WEBVTT - Leith Van Onselen - ‘The Treasury of Common Sense’

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<v Speaker 1>Now this is going to be really good chatting to

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<v Speaker 1>Leaf Vanonsoalin because there's so much going on in our

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<v Speaker 1>economy and around the place. As you know, he is

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<v Speaker 1>from Macrobusiness dot com. Dot u's where we go every

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<v Speaker 1>day for our financial monitoring news and other matters around

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<v Speaker 1>our economy. He's also the chief economist at the NB

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<v Speaker 1>funded MBCPER. He's on the line the Treasury of Common Sense,

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<v Speaker 1>Leaf Vanonsoalin, How am I friend? Traveling? Well? Mate? How

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<v Speaker 1>about you?

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<v Speaker 2>Yeah? Pretty good night. It's a little bit cooler down

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<v Speaker 2>here today, but yeah, pretty good.

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<v Speaker 1>Well. I can't believe it, but there's been some discussion

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<v Speaker 1>has there from government about East Coast gas reservation. I

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<v Speaker 1>wonder where they got that idea from. And this is extraordinary,

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<v Speaker 1>isn't it.

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<v Speaker 2>Yeah? Yeah, I mean certainly you know that it's not

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<v Speaker 2>a slam dunk, but there there are some hopeful signs here.

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<v Speaker 2>So just to recap, Each Coast Australia is the only

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<v Speaker 2>gas exporting jurisdiction in the world that has no policy

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<v Speaker 2>to require gas companies to supply Australians first, and as

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<v Speaker 2>a result, East Coast Australia has the highest gas prices

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<v Speaker 2>in the world. Amongst gas exporting jurisdictions. Now, as we know,

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<v Speaker 2>the Coalition took a really good gas policy to the

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<v Speaker 2>federal election, a promise to implement an East Coast gas

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<v Speaker 2>reservation policy via basically imposing export levies on contracted gas.

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<v Speaker 2>If gas companies were trying to export uncontracted uncontracted gas

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<v Speaker 2>rather than supply it into the spot market domestically, they

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<v Speaker 2>would they'd be slogan attacks, and the Coalition promised to

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<v Speaker 2>lower the East Coast gas price to blow ten dollars

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<v Speaker 2>a gigadel, which is currently floats around twelve twelve dollars plus. Now,

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<v Speaker 2>the counterfactur of this look is that if we don't

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<v Speaker 2>reserve gas that imports East Coast Australia, despite the fact

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<v Speaker 2>that we export nearly three quarters of our gas, most

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<v Speaker 2>that goes to China, were slated to start importing gas

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<v Speaker 2>down in the Southern States late this year or early next,

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<v Speaker 2>and once we do that, the East Coast gas price

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<v Speaker 2>is going to rock it because we will be paying

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<v Speaker 2>import parity prices. So at the moment, we're effectively paying

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<v Speaker 2>export parity prices, which is the cost cost that we

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<v Speaker 2>charge exports less the cost of liquifying those exports and

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<v Speaker 2>then transporting it. But if we start importing that we're

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<v Speaker 2>going to be paying the cost of liquefaction plus transport

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<v Speaker 2>then degap converting it back into gas. Now, just to

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<v Speaker 2>show how good the Coalition's policy was, Shell Australia's chair

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<v Speaker 2>Cecil Wake admitted during the election campaign that the coalition's

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<v Speaker 2>gas reservation policy would reduce costs and that that person

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<v Speaker 2>I said that, you know, it'll potentially push more supply

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<v Speaker 2>into the market than there is demand and when that happens,

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<v Speaker 2>it'll have the potential of driving prices even lower than

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<v Speaker 2>ten dollars a gig JB. Now that's almost a direct

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<v Speaker 2>quote I'm paraphrasing, but that there is proof positive that

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<v Speaker 2>the policy was going to be good if you've got

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<v Speaker 2>one of the major energy companies going to force down

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<v Speaker 2>the cost of gas. Now, the coalition also pleased to

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<v Speaker 2>invest about a bid dollars in expanding the North South

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<v Speaker 2>Pipeline which runs fro Queensland all the way down to Victoria,

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<v Speaker 2>as well as to expand storage down south. And why

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<v Speaker 2>that's important is that in the North South pipeline has

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<v Speaker 2>excess capacity most of the year, but just in the

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<v Speaker 2>cold months of winter, it operates a capacity, so we

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<v Speaker 2>need to expand that and also expand storage. Now it

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<v Speaker 2>is telling that Labour's Resource Minister Madeline King she during

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<v Speaker 2>the election campaign she dismissed the coalition's gas policy as

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<v Speaker 2>quote a thought bubble, right, and most of us thought

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<v Speaker 2>that meant that Labor wasn't going to do reservation if

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<v Speaker 2>they got elected. Thankfully. The AFR reported this week that

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<v Speaker 2>the albany Is government's considering imposing the East Coast gas

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<v Speaker 2>reservation policy is part of its review of the country's

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<v Speaker 2>energy system.

