1 00:00:04,019 --> 00:00:07,050 Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean Aylmer. 2 00:00:07,320 --> 00:00:10,500 Sean Aylmer: Last night, Treasurer Jim Chalmers handed down the federal budget, 3 00:00:10,560 --> 00:00:13,980 Sean Aylmer: delivering a surprise surplus, the first one in 15 years. 4 00:00:14,370 --> 00:00:17,040 Sean Aylmer: But it's expected to be temporary, with the budget slipping 5 00:00:17,040 --> 00:00:20,489 Sean Aylmer: back into deficit next year and the next few years, in fact. 6 00:00:20,760 --> 00:00:22,680 Sean Aylmer: At the same time, there are a few spending measures in 7 00:00:22,680 --> 00:00:24,750 Sean Aylmer: the budget designed to help with the cost of living. 8 00:00:24,750 --> 00:00:27,300 Sean Aylmer: In fact, there are plenty of those, including power bill relief, 9 00:00:27,300 --> 00:00:30,090 Sean Aylmer: an increase to JobSeeker, and a major boost to bulk 10 00:00:30,090 --> 00:00:33,720 Sean Aylmer: billing incentives for GPs. But with inflation so high, will 11 00:00:33,720 --> 00:00:36,540 Sean Aylmer: tipping that much money back into the economy put pressure 12 00:00:36,750 --> 00:00:39,300 Sean Aylmer: on the Reserve Bank to keep lifting rates? To go 13 00:00:39,300 --> 00:00:42,210 Sean Aylmer: through it all, there's only one person we'll ever turn to, 14 00:00:42,210 --> 00:00:47,190 Sean Aylmer: Fear and Greed's resident economist, Stephen Koukoulas, aka The Kouk. You'll 15 00:00:47,190 --> 00:00:49,589 Sean Aylmer: hear him every Monday on the week ahead. He's the 16 00:00:49,590 --> 00:00:53,280 Sean Aylmer: Managing Director of Market Economics and a former economic advisor 17 00:00:53,280 --> 00:00:55,890 Sean Aylmer: to a prime minister. Stephen, welcome back to... I don't 18 00:00:55,890 --> 00:00:57,720 Sean Aylmer: know why I'm saying welcome back to Fear and Greed. 19 00:00:58,080 --> 00:00:59,340 Sean Aylmer: Did you get any sleep, Stephen? 20 00:01:00,120 --> 00:01:03,450 Stephen Koukoulas: Not a lot. I spent many hours going over the 21 00:01:03,570 --> 00:01:06,540 Stephen Koukoulas: budget papers, looking at the analysis and just sort of 22 00:01:06,540 --> 00:01:09,569 Stephen Koukoulas: seeing what sort of document it was. And on balance, 23 00:01:09,569 --> 00:01:11,069 Stephen Koukoulas: it looks like a pretty fair effort. 24 00:01:12,180 --> 00:01:14,069 Sean Aylmer: Okay. So what is your first impression of the budget? 25 00:01:14,640 --> 00:01:17,550 Stephen Koukoulas: Yeah, initial impressions. 'Cause of course, given the thousands of 26 00:01:17,550 --> 00:01:19,650 Stephen Koukoulas: pages of documents, there's going to be things that probably 27 00:01:19,650 --> 00:01:22,800 Stephen Koukoulas: pop up over coming days as people scour through them 28 00:01:22,800 --> 00:01:25,500 Stephen Koukoulas: for little snippets and bits and pieces. But look, the 29 00:01:25,500 --> 00:01:28,619 Stephen Koukoulas: big picture view, to me, were a couple of things. 30 00:01:28,620 --> 00:01:31,560 Stephen Koukoulas: First of all, the surprise surplus, nobody thought that was 31 00:01:31,830 --> 00:01:35,190 Stephen Koukoulas: vaguely possible till even a few days ago. But it 32 00:01:35,250 --> 00:01:37,770 Stephen Koukoulas: appears as though, and this is the good part, I 33 00:01:37,770 --> 00:01:41,610 Stephen Koukoulas: suppose, of the management of Treasurer Chalmers, is that the 34 00:01:41,610 --> 00:01:45,900 Stephen Koukoulas: windfall gain, the reason why that budget surplus occurred, was 35 00:01:45,900 --> 00:01:50,610 Stephen Koukoulas: that commodity prices were materially higher than they were assuming 36 00:01:50,610 --> 00:01:53,100 Stephen Koukoulas: in the previous budget back in October. So that delivered 37 00:01:53,100 --> 00:01:56,490 Stephen Koukoulas: a huge amount of company tax to the government coffers. 