Speaker 1: Now this is going to be really good chatting to
Speaker 1: Leaf Vanonsoalin because there's so much going on in our
Speaker 1: economy and around the place. As you know, he is
Speaker 1: from Macrobusiness dot com. Dot u's where we go every
Speaker 1: day for our financial monitoring news and other matters around
Speaker 1: our economy. He's also the chief economist at the NB
Speaker 1: funded MBCPER. He's on the line the Treasury of Common Sense,
Speaker 1: Leaf Vanonsoalin, How am I friend? Traveling? Well? Mate? How
Speaker 1: about you?
Speaker 2: Yeah? Pretty good night. It's a little bit cooler down
Speaker 2: here today, but yeah, pretty good.
Speaker 1: Well. I can't believe it, but there's been some discussion
Speaker 1: has there from government about East Coast gas reservation. I
Speaker 1: wonder where they got that idea from. And this is extraordinary,
Speaker 1: isn't it.
Speaker 2: Yeah? Yeah, I mean certainly you know that it's not
Speaker 2: a slam dunk, but there there are some hopeful signs here.
Speaker 2: So just to recap, Each Coast Australia is the only
Speaker 2: gas exporting jurisdiction in the world that has no policy
Speaker 2: to require gas companies to supply Australians first, and as
Speaker 2: a result, East Coast Australia has the highest gas prices
Speaker 2: in the world. Amongst gas exporting jurisdictions. Now, as we know,
Speaker 2: the Coalition took a really good gas policy to the
Speaker 2: federal election, a promise to implement an East Coast gas
Speaker 2: reservation policy via basically imposing export levies on contracted gas.
Speaker 2: If gas companies were trying to export uncontracted uncontracted gas
Speaker 2: rather than supply it into the spot market domestically, they
Speaker 2: would they'd be slogan attacks, and the Coalition promised to
Speaker 2: lower the East Coast gas price to blow ten dollars
Speaker 2: a gigadel, which is currently floats around twelve twelve dollars plus. Now,
Speaker 2: the counterfactur of this look is that if we don't
Speaker 2: reserve gas that imports East Coast Australia, despite the fact
Speaker 2: that we export nearly three quarters of our gas, most
Speaker 2: that goes to China, were slated to start importing gas
Speaker 2: down in the Southern States late this year or early next,
Speaker 2: and once we do that, the East Coast gas price
Speaker 2: is going to rock it because we will be paying
Speaker 2: import parity prices. So at the moment, we're effectively paying
Speaker 2: export parity prices, which is the cost cost that we
Speaker 2: charge exports less the cost of liquifying those exports and
Speaker 2: then transporting it. But if we start importing that we're
Speaker 2: going to be paying the cost of liquefaction plus transport
Speaker 2: then degap converting it back into gas. Now, just to
Speaker 2: show how good the Coalition's policy was, Shell Australia's chair
Speaker 2: Cecil Wake admitted during the election campaign that the coalition's
Speaker 2: gas reservation policy would reduce costs and that that person
Speaker 2: I said that, you know, it'll potentially push more supply
Speaker 2: into the market than there is demand and when that happens,
Speaker 2: it'll have the potential of driving prices even lower than
Speaker 2: ten dollars a gig JB. Now that's almost a direct
Speaker 2: quote I'm paraphrasing, but that there is proof positive that
Speaker 2: the policy was going to be good if you've got
Speaker 2: one of the major energy companies going to force down
Speaker 2: the cost of gas. Now, the coalition also pleased to
Speaker 2: invest about a bid dollars in expanding the North South
Speaker 2: Pipeline which runs fro Queensland all the way down to Victoria,
Speaker 2: as well as to expand storage down south. And why
Speaker 2: that's important is that in the North South pipeline has
Speaker 2: excess capacity most of the year, but just in the
Speaker 2: cold months of winter, it operates a capacity, so we
Speaker 2: need to expand that and also expand storage. Now it
Speaker 2: is telling that Labour's Resource Minister Madeline King she during
Speaker 2: the election campaign she dismissed the coalition's gas policy as
Speaker 2: quote a thought bubble, right, and most of us thought
Speaker 2: that meant that Labor wasn't going to do reservation if
Speaker 2: they got elected. Thankfully. The AFR reported this week that
Speaker 2: the albany Is government's considering imposing the East Coast gas
Speaker 2: reservation policy is part of its review of the country's
Speaker 2: energy system.
