1 00:00:03,490 --> 00:00:06,569 Michael Thompson: Welcome to Fear and Greed special coverage of the 2022 2 00:00:06,570 --> 00:00:10,580 Michael Thompson: federal budget. I'm Michael Thompson, last night, treasurer, Josh Friedenberg 3 00:00:10,580 --> 00:00:13,280 Michael Thompson: handed down his budget. And as you can expect, there 4 00:00:13,280 --> 00:00:16,880 Michael Thompson: is a lot to unpack. This is hardly an ordinary 5 00:00:17,030 --> 00:00:20,780 Michael Thompson: budget. For starters, we're still dealing with the extraordinary economic 6 00:00:20,780 --> 00:00:25,150 Michael Thompson: impact of COVID 19 and the huge amount of financial support 7 00:00:25,150 --> 00:00:28,930 Michael Thompson: and stimulus that the government provided, unemployment is currently at 8 00:00:28,930 --> 00:00:33,280 Michael Thompson: 4%, extremely low and expected to go lower. Then we 9 00:00:33,280 --> 00:00:36,130 Michael Thompson: have an election coming up in may and a pre- 10 00:00:36,130 --> 00:00:40,320 Michael Thompson: election budget usually means plenty of big spending measures to 11 00:00:40,320 --> 00:00:43,460 Michael Thompson: get our heads around all of it. We're very fortunate 12 00:00:43,460 --> 00:00:46,250 Michael Thompson: to have the assistance of Stephen Koukoulas, one of Australia's 13 00:00:46,250 --> 00:00:51,240 Michael Thompson: most influential economists. Stephen's experience is pretty remarkable, really ranging 14 00:00:51,240 --> 00:00:53,840 Michael Thompson: from being a bank chief economist, to being the senior 15 00:00:53,840 --> 00:00:57,120 Michael Thompson: economic advisor to a prime minister. He's also someone who 16 00:00:57,120 --> 00:01:00,460 Michael Thompson: sees budget pretty much as Christmas, Stephen. Good morning, 17 00:01:00,750 --> 00:01:02,740 Stephen Koukoulas: Good morning. What a night it was last night. 18 00:01:03,370 --> 00:01:06,300 Michael Thompson: And so that would technically make this morning boxing day, 19 00:01:06,360 --> 00:01:09,020 Michael Thompson: budget boxing day. So now we can start kind of 20 00:01:09,390 --> 00:01:11,890 Michael Thompson: you playing with all the toys and you start kind of going through 21 00:01:11,890 --> 00:01:13,160 Michael Thompson: it and having a look at it all in a 22 00:01:13,170 --> 00:01:17,209 Michael Thompson: bit more detail. Can we start with the big picture 23 00:01:17,360 --> 00:01:19,450 Michael Thompson: and kind of give us an idea of kind of 24 00:01:19,520 --> 00:01:21,899 Michael Thompson: the environment that we're operating in. How does the state 25 00:01:21,900 --> 00:01:24,529 Michael Thompson: of the economy compare with where it was a year 26 00:01:24,530 --> 00:01:29,910 Michael Thompson: ago or two years ago, or even just a few 27 00:01:29,910 --> 00:01:30,569 Michael Thompson: months ago now? 28 00:01:30,920 --> 00:01:34,000 Stephen Koukoulas: Look, the good news of the budget and something that 29 00:01:34,000 --> 00:01:37,100 Stephen Koukoulas: we've been talking about in our weekly updates and just 30 00:01:37,100 --> 00:01:40,400 Stephen Koukoulas: the general analysis of the economy is that we're in pretty 31 00:01:40,400 --> 00:01:44,990 Stephen Koukoulas: good shape. The economy has recovered from the COVID crisis 32 00:01:45,220 --> 00:01:49,890 Stephen Koukoulas: in really good shape. So economic growth is strong. We 33 00:01:49,890 --> 00:01:54,150 Stephen Koukoulas: know that the labor market is improving rapidly, that we 34 00:01:54,150 --> 00:01:56,900 Stephen Koukoulas: know officially that the unemployment rate is currently at 4%. 35 00:01:56,900 --> 00:02:00,590 Stephen Koukoulas: And in the budget forecast, they've got the unemployment rate 36 00:02:00,590 --> 00:02:03,480 Stephen Koukoulas: falling to three and three quarter percent, three with the 37 00:02:03,480 --> 00:02:07,250 Stephen Koukoulas: remainder of 2022, which is I think a pretty much 38 00:02:07,260 --> 00:02:10,459 Stephen Koukoulas: on consensus forecast for the unemployment rate. So that's really 39 00:02:10,460 --> 00:02:12,870 Stephen Koukoulas: good news. And when you think about economics and economic 40 00:02:12,870 --> 00:02:16,100 Stephen Koukoulas: policy management, one of the critical issues is getting the 41 00:02:16,100 --> 00:02:19,410 Stephen Koukoulas: unemployment rate low. And if we look back in history, 42 00:02:19,500 --> 00:02:24,080 Stephen Koukoulas: a 3. 75% unemployment rate is the lowest since 1974. 43 00:02:24,360 --> 00:02:28,480 Stephen Koukoulas: So it's almost 50 years ago. So in summary, the 44 00:02:28,480 --> 00:02:32,470 Stephen Koukoulas: economic context with which the budget's been brought down is 45 00:02:32,470 --> 00:02:37,020 Stephen Koukoulas: a strong economy, albeit as we've been seeing with the 46 00:02:37,020 --> 00:02:39,570 Stephen Koukoulas: sort of like the headline issue of petrol prices and 47 00:02:39,570 --> 00:02:41,990 Stephen Koukoulas: the cost of living pressures, which is a legitimate issue, 48 00:02:42,700 --> 00:02:47,600 Stephen Koukoulas: inflation in other words is very high and accelerating. And 49 00:02:47,600 --> 00:02:51,120 Stephen Koukoulas: that is something that's evident in the treasury forecast in 50 00:02:51,120 --> 00:02:52,389 Stephen Koukoulas: the budget papers as well. 51 00:02:53,210 --> 00:02:57,470 Michael Thompson: You mentioned the employment figures and the fact that unemployment 52 00:02:57,470 --> 00:02:59,250 Michael Thompson: is forecast to get as low as three and three 53 00:02:59,250 --> 00:03:03,990 Michael Thompson: quarter percent. Just briefly what's the economic impact of this, 54 00:03:03,990 --> 00:03:06,570 Michael Thompson: because it obviously benefits in a couple of ways that 55 00:03:06,900 --> 00:03:10,730 Michael Thompson: number one, you got more people working and obviously then more income 56 00:03:10,730 --> 00:03:13,020 Michael Thompson: tax receipts for the government. But on the other side, 57 00:03:13,090 --> 00:03:16,100 Michael Thompson: there's also less to pay out in welfare payments. 