38 00:01:56,910 --> 00:01:58,770 Stephen Koukoulas: And also the unemployment rate, the thing that we've been 39 00:01:58,770 --> 00:02:01,920 Stephen Koukoulas: talking about in recent months, in fact that the unemployment 40 00:02:01,920 --> 00:02:04,800 Stephen Koukoulas: rate's staying at three and a half percent, so very 41 00:02:04,800 --> 00:02:07,200 Stephen Koukoulas: near a 50- year low. The fact that wages have 42 00:02:07,200 --> 00:02:10,650 Stephen Koukoulas: increased a little bit, means that income tax payments and 43 00:02:10,650 --> 00:02:13,350 Stephen Koukoulas: collections for the government were increasing and some of their 44 00:02:13,350 --> 00:02:16,590 Stephen Koukoulas: payments on things like unemployment benefits were lower. So you 45 00:02:16,590 --> 00:02:19,290 Stephen Koukoulas: throw all that into the great big budget melting pot, 46 00:02:19,710 --> 00:02:22,169 Stephen Koukoulas: and out popped the surplus, unexpectedly, that the government had 47 00:02:22,169 --> 00:02:25,080 Stephen Koukoulas: the wherewithal to sort of put in the bank and 48 00:02:25,080 --> 00:02:27,780 Stephen Koukoulas: not to spend, certainly for the current financial year. 49 00:02:28,020 --> 00:02:30,720 Sean Aylmer: Okay. So that, I suppose, is the point, it's kind 50 00:02:30,720 --> 00:02:34,350 Sean Aylmer: of a cyclical surplus but not a structural one, i. 51 00:02:34,350 --> 00:02:35,970 Sean Aylmer: e. we're going to go back into deficit in the 52 00:02:35,970 --> 00:02:38,130 Sean Aylmer: next few years. Did they do enough? 53 00:02:38,880 --> 00:02:40,710 Stephen Koukoulas: Yeah, look, that's a very good point, that what we're 54 00:02:40,710 --> 00:02:44,669 Stephen Koukoulas: seeing is that the slippage back into deficit in the 55 00:02:44,669 --> 00:02:48,780 Stephen Koukoulas: next couple of financial years. And they're medium size, they're 56 00:02:48,780 --> 00:02:50,940 Stephen Koukoulas: small to medium size deficits. Yeah, I don't want to 57 00:02:50,940 --> 00:02:54,780 Stephen Koukoulas: downplay them, 'cause a budget deficit's still of the order of 30 billion 58 00:02:54,780 --> 00:02:57,779 Stephen Koukoulas: in a couple of years times is not small feed, 59 00:02:58,200 --> 00:03:00,660 Stephen Koukoulas: it's a decent number. But you've got to remember too 60 00:03:00,690 --> 00:03:03,510 Stephen Koukoulas: that that's actually based on the reversal of some of 61 00:03:03,510 --> 00:03:07,109 Stephen Koukoulas: those positive things. Commodity prices assumed to fall, the unemployment 62 00:03:07,110 --> 00:03:09,540 Stephen Koukoulas: rate's expected to go to four and a half per cent. 63 00:03:09,810 --> 00:03:12,060 Stephen Koukoulas: And as you alluded to, there's been a series of 64 00:03:12,060 --> 00:03:16,169 Stephen Koukoulas: cost of living pressures, which cost the budget, by definition, 65 00:03:16,260 --> 00:03:20,430 Stephen Koukoulas: and go into householders' pockets or various householders' pockets. And 66 00:03:20,940 --> 00:03:24,419 Stephen Koukoulas: they're not massive again, but there's multiple billions sort of 67 00:03:24,419 --> 00:03:27,450 Stephen Koukoulas: chipped away at different projects. And now, they're all very 68 00:03:27,450 --> 00:03:30,510 Stephen Koukoulas: sound ideas. I don't think anybody would begrudge the aged 69 00:03:30,510 --> 00:03:33,570 Stephen Koukoulas: care workers getting a pay rise, or for the JobSeeker 70 00:03:33,570 --> 00:03:36,150 Stephen Koukoulas: payment for over 55s to be increased, and these sorts of things. 