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Investing in Australia’s Future
Speaker 2 (00:09)
Welcome back to Voice of Super, Asfa's podcast for the superannuation community. By the superannuation community, I'm Mary Della Huntie. And we are recording this episode a couple of weeks on from the Treasurer's Economic Reform Roundtable in Canberra, which our guest today memorably dubbed Canberra Coachella, before later pivoting to Canberra, Glastonbury. And I'm hoping we're not going to make it all the way to Burning Man.
But I'm very much looking forward to comparing notes with him today about what we experienced at the roundtable. I'm joined, of course, by Chris Richardson, who's an independent economist, is one of Australia's most respected economists and economic commentators, and has worked in Federal Treasury, the IMF at Access Economics, Deloitte Access Economics, and is now an independent economist at Rich Insight. Widely cited, I know, known to many of you, and I'm so thrilled to have him here.
And coming to you from my good room, every house needs a good room. I've decided Chris, and now you're in mine, which is thrilling for me. So good to see you. You and I both attend a different round table session. ⁓ let's discuss who had the better catering and whatnot and what we talked about. ⁓ Alice has already heard me talk about capital attraction business investment session that I attended on the Tuesday, but maybe you can start us off by telling us which session.
you attended and who was in the room with you and how did it go down?
Speaker 1 (01:35)
Well, I am a loser of a human being. So I was in there for the tax ⁓ session. You may be wondering about the levels of excitement ⁓ in the room as we talked tax. So ⁓ as you know, there are a bunch of ⁓ the main bunch of attendees who were there every day in and around tax, though we had Aruna, the head of the Grattan Institute, Ken who used to head up treasury and was the
In Henry of the Henry ⁓ Report, we had the Commissioner of Taxation, Rob, in there as well. And they scraped the bottom of the barrel and ⁓ got me and got Bob Bruning of ANU. ⁓ We added the colour, the excitement and the good looks.
Speaker 2 (02:25)
Yeah, yeah, that's obvious. think that's, that was probably one of the reasons you were there. Any substance with those good looks as well, what did you, what did you take to the table and what did you want to turn the focus to?
Speaker 1 (02:38)
So it's worth stepping back ⁓ for a moment. And to me, ⁓ there's a good reason to have something like the round table. Australia's standard of living is very high by global standards. are ⁓ one of the lucky nations ⁓ with a very high standard of living. But ⁓ the growth in our standard of living has struggled for some time now over the last
decade. The average citizen of the rich world has seen their living standards increase 18%. But in Australia, it's only been three and a half percent over the last decade. And so, you know, we've done many things right over the years, but our challenges are starting to mount. People get lost in the politics of this.
You know, I hate that. have genuine challenges around the growth in our living standards. And you look at those three different days and they were kind of coming from different angles, but all of them were saying, well, what could we do differently to perhaps be more prosperous Australians? And when you're more prosperous, you can be more fair. And so the tax stuff was starting to look at that, I guess, pretty big challenge.
Speaker 2 (04:00)
Yeah, I thought ⁓ I came out of that room thinking of feeling, I don't know, a bit more, more positive about the human race and our capacity to have those conversations. And did you feel quite uplifted from it?
Speaker 1 (04:13)
I did. It is always a risk that people, they don't take off their hat as they go into the room. They high vested interest rather than fighting for Australia. But I did not have that impression. I thought people were very good. And there was a great discussion, some of it ⁓ a bit technical. ⁓ Some of it, if you like getting to the foundational stuff, what's wrong,
⁓ What can we do? One of the challenges ⁓ I would have to say is that everybody's an expert on tax. It's like I ⁓ was talking to my 99 year old aunt and I described who was a doctor and I described it as well, you know, turning up at the doctor's and telling the doctor what's wrong with you and what treatment you should have. you know, and again, I understand that tax is something that affects ⁓ everybody and people have got
strong opinions, but it was kind of important to sit back and think about ⁓ what's going wrong and what we could do better.
Speaker 2 (05:20)
Yeah, everyone does have strong opinions on tax, but we also have very strong opinions on tax reform. It's very hard in this country, isn't it, to have a genuine deep conversation on tax reform. think, I don't know, I'd love your reflections on the super sector and our challenges with tax reform, but I think if we don't sort out some of the inequities in the superannuation taxation system, we risk bringing our social license ⁓ to bear and really doing damage to that and then doing
potentially further category damage across whether or not super deserves its place. so, yeah, I think tax reform is really challenging though, isn't it? We sort of all want it, but we don't want it to affect us or something.
Speaker 1 (06:03)
I
look, call it Australia's most poisoned well. If you think about all the things that were discussed around the round table and they're all challenging. What I hate about tax and I am a tax nerd, what I hate about it is that ⁓ different people have demonised different things that we can and often should do in tax. And if I look at some of the things that are most needed,
in tax in Australia. They are also some of the things that people have been most excited about or think would be the end of the world.