58 00:03:16,389 --> 00:03:18,450 Stephen Koukoulas: Oh yeah, indeed. And that's why the bottom line of 59 00:03:18,450 --> 00:03:21,389 Stephen Koukoulas: the budget when we had my ethos, the midyear economic 60 00:03:21,389 --> 00:03:25,739 Stephen Koukoulas: and fiscal outlook, which was released in December, so only 61 00:03:25,740 --> 00:03:29,110 Stephen Koukoulas: three and a half months ago, they were projecting a budget 62 00:03:29,110 --> 00:03:33,139 Stephen Koukoulas: deficit, just under a hundred billion, 99 billion. And now 63 00:03:33,139 --> 00:03:35,640 Stephen Koukoulas: we've got a budget deficit that's in the 70 billion 64 00:03:35,640 --> 00:03:38,710 Stephen Koukoulas: region. So an improvement in the budget bottom line, just simply 65 00:03:38,710 --> 00:03:41,570 Stephen Koukoulas: because they're economy is better. It's stronger that they're collecting more 66 00:03:41,570 --> 00:03:46,670 Stephen Koukoulas: revenue from PAYG taxpayers. And of course the commodity price 67 00:03:46,670 --> 00:03:49,400 Stephen Koukoulas: cycle has been stronger too. So the company tax receipts 68 00:03:49,400 --> 00:03:52,400 Stephen Koukoulas: are also improving. And as you alluded to that, the 69 00:03:52,400 --> 00:03:55,080 Stephen Koukoulas: outlays are a little less than they assume too. So we've 70 00:03:55,080 --> 00:03:59,340 Stephen Koukoulas: got what we call in economics, the automatic stabilizers, the 71 00:03:59,340 --> 00:04:02,589 Stephen Koukoulas: things that impact the budget bottom line without any change 72 00:04:02,590 --> 00:04:06,560 Stephen Koukoulas: in tax or spending or policy. They're working to improve 73 00:04:06,560 --> 00:04:08,760 Stephen Koukoulas: the budget bottom line. And I suppose that is one 74 00:04:08,760 --> 00:04:13,140 Stephen Koukoulas: element of the good news in the budget that we 75 00:04:13,140 --> 00:04:13,870 Stephen Koukoulas: saw last night. 76 00:04:14,930 --> 00:04:18,700 Michael Thompson: Okay. Speaking of the budget bottom line and a few 77 00:04:18,700 --> 00:04:22,510 Michael Thompson: years ago, the attention was always on the budget being 78 00:04:22,510 --> 00:04:25,240 Michael Thompson: in surplus. And the principle of back in black, I 79 00:04:25,630 --> 00:04:29,610 Michael Thompson: is the government projecting towards balance at any point in 80 00:04:29,610 --> 00:04:30,180 Michael Thompson: the future? 81 00:04:30,890 --> 00:04:34,180 Stephen Koukoulas: No, the short answer is no, we do not have 82 00:04:34,180 --> 00:04:37,929 Stephen Koukoulas: a profile where the budget will be sustainably in budget 83 00:04:37,930 --> 00:04:41,900 Stephen Koukoulas: surplus, even going out, certainly go on the forward estimates. And 84 00:04:42,089 --> 00:04:43,940 Stephen Koukoulas: we've got to remember how the budget papers are framed. 85 00:04:43,990 --> 00:04:49,570 Stephen Koukoulas: They have realistic assumptions through to the financial year, 2025/ 26. 86 00:04:49,630 --> 00:04:52,600 Stephen Koukoulas: So gosh, that's four years from now. And even then 87 00:04:52,600 --> 00:04:56,029 Stephen Koukoulas: they've still got a fairly hefty budget deficit projected there. 88 00:04:56,029 --> 00:05:00,130 Stephen Koukoulas: So even with an unbroken stream of economic growth and 89 00:05:00,130 --> 00:05:03,330 Stephen Koukoulas: good employment numbers, as we're just discussing, they still have 90 00:05:03,330 --> 00:05:07,859 Stephen Koukoulas: a budget deficit. So in a sense that, I don't 91 00:05:07,860 --> 00:05:12,050 Stephen Koukoulas: know, the rhetoric around improving the budget, repairing the budget, 92 00:05:12,400 --> 00:05:14,770 Stephen Koukoulas: saving for a rainy day, as we saw during the 93 00:05:14,770 --> 00:05:19,200 Stephen Koukoulas: global financial crisis 13 years ago, and the COVID downturn 94 00:05:19,240 --> 00:05:20,770 Stephen Koukoulas: in the last couple of years that we're all too 95 00:05:20,770 --> 00:05:23,710 Stephen Koukoulas: familiar with. You do need in my view to sort 96 00:05:23,710 --> 00:05:29,040 Stephen Koukoulas: of when the economy strong replenish the budget. And if that 97 00:05:29,040 --> 00:05:32,350 Stephen Koukoulas: leads to a period where we have surpluses and an 98 00:05:32,350 --> 00:05:35,839 Stephen Koukoulas: improvement in the budget position, and the government will actually 99 00:05:35,839 --> 00:05:38,020 Stephen Koukoulas: giving money to the future fund because they're running budget 100 00:05:38,020 --> 00:05:41,010 Stephen Koukoulas: surpluses. Well, what a lovely problem that would be. But 101 00:05:41,260 --> 00:05:44,210 Stephen Koukoulas: the last, as we look in the Ford estimates, now 102 00:05:44,210 --> 00:05:47,659 Stephen Koukoulas: that we've got budget deficits of a pretty substantial nature 103 00:05:47,660 --> 00:05:51,270 Stephen Koukoulas: still right out to the middle 2020s. 104 00:05:52,490 --> 00:05:54,120 Michael Thompson: I want to talk to you in a second about 105 00:05:54,520 --> 00:05:57,229 Michael Thompson: the fact that the priority certainly seems to have been 106 00:05:57,589 --> 00:06:00,350 Michael Thompson: on spending. And it's probably no coincidence that there is 107 00:06:00,350 --> 00:06:02,890 Michael Thompson: an election coming up. And so there hasn't been much effort. 108 00:06:03,230 --> 00:06:07,219 Michael Thompson: It appears made towards budget repair, but first you mentioned 109 00:06:07,220 --> 00:06:11,710 Michael Thompson: before the commodity prices, and I'm interested to see how 110 00:06:11,710 --> 00:06:16,339 Michael Thompson: much of the forecasts based on a particular snapshot at 111 00:06:16,390 --> 00:06:20,860 Michael Thompson: particular time, because we've obviously seen some fairly significant fluctuations 112 00:06:20,860 --> 00:06:24,410 Michael Thompson: in prices and some really fantastic prices for things like 113 00:06:24,410 --> 00:06:27,810 Michael Thompson: coal and iron ore, but I mean, things can move around 114 00:06:27,810 --> 00:06:31,349 Michael Thompson: substantially. So how much is actually certain moving forward. 