happened is these poor people who have had – I'm not saying if you've got a kid with autism, you've been lucky. I'm saying it's a sad state of affairs or a tough state of affairs. It's harder than someone that doesn't have it. Yeah, we've trained all these people. the government has trained with people that any kind of thing that gets slightly wrong government taxpayers will give you money yes we that is just ridiculous this is a welfare state this is a socialist communist state that we've trained australians to be in these are people who 10 years ago weren't getting money and we're going fine so we've got to rethink how we consider entitlements and at the very least means test the hell out of it so if you're earning more than 100 grand you don't get if you're earning 50 grand and your son and you've got a son or daughter with severe learning disabilities or autism or you want to call it i've got much more sympathy for that But certainly if you're earning 200, 300, 400K a year, it doesn't mean you should be getting paid money from people who have nothing like that.

1:36:28It's just so unfair, this system that Labor and Liberal as well, to their discredit, has supported for 10 years. So there has been – this culture has emerged in Western democracies, which you can only call a culture of entitlement. Absolutely. I just want to read you something as a last bit on this, because this was a – it was either the Australian or the Financial Review where they were talking to Gen Z people and they said, There were four of them that they quoted, what's the thing that you most want from this budget? Okay, and I'll tell you what these four things were. Tabish said, a more permanent reduction in university fees or more funding for universities generally.

1:37:05So what he is saying, or he or she, or they, is basically the future wealthy, i.e. people that go to university, we should give them a subsidy. So that's what they're saying. Presumably he's about to go to university or go to university. Of course, or at university. Hussein, dental into Medicare like we already have for children. Expanding that to lower income could substantially improve healthcare. It's not a bad argument, but it's more entitlement. That's give me money. Will McCarthy, brave enough to use his surname in the article. Increased funding to mental health services given the difficulty and expense associated with accessing psychologist appointments.

1:37:43More good points, but give us more money. And Muthaya, expansion of youth allowance because of the meaningful impact it has on so many people's day-to-day lives, i.e. give me more money. So no one – and so when they asked Gen Z, do you think there needs to be cuts in spending, it was pretty close to 50-50. So this is a generation – okay, they're young, right, and they haven't paid a lot of tax. But I feel like that generation is not attuned to the fact that we've got to cut spending. But they would live through a recession. They've never seen what it can be like. There's no way for this country to survive without spending cuts because I think what's happened is you've got a government that is effectively pandering to this sense of entitlement that has occurred in Western democracies over the last 30 years and at the same time really hates wealthy people, really hates wealthy people.

1:38:33But ultimately it's helping them with the ridiculous change they made. But it's also incompetent. So you've got these kind of two threads with a heavy dose of incompetence and so they're trying really hard to punch older wealthy people but in fact have just beaten the hell out of town. Young poor people. It's like they've tried to punch someone. It is so preposterous. It's like Jim Chalmers has tried to punch this rich guy. The rich guy's ducked and he's punched the poor 21-year-old behind him. That is a perfect analogy. That is absolutely what's happened. And I think I would just encourage – I just want to end with what we started with.

1:39:05If you want to take benefits away from me that I think are unfair societally, then I don't like that. And I think I pay a lot of tax. But I can't really argue against it because it's fair. But these changes, no young person should be voting for these changes because they are voting against their own self-interest. They will not have the opportunity to accumulate wealth over the next 30 years that previous generations did. Well, so on that note, we've got the budget tonight. We'll keep an eye out. We'll be back next week with our Ask Us Anything, and obviously we'll go through what's happened. And this has been some pretty distressing leaks we've seen from the federal government and hopefully we've been wrong on some of the stuff but it doesn't look great at this stage.

1:39:51If this is what happens, we can say, I'm going to do an Adam Schwab. This is without doubt the worst budget and there have been some bad budgets. The worst budget of the 21st century. I'll probably go further. Probably the worst budget since Whitlam. You're going back that far which is basically what was ruled in the country. So on that note, thank you Mike and Joel for sitting through this. Thank you everyone for listening in as always. We'll see everybody on Saturday for our Ask Us Anything episode. Thank you.