1 00:00:03,730 --> 00:00:06,170 Sean: Welcome to Fear and Greed - The Week Ahead, as always, 2 00:00:06,170 --> 00:00:11,110 Sean: with economist, Stephen Koukoulas. You'll find him at thekouk. com, 3 00:00:11,480 --> 00:00:17,420 Sean: and on Twitter using the handle @ thekouk. Stephen, excited about 4 00:00:17,420 --> 00:00:20,700 Sean: the week ahead. Tomorrow night, budget night. Surely you love that. 5 00:00:21,540 --> 00:00:23,340 Stephen Koukoulas: I love it. Yes. They only come but once a 6 00:00:23,340 --> 00:00:26,700 Stephen Koukoulas: year. And it's the opportunity for the treasury, as opposed 7 00:00:26,700 --> 00:00:29,910 Stephen Koukoulas: to the RBA, which we hear from an awful lot. It's 8 00:00:29,910 --> 00:00:34,880 Stephen Koukoulas: the treasurer, the treasury outlining, obviously, their economic outlook for 9 00:00:34,880 --> 00:00:38,470 Stephen Koukoulas: the economy, but also the budget. Where are our hard- 10 00:00:38,470 --> 00:00:41,159 Stephen Koukoulas: earned taxes going to be spent? What's going to be happening 11 00:00:41,159 --> 00:00:45,279 Stephen Koukoulas: to government spending? And of course, increasingly important as bond 12 00:00:45,280 --> 00:00:47,930 Stephen Koukoulas: yields are rising around the world and here in Australia, 13 00:00:48,350 --> 00:00:50,330 Stephen Koukoulas: how big a budget deficit do we have? And is 14 00:00:50,330 --> 00:00:51,300 Stephen Koukoulas: that going to be an issue? 15 00:00:51,770 --> 00:00:54,190 Sean: Okay, so let's just take a step back. How big 16 00:00:54,380 --> 00:00:57,800 Sean: is the budget? How much debt does Australia have, more 17 00:00:57,800 --> 00:01:00,360 Sean: or less? And what's the trend? Is it because we've 18 00:01:00,360 --> 00:01:04,260 Sean: had all these big spending policies, thanks to COVID, that 19 00:01:04,260 --> 00:01:06,100 Sean: we're going to be pulling back? I'm just sort of trying 20 00:01:06,100 --> 00:01:07,340 Sean: to set the scene here a bit. 21 00:01:07,910 --> 00:01:11,330 Stephen Koukoulas: Yeah. The background is an interesting one. Now, everybody agrees 22 00:01:11,380 --> 00:01:14,500 Stephen Koukoulas: that the run up of big budget deficits ... and don't 23 00:01:14,500 --> 00:01:18,640 Stephen Koukoulas: forget last year's budget deficit was $ 200 billion, the biggest by 24 00:01:18,640 --> 00:01:22,190 Stephen Koukoulas: a multiple of about four. As the COVID crisis hit, 25 00:01:22,920 --> 00:01:27,069 Stephen Koukoulas: JobKeeper payments were rolled out the door, JobSeeker supplements were 26 00:01:27,069 --> 00:01:30,030 Stephen Koukoulas: happening. They forwent a lot of revenue because the economy 27 00:01:30,030 --> 00:01:33,220 Stephen Koukoulas: did fall into recession. And that, of course, undermined their 28 00:01:33,260 --> 00:01:36,050 Stephen Koukoulas: tax collection. So we had this big deficit. Nobody in 29 00:01:36,050 --> 00:01:39,640 Stephen Koukoulas: their right mind would argue against that. Now, as we 30 00:01:39,640 --> 00:01:42,429 Stephen Koukoulas: are kicking off 2022 and looking at the next couple 31 00:01:42,430 --> 00:01:46,750 Stephen Koukoulas: of years, the economy has recovered nicely. It's strong. I 32 00:01:46,750 --> 00:01:49,530 Stephen Koukoulas: think, as we said just recently, that the unemployment rate's 33 00:01:49,790 --> 00:01:52,890 Stephen Koukoulas: at 4%. Wages growth is picking up. So that's going to 34 00:01:52,890 --> 00:01:55,430 Stephen Koukoulas: give the government a little bit of free money, if 35 00:01:55,430 --> 00:01:58,510 Stephen Koukoulas: you like, as the stronger economy kicks in. So the 36 00:01:58,510 --> 00:02:01,210 Stephen Koukoulas: bottom line will be that we're looking at where the 37 00:02:01,260 --> 00:02:04,860 Stephen Koukoulas: budget deficit will be. Back at MYEFO, in December, they 38 00:02:05,050 --> 00:02:08,570 Stephen Koukoulas: were forecasting a deficit of around about $ 99 billion. It's 39 00:02:08,570 --> 00:02:10,790 Stephen Koukoulas: going to be lower than that, but of course, with the 40 00:02:10,790 --> 00:02:13,740 Stephen Koukoulas: election looming, just a matter of a few weeks away, 41 00:02:14,030 --> 00:02:17,280 Stephen Koukoulas: what sweeteners will be in there from Treasurer Frydenberg as 42 00:02:17,280 --> 00:02:19,500 Stephen Koukoulas: he tries to gain favor with the electorate? 