1 00:00:05,640 --> 00:00:08,280 Speaker 1: Welcome to Fear and Greed Business Interview. I'm Sean Aylmer. 2 00:00:08,360 --> 00:00:11,040 Speaker 1: Australia is heading for a decade of budget deficits on 3 00:00:11,080 --> 00:00:13,640 Speaker 1: the back of big spending by governments, but at the 4 00:00:13,680 --> 00:00:16,840 Speaker 1: same time, public spending is the only thing keeping us 5 00:00:16,840 --> 00:00:19,040 Speaker 1: out of a recession. Right now, it's all contributing to 6 00:00:19,079 --> 00:00:21,360 Speaker 1: the inflation challenge for the Reserve Bank, which means interest 7 00:00:21,400 --> 00:00:24,360 Speaker 1: rates are still sitting at twelve year highs, the benchmark 8 00:00:24,360 --> 00:00:27,360 Speaker 1: at four point three five percent, even as other central 9 00:00:27,360 --> 00:00:30,480 Speaker 1: banks around the world cut them. We're finishing twenty twenty 10 00:00:30,480 --> 00:00:34,760 Speaker 1: four with quite the economic puzzle. Who better to put 11 00:00:34,760 --> 00:00:38,840 Speaker 1: it all together than Chief economist at Ey Sharell Murphy Sharrell. 12 00:00:38,920 --> 00:00:39,960 Speaker 1: Welcome back to Fear and Greed. 13 00:00:40,680 --> 00:00:42,279 Speaker 2: Thank you, Sean, Thank you for having me. 14 00:00:42,600 --> 00:00:47,519 Speaker 1: The puzzle king we're calling you from now. What do 15 00:00:47,560 --> 00:00:51,160 Speaker 1: you make of the Australian economy with that my IFO 16 00:00:51,560 --> 00:00:54,520 Speaker 1: coming through in the last couple of days as we 17 00:00:54,640 --> 00:00:57,080 Speaker 1: kind of head into the Christmas period and then into 18 00:00:57,200 --> 00:00:59,520 Speaker 1: next year. Where does the economy stand? 19 00:01:00,440 --> 00:01:05,760 Speaker 2: Well, it could be better, Showan couldn't elsate. Look, I'm 20 00:01:05,760 --> 00:01:08,200 Speaker 2: going to start with the upside though, right so we've 21 00:01:08,240 --> 00:01:11,880 Speaker 2: got an unemployment rate of three point nine percent, which 22 00:01:12,200 --> 00:01:16,399 Speaker 2: is pretty phenomenal. That's actually unchanged is December last year, 23 00:01:16,440 --> 00:01:18,160 Speaker 2: if you were to kind of draw a line through 24 00:01:18,240 --> 00:01:22,080 Speaker 2: the year, and that's you know, terrific news. Obviously, this 25 00:01:22,120 --> 00:01:24,160 Speaker 2: is the kind of very human side of the economy. 26 00:01:24,480 --> 00:01:26,840 Speaker 2: People have jobs and that means that they can do 27 00:01:27,160 --> 00:01:29,679 Speaker 2: a lot more than they don't have jobs, including, of course, 28 00:01:29,680 --> 00:01:33,480 Speaker 2: pay their mortgage, get by, pay for the grocery bills. Now, 29 00:01:33,800 --> 00:01:36,440 Speaker 2: the not so good part, of course, is inflation is 30 00:01:36,440 --> 00:01:40,400 Speaker 2: still elevated. With underlying inflation at three and a half percent, 31 00:01:40,480 --> 00:01:43,440 Speaker 2: it means that the sort of purchasing power of household 32 00:01:43,880 --> 00:01:47,080 Speaker 2: is not great. But you know, that too has come 33 00:01:47,160 --> 00:01:49,920 Speaker 2: down a lot over the last twelve months. When we 34 00:01:50,360 --> 00:01:53,160 Speaker 2: look at the headline rate, for example, it was four 35 00:01:53,200 --> 00:01:56,160 Speaker 2: point one percent last December and it's no two point 36 00:01:56,200 --> 00:01:59,919 Speaker 2: eight percent, so a bit better there. And the government 37 00:02:00,000 --> 00:02:02,000 Speaker 2: obviously been rich and quite hard to try and pull 38 00:02:02,080 --> 00:02:06,840 Speaker 2: down that inflation number with rebates and state government's put 39 00:02:06,880 --> 00:02:11,519 Speaker 2: in place all sorts of help for households, but we're 40 00:02:11,560 --> 00:02:14,320 Speaker 2: still not seeing the hassholds that got respond to that 41 00:02:14,520 --> 00:02:18,200 Speaker 2: very well. So basically hasshold consumption is flat over the year. 42 00:02:18,240 --> 00:02:20,960 Speaker 2: There's really not much happening there at all. You know, 43 00:02:21,000 --> 00:02:24,400 Speaker 2: we've got other things, you know, kind of a bit level. 