115 00:06:31,670 --> 00:06:35,000 Stephen Koukoulas: As hard as it is to pick the entire race card 116 00:06:35,000 --> 00:06:39,040 Stephen Koukoulas: at round grace course on a Saturday. So it is 117 00:06:39,040 --> 00:06:43,680 Stephen Koukoulas: to forecast iron ore, coal prices. There's really important things 118 00:06:43,680 --> 00:06:46,370 Stephen Koukoulas: for the Australian economy. And I've been involved in that 119 00:06:46,370 --> 00:06:50,320 Stephen Koukoulas: and been horribly wrong. I don't know the demand of 120 00:06:50,320 --> 00:06:52,620 Stephen Koukoulas: supply issues in coal and iron ore, and nor does 121 00:06:52,620 --> 00:06:56,409 Stephen Koukoulas: the treasury. And I think that's not a criticism, but it's a 122 00:06:56,650 --> 00:07:00,979 Stephen Koukoulas: realistic, I suppose assessment of how some of these budget 123 00:07:00,980 --> 00:07:05,070 Stephen Koukoulas: numbers can just swing on the basis of an unforecastable 124 00:07:05,070 --> 00:07:09,640 Stephen Koukoulas: event happening. And again, treasury have learnt from years gone 125 00:07:09,640 --> 00:07:12,640 Stephen Koukoulas: by to put in a very conservative estimate for coal, 126 00:07:12,650 --> 00:07:15,030 Stephen Koukoulas: for iron ore, and if it happens to be higher, 127 00:07:15,170 --> 00:07:17,790 Stephen Koukoulas: that's a nice problem to have, if it happens to 128 00:07:18,370 --> 00:07:21,980 Stephen Koukoulas: realistic, well, then they're being realistic. So as I look 129 00:07:21,980 --> 00:07:24,730 Stephen Koukoulas: through the budget papers, they've still got really conservative estimates 130 00:07:24,730 --> 00:07:27,640 Stephen Koukoulas: for the iron ore and coal price. We've had a 131 00:07:27,640 --> 00:07:30,840 Stephen Koukoulas: real surge, and this is even prior to the Russia- 132 00:07:30,840 --> 00:07:35,480 Stephen Koukoulas: Ukraine war, and debacle that's unfolding as we speak. So 133 00:07:35,480 --> 00:07:38,910 Stephen Koukoulas: those prices are very elevated, still, and in a sense 134 00:07:38,910 --> 00:07:42,010 Stephen Koukoulas: for Australia as a major exporter of those commodities and 135 00:07:42,010 --> 00:07:45,239 Stephen Koukoulas: things like nickel and copper to a lesser extent. But 136 00:07:45,240 --> 00:07:48,560 Stephen Koukoulas: nonetheless, there's still materials and commodities that we do export. The 137 00:07:48,570 --> 00:07:53,290 Stephen Koukoulas: price of those is incredibly strong. So it's possible that 138 00:07:53,360 --> 00:07:55,810 Stephen Koukoulas: if we look at the next couple of years and 139 00:07:55,810 --> 00:07:59,810 Stephen Koukoulas: the economy remains on an even keel, growth is reasonable. 140 00:07:59,810 --> 00:08:02,150 Stephen Koukoulas: The unemployment rate does in fact get to three and 141 00:08:02,150 --> 00:08:05,380 Stephen Koukoulas: three quarter percent and stay there. Wages growth pickup this 142 00:08:05,380 --> 00:08:08,830 Stephen Koukoulas: treasuries projecting, and the commodity price cycle is a little 143 00:08:08,830 --> 00:08:12,470 Stephen Koukoulas: more elevated than they're assuming. Some of these budget deficit 144 00:08:12,470 --> 00:08:14,650 Stephen Koukoulas: numbers could well turn out to be a little bit 145 00:08:14,650 --> 00:08:18,440 Stephen Koukoulas: lower than the current projections. So look, it's a moving 146 00:08:18,440 --> 00:08:22,140 Stephen Koukoulas: phase. Who knows in the sense that the oil price could 147 00:08:22,140 --> 00:08:24,810 Stephen Koukoulas: collapse again, as we saw just literally a couple of 148 00:08:24,810 --> 00:08:27,550 Stephen Koukoulas: years ago, and that would undermine the budget. So it's one 149 00:08:27,550 --> 00:08:30,940 Stephen Koukoulas: of those things that's really unforecastable but nonetheless, if you 150 00:08:30,940 --> 00:08:32,449 Stephen Koukoulas: are framing your budget, you've got to put a number 151 00:08:32,450 --> 00:08:34,150 Stephen Koukoulas: in there to try to work out what's going to happen. 152 00:08:35,179 --> 00:08:37,319 Michael Thompson: Right. I want to get some of the main measures 153 00:08:37,400 --> 00:08:41,089 Michael Thompson: announced last night. And as I mentioned, this is an 154 00:08:41,090 --> 00:08:44,260 Michael Thompson: election budget. The election is going to be held in 155 00:08:44,390 --> 00:08:47,730 Michael Thompson: a matter of weeks. And one of the main things, 156 00:08:47,730 --> 00:08:50,470 Michael Thompson: well, really the central issue, that's kind of shaping up 157 00:08:50,490 --> 00:08:52,620 Michael Thompson: as the key election issue is going to be the 158 00:08:52,620 --> 00:08:56,010 Michael Thompson: cost of living. There'd been a lot of talk about 159 00:08:56,100 --> 00:08:58,780 Michael Thompson: the cut to fuel excise and low and behold there, 160 00:08:58,780 --> 00:09:02,020 Michael Thompson: it was. It's going to be halved for six months. 161 00:09:02,059 --> 00:09:03,400 Michael Thompson: What difference does that make? 162 00:09:03,970 --> 00:09:07,230 Stephen Koukoulas: Look, it has a small impact on the cost of 163 00:09:07,230 --> 00:09:11,120 Stephen Koukoulas: filling up a tank of petrol. It might be saving 164 00:09:11,150 --> 00:09:13,530 Stephen Koukoulas: each of us when we fill up our car 5, 165 00:09:13,530 --> 00:09:16,970 Stephen Koukoulas: 7, 8, 9, 10 dollars a tank. And that's handy, 166 00:09:16,970 --> 00:09:20,109 Stephen Koukoulas: of course, I prefer to be putting the less in and have more money spare. 167 00:09:20,340 --> 00:09:23,429 Stephen Koukoulas: Of course, we all do that. That goes without saying, but 168 00:09:23,429 --> 00:09:25,230 Stephen Koukoulas: it's at a cost of several billion dollars to the 169 00:09:25,230 --> 00:09:29,329 Stephen Koukoulas: budget. So there's nonetheless that problem that can occur down 170 00:09:29,330 --> 00:09:32,309 Stephen Koukoulas: there. And as the discussions going, and I look at 171 00:09:32,309 --> 00:09:35,490 Stephen Koukoulas: the global oil prize every day now, and it's in incredibly 172 00:09:35,490 --> 00:09:40,530 Stephen Koukoulas: volatile. It's currently in the low one hundreds US dollars 173 00:09:40,530 --> 00:09:44,090 Stephen Koukoulas: a barrel. And it was as high as 120, 130, when 174 00:09:44,090 --> 00:09:47,540 Stephen Koukoulas: the Ukraine problem escalated and a year or two ago 175 00:09:47,540 --> 00:09:50,069 Stephen Koukoulas: it was 40 or $ 50 a barrel. So it's incredibly 176 00:09:50,070 --> 00:09:53,210 Stephen Koukoulas: volatile again. So to say that you're going to improve 177 00:09:53,210 --> 00:09:57,550 Stephen Koukoulas: cost of living pressures through a relatively modest and temporary 178 00:09:57,550 --> 00:10:01,770 Stephen Koukoulas: reduction in the fuel exercise, it's handy, but it's not 179 00:10:01,770 --> 00:10:04,360 Stephen Koukoulas: going to change things, but it does leave a hole in your budget. 