CGT shemozzle, risk thrown around like 'fairy dust' and...a Teal party?

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[00:00:00]I'm Jacqueline Mey and you're listening to Inside Politics from the newsrooms of the Sydney Morning Herald and the Age.

[00:00:06]We are officially in week two of budget backlash and both sides seem pretty dug in. We have our chief political correspondent Paul Sakal joining us as usual from the CRA studio. And in the Sydney studio with me this week, our very very very special guest are chief economics correspondent Shane Wright.

[00:00:24]>> I heard it was your birthday. I had to come and celebrate it in in the person.

[00:00:29]I know. I didn't expect you guys to put on this party, but here we are. It is my birthday today, and I cannot think of a better way to celebrate it than by talking about CGT changes with you guys.

[00:00:40]Paul, >> how are you actually celebrating it, Jack?

[00:00:42]>> Uh, I've I have various dinners, lunches, and I even had a breakfast this morning of a celebratory nature. So, I'm very spoiled. Let's get straight into the backlash. Um, it's gone on for a while. Well, two weeks now. Shane, can you just summarize the main criticisms that business groups in particular are making against the proposals in the budget?

[00:01:02]>> Well, the first one is they don't want to pay more tax. Let's let's be absolutely upfront because these changes will increase tax on some businesses on a lot of businesses. So, we will put that to one side because there's a vested interest behind every corner. The second one which it goes to whether the changes particularly around CGT will affect um business aspiration particularly those at the small or at the startup level. So that's a that's a major one. Then there's another one which is it like think of it as a three-horse race. This one's down the back, but it will make fair progression pretty quickly. And this is around trusts because of the government's decision to impose a 30% minimum rate of tax on trust dispersals. That will get some credence not from the business community, but from those who the 2 million people who are using trust at the moment. That is going to come down the tracks pretty soon.

[00:01:56]>> Okay. So, that's coming down the pike for us. Um Paul, the government did state in the budget papers that it would would consult with particularly the tech startup community over the effect of the CGT tax changes. What what are they going to make some exceptions? Are they going to fiddle with it a little bit?

[00:02:12]>> Yeah, the budget papers as you say did say in to quote it, it said that there would be consultation with quote the tech and startup sector. So it didn't talk about small business. It talked about broadly the innovative tech startup community because late in the budget process after Shane Wright broke a really good story on the CGT model that the government would opt for. There was some concern from members of the government that this model would hurt startups and other businesses with lowcost bases um small businesses as well. And so because of that concern that was raised there was this line put into the budget that there would be consultation. But as time has gone on, the government has shifted from talking about just the tech and startup community. And on Monday, the prime minister did a press conference in his courtyard where he was quite snippy at a question about a narrow exemption for tech firms. And he said, "No, no, we've never said that. We was talking to a much much wider group of uh peak bodies." And as this week has gone on, it's become clear also due to the lobbying from Labour backbenches who are quite worried about the broader backlash that these exemptions could be wider and we might see the existing concessions for smaller businesses who don't have to pay much CGT at all expanded significantly.

[00:03:22]>> So this is confusing though because Jim Charas also said this week that once you like use a distortion of the market to fix another distortion of the market then things get really distorted. I'm paraphrasing.

[00:03:34]distortionary squared I think you're going for.

[00:03:37]>> Um tell us tell us what what those charmer's comments were and what what he was trying to say.

[00:03:41]>> Well, this is in relation to the idea that it should only be um CGT should only be changes should be only apply to the property market. Now within treasury and within most tax literatures as soon as you try and carve out things you are going to cause problems >> and that is the Treasury House view saying look if you're going to do it and Treasury does support this like Treasury does say right we we've made we made a stuff up back in 1999 with the CGT concession that was introduced. We've got to repair it in some way.

[00:04:15]>> Don't the more exclusions you have the more problems you create. And I'll give you uh exhibit A is the GST. So the GST when it was introduced to get it through the parliament, Howard had to John Howard had to exclude fresh food. So fresh food, the finance sector, health and education were excluded. Guess which areas have had the fastest growth in spending since the introduction of the GST, the ones without GST.

[00:04:41]>> And so the the GST is weighed more heavily on other parts of the economy as the economy's changed. That's one of their exhibits saying if you go down this path of excluding certain sectors >> or c certain investments you are going to create the same problems that you're trying to solve by getting rid of the concession to begin with.

