Boardroom moves, AI and housing

---

[Music]

Hello, I'm Alan Kohler, Founder of Eureka Report which is now part of Intelligent Investor and a Finance Presenter and Columnist for the ABC.

And I'm Stephen Mayne, contributor at Intelligent Investor, Founder of Crikey and shareholder advocate.

And we are...

The Money Café, Alan.

The Money Café, yes we are.

Gee, Alan, it's been the killing fields in CEO land yesterday. Can you believe it, CSL, bang, Paul McKenzie, CEO for the last three years, he's out; and then ASX on the same day, Helen Lofthouse, bang, gone, although she does get to stay until May for an orderly transition. Whereas, poor old Paul McKenzie, the American CEO of CSL, he was meant to be fronting today's half-year earnings result and instead, he's out the door and they've put in Gordon Naylor, who's the old CFO, brought him back from the dead, he left the company in 2019, he joined the board again last December and he's all of a sudden the interim CEO. The share price crashed another 5 per cent, it'll fall more today. CSL's struggling to stay in the top 10 now. For a while there, they were the number one and so they've had a hell of a ride and CEO held accountable.

I presume we think that Paul McKenzie got sacked, do we?

Well, I think it's pretty clear, Alan, he's decided to retire...

The announcement said he's going to retire, spend more time with his family.

[Laughs] That's right. You can always tell these things with the time difference between the day of the announcement and the day that the person is out the door and when you're out the door on the same day, the day before you're meant to be doing the big results presentation, you know it's been a firing based on the - we're not happy with these numbers, CEO, we don't believe you should present them. But it is interesting, I called them the three wise men at CSL. You've got obviously Brian McNamee, CEO for 23 years, he's been back as the Chair for the last eight years; then you've got Professor Andrew Cuthbertson, who was sort of the number one research guy, he's on the board still, Chair of the technical research committee, he's been there for 30 years and now they've brought back the old CFO who'd worked there for 29 years.

So these three wise men with their combined 90 years of service, have got the band back together, all three are on the board, one's the Chair, one's the new CEO, Gordon Naylor, and they're going to right the ship. Frankly, I think it's a little bit back to the future and it's not a great look.

Those three obviously run the place, don't they?

They're the little faction. They're the Melbourne boys and most of the rest of the board are US, offshore and they're non-exec. So they have three former long-serving executives all serving on the board, non-executive at some time, so they're not really independent because they're all former executives and they've got all the top jobs and they've just got together and gone, "This American's no good, he's out, let's put one of the three wise men back in charge," and the stock's almost in danger of falling out of the top 10.

I presume they're having an international search now for a permanent CEO, are they? Gordon Naylor's not going to stay in the job, is he?

Well, I mean, he's not long-term, but these boys are all in their late 60s, 70s. I wouldn't be surprised if he stays for a couple of years. He's a safe pair of hands type thing.

Do you think that the decline in CSL's share price is Paul McKenzie's fault?

It's always a collective thing. We always blame the CEO for everything and it's always a team effort. They've been hit by a range of things, particularly the anti-vaxxing in the US. They went all in on vaccines and then Trump gets elected and puts Bobby Kennedy in, so that's hurt them. But you know they lost a big contract with the NHS in the UK which surprised a lot of people and then their communications has been terrible, shock profit warnings and... I don't know, I don't think it's a great look to have all these old timers hanging around with their combined 90 years of experience.

I presume, at the ASX, even though Helen Lofthouse, even though she's there for another three months, she got fired because of all the controversy and when the place shut down for a while, the publishing shut down for a while, when was that? Just before Christmas I think.

Well, there's technical failures, system failures, there's the governance issues of ASIC's all over them. I think it's an ASIC driven situation where ASIC is wanting some accountability and they sack the Chair, 15 months ago, brought David Clarke in who was the last CEO of Allco Finance Group which had collapsed in the GFC, so that wasn't a great look for mine. They're claiming Helen Lofthouse has got to stage one of the new CHESS project - remember how they wrote off $250 million on the CHESS project, which is the settlement system for the ASX. They're now saying, "She's rebooted, she's got to stage one, we're going to get CHESS right, now's a good time to transition." But at the end of the day, it's just too many stuff-ups, you've been there three years, you've been at the ASX for 11 years, you need someone without any baggage and so, out she goes, albeit there until May for the global search to take place.