71 00:03:36,150 --> 00:03:40,020 Stephen Koukoulas: So the policies are sound, there were some offsets in 72 00:03:40,020 --> 00:03:43,980 Stephen Koukoulas: terms of higher taxes on people with very high superannuation balances. 73 00:03:43,980 --> 00:03:46,680 Stephen Koukoulas: The resource rent tax got tweaked a little, a few 74 00:03:46,680 --> 00:03:50,520 Stephen Koukoulas: things like that. But overall, we've got the budget balance 75 00:03:50,820 --> 00:03:54,960 Stephen Koukoulas: just slipping back into a small deficit. And obviously, they've 76 00:03:54,960 --> 00:03:56,790 Stephen Koukoulas: got another year to try to see whether they can 77 00:03:56,790 --> 00:03:58,740 Stephen Koukoulas: turn that one around and get a surplus this time 78 00:03:58,740 --> 00:03:59,220 Stephen Koukoulas: next year. 79 00:03:59,850 --> 00:04:02,190 Sean Aylmer: So generally the spending, it was very much a cost 80 00:04:02,190 --> 00:04:05,790 Sean Aylmer: of living or cost of living relief budget. There is 81 00:04:05,790 --> 00:04:09,750 Sean Aylmer: lots in health as well. The tripling of money in 82 00:04:09,870 --> 00:04:12,720 Sean Aylmer: the bulk billing for GPs, which hopefully that will encourage people 83 00:04:12,720 --> 00:04:15,360 Sean Aylmer: to go to the doctor and get cheaper visits to doctors, 84 00:04:15,360 --> 00:04:17,219 Sean Aylmer: all that sort of stuff. Do you think most of 85 00:04:17,220 --> 00:04:20,339 Sean Aylmer: that was in the right area, given what's happened to 86 00:04:20,339 --> 00:04:24,240 Sean Aylmer: interest rates, energy prices, the cost of living in Australia recently? 87 00:04:24,900 --> 00:04:28,920 Stephen Koukoulas: Look, I think so. This is where politics versus economic 88 00:04:28,920 --> 00:04:32,400 Stephen Koukoulas: policy often clash, or not clash, but there's a difference 89 00:04:32,400 --> 00:04:34,500 Stephen Koukoulas: of views. And the government of the day has got 90 00:04:34,500 --> 00:04:37,620 Stephen Koukoulas: to implement its political priorities and that's what it's done, 91 00:04:37,620 --> 00:04:40,979 Stephen Koukoulas: just as the previous government implemented its political priorities. And 92 00:04:40,980 --> 00:04:43,799 Stephen Koukoulas: that's absolutely fine. That's why we have elections every three 93 00:04:43,800 --> 00:04:46,200 Stephen Koukoulas: years and we change governments every now and then 'cause we don't like 94 00:04:46,200 --> 00:04:48,779 Stephen Koukoulas: what they did. So this was the Labor government, if 95 00:04:48,779 --> 00:04:52,050 Stephen Koukoulas: you like, delivering on their election promises in many areas. 96 00:04:52,410 --> 00:04:56,010 Stephen Koukoulas: And of course, being sort of also sideswiped, I suppose, 97 00:04:56,010 --> 00:04:58,860 Stephen Koukoulas: by this incredibly high inflation rate that we're seeing. One 98 00:04:58,860 --> 00:05:01,919 Stephen Koukoulas: thing that I did find interesting too looking at that, 99 00:05:02,580 --> 00:05:05,070 Stephen Koukoulas: was that the subsidies, if you can call them that, 100 00:05:05,070 --> 00:05:08,159 Stephen Koukoulas: to energy providers, that will go and lower our electricity 101 