Well, anywhere you turn at the moment, you're hearing the words inflation, interest rates, Trump, dare I say. You're hearing all these words and... What I wanted to do, I wanted to talk to an economist about a couple of things. I want to just educate you on some basic... economic terms, how the economy works, all that stuff. I've put a heap of questions together that I've kind of gleaned from all of you in the Facebook group. But today on the podcast...
Brian Parker. He's the Chief Economist from Australian Retirement Trust or ART. I've invited Brian on to the show to have a bit of a chat with us. It's not a sponsored spot, so... Put your tin hats away, everyone. And we're going to have a bit of fun together. This episode is brought to you by Sphere Home Loans. Now, we are a big believer in getting a mortgage broker when...
you are looking to get a new home, when you're looking to refinance, when you're looking to do any equity release, or just to have someone look over your loan. Big believer in mortgage brokers, 70% of Australians are using mortgage brokers. the moment. So they're not going anywhere. The banks are getting on board with this distribution model. And we thank Sphere Home Loans for supporting the podcast today. My name's Glenn James. You ready to do a podcast, Brian? I think I am. Let's get it on.
There's cars and SUVs. Then there's vans and pickups. Looking for expert device on your next vehicle? Our Toyota and Lexus business team are here to help. Whether it's electric, hybrid, petrol, diesel or hydrogen vehicles, our dedicated team offers comprehensive consultancy for large and small fleets. With our award-winning reliability recognized by the What Car Awards.
We keep your vehicles on the road and your business running smoothly. Search better business to learn more. Lexus awarded Best Reliability in the 2023 What Car Awards. At 3 Business, we know the importance of keeping your business connected. Whether you're doing emails on the 7.30 to Paddington, or taking a video call on-site,
Our multi-SIM plans all come with unlimited calls, texts and data. Plus, with 99% UK coverage, you can do your best work wherever you are. Head in store or search 3Business. Unlimited UK only. 99% outdoor population coverage. Terms apply. Radio, I will firstly... declare disclose a couple of things okay you ready brian go for it whenever we record anything that could be
economical time sensitive. We'll get that up as soon as possible. I'm going to strap Brian to the chair and do a dedicated retire right episode. And we're going to have a bit of fun. known Brian for maybe a thousand years. It seems that way, mate. In a couple of other lives, I used to effectively go to Bunnings, buy a fridge trolley, go to Brian's office, strap into it and wheel him out.
And he would speak to clients about the economy and investing and whatnot. So today it's going to be a lot of fun. And before we kind of get into the fun stuff, just give me a bit of a... You know, people might not know what ART is, Australian Retirement Trust. Can you maybe just nutshell what you're doing in your role day to day? And also, people may have said, I've certainly seen... The ads, all that stuff with the big...
blue scary thing. I thought it was you initially. Well, I was about to say that suit is really hot and Bev is a lot heavier than she looks on the ad. But no, look, at the end of the day, ART or Australian Retirement Trust, we're the second largest super fund in the country. We look after somewhere north of... $300 billion for 2.4 million Australians.
I work in the investment team. I'm based in Sydney. There's about 120 of us, 130 of us split between Sydney and Brisbane and also a small team in London. And our job is to basically build a whole range of portfolios for our members. And so I work in investment strategy.
part of my day job. The other part of my day job is to turn up and record podcasts and have a chat to our members and our clients about what we do with their money. Yeah. And the episode that we're going to do on the Retireite podcast... There's a big thing for the listeners of that show because Retireite is kind of aimed at over 55s. There's always these questions about asset allocation and investing leading into retirement and into retirement. So that's what I'm going to grill.
Brian on over on Retire Right podcast in two days' time. Well, what is the story behind the blue thing, the big scary monster? It's a monster. Okay, this is for your marketing team, right? Okay, exactly.
Ooh, super scary, but it's actually friendly and not scary? I think that's the thing is that the story is that, you know, and the line from the air that you are sitting on a monster and it's trying to get people to realise that superannuation is going to be... the biggest pot of money arguably any of us are ever going to have.
We need to pay attention to it. We can't ignore this monster and we can make the monster work for us. And I think that's the main message we're trying to really get across from the ad is that, you know, back in the day, you know, Glenn, when you and I used to talk in formal lives. The old adage used to be that people pay attention to their super when they either get to 55 or when the balance gets to be either 100,000 or a year's salary, whatever came first.
But up until that, it seemed either it's just so far away or just too small to worry about. But as soon as super reaches a certain balance or people get to a certain phase of life, they start to pay attention to it. Whereas we're trying through the ads and through the marketing campaign to get people to pay attention to it sooner.
rather than just wait till they're 50 or 55 or wait till the balance gets to a certain level. Because the sooner you actually start to engage with this monster, the better off you'll be in retirement. Pretty simple, isn't it? Well, it sounds simple, but it does take a hell of a lot of work. Yeah, right. There you go, everyone. I think the number one thing I tell people about, and I've just either...
just released it or about to next week or this Thursday coming, I talk about the Glen James wealth steps. And one of the first steps, if you are new to money and personal finance, is do a super health check. And my whole thing is... Just find out where your super is. Log into ATO. Just be engaged. If you're 31 years old, I dare say you're not going to be in a conservative portfolio or you shouldn't be. So part of the health check is knowing.
where it is, what you're invested in, and what the asset allocation is. So there you have it. A bit of fun facts about Brian's role. I'm going to ask you some questions about the general economy, maybe the monetary and fiscal policy, what all that means, a bit of inflation.
trade and tariffs and all that are in the media at the moment due to some interesting events. Interesting is a good way of putting it. Yeah. So particularly Australia and the world, before I'd start kind of asking questions, with your economist hat on, Where are we? Where are we? Look, the Australian economy at the moment, I would say we're growing, but only just.