Yes and maybe ASIC should conduct the search, they've got to be happy with the person, don't they?

Well, because it's such a Government reliant monopoly and it's pivotal to the financial infrastructure of Australia, it has enormous power and responsibility. ASIC's been all over them. They've got this legislative monopoly in quite a few areas of their operation. They need a CEO who can be sweet with ASIC and sweet with the Government, because the last thing that they need is to come in and have their settlement monopoly opened up. They're basically a Government monopoly, so Government relations is pivotal and if you're a lazy Government predicted monopoly and you can't even get your tech right and you keep on having all these blunders, people say, "Maybe we need a bit of competition and maybe you can't be trusted with a monopoly licence." That's always their biggest risk and they'll need to find someone who ASIC and the Government won't be offended by and who can stop all the blunders. Anyway, it's always interesting watching the CEOs come and go now. What about interest rates, Alan, six months since the last cut and up they go. Have you been surprised and also the breakout of inflation, where are you sitting with all of that?

Well, I got it completely wrong, as I did last year. Last year, I said they wouldn't cut interest rates and they did three times. This year, I started the year by saying that they won't hike interest rates and they have already. You wouldn't want to listen to a word I say, in fact.

Don't say that. Prognostication is a difficult business, Alan, no one gets it right all the time.

Especially when it's about the future, as [7:56.7] said.

That's right. Keep prognosticating! You hinted on the news last night that rising dollar could be deflationary because cheaper imports and maybe we'll only get the one rate rise. Tell us more about that theory.

Well, the Australian dollar is up against the US dollar and also against the trade weighted index. Let me just have a look at it. It's up, so look, all else being equal, a higher Australian dollar equals cheaper imports, which tends to bring prices down. I saw an economist the other day say the rise in the dollar has basically happened since about the start of January, mid-January, it's up quite a lot.

Above 70 cents, how exciting is that?

It's a three-year high, I guess.

The little Aussie battler, up she goes.

It's a combination of the US dollar being weak which is the opposite of gold being strong and also gold price, silver, copper, all pretty strong, so commodity prices up, US dollar down, equals Australian dollar up and that equals, according to one economist, about a 1 per cent fall in inflation if it keeps going. It's possible you'll end up with no more rate hikes because inflation comes under control because of the rising dollar, that's possible. About a 30 to 35 per cent of Australia's consumption is from imports. Rising dollar affects about a third of demand.

Cheaper TVs and all the other gadgets that we buy. You also had an interesting column, I thought your interest rate column on the ABC where you talked about the fact that the RBA had cut their forecast for dwelling investment and you linked that to the rise in One Nation, which I think is fair to say the rise in One Nation in the polls is playing into the crisis in the soap opera within the liberal party. You reckon there's a direct connection between Hansen's support and housing affordability, the immigration debate and the fact that the RBA has come out and cut their forecast of dwelling investment growth, the same time as they're rising interest rates, makes it even more electrifying politically as a hot button issue.

Yeah, I was looking at the RBA's forecast that they released at the same time as the interest rate decision last Tuesday and they haven't just cut their dwelling investment forecast, they've slashed it from 3 per cent to 0.3 per cent. Then in 2027, they are predicting that dwelling investment will fall by 0.4 per cent. They're predicting, in fact, that the Government's target of 1.2 million houses over five years will definitely not be met, they're just way short of it. I suppose I was saying that a lot of people are saying we've got a housing affordability crisis because of the big rise in immigration in the past few years and I think that stands up. I mean, I think that's clearly the case. Obviously, there was a big drop in immigration in the pandemic, but over the past 20 years, immigration has been unusually high. Howard increased immigration from about 100,000 a year to 300,000 a year and it's kind of stayed there and in the last couple of years, it's been 400,000 or 500,000 a year and it's quite obvious that housing construction has fallen short of meeting the needs of the extra population. We've just had a big housing shortage. Shane Oliver over at AMP says that the cumulative housing shortage is about 220,000 houses. The Reserve Bank's forecast suggests that's going to get worse, the shortage is going to increase, unless there's a big declined in immigration. That doesn't seem to be on the cards. The Treasury forecast that immigration next year will be 225,000, but there's no way that's going to be met, it looks like being at least 300,000 going forward and a big reason for that is student visas for the universities.

