Each week we speak to Leith fan Onsolin macro business dot com dot au. It's where we get our financial and economic news each day. Brilliant macrobusiness dot com dot Are you Leith Fanonsolin is on the line. Good morning, Very well mate, what about you long weekend? Doing something wonderful.
Or note the weather's turned pretty miserable down here in Melbourne. Unfortunately we had an absolute fools paradise spring whereby I reckon about four weeks ago, is that's the swimming at the beach which you never do in Melbourn? Yeah, this time of year. But suddenly it's has hit us like you know, punch, punch in the nose. So unfortunately, mate, it's going to be a bit wet and a bit cold, so I'll probably just stay in doors and do some other stuff.
Yeah, nothing wrong with that, now you you say that the government in return for now a couple of weeks already we should be getting policy whiplash. Why do you say that?
Yeah? So this week, well, earlier this week I should say, it looked like the Albanie album was going to make some sort of sensible policy compromises in a bunch of areas. But later in the week they pretty much have done a one eighty degree turn it seems, and have fumbled
the balls. So you know, the first area is gas, right, So you discussed in detail last week it appeared that labor was opened to establish an East Coast gas reservation policy, effectively emulating the excellent policy that the Coalition took to the election. Now I'll just give a very quick refresher say, in case you missed last week, the Rod Guillay government in the early twenty tens made the disastrous decision to improve l G exports out of Gladstone, Queensland without requiring
gas producers to supply the domestic market first. And because this effectively made East Coast Australia the only place in the world, the only export gas exporting jurisdiction that doesn't require companies to supply their own residents first, so domestic
reservation policy. And since then, you know, since they export terminals booted up about a decade ago, we've literally doubled the production of gas in these case, but we've actually supplied twenty five percent less gas the domestic market, so just bartened it offshore, right, and as a result, in these case, gas price is roughly tripled, and the Coalition promised during the election to implement an East Case reservation policy by imposing export levies and uncontracted gas, so effectively
gas does not only contract, which goes into what's called the spot market, which is actually what sets the helps set the electricity price. They were going to force that gas to be supplied domestically rather than export, and they're going to do it by basically charging export levy on that gas to make it more cost prohibitive to export. So it was excellent policy, and the Coalition promised to lie with the East Case gas price to blow ten
dollars gigdils. They currently it's around twelve floats. Around twelve goes up a bit whatever. But the counterfact of not doing this, look is because we've got these gas shortages, these artificial shortages, we're actually looking at importing gas in
this up Wales and Victoria, potentially South Australia. So these elergist terminals, if they come online, they're going to push up the price of gas on the East Coast to possibly twenty dollars a gigadril from twelve currently because we'll be paying import parity prices so that's the effectually the price we paid the moments basedally export parity prices, which is before you liquify, which uses tons of energy and is expensive, the cost of transport and then converting it
back into gas at the other end, so we'd be basically paying that extra cost. And so the Coalition promised to implement our reservation policy. Now, Labour's Resource Minister Madeline King during the election dismissed Coalition's policy as a quote thought bubble and so that basically they efectually opposed it. But last week the AFAR reported that the Albany's government was considering imposing the East Coast the reservation policy. So
that basically got me pretty pretty excited. I thought, I hear it go that Labour's bending the knee and coming back to common sense. But then late this week from Minister Anthony Albanese distanced himself from the notion of reservation and despite the fact that he publicly praised Western Australia's gas reservation policy. So West Australis is a separate gas market's not linked by pipeline. They've had a reservation policy
since the early two thousands. That's brought down the cost of gas and electricity in West Australia's worked excellently, so Albany said, Wa, this is a quote WA. Frankly showed good vision going forward when they put in the reservation, so you know, he said it's a good thing. But then he said that the coalition's policy had been plucked out of a cocoa pops packet and said that labor already has the power the force producers to sell the local market. Well, if you do, why it exactly, so
you know, Unfortunately this is a sort of whiplash. It looked like Colish is an excellent policy. It got Lambassa during the election for political reasons. It looked like last week Lay was going to bend the knee and potentially do a similar policy now and Elbows come out attacking the coalition's policy or reservation, saying it was plucked out
of the cocoa pops packet. So the upshot is that if we don't do this work, if Labour doesn't fix their stuff up from under the Rudgillard government, when they prove these projects without reservation, we're facing the very real prospect of having to import energy, which is going to
send the gas price through the roof. It's going to send electricity prices high, it's going to push up inflation, it's going to lead the higher cost of living concerns, and it's obviously going to push more on manufacturing off shore because we won't be able to make stuff as nearly cheaply because energy is arguably the key input if you're a manufacturer, and if we make that energy expensive, we send a manufacturing I'm sure we get a less
diversified and industrialized economy and the manufacturing end up just going to China, which is where we sell a large chunk of our colon gas anyway. So it's just crazy stuff mate.