00:05:08,160 --> 00:05:11,760 Stephen Koukoulas: prices actually trims about half a percentage point off the CPI. Now 102 00:05:11,760 --> 00:05:14,220 Stephen Koukoulas: you might say, well, that's an artificial adjustment to the 103 00:05:14,220 --> 00:05:16,470 Stephen Koukoulas: inflation rate, but on the way up it was an 104 00:05:16,470 --> 00:05:19,500 Stephen Koukoulas: artificial adjustment on the upside to inflation. So when I 105 00:05:19,500 --> 00:05:22,859 Stephen Koukoulas: look at the treasury forecast for inflation, they're about half 106 00:05:22,860 --> 00:05:26,070 Stephen Koukoulas: a percentage point lower than the RBA forecasts, which came 107 00:05:26,070 --> 00:05:29,219 Stephen Koukoulas: out about a week ago. So there's a curious thing 108 00:05:29,220 --> 00:05:33,240 Stephen Koukoulas: unfolding here. We already know inflation's falling. Does this budget, 109 00:05:33,240 --> 00:05:37,409 Stephen Koukoulas: through a little bit of policy action on the electricity 110 00:05:37,410 --> 00:05:41,880 Stephen Koukoulas: subsidies, cause headline inflation to fall a little more rapidly 111 00:05:41,880 --> 00:05:43,289 Stephen Koukoulas: than there's currently being factored in? 112 00:05:43,950 --> 00:05:46,409 Sean Aylmer: So I read that last night and I found it 113 00:05:46,410 --> 00:05:49,650 Sean Aylmer: hard to believe, to be honest. I mean they're not... 114 00:05:49,920 --> 00:05:53,250 Sean Aylmer: treasury are rigorous in what they do. So no questions there. 115 00:05:53,430 --> 00:05:54,210 Stephen Koukoulas: Oh indeed, yes they are. Yes. 116 00:05:55,020 --> 00:05:59,490 Sean Aylmer: But really? All these spending initiatives, I suppose the energy 117 00:05:59,490 --> 00:06:01,800 Sean Aylmer: ones specifically might help, but what about the rest? 118 00:06:02,430 --> 00:06:05,370 Stephen Koukoulas: Yeah, look, I'll take another step back too. So there 119 00:06:05,370 --> 00:06:09,480 Stephen Koukoulas: was a... In isolation, not counting the offsets through higher 120 00:06:09,480 --> 00:06:13,470 Stephen Koukoulas: taxes, there was an increase of about $ 20 billion in 121 00:06:13,890 --> 00:06:15,450 Stephen Koukoulas: what we might term cost of living pressures, as you 122 00:06:15,450 --> 00:06:18,300 Stephen Koukoulas: said, the Medicare rebate and childcare and these sorts of 123 00:06:18,300 --> 00:06:20,219 Stephen Koukoulas: things. So when you add them all up, it's about 124 00:06:20,220 --> 00:06:22,980 Stephen Koukoulas: 20 billion. You've got to remember that the Australian economy, 125 00:06:23,040 --> 00:06:25,350 Stephen Koukoulas: next financial year, is going to be about $ 2. 7 126 00:06:25,500 --> 00:06:29,130 Stephen Koukoulas: trillion. So okay, 20 billion is still a lot of money 127 00:06:29,130 --> 00:06:31,980 Stephen Koukoulas: that's being pushed into the economy that year. But is 128 00:06:31,980 --> 00:06:34,860 Stephen Koukoulas: it enough to sort of have a material change on 129 00:06:34,860 --> 00:06:38,460 Stephen Koukoulas: the inflation pressures? And to just take a slightly different 130 00:06:38,700 --> 00:06:41,669 Stephen Koukoulas: angle on the inflation momentum right now, we do know 131 00:06:41,670 --> 00:06:44,490 Stephen Koukoulas: that inflation around the world's falling, commodity prices are down, 132 00:06:44,490 --> 00:06:47,010 Stephen Koukoulas: growth is weakening. And in fact, yesterday we saw some 133 00:06:47,010 --> 00:06:50,160 Stephen Koukoulas: very disappointing retail sales numbers come out. So that whole 134 00:06:50,160 --> 00:06:54,659 Stephen Koukoulas: gamut of issues that are causing governments, central banks, the 135 00:06:54,660 --> 00:06:57,570 Stephen Koukoulas: Reserve Bank, financial markets to sort of think, what on 136 00:06:57,570 --> 00:07:01,290 Stephen Koukoulas: earth is happening here, are probably going to swamp whatever 137 00:07:01,320 --> 00:07:04,200 Stephen Koukoulas: payments might be going to GPs or to childcare. 