I linked it back to when the decision was made to increase immigration with the first intergenerational report, 2002, which Costello commissioned from Treasury and Treasury reported to Costello and Howard that we've got a big ageing of the population problem coming up when the Baby Boomers retire, which is hardly a blinding insight - obviously that's the case, it's happening around the world, Baby Boomers retiring, big ageing of the population problem. The ratio between people who are retired and people who are working declines.

They decided then to deal with that through immigration and to push immigration through student visas because that would have the added benefit of funding the universities, as the Government money for the universities declines.

Where do you see the Hansen One Nation and the Coalition thing? The Coalition is imploding, they've never been more unpopular in the polls, it's a soap opera, they can't make up - Angus Taylor, is he going to challenge or not? Sussan Ley, they put a moderate woman in charge and the right wing blokes are going to just roll her straight away. They do seem to be panicking in response to the One Nation polls and I think that maybe even the defection of Barnaby Joyce - that was quite a moment, I think, in terms of Barnaby, a former Deputy Prime Minister of a long-term ruling party defecting and now others looking to follow.

Then Labor gets away with it because they're not being held to account. Would you change to Mr Taylor? Is it cactus for Sussan Ley? I think it's a terrible look if they roll their first female leader this quickly, but the polls are saying that they're going to get less votes than One Nation. Except for the Queensland election in '98, we've never seen a situation like this. We're one of the last countries to have a serious right-wing insurgency disrupting the mainstream political consensus and it's playing out for the first time.

I'm not a political analyst, but it seems to me, the rise of the right-wing insurgency, as you put it, in Australia, is similar to that elsewhere in the world, which is mainly to do with immigration. Obviously, there's more to it with One Nation than that, but it seems to me the main thing and as I pointed out in that column, 30 per cent of Millennials and 48 per cent of Gen X's say they look favourably on One Nation. Crikey, nearly half the Gen X's, which is 45 to 60-year-olds, in the country are looking mostly favourably at One Nation, that's amazing, I think, amazing. They mightn't vote for them, but crikey... Why would that be? The answer is, because Pauline Hansen's brand is anti-immigration. She's also talking about tax and cost of living and so on, but really, what her brand is about is immigration, helped by wearing a burqa into the Senate and so on.

It just seems obvious to me that housing - when you look at it, what's the problem, what are people peeved about immigration for? And the answer is housing, clearly, because that's the foundation of the cost of living problem. Inflation's been high, but it's not anymore, it's still under 3.5 per cent, it's not that high. Groceries aren't rising all that much, but house prices went up 8.6 per cent last year which was more than double incomes. People are absolutely fed up with it.

I guess it was interesting that when Dutton was in charge, you never really had this One Nation insurgency because it was perceived to be of the right and a hard man of the right, but then he gets absolutely smashed because of perceptions of Trump-light and a well-run labour machine campaign and then they pivot back to a moderate more centrist leader and then bang, up goes the right vote. Maybe it does have to be the right faction takes over, Angus Taylor and then a whole bunch of right-wing policies. John Howard pivoted to the right when Hansen in '98, she got quite close to Government in Queensland in '98 and Howard did pivot from Tampa, children overboard and everything else, he pivoted to the right. You probably will see the Libs - but then they give up on all the metro seats and the teals and you get that whole debate of they're a twixt in between.

The trouble with that is, if you're in the far right, following Sky after dark and all that, you might get a protest vote, you might get 20 per cent, maybe 25 per cent, but you won't be Government. Government in Australia is won in the centre, as Malcolm Turnbull pointed out yesterday.

That's right, compulsory preferential voting is what will ultimately save the duopoly and One Nation is only really a Senate party, the Greens are only really Senate parties, it's just too hard to run a national campaign where you've got compulsory voting and you've got to man every single booth of the country and you need $100 million to run a campaign, it's just too hard, that legislative duopoly, I think is too hard. People come and go, but I would be very surprised if this materialises into any form of One Nation governing arrangement any time in my lifetime. But we all make predictions and we can be wrong.