Speaker 1: Now you know, obviously you can't believe all this stuff,
Speaker 1: can you accept it's just playing it out before our
Speaker 1: very own eyes.
Speaker 2: That's right. Look, it's an absolute no brainer. Like the
Speaker 2: entire manufacturing industry of the Gas Uses Sociation, the Energy
Speaker 2: Use Association wants gas reservation. It's incredibly important because gas
Speaker 2: also is one of the marginal price that is of
Speaker 2: electricity in the wholesale market. So if we've got expensive gas,
Speaker 2: electricity prices go up as well because gas is used
Speaker 2: for firming. So whenever there's not enough wind or solo,
Speaker 2: they're going to check on a gas turbine to quickly
Speaker 2: fill up the gap and then that pushes up the price.
Speaker 2: Now this is even more important because this week the
Speaker 2: Queensland State government announced that it's going to open up
Speaker 2: nine new areas of the state for gas exploration and
Speaker 2: they claim that by doing this they're going to increase
Speaker 2: supply and push down prices and et cetera. Now, I'll say,
Speaker 2: fron that that I fully support more gas exploration and
Speaker 2: more drill, baby drill, yep. But it is largely futile
Speaker 2: if it's not a company by a reservation scheme that
Speaker 2: requires a significant share of that gas to be supplied
Speaker 2: domestically first. And the reason why you know this won't
Speaker 2: necessarily lower prices because we just have to look at
Speaker 2: the last ten years. So since we started exporting gas
Speaker 2: out of Ladstone in twenty fifteen, we've literally doubled the
Speaker 2: volume of gas the production of gas in the East
Speaker 2: Coast of Australia, but we've actually supplied the domestic market
Speaker 2: with twenty five percent less gas. That's because we've just
Speaker 2: pushed it all off, pushed most of it off. We're
Speaker 2: basically exported it. So we've doubled the supply, but we've
Speaker 2: reduced doubled the supply domestically, but we've actually supplied the
Speaker 2: domestic market with twenty five percent less and as a
Speaker 2: result we've got tripling in gas process. Right, So if
Speaker 2: Queensland opens up all these gas fields, yes, the Queensland
Speaker 2: will get some extra gas royalties for the state budget,
Speaker 2: which is a good thing, but it's not going to
Speaker 2: necessarily lower prices and it's not going to imports. If
Speaker 2: that gas, at least it's a different portion of it
Speaker 2: is not pushed into the domestic market. So this policy
Speaker 2: from Labor is absolutely essential to ensure that we do
Speaker 2: get more supply. Have to do is copy the coalition's
Speaker 2: policy or if not, just look across the Western Australia.
Speaker 2: Australia's done yeah, you know.
Speaker 1: And that was that was a Labor government that did that.
Speaker 1: So if they, you know, if they're a bit precious
Speaker 1: about copying what the coalition proposed and just you know,
Speaker 1: take a copy of what they're doing in the West,
Speaker 1: because it's not it's not that difficult. Can I move
Speaker 1: on to productivity growth mate? Because people don't really know this,
Speaker 1: but in Australia, where we'd like to say how good
Speaker 1: is it, our productivity growth has been among the poorest
Speaker 1: in the advanced world, not just for three years, but
Speaker 1: for the past decade. Isn't that right?