44 00:02:24,480 --> 00:02:29,040 Speaker 2: So business investment is okay, but not amazing. Something that 45 00:02:29,120 --> 00:02:31,920 Speaker 2: has been a very big positive for the economy of 46 00:02:32,000 --> 00:02:36,480 Speaker 2: late recently is the high commodity prices high export volumes. 47 00:02:36,840 --> 00:02:40,320 Speaker 2: But these two are starting to come off on account 48 00:02:40,320 --> 00:02:42,440 Speaker 2: of the fact that commodity prices are a bit lower. 49 00:02:42,919 --> 00:02:46,000 Speaker 2: So it's it's look, we're slowing down, there's no doubt 50 00:02:46,000 --> 00:02:48,560 Speaker 2: about it. And the labor market, if anything, is kind 51 00:02:48,560 --> 00:02:51,880 Speaker 2: of a bit of an outlier indicator, but also very welcome. 52 00:02:52,720 --> 00:02:56,320 Speaker 1: What about government spending came out. We're obviously in for 53 00:02:56,680 --> 00:02:59,360 Speaker 1: deficits for the next for the next ten years, but 54 00:03:00,040 --> 00:03:02,600 Speaker 1: in the forecast years for the next four years. You wrote, 55 00:03:03,480 --> 00:03:05,560 Speaker 1: I can't quite remember the words, but along the lines 56 00:03:05,600 --> 00:03:07,600 Speaker 1: of people know that there's a problem and there's trying 57 00:03:07,639 --> 00:03:10,440 Speaker 1: to get frustrated with the government for not doing anything 58 00:03:10,720 --> 00:03:11,639 Speaker 1: about it. 59 00:03:11,800 --> 00:03:17,400 Speaker 2: Just explain that, Yeah, so the spending that's in this 60 00:03:17,480 --> 00:03:22,200 Speaker 2: budget is pretty extensive, and it's not being i guess 61 00:03:22,639 --> 00:03:25,720 Speaker 2: recouped by the additional revenue that the government's being able 62 00:03:25,720 --> 00:03:28,080 Speaker 2: to bring in. So in other words, the budget position 63 00:03:28,120 --> 00:03:32,320 Speaker 2: gets worse because expenditure is basically growing higher than revenue. 64 00:03:32,800 --> 00:03:36,280 Speaker 2: That means that the sort of overall physical position is deteriorating. 65 00:03:36,960 --> 00:03:40,280 Speaker 2: The problem with the sort of well we just kind 66 00:03:40,280 --> 00:03:42,640 Speaker 2: of can't catch up, which was sort of the line 67 00:03:42,640 --> 00:03:46,080 Speaker 2: that the government gave us today, is that many of 68 00:03:46,080 --> 00:03:49,880 Speaker 2: these spending pressures, while not exactly known, have definitely been 69 00:03:49,920 --> 00:03:53,120 Speaker 2: known from a thematic point of view for some time. 70 00:03:53,720 --> 00:03:56,400 Speaker 2: This is the whole reason we have an Intergenerational Report 71 00:03:56,480 --> 00:03:59,080 Speaker 2: is to try and highlight some of these structural issues 72 00:03:59,480 --> 00:04:03,640 Speaker 2: in the and the last Intergenerational Report back in twenty 73 00:04:03,760 --> 00:04:06,240 Speaker 2: twenty three did highlights a lot of the things that 74 00:04:06,320 --> 00:04:09,320 Speaker 2: we're having to fix up now. And that's not the 75 00:04:09,360 --> 00:04:12,400 Speaker 2: first one either. You look back on those IGRs the 76 00:04:12,480 --> 00:04:17,080 Speaker 2: same story. I guess the difficulty here is there's a 77 00:04:17,080 --> 00:04:20,520 Speaker 2: lot more spending, but there's not a lot of offsetting 78 00:04:20,560 --> 00:04:24,040 Speaker 2: cuts in the budget to make up for it, and 79 00:04:24,160 --> 00:04:29,200 Speaker 2: nor is there sort of higher revenue raising ambitions. Productivity. 