That's right, things change. When Menzies started the Liberal Party, he clearly said, "We are not conservatives, we're liberals and we're in the centre." Things have changed, no doubt about it. Maybe that doesn't apply anymore, I don't know. But I don't think - I mean, it seems to me that Malcolm Turnbull is probably right, that you're not going to win Government... The Liberal Party, in order to win Government, has to win back the urban seats they lost to the teals. They won't do that by being on the far-right, particularly on climate.

Correct, I agree. Hansen, she's not a long-term future, she's not a very competent politician. She's never had any sort of governing experience. You would need a younger, highly charismatic person and team to actually pull off a right-wing insurgency. I can't see her doing it, but who knows. Alan, we should also cover off the software sell off and the whole sort of AI debate coming out of Trumpistan. I was pretty shocked by the size of those sell-offs, including in Australia where the likes of Tech One and CAR Group, Seek, REA, WiseTech, they're all down 30 to 40 per cent broadly in six months because of the perceived disruption to their software reliant business models, their economic moats, if you like.

Was this the big sort of hello world moment with AI, where the actual disruption of it, not just the bubble in share prices and the infrastructure spend, but the actual disruption of it really sent a global tremor around anything to do with software?

Obviously, this has been going on along for a while, thinking, oh well, AI will replace a lot of people, but our companies will be fine... What happened last week, was Anthropic released a new version of Claude with a plug-in that deals with legal drafting and a whole lot of back office legal things, just does them, and so that shook up all the investors in software companies thinking, crikey, maybe AI will take over what these software companies do, as well as what individual human beings do.

Then Claude released Claude 4.6, I think it was, Opus 4.6, which is self-running. It basically entirely does all of the code for Anthropic. Anthropic also said that Claude now produces or writes 100 per cent of their code, all of it. Then, OpenAI released another version of ChatGPT that does the same thing. The problem is, that it's moving really fast now. Somebody released a new social media platform called Moltbook for AIs, it's a Facebook for AIs to talk to each other and they are, there's millions of them now talking to each other on Moltbook. I think investors are suddenly realising they have no idea what's going to happen, I think that's the problem.

I think Canva's certainly missed the window, haven't they? They're a software company, so they should have floated last year because Atlassian shares are down 70 per cent in 13 or 14 months, that is incredible. The valuation wipeout, the market is saying that this is real and this is really going to hurt. We haven't seen any software companies' actual profits crash yet, so that's what's actually got to happen, "Our revenue's down 20 per cent because we've lost 30 per cent of our customers." If Tech One came out and said - because Tech One has a monopoly over council software and programs for rating and finance systems, if all of a sudden a whole bunch of councils all over Australia are ditching Technology One and buying AI products to take over Tech One, that would send the Tech One share price - it's already crashed from $42 to $23, that would send it back to $5, because they've basically got effectively a monopoly over council finance ratings and property systems. They get disrupted and that's a $10 billion dollar company down to $2 or $3b.

I think what it just shows is that nobody's really got any idea what's going to happen with AI and investors are kind of selling first and asking questions later, they're saying, "It's too uncertain, I've got to get out."

I did love Google though, Google's come out and said, "We're going to double our capex. Three months ago, they said that capex was going to be $90 billion and then last week, they came out and said, "Actually, it's going to be $180 billion." So everyone said, "Chips and data centres, the bricks and mortars, the picks and shovels... If Amazon and Google are coming out with these massive increases in capex and the magnificent seven are all of a sudden going to go from spending $400 billion US to $700 billion US, year on year, '25 versus '26, that is great for the Nvidia's, that is great for anyone building data centres and servicing data centres." But who's going to pay for it? Alphabet's come out and raised $100 billion Australian dollars in the last few days, issuing UK denominated bonds and Swisse denominated bonds, some of them. So they're going global in raising $100 billion with the sort of 100-year bonds and the market loved it. There's massive debt being taken out to do this incredible unprecedented infrastructure spend.

These companies haven't got enough cash flow anymore to pay for the data centres they're building, they can't raise enough money from the equity market, so they're borrowing now, it's unbelievable.