We're only really growing because we've seen very rapid population growth, which has propped up our spending aggregates. So the volume of spending, the volume of output in the economy has very much been propped up by rapid population growth.
you look at the performance of the economy allowing for population growth, so things like what we call GDP or gross domestic product per capita or real income per capita or real spending per capita, has actually been falling, which tends to suggest that for the typical person out there...
There are cost of living pressures. The people are becoming more cautious with their spending. Not everybody. There are still clearly people out there with plenty of money to spend. But the typical consumer out there, anyone who is relatively young, anyone who is renting or looking to...
rent anyone who is relatively early in their mortgage journey if i can put it that way is particularly feeling the pinch older australians particularly with a reasonable retirement balance are actually enjoying a reasonable standard of living at the minute
partly because superannuation returns have generally been pretty strong for the last decade or so. But, you know, there's still a decent amount of economic pain out there. How do we know what is actually real and going on? Because we're pretty much in an election. campaign right now like it's unofficially started and I saw Mr Chalmers Dr Jim Chalmers our treasurer on the news last week at the time of this release and
It was this big flap song and dance that we're getting inflation back under control, building and construction. It inflated by 40%, and now it's back to, I'm being a bit dramatic, to 3%, so it got under control. That's cute, but it hasn't reduced 38%. Like the inflation has arrived and stayed. Yeah.
And again, it's the difference between changes in the level of prices and the rate at which they increase. So inflation is, by definition, the rate of change in prices. And so even though inflation has fallen quite significantly... it still means that some prices are going up. They're just not going up at the kind of rate they were. The key way to assess this is not so much to look at inflation by itself or the price of things by itself, but look at the ability of people to cope with that.
And that's why you do hear people talk about, well, what's happening to wages, in particular what's happening to real wages. Because for a good many years there, we've seen people's real purchasing power actually declining because wages weren't keeping up with inflation. That's now changing. we've actually started to see some real wage gains in Australia. So you are seeing a bit of a recovery in people's purchasing power.
But this follows several years where people's purchasing power was falling. We've only just started to recover from that. But that's the thing. It's like with inflation, if we had four years where wages didn't do anything, inflation was going crazy. It's almost like you can't actually quantify, look back. We've just got to look at right now and say, well, at least going forward, it's keeping in flight, like inflation is keeping in line with wages. And I think all this to say, where do we...
is there a source of truth other than trolling through the ABS data yourself? Because politicians' mouths moving, they're spinning something. Yeah, I think that's a fair way to put it. And I suppose a lot of what we've seen in Australia has not been unique to Australia. You've seen a surge in inflation all around the world, or at least most parts of the world. So all the major economies have actually seen this massive inflation surge.
You've also seen, you know, declining real wages in a number of economies as well. So this has been part of a global phenomenon. You know, we came out of COVID. We came out of, you know, we had the war in Ukraine.
And those two factors combined drove up the price of a whole range of things. And coming out of COVID, it took a bit of time for the economy to sort of get back on its feet again. And there were still lots of shortages, both of labor, but of also... raw materials, the good analogy of, you know, when you come out of a crisis like that and you're trying to get...
get stable again or you're trying to get back on your feet. It's like trying to merge into freeway traffic from a standing start. You hit the accelerator and you're kind of skidding around a bit and you don't, you know, you're not really under control. It takes a little while before you actually get the car under control and then you can merge into traffic.
That's kind of what the economy's been through. And it's not just been an Australian thing, it's been a global thing. So there's not really that much, to be honest, the politicians really could have done about it. It really was what it was. Yeah. The RBA have a target of 2% to 3%. Why is it 2% to 3% or, you know, so that means obviously some inflation is good. Why don't we want to target at 0%? We don't want to target at 0% partly because...
If you're trying to get inflation down to zero, there's a risk that if you overshoot and end up with, say, deflation, that's actually in many ways worse because then you end up with... You end up being kind of like Japan for much of the last 20 or 30 years. And the reason I say that is there's a risk that you get into something called a deflationary spiral where people stop spending. People start to expect that prices are falling.
It means, well, why should I buy stuff today? I'll wait till it falls in price. And that means that because people aren't spending, prices fall further and it keeps kind of snowballing. A little bit of inflation in order to tolerate... in order to manage that risk is no bad thing. A little bit of inflation does help grease the wheels a little bit. But what we've also seen is that...
we have seen sharply higher inflation. And for a lot of people, and I think a lot of people on this podcast, when it comes to inflation, this is their first rodeo. The way I like to describe it is that if you first became aware of the economy or aware of money... At any time after, say, 1993 or 1994,
Now, when did you first become aware with money? Sometimes, for some people, it would have been when a $2 coin was under your pillow when you lost a tooth. It might have been when you started your first job at Maccas or wherever. But whenever that was, if it was after 1993... you've never had to worry about inflation. It just wasn't on your radar screen because inflation was generally very subdued. So this has become a massive shock.
to a whole generation of people who haven't seen inflation before. And you've seen it had a major impact on the US election, and it's probably going to have a significant impact on this election in Australia. Just on, now that we've kind of, you know, opened the door. to the inflation chat. My kind of beef, looking back at maybe the last federal budget or when the treasurer came out and said, we'll give everyone...
