The Australian Dream Is Slipping Away? | 2026 Budget Breakdown

追加: 2026-05-13

[00:00:00]Our mission is to give Australians clear, unfiltered insights into markets, the economy, and the political decisions shaping Australia. We connect the dots between CRA, global shifts, and everyday investing. Because investing isn't just about numbers. It's about understanding the world around you.

[00:00:19]Well, good afternoon, Michael and John.

[00:00:21]Great to see you. Uh, this is a special budget episode. Last night we saw Jim Charas releasing his fifth budget. Um he introduced it by saying it was the most consequential and significant budget in decades. John, what do you think? Anything new?

[00:00:44]Anything exciting? Anything innovative?

[00:00:48]>> How many decades? I guess you go back four decades and you you had the Hawk Keading government who did something um and then we had the GST 30 years ago consequential? I don't think so. I think it it just lacked um vigor. I think it lacked any sort of foresight. Uh it lacked a plan. Um and I think it's it's uh putting a wedge between older generations and younger generations. I think I acknowledge that u low income earners or or young families are are struggling to to buy a house. But is are these the answers? I I probably don't think so. I think if we're going to make housing more affordable, the uncomfortable truth is that housing prices have to come down substantially. You don't fill that gap by peace meal tax changes and levering uh young families up to to 95% of value of property and hoping that that property increases in value.

[00:01:43]Past that now. I think we're probably at the cycle now where housing prices best case to go sideways for quite a while because they're so overpriced.

[00:01:50]>> Yeah. Uh, Michael, I um I watched uh Jim Charas at the National Press Gallery and he used the words uh you know, working Australians and it's part of their um uh their give back um and and trying to differentiate between working people and people who earn money just on asset investing. That seems to be one of the um you know critical principles behind this budget. Tell us about the politics of this budget. Seems actually very clever.

[00:02:26]Ah clever. I think it is a once in a generation opportunity for the Labour Party to get some things done that they've been told by everyone around them that they need to do. And I think they were probably wedged into a lot of these things. I I I'd love to be a fly on the wall in Treasury to see whether anyone thinks this is actually a good idea and if it's actually going to work and if it's just a reaction to what everyone thinks will work. Um that's that's probably my first thought. My second thought is I I agree with the framing. I don't know that that's the reality. So take one quick example and we'll go through back and forth and the detail and sorry to everyone we're cheating. We've got the computers around to check our notes because it all came out yesterday. Um, you know, one of the things is to apply a minimum 30% tax to discretionary trusts. And, you know, I think the idea is, well, only some very wealthy person is having a discretionary trust and they're splitting off income for their wife to go drink pina coladas and sit by the pool, right? The number one person I think that's going to hurt is going to be trades who have a trust where their spouse is doing all the book work at home and they take all the risk of being self-employed and lodging basses and doing all this other just frankly nightmarish stuff and going through the ringer when they apply for a loan. And we've worked out, I think so far, a family in that situation where the main bread winner is earning say $150 grand is probably going to pay up to $15,000 of additional tax and their fix is going to be that to then officially put their wife on the books as an employee and add further complexity to their lives. So while they sort of talked the talk around, you know, intergenerational wealth of fairness and um you know going after capital, the biggest loser that I saw out of the whole budget paper was trade business owners that have a trust.

[00:04:17]>> Well, another uh segment of losers will be Commonwealth Bank shareholders um with with the Commonwealth Bank down 10% today. John, is that a reaction to the budget or um you know something else a foot?

[00:04:34]>> No, we've been saying for months and we actually don't hold it in our main portfolio, Climb Capital, but the stock's grossly overvalued. It's on it was on 20 times 28 times earnings and now it's divulged and not surprising it's not growing. So if you're going to pay such a high moldable for a no growth stock, that's the problem and that's why the correction and probably 10% was is is mild compared to what could happen based on if if if we had alternatives to Comwalth Bank in the Australian share market like you could go into another 10 opportunities of equal size then I think the down price on Comwalth Bank would have been double that. the alternatives don't exist and so the index buys the index huggers buy it um but they're not buying value um but all the banks are down Paul I mean we've had some quite significant drops in Westpak NAB and A&Z XD X result >> but none of them are showing much growth and the budget last night if you want to take the other side of it wasn't particularly uh positive for growth >> and I'll just point this out Paul I looked at the numbers and people can look at for themselves the forward estimates of tax collections The corporate sector of Australia pays about $150 billion of tax this year and in four years time it's projected to pay $150 billion of tax. Now in my world that's no earnings growth. If there's no tax growth there's very little earnings growth. Now I know there'll be some allowances and offsets and write-offs and all that but that's a terrible outlook for Australia that the corporate sector is not going to increase its tax.