80 00:04:29,320 --> 00:04:31,760 Speaker 2: I think the government is trying on this one, like 81 00:04:31,839 --> 00:04:35,240 Speaker 2: in terms of there's some new policy on the national 82 00:04:35,240 --> 00:04:39,159 Speaker 2: productivity payments are just announced by the Treasurer recently. There's 83 00:04:39,160 --> 00:04:43,480 Speaker 2: a big Competition policy review going on. If it can 84 00:04:43,560 --> 00:04:46,919 Speaker 2: genuinely use these types of policies to increase the growth 85 00:04:47,000 --> 00:04:49,640 Speaker 2: rate of the economy so increase the size of the pie, 86 00:04:50,120 --> 00:04:51,760 Speaker 2: it can get away with it. In other words, it 87 00:04:52,240 --> 00:04:54,840 Speaker 2: can spend a bit more. But yeah, you put all 88 00:04:54,839 --> 00:04:56,880 Speaker 2: that together and it's just not adding up right now? 89 00:04:57,520 --> 00:04:59,880 Speaker 1: Okay, wait, surell. We're going to take a quick break 90 00:05:00,000 --> 00:05:10,560 Speaker 1: and we'll come back and discuss government spending. I'm talking 91 00:05:10,600 --> 00:05:14,919 Speaker 1: to Charrelle Murphy, chief economist at EY. How much should 92 00:05:14,920 --> 00:05:18,200 Speaker 1: we worry about it? We talk about deficit budget deficits, 93 00:05:18,360 --> 00:05:21,360 Speaker 1: and we had massive budget deficits during the COVID period. 94 00:05:21,560 --> 00:05:23,520 Speaker 1: We came out growth was so strong we seem to 95 00:05:23,520 --> 00:05:27,320 Speaker 1: be able to wind them back really quickly. We listened 96 00:05:27,320 --> 00:05:29,400 Speaker 1: to Donald Trump about how much he's going to spend. 97 00:05:30,320 --> 00:05:32,200 Speaker 1: Not for you, surely you're an economist, right, but for 98 00:05:32,279 --> 00:05:34,799 Speaker 1: people like me. How much should I be worried about? 99 00:05:34,960 --> 00:05:39,240 Speaker 1: Government's continually talking about deficits and we have to pay 100 00:05:39,279 --> 00:05:39,960 Speaker 1: them back at some point? 101 00:05:40,000 --> 00:05:43,640 Speaker 2: I presume. Yeah, And Sean here is good economists as 102 00:05:43,680 --> 00:05:45,400 Speaker 2: anyone I know, So don't underread. 103 00:05:47,200 --> 00:05:48,799 Speaker 1: That's like a Christmas present comment. 104 00:05:48,839 --> 00:05:57,200 Speaker 2: That is, they matter because when we look to the future. 105 00:05:57,480 --> 00:06:01,320 Speaker 2: We don't have a buffer again in the accounts, in 106 00:06:01,360 --> 00:06:04,520 Speaker 2: the financial and the government's financial accounts, and we sort 107 00:06:04,520 --> 00:06:07,080 Speaker 2: of need to have a buffer because we know things 108 00:06:07,120 --> 00:06:10,520 Speaker 2: will go wrong in future. You know, we didn't predict 109 00:06:10,560 --> 00:06:13,520 Speaker 2: the GFC, we didn't predict the pandemic, but when they came, 110 00:06:14,400 --> 00:06:16,360 Speaker 2: the government had to spend a lot of money to 111 00:06:16,440 --> 00:06:18,880 Speaker 2: keep the economy kind of float and get through that 112 00:06:18,960 --> 00:06:23,160 Speaker 2: difficult period. So if we don't kind of rebuild our buffer, 113 00:06:23,400 --> 00:06:25,679 Speaker 2: then that we could be in a bit of strife 114 00:06:25,680 --> 00:06:29,640 Speaker 2: when the time comes to potentially save us again. The 115 00:06:29,720 --> 00:06:33,240 Speaker 2: other thing, of course, is that we are there's nothing 116 00:06:33,240 --> 00:06:35,840 Speaker 2: wrong with debt, and you know clearly, you know we 117 00:06:35,880 --> 00:06:38,799 Speaker 2: need some debt, we need some investment in the economy. 