$300 energy bill credit. To me, it looked like there's a bit of politicking there because the government can potentially artificially reduce that line item in the inflation figures, but... when the $300 credit dries up after the 12 months or whatever, are they back in power? And I don't want to have a tinfoil hat too much, but I will. Like if they get back in power, well...
their back. I don't know. It seems like it was a bit of cooking the books a little bit. The way I would describe it is this. I think the political pressure... to be doing something to ease some pain out there, particularly from energy bills. The political pressure was very intense. But balancing that political necessity with a... Another necessity, which is to be seen to be responsible economic managers, to...
you know, release the purse strings enough to be seen to be doing something, but not to be splashing so much money around that you're having a major impact on the Reserve Bank's thinking, for example, that you're overstimulating things. Getting that balance right was a massive...
challenge. Now, you're right. Those energy rebates did actually serve to reduce measured inflation, but they weren't sort of hiding it. The fact that we're talking about it suggests that people know that that's what happened, right? So it's in the data. I think if I look at that political calculation... with an economist hat, you're kind of hoping that, all right, I'm doing something to address cost of living. I'm making it easier for people to pay their power bills.
I'm bringing down measured inflation, and rather than inflation just rising again when that drops out of the figures, I'm hoping that inflation... or the rate of increase in prices of everything else continues to fall so that by the time those wash out of the figures, the overall figures will still look all right. What do they say when they say headline inflation? What does that mean? Yeah, the way they calculate inflation.
is you're looking at something like 80 to 80, I think it's about 87 individual categories of spending. But you're talking about... the prices of hundreds or thousands of individual items that they gather on a monthly and quarterly basis. And they aggregate the prices of those items, goods and services, up into an index. And just, you know, they wait.
each particular category of spending based on how much people in a typical household spend on that. And they come up with a weighted average increase in the level of prices, okay? the full set of prices they calculate is what's called the headline inflation rate. So that's the price of everything. Because if you didn't, like even, so we looked two years ago when kind of we're at the peak of seven-ish, if you weren't doing international travel, if you weren't building a new house...
if you weren't renting, was inflation a problem? Well, if you were using electricity and using gas to heat your house or to cook, it was a problem. If you were going out even to get... a cheap restaurant meal or takeaway food, it was a problem. You also saw a bit of a shock to world food prices as well.
that came out of the war in Ukraine. So it wasn't just things like international travel and the like. It was a bit more broadly based than that. But one of the other things I drew on for this conversation is...
The difference between headline inflation, looking through the headline measure and saying, okay, sometimes that headline measure can be bounced around by particular things that are genuine one-offs. There might be a one-off spike in the price of food because of floods or because of drought.
But once weather conditions change, those prices will come off. So if I'm the central bank and I'm worried about inflation, I don't want to be jumping at shadows. I don't want to be jumping at, oh, gee, that price has gone up.
but I'll better raise interest rates because of that. You need to look through those sort of things. And this is why a lot of the conversations is around what's called underlying inflation. So this is where the Reserve Bank looks at a range of measures which basically tell us, look, if I strip out some... of the real outliers. What's happening to the rate of increase in prices for most stuff that we buy?
to try and get a smoother picture of what's actually happening to inflation out there, ignoring the kind of noise. And that's why the Reserve Bank tends to focus on those sort of measures. Now, those sort of measures are actually higher than the Reserve Bank's target. As you mentioned, those energy rebates have helped drive head... line inflation back to sort of towards 2%. But the Reserve Bank knows that that's a temporary feature.
They're looking at underlying inflation. They're looking at what inflation is expected to be over the next two, three, four years, rather than particular short-term policy-related moves like those energy rebates. Yeah, I thought it was particularly interesting. when the government moved on the previous governor. Was it Philip Lowe? Philip Lowe, yeah. Sure. He said a pretty wild thing, like, nothing's happening here for three years. Carry on, kids. And then...
But that aside, mainly politics because it's the board of the Reserve Bank. There just needed to be a scapegoat, right? And you don't have to comment on that. No, I can't really comment on that. But one thing I would say is that if you had Michelle Bullock in charge...
instead of Phil Lowe during that period, would interest rates have been different? Probably not. Well, and that's my point, exactly. Michelle came from being deputy governor of the central bank, and she was... She was at the table. She was absolutely at the table, and she's been at the bank for many, many...
years and is a really well-respected member of the bank staff for many, many years. But a very well-respected economist and policymaker and leader at the bank. But would interest rates have been any different? No, they wouldn't have been. So why was the change? You'd have to ask the Treasurer. the underlying motivation for that. But I don't think that policy outcomes would have been a great deal different. The other thing I'd say...
putting aside the sort of communication challenges of explaining what you think you're going to have to do with interest rates. The central bank in Australia was really facing the same kind of problems that a lot of other places were. I think a lot of central banks misread.
the inflation story, were caught very much by surprise by just how quickly inflation rose and just, you know, and therefore they got caught a bit flat-footed. All the world's major central banks, I think, suffered from that to a greater... I think the thing that I've noticed... and I'm a bogan from Newcastle in shorts right now, but if you look at the curves of international countries, particularly the US, they raised interest rates sooner than Australia.
and have started to lower. So it's almost like there's this maybe six months or a year like stamp that's kind of offset with us versus the rest of the world. Is that because of our unique position in the world and we're basically a big bank? holding the ground in Australia? Like, what's the difference with the lag? Because we are in the G20, but it was almost like completely different planets with the interest rate management. Yeah, not so much. I mean, the lag is not...