So what about superannuation whiplash again?
Yeah, it does. So under Labour's proposed super reforms, they want to effectively increase the earnings tax on large super balances. That's balances over three million, and I don't personally have a problem with that necessarily provides index. But the real controversial area here is they want to change the rules. So at the moment there's a fifteen percent super tax
on earnings within super funds. That's like dividends and interest payments, and if you've got a commercial property, rent, et cetera. And they want to increase that for thirty percent, which for large balances is fine. I don't really have a problem that. The problem is they want to start applying
it to unrealized paper profits, which is crazy. So what that means is that if you've got a share port follower and the shareport follower arises in the year, they want to start taxing that before you've even sold it. And it's a real problem, particularly if you hold unlisted assets. So if you hold assets that are not traded on a share market, for example, you know, commercial property or whatever,
how do you value that? So they need to basically get a private valuer in that's all rubbery evaluations anyway, and then you need to need to pay tax every single year on whatever. This person themes that it went up before you've actually sold it, and then if you don't agree with that, you're probably going to spend thousands of for an alternative assessment. It's just a whole bunch
of complexity that we don't need. And the Prime Minster Anthony Albany suggested early in the week that Labor would negotiate the coalition instead of the Greens and raise the prospect that it would abandon its unrealized capital gains component, but instead, good old Treasure of Jim Charmers on Wednesday came out and then slammed the door on that's saying, no, I do know, Labour's going to negotiate with the Greens.
We're going to keep the unrealized tax on that and we're going to basically keep the existing policy which is subject to balances of three million dollars, but it doesn't it's not indexed. That's what that means is that in say twenty five or so years, if you've got inflation at two and a half percent, that three million balance in twenty five years will be equivalent to say one and a half million in today's are you So it's going to suck more and more people into that net.
So you know, for Stars, it should be indexed and they should get rid of the unrealized component. And I think if they did that, we probably have a good, good policy because the reality is the superinoagent sessions are ridiculously generous and they do cost a budget about sixty billion dollars currently, so this is very expensive that they're forecast grow to cost the budget more than the age pension in several decades, so we should really raise a bit more money out of that stuff. But it should
be done properly. And the way you do it is you just simply double the tax for large balances you in the accept What we could also do is we could change the way concessions attack. So at the moment when you contribute to your super fund you get, you do it at a flat fifteen percent tax. Now there are some carb apps if you earn over two hundred and fifty k, but for most people it's fifteen percent
flat tax on supercontributions. Instead of doing that, what that does that that means that if you're if you're on a higher income, you get a bigger concession. So for example, if your income's two hundred and twenty thousand, your mugin and tax trait four seven percent, but if you pay fifteen percent contribution effectily getting the tax benefit thirty percent. Whereas if at the lower end, you don't get as
bigger benefit because your martyr tax rates lower. So instead of if you want to make that more more against sustainable and also fair, just follow the Henry Tax Reviews recommendation, which is basically give a fifteen percent flight production. So for any supremodation, you paid at your marginal tax rate minus fifteen percent, and that way you'd be giving a bigger benefit. Well effectively a bigger benefit to lower income earners, so then they currently get, but you wouldn't be given
as bigger benefit to high in commanders. And ultimately, the superde rates system should be about relieving pressure on the age pension. And the way you do that is, instead of giving heaps of concessions of people who would never go on to the pension anyway, you should stew that to the lower end. And if you do those two things that the government would say dollings dollars in more revenue would be a fairer system, and we have more money to are cutting coome taxes and do other stuff. But
get rid of this unrealized games. It's ridiculous.