118 00:06:39,240 --> 00:06:41,800 Speaker 2: But it's just the rate of which is growing. At 119 00:06:41,839 --> 00:06:45,479 Speaker 2: the moment, it's rising much faster than it has in 120 00:06:45,520 --> 00:06:48,120 Speaker 2: the past. Two levels that we haven't seen before. I 121 00:06:48,120 --> 00:06:51,880 Speaker 2: have both the commonwealth and the state levels allied. And 122 00:06:52,279 --> 00:06:54,080 Speaker 2: you know, we don't have a plan to pay it back, 123 00:06:54,120 --> 00:06:55,919 Speaker 2: which basically means that we're going to pass it on 124 00:06:55,960 --> 00:06:58,440 Speaker 2: to our kids. And I thought there was a certain 125 00:06:58,480 --> 00:07:03,040 Speaker 2: irony yesterday in the childcare announcements. We're in the Midyuar update. 126 00:07:03,200 --> 00:07:07,120 Speaker 2: You know, these are great policies, access to childcare for 127 00:07:07,240 --> 00:07:12,280 Speaker 2: more kids, increase in the payments for childcare staff. But ironically, 128 00:07:12,440 --> 00:07:13,920 Speaker 2: these kids that are probably going to be paying for 129 00:07:13,920 --> 00:07:16,880 Speaker 2: it when they go into the workforce. So you know, 130 00:07:17,040 --> 00:07:20,600 Speaker 2: it's we need to kind of just have you know, 131 00:07:20,880 --> 00:07:23,600 Speaker 2: more of a clamp down on spending or raise revenue, 132 00:07:23,720 --> 00:07:26,440 Speaker 2: or even better than both of those, increased productivity in 133 00:07:26,440 --> 00:07:27,000 Speaker 2: the economy. 134 00:07:27,760 --> 00:07:30,680 Speaker 1: So the next twelve months, what would you like to 135 00:07:30,680 --> 00:07:34,560 Speaker 1: see happen in the economy? Productivity improved. There's one that 136 00:07:34,600 --> 00:07:37,120 Speaker 1: you've said that maybe I should broaden the quest and 137 00:07:37,120 --> 00:07:39,000 Speaker 1: not what you'd just like to see, but what you 138 00:07:39,160 --> 00:07:41,680 Speaker 1: think you'll see in terms of the unemployment rate, in 139 00:07:41,720 --> 00:07:44,200 Speaker 1: terms of inflation, in terms of interest rates. 140 00:07:44,960 --> 00:07:48,200 Speaker 2: Well, I think the inflation rate will probably continue to ease, 141 00:07:48,240 --> 00:07:50,600 Speaker 2: which is good news. I think the Reserve Bank will 142 00:07:50,680 --> 00:07:54,200 Speaker 2: kind of make sure that happens by keeping rates at 143 00:07:54,200 --> 00:07:58,440 Speaker 2: this kind of contractioning level. The unemployment rate probably will 144 00:07:58,440 --> 00:08:01,560 Speaker 2: increase a little bit, and that be reflecting the sort 145 00:08:01,560 --> 00:08:04,400 Speaker 2: of SLOWDAN and the GDP growth that we've already seen. 146 00:08:05,480 --> 00:08:08,000 Speaker 2: There's a lot of unknowns though, of course, in large 147 00:08:08,080 --> 00:08:12,080 Speaker 2: part because we have obviously a new administration coming into 148 00:08:12,120 --> 00:08:15,480 Speaker 2: the US. You know, Trump has a lot of policies 149 00:08:15,520 --> 00:08:19,800 Speaker 2: which could really upset the global trading system, could potentially 150 00:08:19,880 --> 00:08:23,240 Speaker 2: cause some excitement in the short term and extra activity, 151 00:08:23,280 --> 00:08:27,320 Speaker 2: but then actually because of deterioration in growth later on, 152 00:08:27,680 --> 00:08:30,760 Speaker 2: So you know, that throws up uncertainty. What would I 153 00:08:30,880 --> 00:08:33,360 Speaker 2: like to see. I'd love to see some tax reform. 