Not unreasonable. And if you look at the way monetary policy works in Australia. And what is monetary policy? Because that was one of my questions for people. Oh, yeah. So monetary policy is basically influencing the cost of money, the cost of borrowing. influencing the supply of money that people can borrow and spend to try and influence the level of spending in the overall economy.
And why would you want to do that? You want to do that to either boost spending or to contain spending. And why would you want to do that? If inflation is too high, in other words, if demand is outstripping the supply of goods and services, you need to bring demand down.
If it's the other problem, there's too much supply and not enough demand, you want to step in and try and boost people's spending. So the RBA sets monetary policy? Yes, the RBA operates independently. The way it's tended to- Is it independently or- Independently. It's independently. I think if you look at the way most central banks are in the world. If you're not watching on YouTube, I did a big independent wink, a big dirty wink.
Look, I think the way monetary policy has been run in most countries or most major economies for many, many years now is that policymakers worked out that when it came to changing – when it comes to setting interest rates, politicians are really bad at it, that they actually –
tend to make decisions, not surprisingly, for political reasons. And there was always a perception that if you leave it to politicians, they're going to cut interest rates before an election and they're going to be raising interest rates after an election. They're not really going to be motivated to do the right thing from a policy perspective.
So you're better off letting professional policymakers make those calls, but make them accountable. So you're independent, but you're accountable. So we'll give you a target. You have to report to parliament or report to the government on a regular basis.
You have to communicate what you're doing to the population and to the politicians. But in an operational sense, you make the interest rate calls because the expectation is you'll do a better job of it than the politicians, which is not a bad assumption, to be clear. And I'm going to get back to interest rates to put a button on this, but another thing that people might hear is the fiscal policy. So how is that different to monetary policy? Yeah, well, fiscal policy is all about the budget.
about how governments spend money and how they raise taxes and how much tax they raise in order to finance their spending. And so in an ideal world, if governments want to spend X, then on average, they should raise enough tax to pay for what we want governments to spend money on. And over time, that's not always going to be the case. Sometimes, very, very sensible reasons, governments may decide, look, I really don't want to sort of be raising as much tax now. The economy needs more help.
So I'm going to do more spending and less taxing. So I'm going to run a budget deficit for a while. The trouble is that, once again, when you let politicians do this, if there's a budget deficit and tough decisions need to be made, either on spending or... raising taxes it's hard for politicians to do that but really fiscal policy is about changes in taxes or changes in government spending
Again, designed to influence the economy, particularly designed to influence the level of spending in the economy, either government spending money directly or using taxes to influence how households and businesses spend their money. You know, we're doing a podcast here and I produce this podcast with my team in the background. But, you know, I really produce the questions and all that that we're going to ask. Just a bit of, you know, off the record, are you proud that I haven't asked you?
What interest rates are going to do this year yet? Well, I was just waiting for a year. Because how many times a bloody week... Does someone ask you, oh, Brian, what are rates going to do? It seems likely, at least the markets are telling us, that after the inflation figures the other day, inflation came in a little bit lower than markets were expecting, came in a little bit lower than the Reserve Bank had... forecast.
when you sort of slice through the data, it seems as though they're continuing to get inflation under control. And that's got markets very, very excited about lower interest rates. It may be at the February meeting, the Reserve Bank can reduce interest rates for the first time in quite a while.
And if they did, it's not going to be half a percent. No, I think it's likely that if they move, they'll move by a quarter of a percent. And the other thing to note, though, is that it's most unlikely to be one move. One of the things you learn about interest rates and monetary policy is interest rate...
changes are like cockroaches, right? There's never one. There's always a family, right? This episode is brought to you by Pestrol Ultra. I bought a tube of that for my house, spraying it everywhere. Yeah, but so basically I grew up in Queensland, so I'm familiar with you. If you say cockroaches, there's never just one. There's always a heap of them. Like economists. Oh, charming. Absolutely charming.
But I think that if you do get an interest rate cut, there's probably going to be another one at some point in the coming months, depending on how the economy and how inflation pans out. But the reason I think it's the decision to cut interest rates, it's a bit more line ball than markets are thinking. And the reason I say...
that is that, yes, inflation has come down, but the Reserve Bank is particularly interested in the future part of inflation. They want to make sure inflation stays down and stays in line with the target. And to do that, they need to be confident, particularly labour costs.
are not going to get out of control. Because if you think about the cost of supplying any particular good, or actually particularly services, which is the lion's share of the economy, services, the cost of providing a service is about 70 or 80% labour, typically. Right. And so a lot of the inflation story comes down to, well, if I'm a business and I'm setting prices, what's happening to my costs? And given the costs are largely labor.