[00:05:02]>> Okay. But on the other side of that argument and Paul you might want to weigh on weigh in on this um the government is you know the sort of underlying ethos of the budget is that we want to tax um you know capital um fairly compared to labor. So people who have just wage slaves earning income tax should be taxed at a sort of broadly equal rate to people who can make income off assets and capital. Right? But the other argument is well those people making income off assets and capital are the risktakers. They're the innovators.

[00:05:30]They're the entrepreneurs. They're the people who are creating jobs and movement and productivity in the economy. And if you if you get rid of this sort of tax incentive for them, then you're going to cut all that off.

[00:05:40]Talk to me about that and who's sort of making that argument.

[00:05:44]Yeah, Jack, you're right to raise the underpinning issue here that the government is trying to solve. We live in a society where wage earners are getting smashed by inflation and pretty low wage growth over a period of years and people who own assets in the share market, particularly the housing market, have got much richer over time. So, we live in a more unequal society and a center-left government is trying to fix that. What they say is that the 1999 changes that John Howard made to create quite a generous discount on CGT pushed a lot of people into the housing market and we've created a huge property price boom. They're trying to solve that. So they're saying that that generous discount should be removed not just from the housing market but on all assets.

[00:06:23]After they've made those changes, critics including in the business sector, some Labour backbenches, former labor advisers, uh Matt Common from the CBA, various economists, quite a large group and growing group of people have said if you're trying to undistort that to push people away from the housing market into other assets that are actually productive, which would be a great thing for the Australian economy.

[00:06:46]Why have you also removed that generous discount for those other productive assets? Why not narrow it just to the housing market? Now, Charas comes back and says that will create another distortion and we don't want that. And the new CGT model, he says, will work for some businesses and not others. So, there will be a skewing, but the argument is that it would not be as significant a skewing away back into productive assets as if you just retain the 50%. And so, there there's now this debate about whether you can split uh productive assets out. If the government did so, it would be a very significant backdown. They're not considering it at this stage, but we'll see how the debate plays out.

[00:07:25]>> I I don't know how you can come up with a definition of productive asset.

[00:07:28]>> I was going to say, what does that even mean? Like, you don't know until after the fact, right? Whether or not it's a productive asset.

[00:07:33]>> And this goes back to >> But it's but it's but it's it's you want to stimulate, you want to incentivize people putting their money into businesses that could become productive to increase the likelihood they take the risk to do so. And if you have a lower cap if you have a much higher capital gains tax potential, the the idea is and various economists have made this point that fewer people will be willing to take that risk.

[00:07:55]>> That risk gets thrown around like it's fairy dust. I'll put risk on everything.

[00:07:59]It's not an economic con concept in that regards. Like what do you mean?

[00:08:04]>> Well, just say ah I'm a I'm a let's say I don't know. I'm not a I'm not a widget maker, but let's say I'm a financial startup and I'm whatever I come up with is going to be change the world and make the world.

[00:08:18]>> Yeah. You've got a great idea that you want to >> except 90% of people who do come up with this fails because it's not doesn't work.

[00:08:23]>> Yes.

[00:08:24]>> So, >> isn't that the point?

[00:08:25]>> Well, that's the point. But I'm talking about the fact that everyone says, "Oh, we'll stop the risk takers." I'll give you like and we've people have talked might have heard about uh New Zealand talking about we are CGT free New Zealand is not a startup center it it's got Hobbit Town it's got some cows and it's got some sheep and a record number of people left New Zealand for Australia last year >> so the t and like why would you invest in Sweden which has much higher tax rates all the scandies why would I go to France much higher levels of taxation as well taxation is important at the marginal level >> but there are other factors that means why do people why are people entrepreneurs >> is it just the tax system I think it was Warren Buffett who once said look if you think you you don't want to come up with go ahead with this great idea because you're going to pay too much tax just give it to me I'll make the money anyway >> right >> and I Warren Buffett fourth most fourth richest person in the world has some idea of what's going on in that space >> I hear what you're saying um that people who and you know Paul Keating made this comment in his statement that he issued which he reported that basically that you know the the beating heart of an entrepreneur will will will continue to kind of um be excited by risk and opportunity and will will innovate no matter no matter what um kind of like a creative any kind of creative person but then there are certain cultures and environments and democracies where innovation um risk-taking and entrepreneurship has thrived I'm thinking particularly the United States and that is in part because of the government and regulatory environment, right?