Speaker 2 (06:39)
Tell us about the tax that gets superannuation folk quite excited. Div296, what are your thoughts?
Speaker 1 (06:46)
⁓ so, ⁓ I don't think, ⁓ it's great. ⁓ but I'm happy to support it. know, given that it's the only thing on the table as the available sticky tape, ⁓ I would say it improves the system. but they, the underlying problems with the system run a bit deeper, you know, basically, ⁓ we have a system, a superannuation system that is tougher on people with low incomes than it is on people with high incomes.
⁓ And if you look at low incomes for a moment, some of the tax cuts of recent years have not been mirrored in the super system. The list of the low income super tax offset hasn't chased what's happening elsewhere ⁓ in the tax system, meaning that if you're a low income, ⁓ super is less of a good deal than before. High income.
Also less of a good deal than before, but still pretty good news. There is, you know, it's, it's public that there is one notable idea on the table. Tax experts have talked about it for decades. Bob Bruning I mentioned, I a new expert, you know, has written some papers on it recently and was in the room. mean, basic thought is in our personal tax system.
We're mostly doing it right with how we do taxes on wages and salaries. It is a bit too tough on families with kids in childcare because when mum earns an extra dollar, the system takes too much of that away again. And our top rate, including Medicare, 47 cents in the dollar, that cuts in relative to wages lower than you see in most other places. But by and large,
That bucket is not a huge problem. The problem in personal tax is how we tax everything else, all our other income that's not wages and salaries. If it's in super, by and large, ⁓ it gets a pretty good deal on tax. If you put money in the bank and earn interest on a bank account, that's about the worst ⁓ deal ⁓ that we have. And the idea is, can we take pretty much everything else that's not wages and salaries?
and try to treat that second bucket the same, treat every dollar the same, doesn't matter where that dollar came from, if it's outside wages and salaries, treat it that way. Doesn't matter if it's being earned by a prince or a pauper. Now, this is very early days around talking about that sort of stuff, but it would help to deal with that sort of sense of grievance that many people have that...
look over there, know, those people are getting a much, better deal than I am.
Speaker 2 (09:40)
Yeah, and that sense of grievance, do you think that's in your sort of work, are you sensing that that's more from a younger generation, so it's an intergenerational sort of grievance?
Speaker 1 (09:51)
Yes, you may note the color of my hair at this moment. ⁓ So I'm doing really well out of the system. have in particular, housing and superannuation have turned into machines that are better news for older Australians than they are for younger Australians. And that's a problem. People are increasingly ⁓ realizing it and they're cheesed off with it.
And I think of, know, so whether it's the round table, whether you're thinking of ⁓ government and, you know, it's the national social compact. Basically, we're all in it together. And people have to feel that, you know, they are being treated fairly, that other people are being treated fairly, that we are giving an appropriate incentive for people to get ahead, you know, and as they try harder, they get, you know, the lion's share of all those things.
But we are increasingly losing that trust and maybe deservedly so. So I do think change is needed.
Speaker 2 (10:58)
change might be needed, but how on earth does it happen? So does it come out of conversations like what we've just been through in the round table and us feeling uplifted? How does it land on the public? How does it then make its way back into the political spheres for genuine change? I've got this great, I don't know whether I've said this on this podcast before, so listeners, excuse me, but I've got this great saying from Paul Keating that just sticks in my head again and again every day I think about this.
He, remember how he used to explain things until you just didn't want to hear it anymore. ⁓ And so you would just say, whatever, okay, I get it, whatever. ⁓ And we've kind of, I feel like in this kind of shorter media cycle, we've lost the ability for long explanations, for critical conversations and for critical thinking. So he said once at a dinner, first develop long lines of logic before you develop long lines of rhetoric. So how do we get our long lines of logic?
on this because the rhetoric just takes over straight away.
Speaker 1 (11:57)
Well, and I would say that in the area of tax, the logic has long been there, right? But the rhetoric is the problem. We know what to do in tax. Actually doing it, the question you raise, how do we do this? Well, the politics is hard. We now live in a time where everybody feels that everybody else is ripping them off. And I would be surprised if you talk to many people out there who don't feel aggrieved one way or another.
And if that is your starting point, it's hard to move ⁓ forward. Well, and let me step back further. I would say that, you know, for the better part of 20 years, I have called ⁓ each and every election ⁓ in Australia a Seinfeld election, right? An election about nothing. To go back to what I said at the start, you know, if the average rich nation, sorry, the average citizen in the average rich nation around the world has seen their incomes
their living standards grow five times the pace of what we've seen in Australia in the last decade. That says we need ⁓ to change.
Speaker 2 (13:06)
Let's move now then to superannuation and what we might be looking at here. And so we took into the roundtable, you know, a couple of things. Regulatory reform was one of them. And in an area for a little regulation called RG 97, which is a little bit about the way in which stamp duty is reported. Still paid in the same way, but it's just about how it's reported. But we also took in a broader kind of suite of
can we get some regulatory efficiency? That came out then in the end as one of the treasurer's sort of 10 things to look at a tell us once approach to regulation. Does that cut across some of the work that you're doing as well or what's your reaction to that kind of reform?