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<v Speaker 1>Now you know, obviously you can't believe all this stuff,

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<v Speaker 1>can you accept it's just playing it out before our

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<v Speaker 1>very own eyes.

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<v Speaker 2>That's right. Look, it's an absolute no brainer. Like the

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<v Speaker 2>entire manufacturing industry of the Gas Uses Sociation, the Energy

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<v Speaker 2>Use Association wants gas reservation. It's incredibly important because gas

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<v Speaker 2>also is one of the marginal price that is of

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<v Speaker 2>electricity in the wholesale market. So if we've got expensive gas,

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<v Speaker 2>electricity prices go up as well because gas is used

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<v Speaker 2>for firming. So whenever there's not enough wind or solo,

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<v Speaker 2>they're going to check on a gas turbine to quickly

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<v Speaker 2>fill up the gap and then that pushes up the price.

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<v Speaker 2>Now this is even more important because this week the

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<v Speaker 2>Queensland State government announced that it's going to open up

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<v Speaker 2>nine new areas of the state for gas exploration and

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<v Speaker 2>they claim that by doing this they're going to increase

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<v Speaker 2>supply and push down prices and et cetera. Now, I'll say,

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<v Speaker 2>fron that that I fully support more gas exploration and

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<v Speaker 2>more drill, baby drill, yep. But it is largely futile

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<v Speaker 2>if it's not a company by a reservation scheme that

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<v Speaker 2>requires a significant share of that gas to be supplied

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<v Speaker 2>domestically first. And the reason why you know this won't

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<v Speaker 2>necessarily lower prices because we just have to look at

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<v Speaker 2>the last ten years. So since we started exporting gas

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<v Speaker 2>out of Ladstone in twenty fifteen, we've literally doubled the

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<v Speaker 2>volume of gas the production of gas in the East

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<v Speaker 2>Coast of Australia, but we've actually supplied the domestic market

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<v Speaker 2>with twenty five percent less gas. That's because we've just

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<v Speaker 2>pushed it all off, pushed most of it off. We're

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<v Speaker 2>basically exported it. So we've doubled the supply, but we've

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<v Speaker 2>reduced doubled the supply domestically, but we've actually supplied the

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<v Speaker 2>domestic market with twenty five percent less and as a

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<v Speaker 2>result we've got tripling in gas process. Right, So if

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<v Speaker 2>Queensland opens up all these gas fields, yes, the Queensland

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<v Speaker 2>will get some extra gas royalties for the state budget,

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<v Speaker 2>which is a good thing, but it's not going to

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<v Speaker 2>necessarily lower prices and it's not going to imports. If

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<v Speaker 2>that gas, at least it's a different portion of it

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<v Speaker 2>is not pushed into the domestic market. So this policy

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<v Speaker 2>from Labor is absolutely essential to ensure that we do

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<v Speaker 2>get more supply. Have to do is copy the coalition's

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<v Speaker 2>policy or if not, just look across the Western Australia.

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<v Speaker 2>Australia's done yeah, you know.

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<v Speaker 1>And that was that was a Labor government that did that.

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<v Speaker 1>So if they, you know, if they're a bit precious

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<v Speaker 1>about copying what the coalition proposed and just you know,

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<v Speaker 1>take a copy of what they're doing in the West,

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<v Speaker 1>because it's not it's not that difficult. Can I move

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<v Speaker 1>on to productivity growth mate? Because people don't really know this,

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<v Speaker 1>but in Australia, where we'd like to say how good

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<v Speaker 1>is it, our productivity growth has been among the poorest

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<v Speaker 1>in the advanced world, not just for three years, but

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<v Speaker 1>for the past decade. Isn't that right?