It's ridiculous. I had a listener say earlier, if you if you have an unrealized gain, you should pay the tax with unrealized income, which I thought was a nice way of dealing with it. Now, do we have a clown or hero? I think at the clown this week?
Is that right? Yeah? Unfortunately, I'd love to do a hero but.
Yeah, okay, well play the get sent me play the music first round mate Clown of the week.
Yeah, as I said, mate, I'd love to do a hero and I will one day. But unfortunately we've got another clown and unfortunately it's none other than Treasure Jim Charmers. So this week we got the Q one National Accounts, so the March Courter National Accounts releasing the ABS and there was another absolute shocker, right, so we're back in there for capital a session. Economic growth once you subtract population growth, well yzero point two percent, right, So we
went backwards again. This present the ninth decline in eleven quarters. So this is the longest stretch of per capita declines in modern history. It is not the deepest. It was deeper in the early nineties and the mid eighties recessions, but it's the longest we've had. So we've just been at this slow grind. So nine out of out of eleven quarters we've gone backwards. We were suffered a per cap of GDP decline in one point seven percent over that period. Also, the total economic growth in the March
quarts point two percent. That's with population growth, but that was less than half of what the ABA projected in last month's Statement of Monetary Policy, they projected point four to five percent, So that's a really weak result. And you know, good old Treasurer of Jim Chalmers put lipstick on a pig. He did a meter release saying that the private sector recovery we have planned for is gradually
taking hold. The Australian economy remains quote one of the strongest in the world now the laverys thing that is that is private sector recovery, public demand, so that's basically public spending is a share of GDP is basically at a highest level ever of nearly twenty nine percent, and about sixty percent of the nation's growth in the year
to March was from public spending. So we've basically got an economy here where the private sector is dead, it's been propped up by high population growth, high public spending, and then treasure gym charmers are saying that we've got one of the strongest economies in the world, et cetera. So you know, it's very hard to take him seriously when per capita GDP, so everyone's slice of the equinity pie that's fallen for nine out of the past eleven quarters.
And we've also experienced in a household spending has also declined for seven consecutive quarters on an annual basis, is down about two and a half percent from its peak. So households are spending less as well. And we all live in the household economy. So there's three parts of the economy. You got household, businesses and government. We care about the household sector and that sector particularly has been hit very hard, and we care about that because that's
the sector that we all living. Everyone listerally, this is part of the household sector. We're not part of government, not part of business, and that checktors may think really hard. We're all coming back on spending. We've got a per capita recession. And Jim Charmer's the same of you out there with im mediately saying Australia economy remains one of the strongest in the world. Yeah, kind of ridiculous.
It is, all right, mate, have a great weekend. I'll talk to you next week. Jeers Lake, thank you, Leith van Ontolin. And just to support what Leith was saying about the private sector, I found this astonishing. I really did the Don Watson Group, which look after transportation and cold stores. They've decided to shut their doors. Now, this is a highly regarded company. It's a refrigerated logistics operation, so it sends around the country frozen and cold goods.
Now you would think given the distance that they would have great demand for their services. Well, it started back in nineteen forty eight. The founder, Don Watson, would service markets with a few Army surplus K series Austin's he passed away in seventy Three's son took over and they launched the refrigerated division in nineteen eighty four. And there's there's a third generation owner.
Now.
Well they're shutting up shop. Final collections made tomorrow and then they'll be delivered in the following days. The thing is, there's three hundred employees now, they'll be paid their entitlements. I've told but it's purely down to economic conditions, that's what they say. Now, I'm sure they didn't by accident last so long, from the original founder to the refrigerated division founded in the eighties, I'm sure all they didn't
get through all that by accident. Something's going on here and leave this so right for the treasurer to say, look at me, how good. Remember we had that conversation about lived experience and then we get you know, the fluff and the spin and the statistics that are meant to look this way, not that way. This is lived experience. I hope all the people working for that company are okay. And to think that they've got a shut after being founded in nineteen forty eight delivering cold stuff in a
country outsize astonishes me. Next we won't be able to make things here. Hang on,