This is why Microsoft's market cap has gone from $4 trillion to $3 trillion. That's $1 trillion gone because this is heading towards negative cash flow.

The other day, someone in China released a new AI which sits on your device, so it doesn't need data centres, it's a little open source AI that's really cheap and sits on your device. I reckon a lot of this data centre investment might prove to be unnecessary.

Tumble weeds blowing through the empty data centres one day. Goodness me, repurposing data centres for housing, who knows? I think half the stuff that's been announced won't ever be built on the data centre front.

We better move to questions, before that, let's hear a quick word from our sponsor.

[Recording]

Markets in Australia and overseas have sold off in recent weeks. Volatility is back and valuations are being tested.

If you're thinking about how to position your portfolio for the years ahead, join Nathan Bell and Nick Cummings - portfolio managers of the Intelligent Investor Select Value Share Fund - for a live webinar on Thursday 19 February at 1pm.

They'll unpack why value investing could be making a comeback in a world of more volatility and greater mispricing, especially among the mega caps.

You'll also get insights into how they look for quality businesses at attractive prices, where they're investing now and why discipline counts for long-term success. Plus, there will be a live Q&A. 

Register now at offer.intelligentinvestor.com.au/iisv.

[End Recording]

Okay, first question's from Alisha, who loves listening to The Money Café on her morning commute and her husband also listens, good for you. "I have a question for you, you and James mentioned we have mediocre Government for some time now which has hampered economic growth, how do we incentivise politicians to get back to basics of coming up with great policies and having the courage to implement them?" That's for you, Stephen, I have no idea.

I was going to suggest one change, for me it would be random selection, back to the ancient Greeks, similar to picking juries. You have Government by a jury and that would get rid of the rent seekers, the media moguls, the loudest voices, the factional bosses... I think that's the tweak to the democratic system that I would do, I'd also pay them more tenure limits and I think they can get rid of the whole party solidarity thing and let politicians vote how they feel, rather than this ridiculous straightjacket with, 'got to follow the party room' dictate, otherwise you have all this National/Liberal Coalition break-ups, lack of - all that sort of rubbish that flows from that. Anyway, if you could change one thing with politics, Alan, what would you do? Would you pay them more, would you have a tenure limit, you can't do more than 20 years in the parliament?

I'd probably do those things, but the one thing I probably would do, particularly in Victoria, but I think elsewhere, is to pass a law that says politicians or Premiers and Prime Ministers could only wear a hard hat and a high-viz vest once a week, no more often than once a week. Because Jacinta Allan is doing it every night, it's unbelievable, you turn on the TV and there she is with a hard hat and a high-viz vest on. Unbelievable. And so, she's not doing any work.

The whole incentive system is gathering votes, all the effort goes into presentation to the public to gather votes as opposed to competently run the state, so there you go. Question two, we've got a couple we're going to combine on precious metals. [Kapil] says, "I was having a look at the COMEX open interest for the month of March, which shows a huge demand for silver, I was wondering what your take on that would be...?" And Brian says, "I've got a 5-ounce nugget of gold, should I sell and put it into shares?" Brian's also got $180,000 in shares at the moment, a $1.4 million dollar house, no debt, he's 64 years old, kids at home and he's still working. Brian, I'll start with the gold, Alan can do the silver.

That 5 ounces of gold that you've got, that nice little nugget, that's currently worth $38,000. When the Reserve Bank was selling 5 ounces of gold - well, they sold much more than that back in 1997, that would have been worth about $3,000, or actually even a bit less, closer to $2,000. I would not disagree with cashing in your 5 ounces for $38,000 at the top of this boom - but, Alan, we don't give any financial advice, as you know. What about silver, Alan, what's going on with that?

I think with both gold and silver there's a lot of confusion going on. A lot of people talk about it as a safe haven alternative to the US dollar and that's clearly what's underpinning central bank buying, particularly with gold. Also, there was a story the other day, when the gold price crashed, there was queues outside ABC Bullion in Sydney of people trying to buy it. They weren't trying to sell it, they apparently were trying to buy it because they thought it was a bargain. Those people, the central banks and the people queuing outside ABC Bullion are buying actual gold, like Brian with his 5-ounce nugget.