138 00:07:04,680 --> 00:07:06,750 Sean Aylmer: Stay with me, Stephen, we'll be back in a minute. 139 00:07:12,900 --> 00:07:16,650 Sean Aylmer: My guest this morning is economist Stephen Koukoulas. So I've 140 00:07:16,650 --> 00:07:19,860 Sean Aylmer: had the budget, generally you've given it a tick of 141 00:07:19,860 --> 00:07:21,960 Sean Aylmer: approval. I'm not saying you're giving it an eight or 142 00:07:21,960 --> 00:07:24,150 Sean Aylmer: nine out of 10, but it's like a six or 143 00:07:24,150 --> 00:07:24,960 Sean Aylmer: seven out of 10. 144 00:07:25,260 --> 00:07:25,500 Stephen Koukoulas: Yes. 145 00:07:25,590 --> 00:07:28,680 Sean Aylmer: What's it mean for interest rates and the Reserve Bank, 146 00:07:28,680 --> 00:07:31,200 Sean Aylmer: do you think it doesn't make much difference? 147 00:07:31,920 --> 00:07:33,540 Stephen Koukoulas: At the end of the day, probably not. And don't 148 00:07:33,540 --> 00:07:35,490 Stephen Koukoulas: take my word for it because, as you know, Sean, 149 00:07:35,490 --> 00:07:39,000 Stephen Koukoulas: I fall asleep with the money market futures sort of 150 00:07:39,000 --> 00:07:41,430 Stephen Koukoulas: going at the back of my eyeballs. And I've woken 151 00:07:41,430 --> 00:07:44,010 Stephen Koukoulas: up this morning, and the initial reaction last night too, 152 00:07:44,310 --> 00:07:47,040 Stephen Koukoulas: was that the bond futures market barely budged a tick. 153 00:07:47,220 --> 00:07:50,280 Stephen Koukoulas: They saw this coming, these numbers, the surplus for the 154 00:07:50,280 --> 00:07:53,310 Stephen Koukoulas: current year, the deficits in the subsequent year. And in fact, 155 00:07:53,310 --> 00:07:56,670 Stephen Koukoulas: bond yields actually fell a couple of ticks, so really 156 00:07:56,670 --> 00:07:58,890 Stephen Koukoulas: just rounding errors that probably were driven by something else 157 00:07:58,890 --> 00:08:02,370 Stephen Koukoulas: other than the budget. The Aussie dollar was stable. It 158 00:08:02,370 --> 00:08:04,680 Stephen Koukoulas: didn't really move until we saw some of the US 159 00:08:04,680 --> 00:08:07,830 Stephen Koukoulas: price action. But that initial reaction, an hour or two 160 00:08:07,830 --> 00:08:10,980 Stephen Koukoulas: after the budget was handed down and market participants were 161 00:08:10,980 --> 00:08:15,240 Stephen Koukoulas: digesting exactly what these policies might mean for interest rates 162 00:08:15,240 --> 00:08:17,489 Stephen Koukoulas: and the Aussie dollar, and these sort of things, there was 163 00:08:17,490 --> 00:08:18,840 Stephen Koukoulas: a bit of a ho- hum about it. And they 164 00:08:18,840 --> 00:08:21,780 Stephen Koukoulas: sort of moved on to other matters that were coming through. 