[00:06:05]So theoretically or logically it's not going to grow its profit. That sets a very bad mood for the Australian share market if that's what the budget says.

[00:06:13]And it does say that.

[00:06:14]>> Yeah.

[00:06:15]>> And also they're going to magically fix inflation. Paul, I'm not sure if you saw that or if it's picked up because most people go to the, you know, what do I get? Um, but when you look through the forecast, I think the was it the single biggest thing that dropped out to us was that magically in the uh first quarter of 2027, inflation will fall to 2 and a half%. And short of a recession being caused for that to occur, we don't we're not sure how that's going to happen.

[00:06:37]Yeah, there's some um very heroic assumptions in there. First of all, that was inflation comes down very very quickly after possibly peaking at 7% in a worst case scenario. Then there's assumptions about um you know wages growth only being in the kind of mid3 range. So there's a a paradox there that I I don't quite understand. And um that there are other assumptions um which are more conservative for example about commodity prices and and how that feeds in. But the whole budget structure really rests on money not being spent on the NDIS and all those savings um being able to be reallocated. So it's um it's a kind of artificial structure, isn't it?

[00:07:34]>> Well, just to make this point back to my corporate. So if corporate tax is not going to go up, if you look at the budget, there's a massive reliance on P A tax increases. And you just pinpointed I think there's a bigger assumption in wage growth from inflation than there is in the actual underlying est or parameters. as they say their forecast for inflation, their forecast for wages does not compute with their forecast for collections from pay as you go earners.

[00:08:02]And I think the average person needs to understand that uh the governments and I it's Labor and Liberal, they don't index tax rates and then just before the election they give you a tax cut like the tax cuts they announced last night were appalling, really appalling to low-inccome earners. Not talking about me. I think low-inccome earners would be disgusted with that. But they will get a tax cut three or four months before the next election. And I'll make another prediction given that they are trying to create a chasm between young people, young workers, and older cohorts. I reckon they'll take another chunk out of the hex debt as another lolly to get votes from the younger generation. I think the current the government is really targeting young people and recent immigrants for their votes.

[00:08:43]>> Yeah.

[00:08:45]Sorry, Paul, you go. No, I was I was I was just going to say I don't think we can go past the fact that the government relatively recently promised that there'd be no change to negative gearing and capital gains tax. And it really has to be called out that, you know, okay, circumstances change, but a broken promise is a broken promise. And is the next broken promise going to be um getting rid of franking credits for the share market?

[00:09:16]Well, the answer to that would be never waste a crisis, I guess. So, you know, I think from the Labor Party politics side, if they didn't make big changes now, when would they ever, you know, and I think that for their own faithful, to be fair to them, they're wedged in, you know, um they had to make these changes.

[00:09:33]And the irony is that the um uh the people I know feel that this budget didn't go far enough in so many ways. um you know the negative gearing one in this point we talk around you know this intergenerational fairness is largely closing the door on that tax strategy for young people and increasing the taxes on those that invest in shares.

[00:09:53]So, I think there's an advertising pitch that says, "Oh, we're here for young people." But when you actually practically pull these areas apart, this budget screws young people harder than I've ever seen a budget. You know, can you imagine going to you have made your wealth, you've got it, keep it and earn the dividends, no problem. You'd like to go grow your investment pool by buying shares or buying a property and as a result of buying a property, you you have expenses. Well, your only route is to increase the rent and on the shares that you've got. Well, now you're going to take the same amount of risk and you're going to get less money in your pocket. That's the actual result for young people. And for those that already have all of this, keep it. We're not going to change that cuz we don't want to annoy you too much.

[00:10:38]It may be a kind of um crystal balling a little bit, but what do either of you think is going to be uh the impact on residential property prices with doing away with the negative gearing and and the changes that they have made? Right.

[00:10:56]So, it's a million-dollar question. What what do you think?

[00:10:59]>> You go first.

[00:11:01]>> The missing link is the financing. So, the banking system of Australia is not does not fund land development. doesn't building of houses. It takes, you know, more more sophisticated lending and private credit. Everyone hates it, but that's what that's going to fund that.

[00:11:18]And I noticed in the budget there was talk about the future fund. And I know it's hidden on about page 400, but there is clear direction now by the government to the future fund to start using its 250 $270 billion balance sheet and focus on house building, which is interesting.