But most of what goes on with gold and silver is spot market and futures market trading. Spot market is a settlement in two days and the futures market is settlement in at least a month, where you buy gold and you'll say you'll buy it in a month's time at a certain price and it's a certificate, you're getting a piece of paper that says you're going to do that. Then you can buy futures for three months and six months and so on... I rang ABC Bullion the other day and asked them how they go about pricing the gold that people buy when they walk in and buy the 5-ounce nugget of gold and the answer is, they price it off the spot market and the futures market, somewhere between the two, they kind of average the two prices which are pretty close.

The spot market and the futures market front month, that is to say, the first month, so when we're in February, the March futures, they are pretty much the same as the spot price. The physical gold price is set according to the futures and spot market trading and the futures and spot market trading is all speculation by big traders who are doing billions and billions of dollars of trades and they're basically gambling. That is not safe haven investing and even the safe haven investing by central banks and people who are queuing outside ABC Bullion, the price that they're paying is set by the speculators. Basically, the whole system of precious metals investing is speculation and that's what's been going on. It's just simply a bubble. Gold and silver was a speculative bubble and it burst.

Gold's back above $5,000 now, I think it's only come off marginally. Bitcoin, the bubble has burst, I mean it has absolutely crashed. I would argue that Bitcoin and crypto is far more speculative. All markets, there's an element of financialization and the futures and derivatives, but at the end of the day, it is real money being spent by central banks all over the world buying actual physical gold, that is also a big part of the story. I'm not a believer that the gold price is going to crash. I do believe $40 billion dollars of West Australian gold will be sold this year and probably next year as well. Until Trump calms down and - surely it's not just speculation, this safe haven thing is for real, I would argue, about gold. It's been the biggest thing about Trump and speculation and printing money, gold is a physical thing that you can have a store of value and it's back, gold is great. I disagree with you on that, I don't think it's all a bubble. Gold's not going to burst. You really think the gold price is going to go back to $2,000 or $3,000 or something?

I've got no idea. I'm not saying that, I'm saying that the price of gold is set in the speculative markets now. It doesn't mean it's going to fall, but that's what it is.

That certainly happened with silver, there was a speculative top and it suddenly crashed and that was a dislocation in the futures markets. But beneath the ups and downs within a month, it has been a fundamental thing with silver is needed in industrial production and it's a store of value. We don't have enough silver in the world, there's not enough new mines and everyone's clamouring to get it, just like they're doing the same with some of the bulk commodities.

Why do you and people think that gold and silver are stores of value? The answer obviously is that it used to be money. Silver used to be more money than gold, but still, it was right up until 1971, gold was the sort of foundation of money and then it wasn't. When the gold rush happened in Victoria in the 1850s, people were finding money on the ground.

That's right and Melbourne was the richest city in the world for a while there.

That's because gold was money.

Gold has been money, still is money and it's back to being money...

No, but it's not money.

But central banks are buying it. Would you rather buy the US dollar with their $37 trillion dollars of debt, just using a computer to print it? That's not real. At least gold, there's something real about it, you can touch it, you can feel it, you can stick it in your central bank safe.

Which is what they're doing.

Which is what they're doing. Chris has said, "Hi guys, further to recent commentary on productivity or lack thereof, I want to challenge the 24-hour work rule for students." Chris is a manager in one of the big supermarkets and he's frustrated by this rule because he gives international students shifts at the start of the week, they take sickies - he wants to give them more shifts, but then they point out they've already done their 24 hours for the week. "They want to work, I need them to work, but they can't because of this stupid rule, it's crazy." Says supermarket manager, Chris. What do you reckon, Alan, do you just get rid of the 24-hour rule and say international students can work 60 hours a week if they want to?

I think it's just crazy, the whole thing. Aren't they supposed to be studying? They're students.

That's the thing, is the fig leaf. It's basically a cheap worker visa and no one calls it that. The 24-hour rule is designed to pretend that it's not really a cheap labour policy, but it's actually a selling education services policy. If they ban the 24-hour rule, they'd be admitting that Australia has moved to a Singapore style - well, not quite - because you have to pay them the minimum wage, you can't pay foreign worker wages like in Singapore and many parts of the world, but it is interesting...

