An Aussie recession is now 'baked in'

Added: 2026-05-11

[00:00:00]day today in Victoria and of course interest in interest rate day as well.

[00:00:04]Plus, we're a week out now from the federal budget next Tuesday night. Sky special with all of the experts covering that. Joining me now, macro business chief economist Leath Vanelin. Uh Le, great to see you. Interest rate decision, three rises in a row takes us back to where we were in November 2024.

[00:00:25]Does that say that the Reserve Bank got it wrong back then?

[00:00:29]Oh, absolutely. The Reserve Bank got it wrong. Look, look, they they did misjudge it. They uh they cut rates when they probably shouldn't have and as a result, they're now reversing course and they've lifted it back to where they were. And based on their hawish commentary today, as well as the financial market forecast, we're likely to get possibly another two rate hikes uh this year, which would take us to an 18-year high, Steve. So, it's not good.

[00:00:52]Had a couple of senior bank CEOs dancing around the the word recession today.

[00:00:57]Leath, is it too early to be start starting talking about that? I mean, I I hope it's too early, but what's your view on that?

[00:01:05]>> Oh, look, I think there's a very high chance of recession. So, we got consumer and business confidence are both tracking at the historical lows, even worse than the depth of the co pandemic.

[00:01:14]Obviously, we've got the global energy shock, which is likely to get worse before it gets better. Australia still faces the prospect of higher fuel costs as well as diesel shortages, all those sorts of things. And uh you know honestly Steve I think a per capita recession is 100% guaranteed and a headline recession that's you know two consecutive quarters of negative GDP growth is very likely at this point. Not sure when but you know certainly over the next 6 months maybe 9 months.

[00:01:40]>> I thought it was really interesting that Jim Charas and the Reserve Bank head Michelle Bullock completely different arguments about what's driving inflation. Here's Jim Charas saying it's all about the war.

[00:01:55]Well, that's what he said. And then, of course, Michelle Bollock comes out at her briefing and says, "Well, the uh inflation was, you know, built in into the economy already that it it happened before the wars started."

[00:02:08]>> Yeah. I mean, obviously, it's a bit of both. So, so before the war even started, the uh the core inflation was tracking a fair bit above the RBA's target. So, obviously, we had a problem.

[00:02:16]We got record government spending, that those sorts of things. Then, obviously, the war in the Middle East is just at the cherry on top. So, you know, it's basically a double whammy and this is why we're going to this is why we've seen three rate hikes in a row and we're likely to see, you know, possibly two more by the end of the year.

[00:02:31]We saw the Australian newspaper got a drop today or they managed to get a leak about this idea of an income offset, whatever that actually means of between $200 and $300 non- means tested. So, everyone including me is going to get it and you le uh now if you paid a wage and you pay tax then you're going to get $200 or $300. Doesn't that go exactly against what the IMF and the ratings agencies are saying government should be doing? That they should not be fueling inflation by doing out money?

[00:03:01]>> Yeah, absolutely. So, so we've got a burnout economy here, Steve, whereby the RBA's got his foot planted on the brake, raising interest rates, desperately trying to slow the economy and trying to slow inflation while the federal government's got his foot on the accelerator, spending big, handing out money, etc. So the last thing the RBA needs is for the federal government to be handing out money to taxpayers to spend because doing so is just going to drive up demand and also inflation. It's the wrong approach.

[00:03:25]You always have a very uh unique way of looking at looking at changes in policy.

[00:03:30]This capital gains tax discount potentially being dropped and maybe the grandfathering even of negative gearing.

[00:03:39]What do you think that will do to rents and the property market? Yeah, look, I think it'll put some mild downward pressure on prices, but for the rental market, I don't think it'll do much at all. Simp for the simple reason that that even if investors were to sell up, those properties don't disappear.

[00:03:54]Investors will then sell them and they'll be bought by by own occupiers, including first home buyers. So, it it could reduce uh rental supply, but also reduce rental demand. And look, the property lobby to be fair hasn't been doesn't seem too concerned about the the proposed changes to capital gains tax that we're basically going to go back to the the pre999 method of indexing. And also, there's some rumors that the federal government's going to keep negative gearing for newly constructed constructed buildings, which means that we'll actually could could see some more supply. So, I don't think it's going to have much impact on the rental market.

[00:04:26]The biggest driver of rents, Steve, is actually immigration. Um the government's running a mass immigration policy that's driving up rents obviously and driving down rental vacy rates. The the best cure for that is to cut immigration.

[00:04:39]Now Le I can see you sitting down. I'm very pleased about that. I hope you're sitting down. The Victorian treasurer Jacqueline SS who I believe's got a law degree handed down her Victorian budget today. Have a listen to what she had to say before delivering the budget in Parliament today.

[00:04:57]Being in surplus means that we don't borrow to pay for wages, programs, depreciation. We only borrow for infrastructure. Borrowing for infrastructure is what a strong economy needs. It is um an unexpect an unrealistic expectation for current taxpayers to foot the entire bill for generational uh infrastructure projects that future generations get to benefit from. That is uh a responsible way of doing government. and others, some people disagree with that. Some people do. Um, but the alternative is you don't build infrastructure.

[00:05:33]>> I don't speak economic gobbledegook. Le can you unscramble that word salad for me?

[00:05:38]>> Oh, look, it's pure gaslighting. So, that so the biggest expense in the Victorian government is actually bureaucrats or, you know, public servants and those numbers have absolutely exploded under Labor as well.

[00:05:49]If if you actually look at the infrastructure projects that they're doing like the suburban rail loop, a lot of most of them are garbage. They're overbudget, they're years behind, and they're going to cost us a small fortune. Uh the fact of the matter is, Steve, unfortunately, I live in Victoria. Uh we've become an economic sinkhole. We're overregulated, we're overt taxed, we're drowning in debt, and we really have no competitive advantages over other states. And as a result, the interest uh you know, the interest annual interest bill for Victoria is is projected to rise to about $10.6 billion by 2029. And what that what that equates to is $1,400 a year for every man, woman, and child in Victoria will be paying just in debt and debt repayments or interest repayments. And and that's money that we can't spend on hospitals, schools, and all these other things. So, it's pure gaslighting.

[00:06:35]28 u million a day we're paying just to pay the interest on the debt. And yet in the last three weeks, you've had a premier, Justinda Allen, who's uh you been in in uh in office in Victoria as a minister for 12 years, wanting to get reelected for another four. She's run around in the last two weeks, as you would have seen, Le spraying around $8.2 billion in election sweetness. I mean, give us a break.

[00:07:03]>> Yeah. When's it going to stop, Steve? I mean, you know, the the net debt supposed to, you know, is is forecast to go to nearly $200 billion. We've got all the global credit rating agencies threatening us with downgrades. We've already got the lowest credit rating in the country. Um where is this going to end? I mean, if if we get further credit rating downgrades, we're going to just our interest bill is just going to spike even more and going to be more overburdened by this debt. This is an absolute disaster this government and they need to be booted out fast.

[00:07:30]100% agree 100% with everything you said. Thanks Le. Good to catch up with you Le and Onselin there. Still to come after the break.