1 00:00:06,240 --> 00:00:08,920 Michael Thompson: Welcome to Ask Fear and Greed, where we answer questions 2 00:00:08,960 --> 00:00:12,959 Michael Thompson: about business, investing, economics, politics, and more. I'm Michael Thompson 3 00:00:13,000 --> 00:00:14,440 Michael Thompson: and hello Sean Ailmer. 4 00:00:14,640 --> 00:00:15,400 Sean Aylmer: Hello Michael. 5 00:00:16,160 --> 00:00:18,919 Michael Thompson: You will be excited about this question today, Sean, because 6 00:00:19,079 --> 00:00:22,520 Michael Thompson: you love you love economics, you love politics, and everything 7 00:00:22,520 --> 00:00:25,480 Michael Thompson: of this. It just all collides in this question. Good 8 00:00:25,800 --> 00:00:32,279 Michael Thompson: for you, Sean. In the federal budget, broadly, where does 9 00:00:32,320 --> 00:00:35,000 Michael Thompson: the money come from and what is it spent on? 10 00:00:35,080 --> 00:00:38,240 Michael Thompson: And I'm particularly interested first of all if we can 11 00:00:38,320 --> 00:00:41,040 Michael Thompson: do it chronologically where the money comes from, and then 12 00:00:41,040 --> 00:00:42,360 Michael Thompson: we'll get to the bit where you spend it. 13 00:00:43,360 --> 00:00:46,199 Sean Aylmer: Yes, I always think this is really interesting. So the 14 00:00:46,240 --> 00:00:48,680 Sean Aylmer: government clicks about six hundred and ninety billion dollars a 15 00:00:48,800 --> 00:00:54,640 Sean Aylmer: year in taxes fair chunk yep. Forty seven percent comes 16 00:00:54,680 --> 00:00:58,320 Sean Aylmer: in income tax. That's much more than just a few 17 00:00:58,440 --> 00:01:02,320 Sean Aylmer: years ago. It is frighteningly high. How much income tax 18 00:01:02,440 --> 00:01:07,640 Sean Aylmer: we pay, that's huge, forty seven percent. Twenty percent comes 19 00:01:07,800 --> 00:01:12,000 Sean Aylmer: in company and resource rent tax, the big one there, 20 00:01:12,440 --> 00:01:16,039 Sean Aylmer: so company taxes, and companies do well, they pay more tax, 21 00:01:16,360 --> 00:01:21,039 Sean Aylmer: but the taxes on resources. So you know, when the 22 00:01:21,080 --> 00:01:24,479 Sean Aylmer: federal Treasury talks about the price of iron ore, making 23 00:01:24,520 --> 00:01:27,600 Sean Aylmer: a difference to the budget bottom line. That's where this 24 00:01:27,640 --> 00:01:30,800 Sean Aylmer: fits in. And in fact, Federal Treasury estimates that a 25 00:01:31,000 --> 00:01:34,679 Sean Aylmer: ten US dollar per ton increase in the price of 26 00:01:34,720 --> 00:01:39,160 Sean Aylmer: iron ore helps the bottom line by about five hundred 27 00:01:39,400 --> 00:01:42,600 Sean Aylmer: million dollars. So when iron ore goes from one hundred 28 00:01:42,600 --> 00:01:44,480 Sean Aylmer: dollars to one hundred and thirty, that's one point five 29 00:01:44,680 --> 00:01:48,840 Sean Aylmer: billion dollars for the bottom line. It's pretty significant. 30 00:01:49,360 --> 00:01:51,440 Michael Thompson: That is huge. So that is I mean, we should 31 00:01:51,440 --> 00:01:54,800 Michael Thompson: pay a lot of attention then to the iron ore price, to. 32 00:01:54,760 --> 00:01:57,760 Sean Aylmer: The iron Yeah. So we've got forty seven percent income tax, 33 00:01:57,800 --> 00:02:02,800 Sean Aylmer: twenty percent company resource rent tax, thirteen percent sales tax GST. 34 00:02:02,960 --> 00:02:06,080 Sean Aylmer: That is basically what's interesting about GST at the moment 35 00:02:06,320 --> 00:02:11,200 Sean Aylmer: is Trumpet administration could argue it is a tariff on 36 00:02:11,720 --> 00:02:15,320 Sean Aylmer: US goods and so we're watching that one very closely. 