[00:10:01]>> But that's you you've just talked about Silicon Valley.

[00:10:05]>> If I'm living in Michigan or Ohio and you look at what's the innovation doing there, I this will go and this is really into Paul's country where we're talking about like the division between capital and labor. One of the reasons I think that is driving the support for one nation independence angry angry people have looked and said innovation you talk about your productivity you talk about your high-tech I can't feed the kids I my life is going backwards and so it's not fe I this is all tied up together and this I think both sides of politics understand this quite well >> and they're coming at it the solution at in two different ways well we don't know what the full solution is from the opposition, but I know they're thinking we've got to come up with something to talk to these voters.

[00:10:54]>> Joe Hockey, um, you know, for all his sins, which we've discussed before on this podcast with the 2014 >> political sins.

[00:11:01]>> Yeah. Didn't go down too well. Um, >> he might be a great man.

[00:11:04]>> Yeah. No, I'm not saying I like I I I like Joe on a personal level. I'm talking about the budget that he he admitted this week when he was at the National Press Club um was a quite an unpopular budget, the 2014 budget. Um but he did say that um you know in a in an uncertain world where you've got a lot of economic headwinds as the as Jim Charas always talks about the the one thing that you know a country like Australia highly educated um you know pretty successful country can do to combat or to guard against all the risk and all the problems in the world and all the challenges is innovate. Like you know we can innovate to to work our way around climate change. We can innovate to work our way around fossil fuel dependency. And if we're cutting that off at the past by not offering tax incentives, then >> I would absolutely agree with you except that for the last 26 years, >> we've had a 50% concession on capital gains and what's happened to productivity in this country, >> right?

[00:11:57]>> It's it has slowed >> like there is no absolutely no doubt about that.

[00:12:02]>> But the argument is that that 50% discount along with negative gearing has shifted people into the housing column which is highly unproductive. And so the argument from people who are criticizing the government's budget is to undistort that. You should remove it for the housing sector to try and push people away. Instead, all assets are being tax more.

[00:12:21]>> Right?

[00:12:21]>> But this goes to the division between capital and labor >> which is should there and there are very good like economically there are very good arguments like Paul's touching on for capital taxing capital slightly less than labor. But the problem is that labor taxation is not going down either.

[00:12:39]Well, this is the thing and I mean this is the big big hole as I see it in this um in this argument or the narrative that the government is trying to sell.

[00:12:46]It's like um if you're going to do this to capital then give us a tax break in our income taxes which they're not doing really except for the Watswau depending on which is $250. It's pretty marginal.

[00:12:57]Um I want >> we landed on Wat last week. That's our that's our that's the house um the house rules.

[00:13:03]>> Okay. We've got a we've got an official pronunciation guide. the working Australian tax offset I believe is the acronym in case we've got now let's talk about the teals because um we had Zali Stegel and uh Algra Spender front up this week in parliament and basically give a press conference and hold out this prospect that they might form a party with whichever teals are available and willing to hang out with them in a party format. Um Paul tell us what happened. Yeah, I'm actually looking at Allegra Spender speaking in the parliament right now on the tax bill.

[00:13:36]Um, so the the Teals came in in 2022, cleaned up the Liberals in the inner city. uh there was a great buzz around them for at least a few years and then leading up to the last election people might remember which is quite ironic given how dominant Labour is now in the house but there was a a um pretty not a not a likely chance but there was a lot of speculation about a hung parliament before the last election which would have given the teals this balance of power in the house and given them huge authority that obviously did not occur and so they've become a more marginal political outfit who can get up and give a speech or release a white paper and have interesting things to Hey, but are not right at the core of decision-m power. So, Allegra Spender and Zali Stegel in particular, the member for Wentworth and what's Zalie Stegel say?

[00:14:18]Woringa.

[00:14:19]>> Woringa.

[00:14:20]>> Yeah. Have been talking for months now with David PCO and others around the teal movement about creating some sort of more formal party structure. Whether that is a formal party or a kind of alliance where there's they still have levels of independence but work more closely together. Uh those conversations have been going on for months. They've done research. They've got some names.