43 00:02:19,830 --> 00:02:21,840 Sean: Certainly the budget bottom line will be a lot better than 44 00:02:21,840 --> 00:02:23,810 Sean: we thought it might have been 12 months ago. And 45 00:02:24,700 --> 00:02:26,950 Sean: part of that is not just the spending, but as 46 00:02:26,950 --> 00:02:29,110 Sean: you were alluding to there, they don't have to make 47 00:02:29,110 --> 00:02:31,209 Sean: as many welfare payments when you've got an unemployment rate of 4%, not 48 00:02:31,210 --> 00:02:36,500 Sean: 8%. So they have savings there. Are they likely to 49 00:02:36,590 --> 00:02:40,380 Sean: put out a trajectory of budget deficits that a are heading 50 00:02:40,380 --> 00:02:42,510 Sean: towards balance or not, do you think? 51 00:02:42,820 --> 00:02:45,820 Stephen Koukoulas: It's a long way to go. The budget deficits will 52 00:02:45,820 --> 00:02:49,280 Stephen Koukoulas: be smaller. There's no question about that. But they were so 53 00:02:49,280 --> 00:02:51,919 Stephen Koukoulas: big. This is the interesting sort of hangover effect when 54 00:02:51,919 --> 00:02:55,720 Stephen Koukoulas: you have a global financial crisis or a COVID crisis 55 00:02:55,720 --> 00:02:58,180 Stephen Koukoulas: that hits your budget for six, literally, is that it 56 00:02:58,180 --> 00:03:00,440 Stephen Koukoulas: does take a lot of work to repair the budget 57 00:03:00,440 --> 00:03:02,430 Stephen Koukoulas: and get towards balance. I don't think we're going to 58 00:03:02,430 --> 00:03:06,150 Stephen Koukoulas: see balance in the budget even out five years or 59 00:03:06,150 --> 00:03:09,130 Stephen Koukoulas: so, which of course they do project in their forward 60 00:03:09,130 --> 00:03:12,790 Stephen Koukoulas: estimates. And that's simply because the economy did take a 61 00:03:12,790 --> 00:03:16,389 Stephen Koukoulas: big hit from the recession and that some of the 62 00:03:16,389 --> 00:03:19,660 Stephen Koukoulas: spending decisions, some of the tax policy changes ... And don't 63 00:03:19,730 --> 00:03:23,200 Stephen Koukoulas: forget, they've got legislative income tax cuts that were introduced 64 00:03:23,669 --> 00:03:25,280 Stephen Koukoulas: a couple of years ago that are still in there, 65 00:03:25,280 --> 00:03:27,910 Stephen Koukoulas: that'll just undermine the ability of the budget to get 66 00:03:27,910 --> 00:03:30,250 Stephen Koukoulas: towards balance. And again, ahead of the election, you're not 67 00:03:30,250 --> 00:03:32,200 Stephen Koukoulas: going to get a tightening in fiscal policy, of course. 68 00:03:32,200 --> 00:03:35,300 Stephen Koukoulas: So it is a question that the budget bottom line, 69 00:03:35,300 --> 00:03:37,890 Stephen Koukoulas: as you said, Sean, will be better. There's no doubt 70 00:03:37,890 --> 00:03:40,190 Stephen Koukoulas: about it. And yeah, commodity prices are booming, the coal 71 00:03:40,190 --> 00:03:43,710 Stephen Koukoulas: price, the iron ore price. So the company tax collections will be 72 00:03:44,550 --> 00:03:48,720 Stephen Koukoulas: significantly higher than they're assuming, as well. And that improvement 73 00:03:48,720 --> 00:03:50,540 Stephen Koukoulas: will be there. And I think the bigger question will 74 00:03:50,540 --> 00:03:53,560 Stephen Koukoulas: be what happens, whoever wins the election. Yeah, the budget 75 00:03:53,560 --> 00:03:55,630 Stephen Koukoulas: after this one, arguably more important than the one we're 76 00:03:55,630 --> 00:03:56,831 Stephen Koukoulas: going to be seeing tomorrow night. 