37 00:02:16,320 --> 00:02:19,200 Sean Aylmer: There's seven percent in x SIS and customs duties. Now 38 00:02:19,440 --> 00:02:23,519 Sean Aylmer: XCISE is tax on goods produced in Australia, alcohol fuel, tobacco. 39 00:02:24,000 --> 00:02:27,280 Sean Aylmer: What's interesting in that area those stories we're talking about 40 00:02:27,280 --> 00:02:29,920 Sean Aylmer: that the black market in tobacco is taking off and 41 00:02:30,080 --> 00:02:34,320 Sean Aylmer: the legal market is suffering. So we're actually losing XCISE 42 00:02:34,680 --> 00:02:38,760 Sean Aylmer: tax as a result of fewer sales of tobacco products, 43 00:02:38,960 --> 00:02:42,520 Sean Aylmer: throwing more ev sales, less petrol being sold. Not looking 44 00:02:42,520 --> 00:02:43,160 Sean Aylmer: good there either. 45 00:02:44,400 --> 00:02:47,240 Michael Thompson: Oh yeah, the tobacco one is really interesting, isn't it 46 00:02:47,240 --> 00:02:49,400 Michael Thompson: because there have been moves in the past to increase 47 00:02:49,480 --> 00:02:51,400 Michael Thompson: the x SIS on there in the hope that a 48 00:02:51,520 --> 00:02:53,920 Michael Thompson: it would kind of increase revenue but also try and 49 00:02:53,919 --> 00:02:56,320 Michael Thompson: discourage people from smoking, and all that's done is kind 50 00:02:56,320 --> 00:02:59,440 Michael Thompson: of push people towards the black market. That's fine. 51 00:03:00,000 --> 00:03:02,120 Sean Aylmer: But the other one, like customs duty, so it's excising. 52 00:03:02,160 --> 00:03:05,519 Sean Aylmer: Customs always go together. So excise is tobacco customs is 53 00:03:05,680 --> 00:03:09,280 Sean Aylmer: really interesting because that effectively is a tariff and typically 54 00:03:09,280 --> 00:03:12,040 Sean Aylmer: it's about five percent of goods coming into Australia. Now, 55 00:03:12,040 --> 00:03:14,560 Sean Aylmer: we have free traded agreements with a bunch of companies 56 00:03:14,560 --> 00:03:18,960 Sean Aylmer: including the US, where these customs duties aren't levied, but 57 00:03:19,880 --> 00:03:22,359 Sean Aylmer: from many many products we actually have tariffs on them 58 00:03:22,360 --> 00:03:24,880 Sean Aylmer: as well, about five percent, so we should keep that 59 00:03:24,960 --> 00:03:27,760 Sean Aylmer: in mind. There's about twenty percent other taxes, things like 60 00:03:27,800 --> 00:03:31,560 Sean Aylmer: superannuation taxes, fringe benefit tax all that sort of stuff. Okay, 61 00:03:31,680 --> 00:03:33,200 Sean Aylmer: all right, so that's where it comes from. 62 00:03:33,360 --> 00:03:35,640 Michael Thompson: That's all the money coming in, right, So you've got 63 00:03:35,640 --> 00:03:40,320 Michael Thompson: this great big pot of money. Where does the government 64 00:03:40,440 --> 00:03:42,760 Michael Thompson: spend the money? And this could go on for some 65 00:03:42,920 --> 00:03:44,880 Michael Thompson: time sean it could, it won't. 66 00:03:44,920 --> 00:03:50,360 Sean Aylmer: So thirty seven percent social security and welfare. Now when 67 00:03:51,520 --> 00:03:54,880 Sean Aylmer: the two big ones is the NDIS and Assistance to 68 00:03:55,000 --> 00:03:58,320 Sean Aylmer: Age care, and we talk a lot about that because 69 00:03:58,320 --> 00:04:01,800 Sean Aylmer: the government is trying to reign in the cost of those. 