[00:11:32]So people can watch that. So is directional investment going? In my world, I think the government's going to have to intervene with private credit because the banking system, you know, because of all the capital ratio struggles with the concept, the government's going to have to get more involved in putting equity into these land developments.

[00:11:49]Would that be a good thing? It would be a good thing. Relying on negative gearing to build houses, you know, and it's oneonone cuz you only get one negative gearing on one new house.

[00:11:59]That's a very long road to hope. Okay.

[00:12:02]It's it's it's a good start, but it's a very minute start when you think about it. So, it there's so much more to do here. And I make the point in terms of the price price of houses. I've said it before. If you want to make housing more affordable, you're going to have to drive the price of houses down. You can't sustain these prices unless you are looking at it like 20 or 30% increase in wages. And as we saw in the budget, the forecast wage increase is 3 and a half%. So, that doesn't get you there. So I think when you take this apart and I don't see enough people analyzing it, it just doesn't fit together. It's a lot of talk. I think a hell of a lot of hope. You know, I really do that. It's it's not it's not a functional budget to get the solutions what they they're talking about.

[00:12:43]>> Yeah.

[00:12:44]>> I think you just got to pull it apart, Paul, and go, >> let's let's just start with what I think will happen. I think rents will rise. I think availability of housing in areas that people want to live will continue to be a problem, and this won't solve any of that. I think the a cost of housing in target areas will continue to rise and I think there will continue to be supply constraints. The one thing that will change is there'll probably be a boatload of additional uh suburbs out to nowhere being built where families that buy those houses are still having to pay all the input costs. So I'll pull this all apart in a second, but they're having to drive further to get to anywhere place of work, health services, and other areas, which actually hurts people twice. So, you have to buy the house, it costs you more, but then you have to drive further to get access to everything. And when you add all those costs up, many people, pretty smart, do their own numbers and go, I'm better off paying more closer to the city to have the amenities I need than living in the middle of nowhere and spending the savings I had in petrol, transport costs, and all these other issues. So, if I pull apart my own comments here for a second, why do I think rents will go up? Because it's also about perception, not just reality. So even though negative gearing has not been removed, anyone that currently benefits from that, anyone who owns a property now will go, "Hang on, the person next to me that buys a new property won't get that benefit. I will probably be able to get away with increasing the rent. I better do it now." So um you know, there won't be as much. They know that the pressure is there um to push rents up rather than putting them down because new acquisitions won't have that benefit.

[00:14:15]They will need to charge more rent. So if I'm in a, you know, active capital environment and I go, well, I don't need to charge more rent, but I can. Well, I will. Therefore, rents will go up. Um, and the other thing is that nothing in this budget addresses construction costs. Nothing in this budget addresses labor availability. So when unemployment sits below 5%, there is no extra labor to go and um build all these new houses.

[00:14:37]And there hasn't been any effect on the cost of construction. So if you go pull apart a land subdivision and we won't do it in this call but you know you sit there and go you have your land you have your materials you have your supply cost you have your services costs there's no major major infrastructure investment in service costs there's little tweaks around the edges there's a little bit of money being sprinkled around for water and sewage in in certain areas um which is good but nowhere near enough um but all the materials are not going down in price they're inflating in price so unless there was some material way to change the cost of construct a house and the availability of labor to make sure it happens quicker and cheaper. You're not going to see any of these new regional suburbs become cheaper.

[00:15:20]>> That's not going to change.

[00:15:22]>> And there is certainly no uh real um ideas for improving productivity. I mean it was mentioned in passing but nothing of substance. John, what what are the material effects on the big macro setting? So what does the RBA take out of this? What are the implications for uh rate rises or rate cuts? What is it the impact on the currency and um you know the the budget bottom line o over the forward estimates?

[00:15:53]>> Well, let's walk work backwards. You know the budget forecast is 1% of GDP but that's on on through the balance sheet. Off balance sheet there's another 1%. So the structural deficits over $60 billion. But having said that the Australian economy is now a $3 trillion economy.

[00:16:10]And people are shocked when they hear that the Australian economy has ballooned, but it's being what I call inflation induced GDP. And it seems to me that the government uh trades off and not only the federal, but the state governments trade off inflation. They want inflation because they capture more through PAG. They're not getting it through corporate taxes as I said and the states get it through GST. I mean the whole tax system is embedded and governments are running on the basis that inflation is there to stay. That's how they they they fund themselves and then they give it back to you in oneoffs before the next election. I I think the RBA would be interested. I'd like to compare what the RBA thinks about inflation in 27 compared what the government. I think there'll be a 1% difference between the two figures.