Speaker 2: Absolutely, our productivity absolutely stinks, And a whole bunch of economists,
Speaker 2: including former Treasury Sectuary Ken Henry this month former RBA
Speaker 2: governor feel low. There's also some other RBA economists and
Speaker 2: a whole bunch of others have all said that the
Speaker 2: one of the main drivers of Australia's poor productivity is
Speaker 2: that we haven't increased the nation's little stocks. I'm talking
Speaker 2: about new new machinery, you know, new tools, new infrastructure,
Speaker 2: et cetera, to keep up with the massive growth in
Speaker 2: the population, and as a result, we've gotten poor productivity growth.
Speaker 2: Now I've used this example previously just to explain this
Speaker 2: in a stylized example. If you run a cafe and
Speaker 2: you've got a coffee machine shared by two workers, and
Speaker 2: you can make one hundred coffees. And now if you
Speaker 2: double the number of workers to four, you're not going
Speaker 2: to be able to double your output because you're still
Speaker 2: working off one machine. They'll have to wait for each other,
Speaker 2: there's congestion, all that sort of stuff. So you know,
Speaker 2: although you double the number of people you don't double
Speaker 2: your actually your productivity actually goes down because you can't
Speaker 2: make as many you can't double the amount you need.
Speaker 2: You need two machines it's got. So that's effectively what
Speaker 2: Australias economy has done. We've grown the population like a
Speaker 2: science experiment, eight point seven million people this century so far, incredible,
Speaker 2: and we haven't grown infrastructure. The amount of investment everything
Speaker 2: to go along with that, and as a result, the
Speaker 2: capital to labor ratios what economists call it, has been
Speaker 2: free for The Productivity Commission released a report this week
Speaker 2: on Australians productivity and actually pointed this fact out and
Speaker 2: it said that if this low rate of investment persists,
Speaker 2: it will contribute to longer term productivity slow down. Now,
Speaker 2: the reason why most important is on Thursday, the Australian
Speaker 2: Bureau Statistics released its first quarter twenty twenty five CAPEX survey.
Speaker 2: So for the March quarter, and what I showed is
Speaker 2: that total volume of investment into equipment, plant machinery actually
Speaker 2: fell by one point three percent of the quarter. It's
Speaker 2: down by nearly two percent over the year. And this
Speaker 2: comes at the same time as Australia's population continues to
Speaker 2: expand aggressively, and all this means is that we're going
Speaker 2: to have less capital equipment per worker because population is
Speaker 2: growing and we're not building the capital stock to keep
Speaker 2: up with it. And the long term outlooked the work
Speaker 2: is very poor because the federal government predicts an extra
Speaker 2: thirteen point five million people come into the country in
Speaker 2: the next forty years. And that's like adding other Sydneyburn
Speaker 2: and Brisbane currently to Australi as popular. You need all
Speaker 2: the infrastructure, all the houses that in those cities, all
Speaker 2: the energy everything, all the business investment, everything to keep
Speaker 2: up with that. And I just can't see a way
Speaker 2: we're going to do it. We haven't done in the
Speaker 2: last twenty years, and our protivity growth has suffered. So
Speaker 2: we keep just growing the population like the science experiment,
Speaker 2: and we can't keep up with that, whether it's housing, infrastructure,
Speaker 2: business investment, A protivity growth is going to stink and
Speaker 2: our living stands are going to stay nd.
Speaker 1: Yeah. Now, each week I'm going to put to Leith's
Speaker 1: the question do we have a clown or the week
Speaker 1: or a champion of the week, so it can be
Speaker 1: good news and bad news. And I understand this week,
Speaker 1: this week mate, you've got a clown or the week?
Speaker 1: Do you?
Speaker 2: I do? And it's actually the Victorian government, which is
Speaker 2: which the New South and Queensland listeners will love this.