70 00:04:01,960 --> 00:04:07,200 Sean Aylmer: Not only are they expensive, they're rising as well. The 71 00:04:07,200 --> 00:04:09,880 Sean Aylmer: PBS pharmaceutical benefits scheme and many care is up there 72 00:04:09,920 --> 00:04:13,160 Sean Aylmer: as well. That's very expensive, and especially when the NDIS 73 00:04:13,240 --> 00:04:16,719 Sean Aylmer: didn't actually exist kind of twenty years ago, like it 74 00:04:16,839 --> 00:04:20,360 Sean Aylmer: only started with fifteen years ago, yeah, twenty thirteen or so. Yeah, 75 00:04:20,520 --> 00:04:23,360 Sean Aylmer: So it's a relatively new expense and it has grown 76 00:04:23,400 --> 00:04:26,400 Sean Aylmer: and grown grown one of the biggest hits to the 77 00:04:26,440 --> 00:04:28,240 Sean Aylmer: budget or cost to the budget. It's not a hit, 78 00:04:28,279 --> 00:04:30,520 Sean Aylmer: it is a cost to the budget. The flip side though, 79 00:04:30,600 --> 00:04:33,479 Sean Aylmer: so in this Social security and welfare is that the 80 00:04:33,520 --> 00:04:35,720 Sean Aylmer: government estimates how much they have to pay out on 81 00:04:35,800 --> 00:04:38,720 Sean Aylmer: unemployment benefits. And we've actually done really well on that 82 00:04:38,800 --> 00:04:41,160 Sean Aylmer: because the government hasn't had to pay it anywhere near 83 00:04:41,200 --> 00:04:44,000 Sean Aylmer: as much because the unemployment rate been so low, So 84 00:04:44,040 --> 00:04:46,039 Sean Aylmer: it's actually been beneficial on that front. 85 00:04:47,480 --> 00:04:49,080 Michael Thompson: Okay, so they're the big ones. 86 00:04:49,160 --> 00:04:52,080 Sean Aylmer: They're the big ones. Health gets about sixteen percent, payments 87 00:04:52,120 --> 00:04:55,880 Sean Aylmer: to states and territories about thirteen percent. There's a big 88 00:04:55,920 --> 00:04:59,000 Sean Aylmer: chunk in there of education. So yesterday there was a 89 00:04:59,080 --> 00:05:02,839 Sean Aylmer: deal between Queensland and the federal government on education funding 90 00:05:02,839 --> 00:05:05,600 Sean Aylmer: for example. That fits into that. So thirty percent the 91 00:05:05,640 --> 00:05:09,440 Sean Aylmer: state and territories. Defense is about six percent of the 92 00:05:09,560 --> 00:05:12,960 Sean Aylmer: budget or thereabout, which is the one that Donald Trump 93 00:05:13,000 --> 00:05:16,560 Sean Aylmer: would like all countries to increase. Yeah, so he's talking 94 00:05:16,640 --> 00:05:19,800 Sean Aylmer: about is it two percent of GDP or maybe three 95 00:05:19,800 --> 00:05:23,200 Sean Aylmer: percent of GDP ye, So that would actually mean we'd 96 00:05:23,200 --> 00:05:25,799 Sean Aylmer: have to up our defense spending. 97 00:05:26,400 --> 00:05:28,520 Michael Thompson: Goodness may and then I mean, the thing is that 98 00:05:28,560 --> 00:05:30,520 Michael Thompson: you can keep going. You can go further and further 99 00:05:30,560 --> 00:05:32,080 Michael Thompson: and break it all the way down, can't you. 100 00:05:32,160 --> 00:05:35,360 Sean Aylmer: But those are the big they're really big, chunky ones. Yeah. 101 00:05:35,680 --> 00:05:38,080 Michael Thompson: Yeah. And it's amazing how much you can argue and 102 00:05:38,120 --> 00:05:41,640 Michael Thompson: fight over, even just when we are talking about the 103 00:05:41,680 --> 00:05:44,760 Michael Thompson: division of payments to states and territories and when the 104 00:05:44,800 --> 00:05:48,120 Michael Thompson: GST revenue is carved up, so how much that gets 105 00:05:48,120 --> 00:05:51,120 Michael Thompson: people all riled up across Gosh, there is so much 106 00:05:51,160 --> 00:05:53,200 Michael Thompson: debate and so much discussion that we could be having 107 00:05:53,240 --> 00:05:55,600 Michael Thompson: over this, but I reckon we'd cover this comprehensively enough 108 00:05:55,640 --> 00:05:57,120 Michael Thompson: for today, I think. 