180 00:10:04,360 --> 00:10:06,870 Stephen Koukoulas: And as we're just discussing a moment ago, when the 181 00:10:06,870 --> 00:10:10,020 Stephen Koukoulas: economy's doing okay, or even doing better than okay, with 182 00:10:10,820 --> 00:10:13,630 Stephen Koukoulas: 50 year low, about to be reached for the unemployment 183 00:10:13,630 --> 00:10:17,720 Stephen Koukoulas: rate, you think you'd be reloading the can and so to speak. And yeah, 184 00:10:17,809 --> 00:10:20,270 Stephen Koukoulas: you'd be trying to improve your budget position because in, 185 00:10:20,550 --> 00:10:23,150 Stephen Koukoulas: I don't know, 1, 3, 5 or 10 years time, 186 00:10:23,450 --> 00:10:28,780 Stephen Koukoulas: we'll inevitably have another crisis of unforecastable nature. And as 187 00:10:28,780 --> 00:10:31,710 Stephen Koukoulas: we learned through the global financial crisis, what 12 or 13 years 188 00:10:31,710 --> 00:10:35,150 Stephen Koukoulas: ago, and very importantly in recent memory, the downturn that 189 00:10:35,150 --> 00:10:39,220 Stephen Koukoulas: occurred because of COVID, the government can, if it's got 190 00:10:39,220 --> 00:10:43,270 Stephen Koukoulas: plenty of fiscal ammunition, support the economy. I think that's 191 00:10:43,270 --> 00:10:46,280 Stephen Koukoulas: one thing that I've learned as an aged economist over 192 00:10:46,280 --> 00:10:50,420 Stephen Koukoulas: the last 20 years, fiscal policy does work. And so 193 00:10:50,420 --> 00:10:53,280 Stephen Koukoulas: now cutting to a different aspect of your question, I'd 194 00:10:53,280 --> 00:10:56,219 Stephen Koukoulas: be using this period of better economic news to sort 195 00:10:56,220 --> 00:10:59,819 Stephen Koukoulas: of lower the budget deficit. And maybe, just maybe moving 196 00:10:59,820 --> 00:11:00,900 Stephen Koukoulas: towards a balanced budget. 197 00:11:02,340 --> 00:11:06,850 Michael Thompson: Just briefly one last point on the fuel excise. It's 198 00:11:06,850 --> 00:11:09,880 Michael Thompson: for six months, what happened when that goes back on? 199 00:11:09,880 --> 00:11:13,760 Michael Thompson: Because I can only imagine whoever is in power then, 200 00:11:13,760 --> 00:11:16,700 Michael Thompson: where if there is a changing government, it's not going 201 00:11:16,790 --> 00:11:19,140 Michael Thompson: to be a very nice to be in, to be the 202 00:11:19,140 --> 00:11:21,800 Michael Thompson: government that effectively has seen to be the ones putting 203 00:11:21,800 --> 00:11:22,930 Michael Thompson: petrol prices back up. 204 00:11:23,000 --> 00:11:25,490 Stephen Koukoulas: Oh, look, it's a really interesting point. And if when 205 00:11:25,490 --> 00:11:28,140 Stephen Koukoulas: the excise waiver, if we can call it that, comes 206 00:11:28,140 --> 00:11:30,360 Stephen Koukoulas: to an end and the global oil price is still 207 00:11:30,360 --> 00:11:32,270 Stephen Koukoulas: very elevated because we've got to remember that, the oil 208 00:11:32,270 --> 00:11:34,910 Stephen Koukoulas: price is not determined by the federal government or the 209 00:11:34,910 --> 00:11:37,170 Stephen Koukoulas: state government, or even the petrol companies to be honest. 210 00:11:37,170 --> 00:11:40,189 Stephen Koukoulas: It's really a global will supply and demand issue. But 211 00:11:40,190 --> 00:11:44,010 Stephen Koukoulas: if we still have the oil price elevated, if the Russia- 212 00:11:44,010 --> 00:11:47,840 Stephen Koukoulas: Ukraine conflict escalates, and if the middle Eastern oil producers 213 00:11:47,840 --> 00:11:50,660 Stephen Koukoulas: don't ramp up their production, we could still be seeing 214 00:11:51,720 --> 00:11:54,449 Stephen Koukoulas: the (inaudible) price of petrol in Australia at $ 2 plus. 215 00:11:54,770 --> 00:11:57,709 Stephen Koukoulas: And so then you get the price jumping to 2. 216 00:11:57,760 --> 00:12:00,969 Stephen Koukoulas: 10, 2. 20, 2.30 year later. And it's saved a few 217 00:12:00,970 --> 00:12:02,550 Stephen Koukoulas: of us a few bucks while we've been filling up 218 00:12:02,550 --> 00:12:05,460 Stephen Koukoulas: our tank for this temporary period. But again, it's not 219 00:12:05,460 --> 00:12:08,700 Stephen Koukoulas: really a sustainable issue. I would be looking to do, 220 00:12:08,760 --> 00:12:11,730 Stephen Koukoulas: or I would've looked to do more important structural issues 221 00:12:11,730 --> 00:12:17,609 Stephen Koukoulas: rather than tickling some of these temporary and frankly, relatively tiny 222 00:12:17,700 --> 00:12:20,170 Stephen Koukoulas: cost of living measures that we saw on the budget 223 00:12:20,170 --> 00:12:20,500 Stephen Koukoulas: last night. 224 00:12:21,320 --> 00:12:23,390 Michael Thompson: Stay with me, Steven, we'll be back in a moment. 225 00:12:28,660 --> 00:12:33,550 Michael Thompson: My guest this morning is economist Stephen Koukoulas. The $ 250 226 00:12:33,550 --> 00:12:36,140 Michael Thompson: per payments, which go to I think about 6 million 227 00:12:36,350 --> 00:12:39,440 Michael Thompson: people that are designed to help with cost of living. 228 00:12:40,070 --> 00:12:42,219 Michael Thompson: Is that one of those things that falls into that 229 00:12:42,220 --> 00:12:47,319 Michael Thompson: category of a payment that really it might make, $ 250 230 00:12:47,320 --> 00:12:49,890 Michael Thompson: will make a difference to a pensioner or to somebody 231 00:12:49,890 --> 00:12:53,209 Michael Thompson: who's struggling to fill the car or to pay their 232 00:12:53,240 --> 00:12:57,160 Michael Thompson: electricity bill, but would that money have been better spent 233 00:12:57,220 --> 00:12:58,300 Michael Thompson: in budget repair? 234 00:12:59,350 --> 00:13:02,920 Stephen Koukoulas: The interesting issue for me in all of this is 235 00:13:02,920 --> 00:13:07,090 Stephen Koukoulas: that, of course there are people who are struggling financially. 