Speaker 2: So the Victoria is basically leaching up New South. I
Speaker 2: was in Queensland, so you know the Victorian government and
Speaker 2: I'll live in Sorry, I'll be very clean and clear
Speaker 2: about that. We are the most poorly run state in
Speaker 2: the country and we have a state government that is
Speaker 2: a state that is absolutely grounding in debt. Right, So
Speaker 2: per capita debt is so much ahead of New South
Speaker 2: Wales and Queensland. So per person we are twenty two
Speaker 2: thy nine hundred per person in net debt versus fifteen
Speaker 2: thousand in fifteen thousand tred in New South Wales at
Speaker 2: about nine three hundred Queensland, right, and we're all Overfrastructure
Speaker 2: projects have been massively over time and over budget. We've
Speaker 2: got we're drowning in bureaucrats. They've spent heaps on all
Speaker 2: this public service and all this rubbish, right, and the
Speaker 2: Federal government has effectively bailed out Victoria by handing it.
Speaker 2: It's arded in competence by handed handing. At seven point
Speaker 2: five billion dollars of additional extra GST revenue over two years.
Speaker 2: I'm talking about the current year in now and for
Speaker 2: next year we're in New South Wales and going to
Speaker 2: receive one point one billion and Queensland's actually going to
Speaker 2: lose two point eight million dollars. Oh god. So effectively,
Speaker 2: because the Victoria's incompetence, the federal governments effectively give it
Speaker 2: a bailout, giving it all as GST revenue. As a
Speaker 2: result of victory, is now going to receive a dollar
Speaker 2: dollar and seven cents in GST for every dollar raise.
Speaker 2: New South Wales has have fallen to eighty five cents
Speaker 2: per dollar raise and Queensland, Queensland's sorry, Queensland's eighty five cents,
Speaker 2: in New South Wales eighty six cents. So the reality
Speaker 2: is that Australian taxpayers are bearing the burden of Victorian
Speaker 2: government's financial incompetence. So we've got, you know, massively wasteful
Speaker 2: product projects, massively drowning bureaucrats. And to make matters worth
Speaker 2: that these gas projects that Queensland has approved or is
Speaker 2: looking to approve as their royal to revenues go up
Speaker 2: because they're improving gas, their gest take will go down right.
Speaker 2: Whereas Victoria has banned new gas projects, which means that
Speaker 2: we're not going to get these rolesies that we could
Speaker 2: have got, but we're going to get rewarded for being
Speaker 2: for basically stopping investment with extra GST revenue.
Speaker 1: Well, they've they've converted the GST revenue into a participation medal.
Speaker 1: Everyone to winner here. Even if you're stuffed things up royally,
Speaker 1: we'll still find a way to make you a winner.
Speaker 1: We'll just tip into the pockets of people in other states.
Speaker 1: And you know, then all it is is just turn
Speaker 1: up and you get the prize and we cover over
Speaker 1: the cracks. It's a bloody joke, isn't.
Speaker 2: It, mate, It's an absolute joke. And you know, again
Speaker 2: the gest allocation rewards incompetence. Victoria stuffs things up, it
Speaker 2: runs itself poorly, it blows money left, right and center.
Speaker 2: It refuses to do new gas exploration or you know,
Speaker 2: open up new resource new ways to raise revenue as well,
Speaker 2: and it gets rewarded. Whereas Queensland is going to get
Speaker 2: penalized from improving new gas fields because it's going to
Speaker 2: get ex royalties from it, and New South Wales receives
Speaker 2: the most migrants in the country. Right You're the biggest
Speaker 2: state and you need to be able to provide funding
Speaker 2: for infrastructure services for those for the massive influxing migrants
Speaker 2: that you have. But you've been hamstrung because effectively, your
Speaker 2: your GST take is a lot lessons should be and
Speaker 2: it's been siphoned off to Victoria.
Speaker 1: Is an absolute clown clown show, right mate, Thank you
Speaker 1: talking next week cheese excellent leatevan ontolinmacro Business dot com
Speaker 1: dot Au. I like that clown or Champion of the week.
Speaker 1: Victorian government, well done, our initial, our inaugural clown