77 00:03:56,831 --> 00:04:01,540 Sean: Just the other one about the budget tomorrow night, is it works hand in 78 00:04:01,540 --> 00:04:06,210 Sean: hand with monetary policy too, doesn't it? So what the 79 00:04:06,210 --> 00:04:09,300 Sean: Reserve Bank does, actually, it'll be looking at the fiscal 80 00:04:09,300 --> 00:04:11,610 Sean: policy at the budget pretty closely to decide what it 81 00:04:11,610 --> 00:04:12,160 Sean: wants to do. 82 00:04:13,000 --> 00:04:15,490 Stephen Koukoulas: Oh, definitely. And in fact, the interesting thing when, again, 83 00:04:15,490 --> 00:04:20,260 Stephen Koukoulas: using the GFC and the COVID crisis as illustrations on how policy 84 00:04:20,260 --> 00:04:23,409 Stephen Koukoulas: worked really quite well, interest rates were cut in both 85 00:04:23,410 --> 00:04:27,390 Stephen Koukoulas: examples. Fiscal policy was stimulatory in both examples. And it 86 00:04:27,730 --> 00:04:30,250 Stephen Koukoulas: worked really well. I think we've learned a lot from 87 00:04:30,250 --> 00:04:33,710 Stephen Koukoulas: that. Now, I think with the Reserve Bank clearly under 88 00:04:33,710 --> 00:04:36,730 Stephen Koukoulas: some pressure to hike interest rates in coming months, inflation's 89 00:04:36,730 --> 00:04:39,150 Stephen Koukoulas: up, the economy's doing quite well, as we just mentioned, 90 00:04:39,720 --> 00:04:42,279 Stephen Koukoulas: they'll be ... Look, I don't think they'll give a vote 91 00:04:42,279 --> 00:04:44,890 Stephen Koukoulas: of no confidence if there is a stimulatory sort of 92 00:04:44,970 --> 00:04:48,219 Stephen Koukoulas: tilt to the budget, but nonetheless, it makes their job 93 00:04:48,220 --> 00:04:51,160 Stephen Koukoulas: just a smidge harder. If the government was to come out 94 00:04:51,160 --> 00:04:54,970 Stephen Koukoulas: with a post- election budget type scenario where they were 95 00:04:55,610 --> 00:04:59,260 Stephen Koukoulas: trimming spending perhaps a little more aggressively, maybe tweaking some 96 00:04:59,260 --> 00:05:00,900 Stephen Koukoulas: of the tax scales a little bit to collect a 97 00:05:00,900 --> 00:05:03,409 Stephen Koukoulas: bit more or revenue, it takes a bit of pressure 98 00:05:03,410 --> 00:05:06,729 Stephen Koukoulas: off the RBA. But at this stage, I think politics 99 00:05:06,730 --> 00:05:09,870 Stephen Koukoulas: are going to dominate fiscal policy in the RBA. It'll be left to look 100 00:05:09,870 --> 00:05:13,240 Stephen Koukoulas: at the inflation, the wages numbers, and the unemployment rate 101 00:05:13,240 --> 00:05:15,260 Stephen Koukoulas: when it considers what to do and when to hike 102 00:05:15,260 --> 00:05:15,969 Stephen Koukoulas: interest rates. 103 00:05:17,060 --> 00:05:19,169 Sean: Okay. Of course, Stephen, you'll be talking to us the morning after the 104 00:05:19,170 --> 00:05:22,570 Sean: budget. That's Wednesday morning. So listeners, make sure you tune 105 00:05:22,570 --> 00:05:24,950 Sean: in. Stephen will give his two cents worth, which is 106 00:05:24,950 --> 00:05:28,390 Sean: worth a lot more than two cents, on what exactly 107 00:05:28,390 --> 00:05:31,609 Sean: the budget has for everyone. Other bits and pieces around 108 00:05:31,610 --> 00:05:33,909 Sean: this week, Stephen, retail sales, building approvals? 109 00:05:34,810 --> 00:05:38,160 Stephen Koukoulas: Yes. Some important indicators, too. The retail sales numbers are 110 00:05:38,160 --> 00:05:41,150 Stephen Koukoulas: up for the month of February. So we had a 111 00:05:41,150 --> 00:05:45,210 Stephen Koukoulas: bit of an Omicron effect in January, which did impact retail 112 00:05:45,210 --> 00:05:47,640 Stephen Koukoulas: sales. (inaudible) I think the consensus forecast is for 113 00:05:47,640 --> 00:05:51,839 Stephen Koukoulas: broadly flat in February. Then again, that was a situation 114 00:05:51,839 --> 00:05:55,339 Stephen Koukoulas: where consumer sentiments started just tapering off a little bit, 115 00:05:55,339 --> 00:05:59,479 Stephen Koukoulas: but retail spending probably ... in trend terms, pretty good, but 116 00:05:59,480 --> 00:06:02,409 Stephen Koukoulas: for the month, a little bit flatter. Building approval's probably 117 00:06:02,410 --> 00:06:05,279 Stephen Koukoulas: down. We had the big stimulus and the bring forward 118 00:06:05,279 --> 00:06:09,210 Stephen Koukoulas: of house building approvals into 2021; well, the very stimulus 119 00:06:09,210 --> 00:06:12,119 Stephen Koukoulas: measures we were talking about in prior budgets that caused building 120 00:06:12,120 --> 00:06:15,790 Stephen Koukoulas: construction to pick up. So probably another small forwards, the 121 00:06:15,830 --> 00:06:18,160 Stephen Koukoulas: construction of the economy just tapers off a little. 