236 00:13:07,090 --> 00:13:10,010 Stephen Koukoulas: There always are, but there are especially right now when 237 00:13:10,010 --> 00:13:13,189 Stephen Koukoulas: we've got this unexpected and it has been an unexpected 238 00:13:13,190 --> 00:13:15,610 Stephen Koukoulas: lift in inflation that, we look back to what the 239 00:13:15,880 --> 00:13:20,339 Stephen Koukoulas: RBA and even us economists in financial markets and whatnot 240 00:13:20,340 --> 00:13:22,609 Stephen Koukoulas: were forecasting six months ago, we thought inflation would be 241 00:13:22,610 --> 00:13:25,250 Stephen Koukoulas: hovering around two, two and a half percent. And when 242 00:13:25,250 --> 00:13:28,120 Stephen Koukoulas: we get the next couple of quarters of CPI data, 243 00:13:28,120 --> 00:13:30,030 Stephen Koukoulas: the inflation data it's going to be five or even 244 00:13:30,270 --> 00:13:34,130 Stephen Koukoulas: 6%. And that is the cost of living by definition. 245 00:13:34,500 --> 00:13:37,720 Stephen Koukoulas: So the cash handout, the $ 250 will be very, very 246 00:13:37,720 --> 00:13:42,040 Stephen Koukoulas: helpful. But to me again, this question does it really 247 00:13:42,040 --> 00:13:45,160 Stephen Koukoulas: help? Is it really a cost of living improvement where 248 00:13:45,550 --> 00:13:51,689 Stephen Koukoulas: I think to improve the purchasing power of householders, pensioners, 249 00:13:52,320 --> 00:13:56,990 Stephen Koukoulas: ordinary family units and everybody else, you need and this 250 00:13:56,990 --> 00:14:00,650 Stephen Koukoulas: is going to sound like a very cliche economic response, you 251 00:14:00,650 --> 00:14:05,130 Stephen Koukoulas: know productivity enhancing economic reforms. And I apologies for saying that 252 00:14:05,130 --> 00:14:07,870 Stephen Koukoulas: out loud, but it really is a question where could 253 00:14:07,870 --> 00:14:10,880 Stephen Koukoulas: that money, those billions of dollars the being handed out 254 00:14:10,880 --> 00:14:16,320 Stephen Koukoulas: be used to fund, a revamping of our manufacturer of 255 00:14:16,559 --> 00:14:20,570 Stephen Koukoulas: vaccines, or could it be used to fund skills and 256 00:14:20,570 --> 00:14:24,110 Stephen Koukoulas: training for tradies because we've got a shortage of plumbers and 257 00:14:24,110 --> 00:14:26,530 Stephen Koukoulas: electricians and carpenters in Australia right now, or could it 258 00:14:26,530 --> 00:14:29,980 Stephen Koukoulas: be used to fund a ramp up of wages in 259 00:14:29,980 --> 00:14:32,330 Stephen Koukoulas: the age care and the healthcare sector where we know 260 00:14:32,330 --> 00:14:35,120 Stephen Koukoulas: people are leaving because the conditions in the wages are 261 00:14:35,120 --> 00:14:38,390 Stephen Koukoulas: absolutely horrible and we're seeing the social cost of that. 262 00:14:38,390 --> 00:14:42,090 Stephen Koukoulas: And that's huge as well. So to me, yes, the 263 00:14:42,090 --> 00:14:44,460 Stephen Koukoulas: people getting $ 250, quite a lot of those people will 264 00:14:44,460 --> 00:14:48,180 Stephen Koukoulas: appreciate it and will benefit. There's no doubt about that. 265 00:14:48,210 --> 00:14:50,480 Stephen Koukoulas: Who doesn't want a bit of extra cash in their 266 00:14:50,480 --> 00:14:53,820 Stephen Koukoulas: bank account at the end of a particular fortnight. But 267 00:14:53,820 --> 00:14:57,570 Stephen Koukoulas: to me as an economist, we should be about the 268 00:14:57,570 --> 00:15:02,880 Stephen Koukoulas: long run structural reforms that embed higher pensions, embed higher 269 00:15:02,880 --> 00:15:07,520 Stephen Koukoulas: wages and embed sort of improved employment opportunities into the 270 00:15:07,520 --> 00:15:12,110 Stephen Koukoulas: economy rather than the throwing a few trinkets around on 271 00:15:12,110 --> 00:15:14,470 Stephen Koukoulas: the even of election. And that's the criticism that I 272 00:15:14,470 --> 00:15:18,060 Stephen Koukoulas: have, I'd love to have seen and I'm sure treasury had it. 273 00:15:18,090 --> 00:15:20,800 Stephen Koukoulas: I speak to people in treasury. I'm sure they had 274 00:15:20,800 --> 00:15:24,060 Stephen Koukoulas: in their top drawer, a range of reforms, but they're 275 00:15:24,060 --> 00:15:25,940 Stephen Koukoulas: the ones that don't win you a lot of votes 276 00:15:26,200 --> 00:15:29,270 Stephen Koukoulas: and they take years to implement. And what we're seeing 277 00:15:29,270 --> 00:15:34,430 Stephen Koukoulas: tonight is things that hit your hip pocket quickly. And 278 00:15:34,430 --> 00:15:38,630 Stephen Koukoulas: as you alluded to in the opening, Mr. Morrison's probably going 279 00:15:38,710 --> 00:15:40,910 Stephen Koukoulas: to call an election very, very soon. We're going to be voting 280 00:15:40,910 --> 00:15:43,690 Stephen Koukoulas: in may, which is only just literally a few weeks away. 281 00:15:44,540 --> 00:15:47,370 Michael Thompson: Well to those measures that could help to grow the 282 00:15:47,370 --> 00:15:52,280 Michael Thompson: economy. Look at small business for one thing, there were 283 00:15:52,330 --> 00:15:56,510 Michael Thompson: tax incentives to train staff and also to help businesses 284 00:15:56,510 --> 00:15:59,480 Michael Thompson: kind of get engaged with the digital economy. Is that going 285 00:16:01,000 --> 00:16:04,210 Michael Thompson: to be helpful? And should that have been a bigger 286 00:16:04,380 --> 00:16:06,670 Michael Thompson: focus of it? Is this really what could have been 287 00:16:06,670 --> 00:16:07,690 Michael Thompson: the engine room of growth? 288 00:16:07,700 --> 00:16:10,690 Stephen Koukoulas: Yes. To me, yes. And while I'm a little bit 289 00:16:10,690 --> 00:16:14,030 Stephen Koukoulas: cautious about picking winners is, and the government sort of funding 290 00:16:14,030 --> 00:16:17,050 Stephen Koukoulas: segments of the economy and assuming that they're going to be the 291 00:16:17,420 --> 00:16:22,070 Stephen Koukoulas: growth area, there is absolutely no doubt that technological change 292 00:16:22,860 --> 00:16:27,190 Stephen Koukoulas: innovation services based industries are the way that the world 293 00:16:27,320 --> 00:16:30,290 Stephen Koukoulas: economy and the Australian economy will go in the years ahead. 