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<v Speaker 2>Absolutely, our productivity absolutely stinks, And a whole bunch of economists,

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<v Speaker 2>including former Treasury Sectuary Ken Henry this month former RBA

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<v Speaker 2>governor feel low. There's also some other RBA economists and

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<v Speaker 2>a whole bunch of others have all said that the

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<v Speaker 2>one of the main drivers of Australia's poor productivity is

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<v Speaker 2>that we haven't increased the nation's little stocks. I'm talking

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<v Speaker 2>about new new machinery, you know, new tools, new infrastructure,

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<v Speaker 2>et cetera, to keep up with the massive growth in

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<v Speaker 2>the population, and as a result, we've gotten poor productivity growth.

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<v Speaker 2>Now I've used this example previously just to explain this

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<v Speaker 2>in a stylized example. If you run a cafe and

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<v Speaker 2>you've got a coffee machine shared by two workers, and

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<v Speaker 2>you can make one hundred coffees. And now if you

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<v Speaker 2>double the number of workers to four, you're not going

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<v Speaker 2>to be able to double your output because you're still

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<v Speaker 2>working off one machine. They'll have to wait for each other,

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<v Speaker 2>there's congestion, all that sort of stuff. So you know,

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<v Speaker 2>although you double the number of people you don't double

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<v Speaker 2>your actually your productivity actually goes down because you can't

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<v Speaker 2>make as many you can't double the amount you need.

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<v Speaker 2>You need two machines it's got. So that's effectively what

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<v Speaker 2>Australias economy has done. We've grown the population like a

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<v Speaker 2>science experiment, eight point seven million people this century so far, incredible,

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<v Speaker 2>and we haven't grown infrastructure. The amount of investment everything

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<v Speaker 2>to go along with that, and as a result, the

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<v Speaker 2>capital to labor ratios what economists call it, has been

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<v Speaker 2>free for The Productivity Commission released a report this week

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<v Speaker 2>on Australians productivity and actually pointed this fact out and

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<v Speaker 2>it said that if this low rate of investment persists,

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<v Speaker 2>it will contribute to longer term productivity slow down. Now,

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<v Speaker 2>the reason why most important is on Thursday, the Australian

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<v Speaker 2>Bureau Statistics released its first quarter twenty twenty five CAPEX survey.

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<v Speaker 2>So for the March quarter, and what I showed is

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<v Speaker 2>that total volume of investment into equipment, plant machinery actually

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<v Speaker 2>fell by one point three percent of the quarter. It's

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<v Speaker 2>down by nearly two percent over the year. And this

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<v Speaker 2>comes at the same time as Australia's population continues to

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<v Speaker 2>expand aggressively, and all this means is that we're going

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<v Speaker 2>to have less capital equipment per worker because population is

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<v Speaker 2>growing and we're not building the capital stock to keep

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<v Speaker 2>up with it. And the long term outlooked the work

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<v Speaker 2>is very poor because the federal government predicts an extra

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<v Speaker 2>thirteen point five million people come into the country in

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<v Speaker 2>the next forty years. And that's like adding other Sydneyburn

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<v Speaker 2>and Brisbane currently to Australi as popular. You need all

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<v Speaker 2>the infrastructure, all the houses that in those cities, all

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<v Speaker 2>the energy everything, all the business investment, everything to keep

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<v Speaker 2>up with that. And I just can't see a way

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<v Speaker 2>we're going to do it. We haven't done in the

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<v Speaker 2>last twenty years, and our protivity growth has suffered. So

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<v Speaker 2>we keep just growing the population like the science experiment,

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<v Speaker 2>and we can't keep up with that, whether it's housing, infrastructure,

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<v Speaker 2>business investment, A protivity growth is going to stink and

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<v Speaker 2>our living stands are going to stay nd.

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<v Speaker 1>Yeah. Now, each week I'm going to put to Leith's

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<v Speaker 1>the question do we have a clown or the week

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<v Speaker 1>or a champion of the week, so it can be

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<v Speaker 1>good news and bad news. And I understand this week,

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<v Speaker 1>this week mate, you've got a clown or the week?

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<v Speaker 1>Do you?

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<v Speaker 2>I do? And it's actually the Victorian government, which is

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<v Speaker 2>which the New South and Queensland listeners will love this.