122 00:06:18,470 --> 00:06:22,510 Sean: And CoreLogic home sales, that's suddenly sudden starting get quite 123 00:06:22,510 --> 00:06:25,410 Sean: interesting, because we're just not seeing the increases in some 124 00:06:25,410 --> 00:06:27,210 Sean: of the capital cities that we have been seeing. 125 00:06:28,010 --> 00:06:32,110 Stephen Koukoulas: Oh, spot on. That's really the interesting thing from their within- 126 00:06:32,110 --> 00:06:34,260 Stephen Koukoulas: month data that they do publish. We know that Sydney 127 00:06:34,260 --> 00:06:37,180 Stephen Koukoulas: and Melbourne are broadly flat, that they have just tapered 128 00:06:37,190 --> 00:06:40,020 Stephen Koukoulas: off. I think the sticker shock, the price of houses 129 00:06:40,020 --> 00:06:42,830 Stephen Koukoulas: there is causing people just to step back. And of 130 00:06:42,830 --> 00:06:45,010 Stephen Koukoulas: course the discussion of interest rates may be having an 131 00:06:45,010 --> 00:06:48,289 Stephen Koukoulas: impact on some people. But if you look at Adelaide, 132 00:06:48,589 --> 00:06:52,450 Stephen Koukoulas: Hobart, Brisbane, they are still increasing, month- on- month, about 133 00:06:52,450 --> 00:06:56,940 Stephen Koukoulas: 1%, 1. 5%, which is obviously annualized well above 10%. 134 00:06:56,940 --> 00:07:00,670 Stephen Koukoulas: So we've got a real patchwork, I suppose, evolving in 135 00:07:00,670 --> 00:07:03,680 Stephen Koukoulas: the housing market and house prices where the big cities, 136 00:07:03,680 --> 00:07:06,159 Stephen Koukoulas: they're coming off the boil, where the sort of medium- 137 00:07:06,160 --> 00:07:07,680 Stephen Koukoulas: sized cities are still going strong. 138 00:07:08,610 --> 00:07:11,880 Sean: So enjoy Tuesday night, and we look forward to hearing 139 00:07:11,880 --> 00:07:13,120 Sean: from you on Wednesday. 140 00:07:13,970 --> 00:07:16,760 Stephen Koukoulas: Oh, there's so much to look at on budget night. 141 00:07:16,760 --> 00:07:18,150 Stephen Koukoulas: There's so many different budget papers. I'm going to be in heaven. 142 00:07:19,470 --> 00:07:22,570 Sean: I'm sure you will. Thank you. That was economist Stephen Koukoulas, better 143 00:07:22,570 --> 00:07:25,230 Sean: known as the Kouk. You can find him at thekouk. com and 144 00:07:25,230 --> 00:07:27,740 Sean: follow him on Twitter using the handle @ thekouk. Stephen, just 145 00:07:27,740 --> 00:07:30,340 Sean: before I sign off totally, thekouk. com will have some 146 00:07:30,340 --> 00:07:32,500 Sean: of your budget analysis on Wednesday. 147 00:07:32,630 --> 00:07:36,140 Stephen Koukoulas: It's going to. I'm revamping the website now, without going 148 00:07:36,140 --> 00:07:38,580 Stephen Koukoulas: into the details, but yes, I'm going be revamping that and it'll 149 00:07:38,580 --> 00:07:41,450 Stephen Koukoulas: have a lot of that information, including possibly a little video from 150 00:07:41,450 --> 00:07:44,570 Stephen Koukoulas: me too. So have a look at that from tomorrow; 151 00:07:44,570 --> 00:07:46,040 Stephen Koukoulas: sorry, from Wednesday. Apologies. 152 00:07:46,090 --> 00:07:48,860 Sean: Yeah. Well, that's great. So once you've listened to us, 153 00:07:48,860 --> 00:07:54,220 Sean: go and see Stephen in the flesh on his website, thekouk. 154 00:07:54,230 --> 00:07:56,170 Sean: com. I'm Sean Aylmer, and this is Fear and Greed - 155 00:07:56,170 --> 00:07:56,850 Sean: The Week Ahead.