Are they really all obeying the 24-hour rule anyway, are they?

They'd be risking getting thrown out of the country. I dare say, there's a heck of a lot of cash being paid, Alan, "You've done your 24 hours, we'll give you a shift off the books..." But Woolies and Coles can't do that, so only the backyard illegal tobacco shop can do that, but Coles and Woolies can't because they've already had a world of trouble with wage theft and everything else and they've got to follow the rules.

I guess Uber Eats can't do it either.

No, but you might have subcontractors of subcontractors, a little franchise somewhere who's got someone else who's subbed out something and what do you know that's going on within your little delivery subcontracting business, who knows? Your turn, boss.

Julie says, "Rates are not too high, it's the houses that are too expensive. If the price of houses can't fall, then houses should not be an investment, discuss."

Julie, we love the brevity of the question, Julie, you haven't sent through an essay as some people do, but I think your comment ignores the key issue, supply is the key issue, preferably in my view, Government owned or financed supply. The Reserve Bank, as Alan said earlier, is predicting a reduction in the growth of supply and I think rather than the tax treatment of housing as an investment, it might move the dial a bit, but for me, it's supply, supply, supply. Plus, levels of immigration, they're the two biggest drivers, lack of supply and excess demand. You're the housing boss, what do you reckon?

Chalmers is clearly flying a kite for cutting the capital gains tax discount in the budget. We don't know whether he'll just halve it to 25 per cent as the Labor Party promised to do in 2016 and '19, or whether he just goes back to the old inflation adjustment system which applied between 1985 and 1999. It looks like that's what's going to change, but I agree with you, I don't think that's going to make a big difference to house prices. I think it'll be done, mainly, to raise revenue, I think. Fair enough, there's nothing wrong with that.

If they do change that, Alan, I reckon you'll - call it, take the credit, get the blame... But your housing essay, which zeroed in on that policy change triggering the surge in housing prices, if Chalmers does do that, I reckon people will go back to that essay and say, "Thanks, Mr Kohler, you gave them permission to do this." Would you happily wear that one, Alan, as a crown of thorns?

Sure, yeah. It's clearly the case that house prices started rising quicker than incomes in 2000, which was when the capital gains tax discount was brought in. But the other thing that happened around the same time which I was talking about before, was the increase in immigration as a result of the first intergenerational report in 2002 and that took a bit longer to kick in, so that immigration started going up in 2005 a lot because of the rise in foreign students, which we've also just been talking about.

I do think that they're probably not going to reduce foreign students because they can't afford to fund the universities to the extent that they need to be funded, so they're not going to reduce foreign student numbers, so the only way to deal with it is by increasing supply and they're trying their hardest to do that, it's proving to be difficult because a lot of people don't want 20-storey apartment buildings in their suburbs, so there's a fair bit of pushback from communities against the densifying policies, which maybe they'll just bulldoze them, I don't know. I mean, they'll just push through and do it anyway and that's fair enough.

The only thing that's going to happen, if they do increase supply, flood the market with apartments and stop house prices rising so much. That, I think, is what they're trying to do and I kind of hope they do.

Now, Tom's got a really good point, he says, "With the latest RBA rate rise and increasing pressure on cost of living, why isn't anyone talking about taxation bracket creep as an easy way to aid cost of living pressures? In 2010, the top tax bracket was $180,000 and today it's $190,000, a mere 5.5 per cent increase over 16 years. Meanwhile, inflation over the same period stands at 49 per cent. How is it possible that inflation is growing more than 9 times the tax bracket growth and it's not a major point of discussion to all?" Tom, well said. We must have close to the lowest income for the top tax rate in the developed world.

Workers these days, tradies, $190,000 before you know it and you're on the top tax rate and you're handing over close to 50 per cent of your marginal income to the Government, that is a million miles from keeping up with inflation and we never discuss bracket creep and the fact that the middle class working people are getting smashed by income tax rates in Australia, which are incredibly progressive, people would call it, as in they call everyone rich and tax the bejesus out of them when they're not really rich at all and they're struggling to cope with life.