[00:16:53]Might even be more.

[00:16:56]Mike said earlier, I mean, we could I think you might said Paul, we might see inflation heading towards 6%. Like last night in America, if you if people look at the last two months, inflation America, it's hitting it's annualized 6%.

[00:17:08]>> So, it's hard to believe Australia won't annualize 6% probably in the June quarter. So, we we have serious issues.

[00:17:14]Um, and I think the RBA, whilst I'm I'm saying putting up interest rates won't stop the inflation rate, I think they have no choice. That puts upward pressure on the Aussie dollar, which maybe will do the trick, get us to mid70s, and maybe that takes pressure off off imported inflation. Who knows?

[00:17:30]In terms of the bond market, we've got a 10-year bond Australia at 5%, but if you scan across what we're paying for debt, it's probably sub four. So, if current interest rates stay in Australia, there's a massive increase in interest coming through the budget. Very similar to what's going on in America.

[00:17:45]So, that's and I can see it in the Ford estimates that there's expectation of of debt rolling into higher rates. At least Treasury's honesty, they don't expect interest rates to come down. In terms of employment, you know, forecast is about four and a half percent. I think unemployment might touch five, but by the time we get out of this mess.

[00:18:05]So, in terms of your question, what's it mean? I just think the outlook is for a stakeflation cycle. We haven't seen anything like this for a long period, Paul. I don't think it would be as bad as the 70 stakeflation where we had near double digit inflation. But I do reflect and if people need to understand this in in 1983 the stock market of Australia was in a P of six or seven times and the bond yields touch 14 15%. Now there was hyperinflation but that was an extreme statelation cycle. Is that possible again? I'd say it's 1 in 10 but there is significant PE compression about to occur in Australia. Low earnings growth, low economic growth and tough times. And we are certainly saying to our clients, think about income more than than capital gain. And I think the tax treatment is driving them there anyway.

[00:18:55]The tax changes as Michael said. So it's it's a fairly sober outlook to answer your question.

[00:19:01]>> It is a sober outlook. And um we well we're almost at 20 minutes. I'll give the last word to Michael. But just just what you were saying that it's a sober outlook and that's reflected in the sentiment surveys both for business and households. I mean sentiments as low as it reached at the height of the pandemic which is incredible. Um Michael any final last words to to close us out?

[00:19:29]>> Yeah I think we won't we haven't talked too much about the detail of the budget.

[00:19:33]I mean there are some little good things around like what we're spending in age care. I mean that's really fixing a problem where we put all these extra pressures on these age care providers and now we're coming back with a bit of capital to actually fix what was broken.

[00:19:44]Um but I think what is really probably the most interesting thing that we think about here is okay stagflation's a sentiment and an outcome that we haven't seen for most of the working markets lifetimes right no one's really seen it and the solution was terrifying. it was a massive ratcheting up of of interest rates to the point where if that occurred today to most homeowners, they would be bankrupt. So, that's a very scary thing to lean into um for younger generations to go, hang on, are we heading to something that if interest rates go to 17%. I lose my house. And and the counter to that though is that the rate of population growth is lower and the um circumstances around migration are within our control. So what we're looking to is say the Japan economy and what's happened there because it's a very interesting study to say well their debt to GDP got completely out of control. Their economy crashed and went sideways for 30 years.

[00:20:41]They printed a lot of money but they didn't end up with hyperinflation because their population sort of went sideways and slightly trended down. So it's we're looking across the world as we always do whenever policy comes out well has it worked somewhere else and what happens. So when we talk to like we think this will happen, it's because we've looked at what actually happened in other economies and countries. So right now it's it's a bit scary to look at this stagflation thing because of what the solution is and the RBA's only lever is rates. But then the counter punch to that is, you know, it's not necessarily going to work out the same as it did in the late in the 70s early ' 80s. So from a management perspective, what we're looking at is we're wanting a higher return out of equities to justify the extra tax. That's what most investors look for. We're looking at shorter duration, high yielding debt. Um and um watching where interest rates go, watching where bond rates go, watching the rest of the world. So um that's there's there's the view.

[00:21:42]>> Any Well, I think we will have to leave it there. Uh obviously there's so much to talk about with the budget and uh still a lot of uh studying to do and to think through the implications. But thank you all for um for watching and we will see you next week.

[00:22:00]>> Thank you sir.