294 00:16:30,290 --> 00:16:34,960 Stephen Koukoulas: So to the extent that you can encourage businesses to 295 00:16:34,960 --> 00:16:39,760 Stephen Koukoulas: invest and employ people in those industries, I'd be leaning that 296 00:16:39,760 --> 00:16:42,700 Stephen Koukoulas: way. Look, I wouldn't be throwing the last dollar at 297 00:16:42,700 --> 00:16:46,350 Stephen Koukoulas: those particular industries because again, I'm cautious about, and I remember 298 00:16:46,350 --> 00:16:49,680 Stephen Koukoulas: back in the early two thousands, we should be investing 299 00:16:49,680 --> 00:16:52,160 Stephen Koukoulas: in chip manufacturers and all this. Maybe that would've been a good 300 00:16:52,160 --> 00:16:55,600 Stephen Koukoulas: idea actually now want to reflect on it. But you know, 301 00:16:55,750 --> 00:16:58,090 Stephen Koukoulas: but we, you've got to be cautious about picking winners 302 00:16:58,090 --> 00:17:00,460 Stephen Koukoulas: because not all those things that are hot today are 303 00:17:00,460 --> 00:17:03,320 Stephen Koukoulas: going to be hot tomorrow. If you know what I mean, but nonetheless 304 00:17:03,320 --> 00:17:07,150 Stephen Koukoulas: you just want to have a workforce, a business sector 305 00:17:07,150 --> 00:17:11,600 Stephen Koukoulas: that's vibrant agile and can go with the flow. And 306 00:17:11,600 --> 00:17:15,210 Stephen Koukoulas: if the government policy settings can facilitate that, then you're 307 00:17:15,210 --> 00:17:17,960 Stephen Koukoulas: definitely going to be better off than perhaps just putting 308 00:17:18,270 --> 00:17:20,609 Stephen Koukoulas: money in people's bank accounts. And who knows, they're probably just 309 00:17:20,609 --> 00:17:23,090 Stephen Koukoulas: going to spend it on Uber Eats and you know, and 310 00:17:23,320 --> 00:17:26,160 Stephen Koukoulas: color TVs at Harvey Norman. So, and to me that 311 00:17:26,160 --> 00:17:30,410 Stephen Koukoulas: doesn't really drive the sort of long run productivity enhancing 312 00:17:30,410 --> 00:17:31,460 Stephen Koukoulas: growth in the economy. 313 00:17:32,400 --> 00:17:35,060 Michael Thompson: There were a few kind of big ticket items and 314 00:17:35,060 --> 00:17:36,790 Michael Thompson: a lot of things that we'd already heard about in 315 00:17:36,790 --> 00:17:39,820 Michael Thompson: the lead up to it in terms of infrastructure, spending, 316 00:17:39,820 --> 00:17:43,439 Michael Thompson: a boost there, things like dams and water, regional jobs 317 00:17:43,440 --> 00:17:49,020 Michael Thompson: plans, things like that. And then the $ 9.9 billion cyber 318 00:17:49,109 --> 00:17:54,920 Michael Thompson: security enhancement. How much of that is a really necessary 319 00:17:55,119 --> 00:18:00,340 Michael Thompson: kind of investment in basically securing Australia in the world 320 00:18:00,340 --> 00:18:02,920 Michael Thompson: that we are now in compared to the world that we're in 10 years ago. 321 00:18:03,030 --> 00:18:05,540 Stephen Koukoulas: I like that, you know again, it's sort of the 322 00:18:06,060 --> 00:18:09,890 Stephen Koukoulas: polar opposite of the submarine program. I think is a hideous 323 00:18:10,210 --> 00:18:13,369 Stephen Koukoulas: program and look, I'm not a defense person. So maybe those 324 00:18:13,369 --> 00:18:16,229 Stephen Koukoulas: submarines in 10 and 20 years time, as they put 325 00:18:16,770 --> 00:18:20,150 Stephen Koukoulas: around the sort of south China seas will protect us. 326 00:18:20,150 --> 00:18:23,260 Stephen Koukoulas: I don't know, but I reckon the next conflict will 327 00:18:23,260 --> 00:18:30,070 Stephen Koukoulas: be cyber based. It'll be some sort of disruption to 328 00:18:30,070 --> 00:18:34,629 Stephen Koukoulas: our banking and financial sector, our IT sector. And just imagine 329 00:18:34,630 --> 00:18:39,050 Stephen Koukoulas: our economy of some nasty adversary, some sort of doctor 330 00:18:39,050 --> 00:18:43,070 Stephen Koukoulas: evil were to use this cyber power to sort of 331 00:18:43,270 --> 00:18:47,330 Stephen Koukoulas: undermine our technological base. So I'm one that instead of 332 00:18:47,590 --> 00:18:51,270 Stephen Koukoulas: spending money on submarines, I would be spending money on 333 00:18:51,270 --> 00:18:55,790 Stephen Koukoulas: this cyber issue, not only for an international geopolitical sort of 334 00:18:55,790 --> 00:19:00,510 Stephen Koukoulas: defense type issue, of course that's critically important, but to 335 00:19:00,510 --> 00:19:04,500 Stephen Koukoulas: allow our economy to be sort of the world best 336 00:19:04,500 --> 00:19:07,210 Stephen Koukoulas: practice, if you like in terms of how we manage 337 00:19:07,240 --> 00:19:10,139 Stephen Koukoulas: our business sector. And so that businesses don't get at 338 00:19:10,140 --> 00:19:14,940 Stephen Koukoulas: hacked and we don't see malware invasions of business operations 339 00:19:14,940 --> 00:19:19,130 Stephen Koukoulas: and these things it's can be horrendously disruptive. And so 340 00:19:19,130 --> 00:19:22,010 Stephen Koukoulas: I think that money is well spent and that in the 341 00:19:22,010 --> 00:19:23,940 Stephen Koukoulas: sense is one of the areas of the budget that I 342 00:19:24,140 --> 00:19:26,369 Stephen Koukoulas: would give a big tick to, that we can sort 343 00:19:26,369 --> 00:19:30,440 Stephen Koukoulas: of see that acknowledgement of how the structure of the economy 344 00:19:30,440 --> 00:19:32,450 Stephen Koukoulas: is change. It's sort of in a sense, it might 345 00:19:32,450 --> 00:19:36,780 Stephen Koukoulas: be like the 1960s and 70s manufacturing protection, which at the time 346 00:19:36,780 --> 00:19:39,280 Stephen Koukoulas: was probably fair enough, but here we are in the 347 00:19:39,280 --> 00:19:42,890 Stephen Koukoulas: 2020s and soon to be the 2030s. And I think it's got 348 00:19:42,890 --> 00:19:45,460 Stephen Koukoulas: to be the cyber issue that's one that the government's 349 00:19:45,460 --> 00:19:49,350 Stephen Koukoulas: got to facilitate private sector activity and defense and caution. 