[00:14:39]There was talk about um announcing this party in June. I heard that plan was actually still on track until the story broke on Sunday after David PCO uh let it slip a little bit on insiders. And then the day the story stories um were reported on Monday in parliament, there seemed to be splits in the teal movement. Allegra Spender and Zali Segel talked up the prospect, but others like Manique Ryan in Melbourne, Kate Cheney in WA um and some of the others were a bit less keen because they are more intent on protecting their independence.

[00:15:08]And I think there are also some personal squab squables between some of the characters involved who may not be as keen on working together as we thought.

[00:15:17]So I mean this is what I find interesting about this story is that you know the t we always talk about the coalition the collapse in the coalition vote and there's so much concentration now attention on one nation rising in the polls which they've never been able to convert into a lower house seat right until recently. Meanwhile, the teals basically have destroyed the coalition like well before one nation resurged, but they haven't been able to convert it really into like political commensurate political influence in the parliament.

[00:15:46]And so this is surely them trying to coalesce into a party so they can maybe have a senate um a couple of senate seats so they can have a say in legislation like the budget. you know, this budget is kind of um you know, very controversial or probably not very wellliked in the seats of Woringa and um Wentworth, but their their local MPs are not really able to have any influence on it.

[00:16:11]>> Yeah. I'm just trying to work out like you get to the issue of recreating a party.

[00:16:17]>> Yeah.

[00:16:18]>> Like we don't see that often. Um, and whether like this is what intrigues me because and Paul's really a good spot to talk about it, right? Zali Stegel and Allegra Spender, two people don't make a party. Um, >> no.

[00:16:34]>> No. Have they gone out Have they gone out too early? Because it sounds like actually they don't have enough people to make a party.

[00:16:40]>> It's It's a bit murky to me. Like I've been trying to figure this out as well.

[00:16:46]I think that some of the statements that were put out about not wanting to join a party immediately were trickly carefully worded I should say not trickly to give these MPs like Manique Ryan and others some time to talk to their communities about this prospect because the stories were written before these guys wanted to go out publicly and so the the really organic strong link these MPs have to their volunteer networks which is quite extraordinary they've built up these amazing networks in their communities They didn't those MPs would not want those um hardworking volunteers who are poor major party politics to look at their MP in Cameron and think what she's joining a party without consulting us.

[00:17:26]So I think they want to go back have a think about it. Allegrespender and Zalie Stegel are still of the view that this will coalesce over time and that some of the others who have expressed some doubt will come into the tent eventually and yeah to your point on the Senate that is one of the key drivers is to get Senate representation where it's easier to have a balance of power position and you need a party to do that. Also the funding disclosure laws that Don Farrell and Labour brought in last year make it more attractive to start a party structure.

[00:17:51]But I think actually Allegra Spender in particular as key key driving um uh motivator is that she sees the rise of One Nation. She sees anti-establishment sentiment growing and she's of the view that the part that all these TL MPs need to unify to create a more centralized message, split up portfolios, advocate on policy as one to become more powerful and to cement their status as a as a group that can wield influence. And I my my personal like very much opinionated view is that I think she's I think she's right and I think she's the she's on the right she's on the right track.

[00:18:26]>> I was going to say the other thing is whether you can pull in some liberal MPs or liberals who are on the left of the party who there's there's so few of them >> like they are they are not quite the Tasmanian tiger level uh but uh they'd be on the they are very much on the very endangered list at the moment. So you can see why you this may be for them it may be something >> and it's like if you build it they will come sort of thing. I mean the broader story surely is the collapse of the center right which you know the coalition seems to have abandoned that ground entirely and the tills have are naturally sort of in that space and now they're like they see a vacuum they see an opportunity. Politics is all about opportunity and timing right >> um I'm we're going to be really interested to see what happens there.

[00:19:12]Um, we've got Zalie Stegle on the pod in a few weeks time actually, so hopefully there'll be a few more developments.

[00:19:18]And, um, it's been a really fun birthday podcast for me.

[00:19:22]>> You've looked I think you've deageded while you've been sitting here.

[00:19:26]>> It's the effect that you guys have on me. I'm relaxed. I'm having fun. Um, it's been really fun. Thanks so much, guys.

[00:19:33]>> Thanks. Thanks, Jack. Always a pleasure, guys.