That means how much more am I going to have to pay in wages? What's the cost of hiring people? And if the labour market stays really tight and it becomes more and more expensive to hire people, then that's going to cause upward pressure on costs and upward pressure on prices. Reserve Bank wants to see is, I mean, they don't want to see hundreds of thousands of people unemployed, but they do want to see the labour market soften a bit.
They do want to see sort of labour shortages continue to ease so they can be confident that businesses are not going to be faced with this ongoing challenge of finding labour and having to pay above the odds to retain people and to attract people. So for the RBA to tweak interest rates to attack inflation, they're looking at a handful of metrics. So you talked about productivity or...
wage rates, all that stuff. Is it actually fact, truth, you know, so help me God, all that stuff, that they only have the interest rate lever? That's their main lever. It's a very, very blunt tool. Other than some off-the-record texts to the treasurer from the board, like, go easy on us today. Not sure that happens. But actually one thing, if things get really dire, like we saw during COVID, and particularly...
also during the global financial crisis, not so much here in Australia, but internationally. If interest rates are already very, very low... and you go, well, there's not much more I can do here, and I still need to stimulate the economy more, they can take some pretty extraordinary measures if they need to. So one of the things they can do, and you've heard this phrase maybe over the last few years, what's known as quantitative easing. Yeah, talk to us about...
that. What does that mean? Because I think they got the hang of it in Argentina pretty well. No, no, no. This is basically saying, look, if I want to get people to spend, so what I'm going to do is I'm going to step into the financial markets and I'm going to financial assets in particular i'm going to buy bonds
particularly government bonds, but not necessarily just government bonds. So the RBA buys government bonds? It goes to the open market and buys securities, buys bonds. To pay for those bonds, they stick money into the system. They basically, they generally buy them of banks and investment banks. They deposit money into these banks' accounts to pay for them. Now, banks being banks, if they're sitting on excess cash...
What are they meant to do with it? Well, ideally, banks are in the lending business. So theoretically, if banks are stuck with excess cash, they should be encouraged to actually lend out more money. If they're lending out more money, people are going to take that and spend it.
So that's how it often works. The other way it works is because you're stepping into the market and you're buying assets, you're boosting the price of those assets. And if you're boosting the price of assets, it means that people's wealth goes up.
And there's a fair relationship between how wealthy people are and how much spending they do. Think about it if, you know, if I say I want a certain standard of living in retirement and I'm prepared to save to get that standard of living. Well, if my assets are doing my saving for me...
I don't need to save as much money. Yeah, no problem here. So I'll go out and spend. Yeah. And you do see a bit of that as well. So that's also how quantitative easing is meant to work. So the quantitative easing, because I thought the street slang for that was printing money. Yeah, printing money is a little bit different. It tends to have a similar effect in the sense that you're putting liquidity, you're putting cash in. Because if I had a $100 note and the RBA called...
Canberra or Perth Mint said, can you print an extra dollar and stick that into the economy? There is 1%. Less buying power? Is that too elementary? Yeah, it's the way printing... You can tell me I'm basic. No, no, it's all right. You're not that basic. But, you know, if you think about...
the way the textbook would describe it. So this is where printing money has a bad rap because the way, the negative aspect of it is if the government of the day basically says, I'm running a budget deficit and I want to spend all this money, if they go to the central bank and basically...
order them, I'm going to sell government bonds to finance my deficit, but you're going to buy them. In order to pay for this, you're going to put cash in my account, my government account with you, and I'm going to draw on that money and I'm going to spend it. That's technically the way money printing works. That's kind of a bit sort of Argentina-ish. That's basically the government ordering the central bank.
to do that. Right, not the central bank. Not the central bank saying, I need to stimulate the economy and I'm going to do quantitative easing because I think it's the right thing to do because I need to stimulate an otherwise weak economy. Yeah, sweet. We'll take a break and we'll be back right after this. you
If you're after personal financial advice, don't get it from a podcast. If you would like help based on your own personal situation, head over to moneypodcast.com.au, click get help and we'd be happy to introduce you to one of our trusted professionals. Our panel of vetted financial advisors and mortgage brokers work with people all over Australia so they can connect with you wherever you are. That's moneypodcast.com.au and click Get Help.
Then there's vans and pickups. Looking for expert advice on your next vehicle? Our Toyota and Lexus business team are here to help. Whether it's electric, hybrid, petrol, diesel or hydrogen vehicles, our dedicated team offers comprehensive consultancy for large and small fleets. With our award-winning reliability, recognised by the What Car Awards, we keep your vehicles on the road.
and your business running smoothly. Search Better Business to learn more. Lexus, awarded Best Reliability in the 2023 What Car Awards. At 3Business, we know the importance of keeping your business connected. Whether you're doing emails on the 7.30 to Paddington, or taking a video call on-site, our multi-SIM plans all come with unlimited calls, texts and data. Plus, with 99% UK coverage, you can do your best work wherever you are. Head in store or search 3Business.
Terms apply. Okay, we're back. If we're on live radio, I'd say something like, hey, it's Glenn here. You're listening to me, Chew the Fat. Brian Parker from ART. So welcome back if you've just joined us. Great to be with you, Glenn. A couple of things. When we talk about interest rates and you mentioned before the market pricing, like the market saying one thing. The market's like, yes or no, is the market always right?