165 00:08:22,560 --> 00:08:26,550 Sean Aylmer: So the next few weeks, is it the case where 166 00:08:26,580 --> 00:08:30,270 Sean Aylmer: things emerge from the budget that we didn't see upfront 167 00:08:30,660 --> 00:08:33,510 Sean Aylmer: that make a difference to economic policy? Or do you 168 00:08:33,510 --> 00:08:36,540 Sean Aylmer: think what's happened over the past 12 hours or so, we kind of 169 00:08:36,540 --> 00:08:37,290 Sean Aylmer: have the gist of it? 170 00:08:38,730 --> 00:08:43,199 Stephen Koukoulas: There's always something, at least something, possibly two or three things, 171 00:08:43,800 --> 00:08:46,740 Stephen Koukoulas: that emerge in the budget papers, that they're generally not 172 00:08:46,740 --> 00:08:48,750 Stephen Koukoulas: the big ticket items though. So that's the good thing. They're 173 00:08:48,870 --> 00:08:50,400 Stephen Koukoulas: probably not going to be the thing that sort of 174 00:08:50,400 --> 00:08:54,420 Stephen Koukoulas: causes markets to, oh gee, reprice the interest rate outlook 175 00:08:54,420 --> 00:08:56,580 Stephen Koukoulas: up or down, or really to sell the dollar, or 176 00:08:56,580 --> 00:08:58,860 Stephen Koukoulas: anything like that. I don't think there's anything there. But there's 177 00:08:58,860 --> 00:09:02,010 Stephen Koukoulas: always a few little, what do we call it, barnacles that 178 00:09:02,010 --> 00:09:05,010 Stephen Koukoulas: appear in the budget papers in budget statement number seven 179 00:09:05,010 --> 00:09:09,210 Stephen Koukoulas: on page 843... Might have to check that one later 180 00:09:09,210 --> 00:09:12,360 Stephen Koukoulas: on this morning. So there's always one or two little items that 181 00:09:12,360 --> 00:09:15,929 Stephen Koukoulas: do pop up that sort of can change a narrative. 182 00:09:15,929 --> 00:09:18,420 Stephen Koukoulas: But for the here and now, I think, my looking 183 00:09:18,420 --> 00:09:21,870 Stephen Koukoulas: at the commentary that I've seen, my own assessment, looking 184 00:09:21,870 --> 00:09:24,780 Stephen Koukoulas: at financial market's reaction, that initial reaction to it, it's 185 00:09:24,780 --> 00:09:29,939 Stephen Koukoulas: all... yeah, it's a solid tick. It's probably not the 186 00:09:29,940 --> 00:09:32,400 Stephen Koukoulas: thing that causes sort of sweetness and light to emerge 187 00:09:32,400 --> 00:09:35,760 Stephen Koukoulas: everywhere, but it's a solid effort, given the circumstances of 188 00:09:36,059 --> 00:09:39,780 Stephen Koukoulas: high inflation, slowing growth and what's happening in the global economy. 189 00:09:40,080 --> 00:09:42,000 Sean Aylmer: Stephen, thank you very much for talking to Fear and 190 00:09:42,000 --> 00:09:44,010 Sean Aylmer: Greed this morning. You must be exhausted. I hope you 191 00:09:44,010 --> 00:09:45,479 Sean Aylmer: don't have too big a day in front of you. 192 00:09:46,230 --> 00:09:48,780 Stephen Koukoulas: It's another busy day. I've got more things to do, 193 00:09:48,780 --> 00:09:51,390 Stephen Koukoulas: but hopefully over the weekend I can sit back and 194 00:09:51,630 --> 00:09:55,111 Stephen Koukoulas: enjoy the football, horse racing, and whatever else is going on. 195 00:09:55,111 --> 00:09:59,940 Sean Aylmer: Fantastic. Thank you, Stephen. That was Stephen Koukoulas, aka The Kouk. He's a Managing 196 00:09:59,940 --> 00:10:04,710 Sean Aylmer: Director of Market Economics. You'll find him at thekouk. com, T- H- E- K- O- U- K. com, 197 00:10:05,220 --> 00:10:07,710 Sean Aylmer: or on Twitter using the handle TheKouk. This is the 198 00:10:07,710 --> 00:10:10,020 Sean Aylmer: Fear and Greed daily interview. Join us every morning for 199 00:10:10,020 --> 00:10:12,929 Sean Aylmer: the full episode of Fear and Greed, Australia's most popular 200 00:10:12,929 --> 00:10:15,870 Sean Aylmer: business podcast. I'm Sean Aylmer. Enjoy your day.