350 00:19:49,750 --> 00:19:51,440 Stephen Koukoulas: And I think that money is probably going to be 351 00:19:51,440 --> 00:19:53,500 Stephen Koukoulas: money well spent. And that's one issue in the budget, which 352 00:19:53,500 --> 00:19:54,660 Stephen Koukoulas: I do give a big tick too. 353 00:19:55,630 --> 00:19:57,250 Michael Thompson: I'll let you go in a minute. I've just got two 354 00:19:57,250 --> 00:20:01,100 Michael Thompson: last questions. One is about home ownership and Josh Frydenberg 355 00:20:01,100 --> 00:20:06,030 Michael Thompson: was at pain during his speech and in other kind 356 00:20:06,030 --> 00:20:09,939 Michael Thompson: of media engagements afterwards to point out how important home 357 00:20:09,940 --> 00:20:15,180 Michael Thompson: ownership is in Australia or in particular to the coalition. And 358 00:20:15,300 --> 00:20:18,220 Michael Thompson: he did that in support of schemes that allow single 359 00:20:18,220 --> 00:20:21,070 Michael Thompson: parents, for example, to access loan with as little as 360 00:20:21,070 --> 00:20:23,889 Michael Thompson: a 2% deposit, first home buyers, as little as 5% 361 00:20:24,359 --> 00:20:28,540 Michael Thompson: deposit. We already know how unaffordable a lot of housing 362 00:20:28,570 --> 00:20:31,720 Michael Thompson: is, but what happens then when interest rates start to 363 00:20:31,720 --> 00:20:36,620 Michael Thompson: rise and people are buying into properties with such little, 364 00:20:37,140 --> 00:20:38,160 Michael Thompson: such small deposits. 365 00:20:38,230 --> 00:20:41,139 Stephen Koukoulas: Yeah. I acknowledge fully the difficulty that a lot of 366 00:20:41,390 --> 00:20:44,750 Stephen Koukoulas: young people and having getting to the property market and 367 00:20:44,750 --> 00:20:47,090 Stephen Koukoulas: particularly saving the deposit, even though interest rates are very 368 00:20:47,090 --> 00:20:50,350 Stephen Koukoulas: low. So the serviceability is actually okay, it's just getting 369 00:20:50,350 --> 00:20:54,510 Stephen Koukoulas: that deposit that's a critical issue. And what the housing market 370 00:20:54,510 --> 00:20:58,930 Stephen Koukoulas: does not need is policy measures to stimulate extra demand. 371 00:20:59,470 --> 00:21:02,800 Stephen Koukoulas: In isolation this will encourage first home buyers to buy, 372 00:21:02,800 --> 00:21:05,820 Stephen Koukoulas: to go to the auction on a Saturday with an 373 00:21:05,820 --> 00:21:10,690 Stephen Koukoulas: extra borrowing capability of 10, 20, $50,000. And they're going to use all 374 00:21:10,690 --> 00:21:13,359 Stephen Koukoulas: of that to bid up house prices. So to me, it's 375 00:21:13,359 --> 00:21:16,990 Stephen Koukoulas: just a straight through pass through mechanism into higher prices. 376 00:21:17,530 --> 00:21:19,619 Stephen Koukoulas: It's not the worst policy I've seen, but it does 377 00:21:19,619 --> 00:21:21,949 Stephen Koukoulas: not really help all that much. If the net effect 378 00:21:21,950 --> 00:21:26,070 Stephen Koukoulas: is to boost house prices as first home buyers who use 379 00:21:26,070 --> 00:21:30,880 Stephen Koukoulas: this facility increase their borrowing capacity. I'm still a massive 380 00:21:30,880 --> 00:21:35,780 Stephen Koukoulas: fan of increasing housing supply and to work with the 381 00:21:35,780 --> 00:21:39,369 Stephen Koukoulas: state and local governments to build more properties, including government owned 382 00:21:39,609 --> 00:21:42,139 Stephen Koukoulas: properties. You know, there's no reason why the government can't 383 00:21:42,280 --> 00:21:44,639 Stephen Koukoulas: own properties. You know, the reserve bank owned government bonds. Why can't 384 00:21:44,700 --> 00:21:48,260 Stephen Koukoulas: they own government houses and rent them out on a 385 00:21:48,260 --> 00:21:50,970 Stephen Koukoulas: market basis because they collect the yield on the government 386 00:21:50,970 --> 00:21:54,040 Stephen Koukoulas: bonds. Why can't they collect the yield on property? So 387 00:21:54,380 --> 00:21:56,669 Stephen Koukoulas: my solution would be a bit more radical on housing. 388 00:21:56,920 --> 00:22:00,899 Stephen Koukoulas: I suspect that no sort of politics will ever embrace 389 00:22:00,900 --> 00:22:04,080 Stephen Koukoulas: my idea. But at the end of the day, I've 390 00:22:04,080 --> 00:22:07,300 Stephen Koukoulas: looked at the housing market long enough to know that 391 00:22:07,300 --> 00:22:12,240 Stephen Koukoulas: the critically issue of improving affordability is not giving first home 392 00:22:12,240 --> 00:22:15,110 Stephen Koukoulas: buyers, extra incentive because they'll just go to the auction 393 00:22:15,230 --> 00:22:17,480 Stephen Koukoulas: and bid up prices. It is actually adding to the 394 00:22:17,480 --> 00:22:21,050 Stephen Koukoulas: supply so that they've got five auctions to choose from. 395 00:22:21,440 --> 00:22:24,760 Stephen Koukoulas: And they're not competing with investors at the same auction, 396 00:22:25,000 --> 00:22:27,020 Stephen Koukoulas: but they've actually got an ability to make an offer 397 00:22:27,170 --> 00:22:30,969 Stephen Koukoulas: and to buy a property without that extra competition. And they 398 00:22:31,060 --> 00:22:33,679 Stephen Koukoulas: can go get it a reasonable price because they've got a 399 00:22:33,680 --> 00:22:37,730 Stephen Koukoulas: wide variety and supply of properties to choose from. 400 00:22:39,080 --> 00:22:41,980 Michael Thompson: One final question. And this one is about the reserve bank. 401 00:22:42,070 --> 00:22:44,740 Michael Thompson: The RVA doesn't operate in a vacuum, they have to 402 00:22:44,740 --> 00:22:47,790 Michael Thompson: take into account a lot of factors. And one of 403 00:22:47,790 --> 00:22:51,780 Michael Thompson: those is fiscal policy. What impact would this budget have 404 00:22:51,780 --> 00:22:55,470 Michael Thompson: on the reserve bank's decision making? What do you think was going through 405 00:22:55,790 --> 00:22:59,060 Michael Thompson: their heads last night when they were watching Josh Friedenberg 406 00:22:59,060 --> 00:23:00,640 Michael Thompson: deliver his budget night address? 407 00:23:01,420 --> 00:23:04,130 Stephen Koukoulas: I think we know that government demand accounts for about 408 00:23:04,130 --> 00:23:06,520 Stephen Koukoulas: 25% of GDP. So let's just sort of start with 409 00:23:06,650 --> 00:23:09,730 Stephen Koukoulas: a few basic facts. Your government spending, the amount that 410 00:23:09,730 --> 00:23:16,950 Stephen Koukoulas: they allocate on pensions and roads and healthcare and disability 411 00:23:16,950 --> 00:23:20,770 Stephen Koukoulas: support care, all of the issues in the budget papers. They account 412 00:23:20,770 --> 00:23:24,360 Stephen Koukoulas: for about 25% of GDP. So they're about five times 413 00:23:24,450 --> 00:23:27,580 Stephen Koukoulas: the size of housing. So when you think about, the housing 414 00:23:27,580 --> 00:23:30,160 Stephen Koukoulas: cycle, gosh, that's a big influence on the RBA policy 415 00:23:30,160 --> 00:23:33,800 Stephen Koukoulas: savings. The government demand is huge. And as we saw 416 00:23:33,800 --> 00:23:38,020 Stephen Koukoulas: during just the COVID crisis, when we thought the unemployment 417 00:23:38,020 --> 00:23:41,000 Stephen Koukoulas: rate would hit 15%, we knew that GDP was going to be going 418 00:23:41,000 --> 00:23:45,090 Stephen Koukoulas: backwards at an alarming pace, Mr. Friedenberg and RBA governor 419 00:23:45,090 --> 00:23:49,119 Stephen Koukoulas: Lowe spoke frequently. And as they should, the RBA cut 420 00:23:49,119 --> 00:23:51,990 Stephen Koukoulas: rates to 0. 