Speaker 1 (13:44)
And I'm helping ⁓ an elderly relative ⁓ get into aged care at the moment. it's not yet a tell us once system, trust me. ⁓ But yes, what you're seeing in super around rules and regulations is a microcosm of what you're seeing in Australia and around the world. For decades, when a problem has come up, we've tended to say, well, here's a new rule. And I talked about the tax system the same way. We keep adding.
⁓ stuff to it. I've long since been firmly of the view that nobody can meet all the rules at any given time. We are all falling foul of a whole bunch of things, I'm pretty sure. And that's the challenge, you know, as we've said, well, all right, you new problem, new rule, we've created other problems ⁓ that, you know, there's a good reason for every rule. But when you look at the whole mountain of them, we have choked so many things. I think we have choked it most.
in housing.
Speaker 2 (14:45)
I had a, for my sins, had a stint in local government for eight years. was a councillor and a mayor. And so I, I now look back at some of the decisions I made about why was I sitting there taking out floors of a building? just, have no, anyway, if we could have our time over, but we, would make decisions. We would send it to the state government. They might make a decision. They might send it to VCAT. VCAT would reconsider the entire decision. And then sometimes the federal government would have ⁓ some opinions about, you know, heritage or cultural something or other.
And these things took years and all the while we're holding up houses for people.
Speaker 1 (15:20)
And Australia has relatively rapid population growth. because, you know, I would summarize what you just said is all around Australia, our housing policy has been the word no. And often it's been the word no said slowly and over and over again. And so, you know, we all know housing affordability is now a real problem ⁓ in Australia. But if you roll back ⁓ the clock ⁓ to May
2022, a bit over three years ago. There were two competing arguments. What could fix affordability? Well, one thought was all that was needed was interest rates to go up. They'd been falling basically for 20 years. As soon as interest rates went up, you'd get a correction in Australian housing that it'd be much more affordable. And yet we know our interest rates have gone up a lot. doesn't coming down again, and that's great, but they went up a lot. And that did not stop.
house prices in Australia. know, and interest rates have an impact, but they don't have much of an impact. And some people look for the magic wand. By the way, ⁓ you think of negative gearing. Negative gearing affects the cost of ⁓ the after-tax cost of money. What the Reserve Bank has done with its higher interest rates in recent years is the equivalent of abolishing negative gearing nine times over. We know it's not the cost of money.
It's the alternative explanation. And I now very strongly believe it is that policy of no. We have basically said no to all sorts of things. We've said no, particularly in places where people want to live, often in a city. And when we say yes, it comes with so many terms and conditions and rules and the rest of it. It's incredibly expensive. Just there are two small windows.
We live in an apartment, two small windows, 14 bricks in between them. ⁓ Everybody in our building says, yes, you could take out the 14 bricks and put in a bigger window. The lovely man next door says that too. would cost $80,000 though to do it because of the rules, right? It's a building task, it's easy, but we have done this to ourselves. And the real challenge there is, and I think governments increasingly understand this.
But the real challenge there is to win that, to turn our housing policy into yes. It means taking on lots of older and richer residents who are already there, who think they are doing a wonderful thing when they're saying no, they're preserving character. But they are doing the opposite of preserving the future of their children and their grandchildren.
Speaker 2 (18:08)
Oh, it's a tough one. remain hopeful we can, you know, in our time, though we must wrestle this, mustn't we? We actually must solve this.
Speaker 1 (18:17)
I would call that, know, tax is my thing, tax as well as at the round table, but ⁓ housing is Australia's biggest problem and there is no magic wand, there really isn't. It's going to be a slow grind of change, know, suburb by suburb, street by street, getting to yes. And that's not going to be easy. And I apologise to the next generation and the one after that, right, because this is a slow repair task.
Speaker 2 (18:47)
Well, we hate to leave on a downer, so tell us about what you're excited about right now.
Speaker 1 (18:52)
Well, ⁓ Australia's economy, ⁓ having been through a pretty tough time, is slowly, slowly starting to recover. Helped along by a tax cut over a year ago. We're starting to see those ⁓ interest rates fall. That is the increasing good news on the economic front. It's far from slam dunk, ⁓ but that news, you'll be glad to know, Mary, is finally getting better.
Speaker 2 (19:19)
I am glad to know that. Chris Richardson, it's been just such a joy to have you on our podcast. I hope that you'll come back again and probably with more good news and but also, you know, with some helpful thoughts as well. You're known as someone who tells it like it is and we really appreciate it. This has been Voice of Super. If you'd like to ⁓ subscribe and so you can never miss an episode, please feel free to do so. And I can't wait to talk to you again next time. Thanks, everyone.