Not necessarily. You're such a bloody economist. Yeah, I'm afraid so. Yeah, okay. Well, that's the reality. Okay, well, let me finish. How about this? The market, there's an old adage, right, particularly when it comes to things like share markets. I think it was an economist called Paul Samuelson.
from the 50s and 60s who said, look, the share market has predicted 10 of the last five recessions. So the share market craps out and people go, oh, no, there's a recession coming. Well, sometimes share markets just crap out because they do. That's what share markets do. It doesn't mean there's necessarily going to be a recession.
policy tends to work, the central bank doesn't necessarily follow whatever the markets are pricing in. Quite often what they will do, let's say- And by markets, you're basically talking about the bond markets? The bond market and what's called the money or the short-term money market. Yes. So if I'm a trader in the short-term money market and the current interest rate and if I'm looking to borrow and lend money and if I'm expecting the rate to fall and if everyone's expecting the rate to fall.
I'm not going to, I'd be manned to basically pay today's rate if I'm expecting the rate to fall, which means the market drives the rate down. Yeah. And that's why, so the other day I, you know, I got a text message and this guy was like, oh, hey, Glenn, like, what do you think about Bitcoin? I think we're on a runner because of, you know, Trump's in all that. And I was basically like, hey, dude, the market has priced that in the minute that the...
orange man won the election. And, you know, when in a couple of years ago, before interest rates started to You know, you turn on Alan Kohler every night and he's got his little graph there and his dry humor. Sometimes you've got to throw a bucket of water at the screen. But, you know, he was basically... The graph saying, the market surprised him that, like, everyone is saying interest rates are going up. And Uncle Phil was like, nah, kid's got two years. So the market...
does price stuff in. I think that's true. And sometimes the market is well ahead of what the central banks are thinking. And that was one example. Under normal circumstances, if you can describe any circumstances as normal, central banks don't really... like surprising markets? They don't really like shocking markets? Because it can cause...
Big reactions and rick confidence. So they want – so look at the current circumstances. Now, if it proves to be the case, if the central bank says, look, I actually don't think we're going to be cutting rates next time, they have ways of sending a signal out.
They can either, you know, quietly give a message. Do they do the white smoke out of the chimney when they've made a decision? No, there's no white smoke. No, there's no white smoke. The black smoke if we haven't got a decision? No, we don't. Okay. No, we don't do that. No, we don't. But basically, they do have ways of communicating their views to the market. If they thought the market was completely off base, they will actually either – they might actually –
plant a story, and they had done this over the years, gone to really high-profile journalists and feed a story to basically raise some doubts on this. Yeah. Or they'll actually, the governor or deputy governor will go out and make a speech and actually say, well, actually, we're thinking... And I think the way I see it is, you know, I've got a boat and I've got the GPS for the boats. It's Garmin Navionics or something like that. And you can set the course.
And if you imagine you've got your little boat at the bottom of the screen, right, and you can – it's got a red line on it. So it could look like it's going – you know, I'm heading to – 12 noon, but I've got the red line to 10. So it's kind of like this slow correction.
So do we get a signal that we are going in this vibe? Yeah, look, I think that the central bank has a range of ways they send a signal. If they think the market is getting something wrong, they can sort of steer the market the other way.
But, you know, that post-COVID period where the market clearly proved to be right when the central banks were missing the boat, that was a fairly exceptional period of time. Do you think, and again, you don't have to comment on this, it's just me making a comment on behalf of myself, I think the whole Philip Lowe thing... Maybe it was just lack of media training. I don't know. But we'll move on. I'm going to ask you a very personal question. It wasn't planned. If you, Brian, had a magic wand.
and you're going to fix all our problems in the Australian economy, what are you going to fix and how are you doing it? Oh, that's a really good question. personal view and certainly not an ART view. I would do something more on carbon pricing. See, the carbon, like this is most international economists and anyone, you know, and... I'm cancelled anyway years ago, but like most well-informed educated people are saying carbon pricing.
It's the ticket in town that you need. But the politics got on board in Australia and whacked the tax word next to it. But basically, a free market or a market-based approach to doing something about... climate change involves putting some sort of a price on carbon. You can argue about the exact methodology and the exact system, but putting some sort of a price on carbon to facilitate that transition. And the market would sort itself out because they wouldn't want to pay the extra. Correct.
In the interim, they would potentially pass on that cost. They could do, which is why when the carbon pricing mechanism was first introduced, there was a whole range of compensation measures to cover the additional costs in the short term, particularly for low and middle income earners. So you need to design a whole package to deal with this.
that now we don't and we've been kind of playing catch up ever since i would do something about climate change policy i would probably also do something on the tax side We have, unfortunately, trained generations of Australians. Whenever they hear the phrase tax reform, they think, oh, great, how much am I going to get back? If we want governments to do X, Y and Z, we need to actually acknowledge that, OK.
government is going to have to pay for X, Y and Z. How are we going to pay for that? What's the most efficient way of doing it? Should it be more income tax? Should it be more company tax? Should it be a carbon tax? Should we do something more on the property side? So the debate about land tax, for example, which we've had in New South Wales.