1%, they implemented a range of quantitative 421 00:23:52,240 --> 00:23:55,870 Stephen Koukoulas: easing, the term funding facility for the banks. And as we are 422 00:23:56,160 --> 00:23:58,540 Stephen Koukoulas: just discussing the budget deficit was huge. And as it 423 00:23:58,540 --> 00:24:01,100 Stephen Koukoulas: should be, nobody I'm aware of would be disagreeing with 424 00:24:01,109 --> 00:24:05,480 Stephen Koukoulas: the policy response in 2020 and 2021. But now that 425 00:24:05,480 --> 00:24:10,010 Stephen Koukoulas: we've got through that largely the economy's strong and we've 426 00:24:10,010 --> 00:24:13,899 Stephen Koukoulas: got a fiscal stimulus measure. So 25% of GDPs getting an extra 427 00:24:13,900 --> 00:24:16,629 Stephen Koukoulas: boost at a time when the private sector of the economy is 428 00:24:17,130 --> 00:24:20,179 Stephen Koukoulas: doing okay. I think Dr. Lowe sitting there at the 429 00:24:20,210 --> 00:24:22,420 Stephen Koukoulas: RBA thinking, oh my God, I thought I could get 430 00:24:22,420 --> 00:24:25,290 Stephen Koukoulas: through the next few months holding rates steady, but now 431 00:24:25,290 --> 00:24:29,000 Stephen Koukoulas: we've got this cash injection into the economy. When inflation 432 00:24:29,000 --> 00:24:31,980 Stephen Koukoulas: we know is high and rising. When we know the 433 00:24:31,980 --> 00:24:36,330 Stephen Koukoulas: unemployment rate is low and falling, it might just add 434 00:24:36,330 --> 00:24:39,469 Stephen Koukoulas: pressure on them to hike interest rates. Now whether that's 435 00:24:39,470 --> 00:24:43,330 Stephen Koukoulas: in April, may, June, July, I don't know. But nonetheless, when 436 00:24:43,330 --> 00:24:45,310 Stephen Koukoulas: we look at what's happening domestically and then in the 437 00:24:45,760 --> 00:24:49,869 Stephen Koukoulas: economy, you could bet your bottom dollar, that rates are going up. 438 00:24:49,869 --> 00:24:52,750 Stephen Koukoulas: It's just a matter of how fast they go up. 439 00:24:52,750 --> 00:24:55,899 Stephen Koukoulas: And when the first rate hike is, so that's the 440 00:24:55,900 --> 00:24:58,150 Stephen Koukoulas: only debate that's going on with monetary policy now. It's 441 00:24:58,150 --> 00:25:01,630 Stephen Koukoulas: not that rates are going to be on hold for six or 12 months. 442 00:25:01,630 --> 00:25:04,159 Stephen Koukoulas: It's more, how high will they be in six or 443 00:25:04,160 --> 00:25:05,970 Stephen Koukoulas: 12 months? And when's the first hike come through? 444 00:25:06,400 --> 00:25:08,520 Michael Thompson: Steven, as a, I know I said that was the 445 00:25:08,520 --> 00:25:12,550 Michael Thompson: last question, but one more, as a pre- election budget, 446 00:25:13,470 --> 00:25:14,879 Michael Thompson: what would you rate it out of 10? 447 00:25:16,530 --> 00:25:19,650 Stephen Koukoulas: Politics, it's probably pretty good. I think there'll be people 448 00:25:19,840 --> 00:25:23,800 Stephen Koukoulas: who'll appreciate some of the petrol excise relief. They'll appreciate 449 00:25:23,800 --> 00:25:27,130 Stephen Koukoulas: the payments to middle and low income (inaudible) into 450 00:25:27,130 --> 00:25:30,439 Stephen Koukoulas: pensioners. I think there'll be something there. You'd give it 451 00:25:30,450 --> 00:25:34,650 Stephen Koukoulas: a six and a half out of 10, like economically it's probably lower, 452 00:25:34,650 --> 00:25:36,940 Stephen Koukoulas: politically it's probably high, but if you average the two 453 00:25:36,940 --> 00:25:38,510 Stephen Koukoulas: out it's a six and a half out of 10. 454 00:25:39,070 --> 00:25:42,090 Stephen Koukoulas: And I must confess as I'm looking here on the 455 00:25:42,090 --> 00:25:44,679 Stephen Koukoulas: day after the morning after the budget, that my bet 456 00:25:44,680 --> 00:25:47,850 Stephen Koukoulas: fair account if I'm allowed to say that, I can 457 00:25:47,850 --> 00:25:49,730 Stephen Koukoulas: see that there's been a little bit of a trend towards 458 00:25:49,730 --> 00:25:52,929 Stephen Koukoulas: the coalition. So the punters who are betting on the 459 00:25:52,930 --> 00:25:56,880 Stephen Koukoulas: election outcome, whenever the election's held later in may, they're 460 00:25:56,880 --> 00:25:59,230 Stephen Koukoulas: sort of saying that there's been a little bit of 461 00:25:59,230 --> 00:26:01,840 Stephen Koukoulas: support for the coalition. They think it's more likely to help 462 00:26:01,840 --> 00:26:05,280 Stephen Koukoulas: them than hinder them. So that's probably better than any 463 00:26:05,280 --> 00:26:07,460 Stephen Koukoulas: public opinion poll that we'll be getting in the weeks ahead. 464 00:26:08,250 --> 00:26:10,560 Michael Thompson: Stephen, thank you for talking to Fear and Greed, and 465 00:26:10,560 --> 00:26:12,550 Michael Thompson: for helping us to unpack the budget. 466 00:26:12,790 --> 00:26:16,100 Stephen Koukoulas: Absolute pleasure. And it's been the night of my life 467 00:26:16,100 --> 00:26:17,100 Stephen Koukoulas: is always budget night. 468 00:26:17,850 --> 00:26:23,500 Michael Thompson: That was economist Stephen Koukoulas, find him @ thekouk. com. That's T- H- E- K- O- U- k. 469 00:26:23,800 --> 00:26:26,659 Michael Thompson: com or on Twitter using the handle thekouk. This is 470 00:26:26,660 --> 00:26:30,060 Michael Thompson: Fear and Greed special coverage of the 2022 federal budget. 471 00:26:30,350 --> 00:26:32,629 Michael Thompson: Join us every morning for the full episode of Fear 472 00:26:32,630 --> 00:26:36,280 Michael Thompson: and Greed Australia's most popular business podcast. I'm Michael Thompson 473 00:26:36,410 --> 00:26:37,190 Michael Thompson: have a great day.