154 00:08:34,640 --> 00:08:36,719 Speaker 2: This sort of number one thing on the list at 155 00:08:36,720 --> 00:08:39,839 Speaker 2: the moment. And you know clearly this is not something 156 00:08:39,880 --> 00:08:44,000 Speaker 2: you can design, implement and put in place in a 157 00:08:44,040 --> 00:08:46,880 Speaker 2: twelve month period, but we should be talking about it. 158 00:08:47,000 --> 00:08:48,560 Speaker 2: You know, we really have to get this back on 159 00:08:48,600 --> 00:08:52,280 Speaker 2: the agenda, and ideally it's quite a big, extensive, root 160 00:08:52,280 --> 00:08:55,160 Speaker 2: and branch review of the tax system, including how all 161 00:08:55,200 --> 00:08:57,840 Speaker 2: the Commonwealth and the state taxes interact. 162 00:08:58,120 --> 00:09:00,400 Speaker 1: You didn't mention interest rates, Tourrell. I'm going to ask you, 163 00:09:00,440 --> 00:09:02,319 Speaker 1: what do you think will happen to interest rates in 164 00:09:02,360 --> 00:09:03,160 Speaker 1: the next twelve months? 165 00:09:04,120 --> 00:09:04,840 Speaker 2: Yeah, my bad. 166 00:09:05,480 --> 00:09:08,000 Speaker 1: Interesting, I thought you were avoiding it. 167 00:09:08,440 --> 00:09:11,559 Speaker 2: Well, you know, trying to avoid that in this occupation. 168 00:09:13,240 --> 00:09:16,240 Speaker 2: The interest rates, look, I think they will come down 169 00:09:16,400 --> 00:09:20,319 Speaker 2: next year, probably not by very much, though, I don't 170 00:09:20,400 --> 00:09:21,920 Speaker 2: think that the Result Bank is going to be in 171 00:09:21,920 --> 00:09:25,440 Speaker 2: a position to lawer rates at its next meeting, which 172 00:09:25,480 --> 00:09:27,959 Speaker 2: is in February, which means it's kind of a Q 173 00:09:28,200 --> 00:09:31,880 Speaker 2: two proposition. Again, it depends, of course, on how the 174 00:09:31,880 --> 00:09:35,240 Speaker 2: inflation numbers on board over the next few months and 175 00:09:35,600 --> 00:09:39,680 Speaker 2: activity levels as well. But when you think about this 176 00:09:39,720 --> 00:09:43,400 Speaker 2: from the Reserve Bank's point of view, the economy doesn't 177 00:09:43,440 --> 00:09:46,240 Speaker 2: appear to need a whole lot of extra stimulus because 178 00:09:46,280 --> 00:09:49,280 Speaker 2: the unemployment rate is really low, right, But it does 179 00:09:49,320 --> 00:09:52,800 Speaker 2: have an inflation problem. So the policy of least regret 180 00:09:53,360 --> 00:09:56,480 Speaker 2: is to hold interest rates where they are, just be 181 00:09:56,640 --> 00:10:01,520 Speaker 2: sure that that inflation story is evolved as their hope, 182 00:10:01,600 --> 00:10:04,439 Speaker 2: and then you know they can they can act on 183 00:10:04,960 --> 00:10:08,720 Speaker 2: glaury rates. But until they're sure of that, to me, 184 00:10:08,800 --> 00:10:10,640 Speaker 2: it's like, well, why would they Why would they cut 185 00:10:10,679 --> 00:10:11,720 Speaker 2: rates at this point in time? 186 00:10:12,240 --> 00:10:13,800 Speaker 1: Schrell, thanks for joining Fear and Greed. 187 00:10:14,040 --> 00:10:14,559 Speaker 2: My pleasure. 188 00:10:14,880 --> 00:10:17,680 Speaker 1: That was ey Chief Economist Cherrell Murphy. This is the 189 00:10:17,720 --> 00:10:20,120 Speaker 1: Fear and Greed Business Interview. Join us every morning for 190 00:10:20,160 --> 00:10:23,080 Speaker 1: the full episode of Fear and Greed Daily business years 191 00:10:23,080 --> 00:10:25,480 Speaker 1: for people who make their own decisions. I'm Sean Elmer. 192 00:10:25,880 --> 00:10:31,079 Speaker 1: Enjoy your day