Tax economists who look at the theory of this would say that land tax is probably the most efficient tax we have, but politically it's dynamite. I would try, if I was the benevolent dictator of Australia, I would do something about our tax system and something about climate change policy. The tax thing, it's interesting. That's a Brian Parker view. That's Brian. I've got the economic acumen of a doormat when it comes to this stuff. But I'm kind of thinking like in a perfect world, can you –
raise the tax-free threshold, increase social security benefits and looking after the vulnerable, and then just double the GST. Like, I think we need a discussion where it's complete overhaul. It's just a debacle here on this island. Yeah, I just think that the GST was not ideally designed. The GST was a political compromise from the get-go. Again, a lot of tax economists would say, look, you needed to actually tax everything and, as you said, use the tax system to compensate low.
to middle income earners for the increase of cost of food and a whole range of basic necessities. You probably could have done that and you would have ended up with a more efficient system. But politically, that was very, very challenging. And that's just a sad reality. We're in a political environment where...
Wholesaler reform is really hard to pull off. So what year did you graduate uni? I graduated from university in 1988. Okay. I was around when the internet was just basically a thing that academics played with. Yeah. So I had an email account. IntraWeb. Was it? The interweb, as General Clarkson called it. But I was one of the first people around to actually send an email because I had an email address at university because there was a global system to enable academics to communicate.
Yeah. And it sort of, that was the early internet. Back in 1988, you've graduated uni, you'd look back, the first lecture of Economics 101, hey kids, welcome to university, we're talking about supply and demand today, right? 101 economics. In Australia, does that apply to the housing crisis that's happening? Is it as simple as a supply issue or is it the negative gearing capital gains tax?
landlords are evil or is it a bit of everything? Look, I think it's a bit of everything. There's no one size fits all thing here. If you want me to identify one key factor, it's supply. But here's the problem. Again, a lot of it goes back to politics. that there's no great political appetite.
to bring about genuine reform here. If you're a political theorist, and I've talked to a bunch of people who do serious political analysis and geopolitical analysis, and a lot of the stuff they talk about is what's known as median voter theory.
So if you're a politician and you want to survive in politics, you need to be aware of what the median or typical voter wants, what motivates them, what situation are they in. And if you want to go out and take a position that's different to the median voter... you need to be very conscious about how far away from their views you want to. Ask Bill Shorten how that went. Correct, exactly. And so right now, the median voter...
is probably late 40s, early 50s, either owns a house outright or is paying off a mortgage. They may have an investment property. And those people... do not have any desire to see house prices fall substantially. And the risk is that if you actually want to do something about...
the housing crisis, if you call it a housing crisis. You need to increase the supply of housing in areas where people want to live, which means more medium density, more supply, and actually potentially in some parts of the market, lower house prices. that is going to upset the median voter. Even if you look at our political classes, if you look at the register of financial interests from our federal politicians on all sides of politics, they are landlords.
right? And there's an old adage that turkeys don't vote for Christmas, right? I'm sorry, landlords don't vote for lower house prices. So getting the political class to actually identify that you need to do something about supply and stabilise house prices, run the risk that house prices come off a bit, that's a really hard...
position to sell. Realistically. Until the median voter becomes a renter or someone looking to buy into the market. Yeah, realistically, there's probably not going to be any significant change for 20 years or so until the... gen alphas or the younger gen z's or z's really get into that
Well, that's the thing. And I think there is some movement. I look at some of the things happening, say, in New South Wales to try and do something about housing supply. So I think that we are doing something. There's been small steps at the federal level. So I think there's activity, but it's slow. It's not something you can turn around in one electoral cycle. It's going to take considerable time. Because it's similar, and again, this is a Glenn James comment of you, nothing.
you know, my words, no one else's. So you look at the current political climate, and this is just a comment, whether if you're listening, you're on either side of it, okay? Whatever. There's this big activist movement. We've just had the Australia Day thing about change of the date, right? If there is one prime minister in power over the last 20, 30 years who's the biggest activist for all these key social issues...
that are quite loud out there on the street, it's Albo, to change the date, they know that it's a non-starter politically. So they just ignore that thing. It's like I see that the same as the house price and the housing stuff until we get this next generation of younger Australians and like, oh, why is it this way?
That's crap. Change it. Like, I don't know. That's the thing. And that goes to my point about the median voter. When they end up being the median voter, maybe things will change. But also there's another angle, which is perhaps more depressing.
And I'm an auction sticky beak, right? Because, you know, my wife and I, every now and again, if we see a local auction that looks interesting, we're going to have a sticky beak at the house. Cool, an open house for a reason. Walking distance from Vaucluse? No. Inner west of Sydney in Annandale. So there you go. That's in Elbows Electric. Yeah. But when you go to these auctions and we see relatively young families.
bidding large amounts of money for a house with young kids. And my wife says to me, how the hell can those people afford this house? They're about to spend a seven-figure sum on this house. And I always say, darling, you see that older couple standing three yards behind them? Guess who's funding the deposit?
or maybe the lion's share of the purchase. That intergenerational wealth transfer that people talk about, that's been going on for years and it's got another maybe, I don't know, 10, 20 years to run, if not more. That is an ongoing thing. Now, the sad reality about that is that when you look at the data, first home buyer activity is actually at a reasonable level. It's not as if no first home buyers can afford a home. They can.