109 00:05:57,160 --> 00:06:01,040 Sean Aylmer: So I actually find the incoming the seats more interesting 110 00:06:01,080 --> 00:06:05,440 Sean Aylmer: than the spending because forty seven percent of the revenue 111 00:06:05,440 --> 00:06:07,800 Sean Aylmer: from income tax, that's outrageous. 112 00:06:08,160 --> 00:06:11,279 Michael Thompson: That is huge. And you said that has increased significantly. 113 00:06:10,800 --> 00:06:14,640 Sean Aylmer: Yeah, hugely, And so bracket creep when this is introduced, 114 00:06:14,640 --> 00:06:17,760 Sean Aylmer: like the sixties and seventies, the government allowed bracket creep, 115 00:06:17,800 --> 00:06:20,400 Sean Aylmer: so as people earn more money, they move into a 116 00:06:20,440 --> 00:06:23,800 Sean Aylmer: higher tax bracket and the government doesn't move the tax brackets. 117 00:06:23,960 --> 00:06:25,800 Sean Aylmer: So in the sixties and seventies, that's how actually how 118 00:06:25,800 --> 00:06:28,640 Sean Aylmer: they increased their taxes. But then people said, no, you've 119 00:06:28,640 --> 00:06:30,960 Sean Aylmer: got to move the tax brackets as wages increased, which 120 00:06:31,000 --> 00:06:33,560 Sean Aylmer: is fair enough, but it just seems that there've been 121 00:06:33,600 --> 00:06:36,760 Sean Aylmer: a bit slow on moving those tax brackets. So we've 122 00:06:36,760 --> 00:06:40,960 Sean Aylmer: got this bracket creep and forty seven percent in income 123 00:06:41,040 --> 00:06:42,239 Sean Aylmer: tax way too much. 124 00:06:42,600 --> 00:06:45,640 Michael Thompson: That is huge, sounds like and this is going to 125 00:06:45,640 --> 00:06:47,600 Michael Thompson: be music to the ears of our Fear and Greed 126 00:06:47,640 --> 00:06:50,160 Michael Thompson: colleague Adam Lang. There might be a need for some 127 00:06:50,200 --> 00:06:51,280 Michael Thompson: tax reform. 128 00:06:50,920 --> 00:06:53,440 Sean Aylmer: Show maybe some need from tax Everyone agrees with that 129 00:06:53,480 --> 00:06:56,159 Sean Aylmer: one yeah, good one, even Adam, especially Adam. 130 00:06:55,960 --> 00:06:59,320 Michael Thompson: Good stuff. Thank you very much, Sean, Thanks Michael. And remember, 131 00:06:59,360 --> 00:07:01,240 Michael Thompson: if you have something you would like to know, it 132 00:07:01,279 --> 00:07:03,479 Michael Thompson: can be as detailed as that one or as quick 133 00:07:03,520 --> 00:07:05,880 Michael Thompson: and easy. We'd love to We would love to answer 134 00:07:05,920 --> 00:07:08,000 Michael Thompson: one of these questions in one minute flat. It has 135 00:07:08,040 --> 00:07:10,280 Michael Thompson: not yet happened. If you've got something that you would 136 00:07:10,280 --> 00:07:13,160 Michael Thompson: like to know, then send through a question on LinkedIn, Instagram, Facebook, 137 00:07:13,240 --> 00:07:15,880 Michael Thompson: or at Fearangreed dot com dot au. I'm Michael Thompson 138 00:07:16,000 --> 00:07:17,480 Michael Thompson: and this is ask Fear and Greed.