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<v Speaker 2>So the Victoria is basically leaching up New South. I

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<v Speaker 2>was in Queensland, so you know the Victorian government and

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<v Speaker 2>I'll live in Sorry, I'll be very clean and clear

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<v Speaker 2>about that. We are the most poorly run state in

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<v Speaker 2>the country and we have a state government that is

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<v Speaker 2>a state that is absolutely grounding in debt. Right, So

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<v Speaker 2>per capita debt is so much ahead of New South

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<v Speaker 2>Wales and Queensland. So per person we are twenty two

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<v Speaker 2>thy nine hundred per person in net debt versus fifteen

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<v Speaker 2>thousand in fifteen thousand tred in New South Wales at

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<v Speaker 2>about nine three hundred Queensland, right, and we're all Overfrastructure

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<v Speaker 2>projects have been massively over time and over budget. We've

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<v Speaker 2>got we're drowning in bureaucrats. They've spent heaps on all

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<v Speaker 2>this public service and all this rubbish, right, and the

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<v Speaker 2>Federal government has effectively bailed out Victoria by handing it.

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<v Speaker 2>It's arded in competence by handed handing. At seven point

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<v Speaker 2>five billion dollars of additional extra GST revenue over two years.

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<v Speaker 2>I'm talking about the current year in now and for

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<v Speaker 2>next year we're in New South Wales and going to

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<v Speaker 2>receive one point one billion and Queensland's actually going to

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<v Speaker 2>lose two point eight million dollars. Oh god. So effectively,

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<v Speaker 2>because the Victoria's incompetence, the federal governments effectively give it

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<v Speaker 2>a bailout, giving it all as GST revenue. As a

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<v Speaker 2>result of victory, is now going to receive a dollar

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<v Speaker 2>dollar and seven cents in GST for every dollar raise.

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<v Speaker 2>New South Wales has have fallen to eighty five cents

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<v Speaker 2>per dollar raise and Queensland, Queensland's sorry, Queensland's eighty five cents,

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<v Speaker 2>in New South Wales eighty six cents. So the reality

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<v Speaker 2>is that Australian taxpayers are bearing the burden of Victorian

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<v Speaker 2>government's financial incompetence. So we've got, you know, massively wasteful

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<v Speaker 2>product projects, massively drowning bureaucrats. And to make matters worth

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<v Speaker 2>that these gas projects that Queensland has approved or is

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<v Speaker 2>looking to approve as their royal to revenues go up

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<v Speaker 2>because they're improving gas, their gest take will go down right.

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<v Speaker 2>Whereas Victoria has banned new gas projects, which means that

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<v Speaker 2>we're not going to get these rolesies that we could

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<v Speaker 2>have got, but we're going to get rewarded for being

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<v Speaker 2>for basically stopping investment with extra GST revenue.

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<v Speaker 1>Well, they've they've converted the GST revenue into a participation medal.

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<v Speaker 1>Everyone to winner here. Even if you're stuffed things up royally,

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<v Speaker 1>we'll still find a way to make you a winner.

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<v Speaker 1>We'll just tip into the pockets of people in other states.

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<v Speaker 1>And you know, then all it is is just turn

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<v Speaker 1>up and you get the prize and we cover over

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<v Speaker 1>the cracks. It's a bloody joke, isn't.

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<v Speaker 2>It, mate, It's an absolute joke. And you know, again

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<v Speaker 2>the gest allocation rewards incompetence. Victoria stuffs things up, it

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<v Speaker 2>runs itself poorly, it blows money left, right and center.

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<v Speaker 2>It refuses to do new gas exploration or you know,

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<v Speaker 2>open up new resource new ways to raise revenue as well,

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<v Speaker 2>and it gets rewarded. Whereas Queensland is going to get

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<v Speaker 2>penalized from improving new gas fields because it's going to

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<v Speaker 2>get ex royalties from it, and New South Wales receives

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<v Speaker 2>the most migrants in the country. Right You're the biggest

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<v Speaker 2>state and you need to be able to provide funding

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<v Speaker 2>for infrastructure services for those for the massive influxing migrants

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<v Speaker 2>that you have. But you've been hamstrung because effectively, your

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<v Speaker 2>your GST take is a lot lessons should be and

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<v Speaker 2>it's been siphoned off to Victoria.

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<v Speaker 1>Is an absolute clown clown show, right mate, Thank you

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<v Speaker 1>talking next week cheese excellent leatevan ontolinmacro Business dot com

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<v Speaker 1>dot Au. I like that clown or Champion of the week.

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<v Speaker 1>Victorian government, well done, our initial, our inaugural clown