But unfortunately, we've become a country where your ability to be a first home buyer, to be an active participant in the housing market, depends on the genetic lottery of life. Who are your parents and who are your grandparents? Or both. And unfortunately, if you had the wrong grandparents or wrong parents... you're going to be renting for a hell of a lot longer.
potentially always renting. One of the other things I think we need to look at too is how do you actually encourage people to be able to sign much longer term leases? How do you raise a young family if you're signing a six or 12 month lease and potentially you have to... uproot them every six or 12 months or move schools or whatever at the whim of a landlord.
So there needs to be a whole bunch of conversations. And that's annoying because that's state-based. It is state-based. But you can – I think there are things you can do. But there's a hell of a lot of – there's a long list of things that need to be done about this. In finishing, you know, the – The White House has a new family in town. Yes. And we hear a lot about trade and tariffs. Just for the listeners, you know, a bit of a 101, what is a tariff? How does it work?
And how could it trigger a bit of a trade war? Tariffs, he thinks that foreign governments pay tariffs they don't. A tariff is simply a tax on imports. So anyone, if a government opposes a tariff on imports, the importer, wholesaler or importer, pays the tax. They pay the tariff, not the foreign supplier, not the foreign government. The local importer pays the tariff and they pass that on to their customers.
they will generally seek to pass on all of it. There may be some cases where they have to wear part of it because their customers won't pay all of it. that depends on the particular product or the particular market they're in, but generally they will pass it on. So the bottom line is it's consumers and businesses in your country that pay your tariffs, not foreigners. So what does it mean? It means that the cost of a whole range of things goes up.
Generally means that inflation goes up, means your economy is probably not as dynamic. You probably don't get as much growth. It's more expensive to make stuff. And a whole range of consumers that rely on imports to... you know, put clothes on people, on their kids' backs, to put shoes on their feet, we'll pay more. That's the reality of tariffs. Yeah. Well, watch this space. In finishing, anything else you wanted to...
Add, say, get off your chest? Yeah, I just would encourage people to pay attention to their super. Okay. You know, it's one of the things that – We spend a lot of time and effort to try and encourage people to pay attention to their super early and to learn about how their money is invested. And this is why podcasts like this is just so valuable because, you know, I remember hearing on one of the – I think it –
I was a media commentator some years ago, said to one economist or investor, oh, but that's all in the fine print. People don't read the fine print. And the response was a really good one. He said, look, It's your money. Read the fine print.
You can't say, oh, I couldn't be bothered. Read it. It's your money. And especially when it comes to super, understand where your super is invested, who is investing the money and how. Are you in the right super fund? Are you in the right investment option for your particular... financial circumstances, your phase of life, your appetite for risk, and you touched on it at the start. If I'm in my early 20s, I shouldn't be investing in cash.
or at least very few of us should be investing in cash if we're in our early 20s, because we have 20, 30, 40 years to run. We should be taking advantage of that long-term path towards retirement. Now, the other thing I'd say is over the course of someone's working life,
How many market crashes are there going to be? How many recessions are there going to be? There could be, I don't know, 10 or 15 market crashes. There could be five or six recessions. But they all have one thing in common. They come to an end. You know, at the end of the day life, the economy and markets move on. And if you're prepared to ride out those tough periods as a superannuation investor, you'll reward for that.
is a higher long-term return and a better retirement. Pay attention to your super. That's my lasting message on this podcast. Well, there you go. Brian Parker, Chief Economist at ART. You've also got a podcast. With Anne. What's the podcast called? Anne Fuchs and I do a podcast every quarter. We call it Super Insiders. Sounds super. It's super, absolutely. So you can get it on ART's website. I think you can also get it in your usual podcast channels, Spotify, etc.
So do reach out. I'm not sure it'll be the same standard as this one, Glenn, but we do try. Probably much higher. Thank you so much for listening, everyone. You've been Real, I've been Glenn, and this has been Brian. Bye.
Thanks for listening to today's podcast. If you want to support us, there is one way you can do that. You can send the episode to a friend, a family member or your group chat if you think those people would find it valuable. We also thank you for leaving a review on Apple or Spotify.
you've listened to this podcast for some time, or if you've read any of my books, you would know that giving and generosity in a financial sense is a big thing in my life. If you think it's time that you are ready to give financially to a good cause, you could head to our website, moneypodcast.com. to see the charities that we support. Thank you. Thank you.
Transcription by CastingWords Any guests on the podcast are theirs and not those of the host or the publisher or their respective license holders. Then there's vans and pickups. Looking for expert advice on your next vehicle? Our Toyota and Lexus business team are here to help. whether it's electric hybrid petrol diesel hydrogen vehicles our dedicated team offers comprehensive consultancy for large and small fleets with our award-winning reliability recognized by the what car awards
We keep your vehicles on the road and your business running smoothly. Search better business to learn more. Lexus awarded Best Reliability in the 2023 What Car Awards. Hear that happy business owner? They're whistling because they found a great deal for unlimited calls, texts and data with three business. Plans start from just £8 a month per SIM, increasing to £8.50 in April 2025 and £9 in April 2026.
Switch to free business for savings that'll give you something to whistle about. Unlimited UK only. Fair use in GoRome destinations. £8 per SIM when you buy 10 to 15 SIMs on a 24-month plan. X 20% VAT. Terms apply.