Yes, well if it wasn't for bracket creep, the structural budget deficit would be double what it is now? It'd be $100 billion dollars. The Government would be broke. The Government relies on bracket creep in order to fund itself. So, the only way to deal with bracket creep, really, is to cut Government spending.

That's not going to happen anytime soon, is it?

No, it's not, it certainly is not because they're increasing defence spending; NDIS, they're trying to reduce the growth in the NDIS to 8 per cent a year, without much success. Other welfare stuff is rising, Government spending is at a record high.

Alan, Mick - "Loved your tip to listen to the three-hour podcast with Elon Musk and Peter Diamandis and apart from wondering if they were smoking weed throughout the recording, Mick found it fascinating. Given Musk's dire warning of AI coming for all our jobs and Alan's knowledge of the jobs market and shareholder expectations of profitability, what is Alan's prediction for unemployment levels by the end of this decade here in Australia?" Now, Alan, your Weekend Briefing had an excellent look into this question of how many jobs are going to get smashed by AI, so what's your take on this?

Well, the short answer is I don't know and the forecast range from zero to 100 per cent, which is Elon Musk's - AI's going to take all our jobs. So I asked ChatGPT what's the average of all the forecasts out there and the answer came back, 34 per cent, which you've got to love a definite answer on something like that, don't you? There it is. I think it was more a range of 30 to 35 per cent is the average of all the predictions about permanent unemployment as a result of AI, which kind of sounds reasonable to me.

Ridiculously high, I would argue. 35 per cent increase in unemployment...

No, 35 per cent permanent unemployment, currently 4 per cent.

What politicians are ever going to tolerate that? You're just going to have massive tax and spend schemes... If people are arcing up now about cost of living, what are we going to be saying when they haven't got a job?

Exactly...

There's no way the political system will allow unemployment to get to 35 per cent. I think it could go to 10 per cent max, but humans are creative, they will respond. Elon Musk is so irresponsible, saying that AI is going to wipe out every job. The bloke's worth $850 billion and he's just a wild reckless... Come on! Surely, you don't believe that 34 per cent unemployment?

To be honest, Stephen, I don't know what to think. I mean, I think that AI is clearly already taking a lot of jobs. We haven't even seen the arrival of mass humanoid robots yet, which basically they're shaped like human beings, they do what human beings do and do it better and do it faster. Look, I think we're entering unchartered territory, really. I've got no idea what's going to happen, but I do think that blindly saying, "It'll be fine," is ridiculous. It's like saying, "Climate change isn't going to happen, it's fine, don't worry about it, it's all bullshit." A lot of people say that on the right particularly. It seems to me, if you build a house in the forest, you take out insurance. You wouldn't go, "It'll be fine, my house is not going to get burnt down, it's fine." You obviously would insure your house. How can you possibly go now and say, "It's going to be fine, unemployment is not going to rise much, we're not going to do anything." Really...

But Alan, the AI robots will just zip over to the fire and put it out in five seconds, because there'll be no firemen because it'll all be done by AI. That's also how ridiculous it is, people saying that every single job's going to get wiped out.

I'm not saying that...

No, no, but I'm saying others are saying that, Elon Musk and others are saying that.

What I'm saying is that something big is going on, we don't know what's going to happen, just like we don't know what's going to happen with climate change, exactly, although global temperature is already 1.5 degrees above pre-industrial, so it's clearly happening. So we should be taking out some sort of insurance, I don't quite know what to do, I just think Government's need to be thinking about this and working out a plan. I think it's plain, before our eyes, that something's going on, something big is happening, so some level of permanent unemployment is going to happen, it won't be zero, that's for sure.

Yeah, but it's not going to be 100 per cent.

No...

Anyway, we're asked for an end of the decade prediction and I'm saying permanent unemployment of 10 per cent, which is more than doubling, that's a lot but it's not a great depression, 30 per cent, is my point.

I know, but that's only four years, Stephen. What about 10 years or even 50 years? Just don't worry about 10 years?

Don't underestimate human ingenuity, Alan, it's got a pretty good record to muddle through and deal with risk and grow and prosper. I'm an optimist now, boss.

One of the things that Elon Musk said in that three-hour podcast was, "It's much better to be an optimist and wrong than a pessimist and right." Is that how you feel, you're better off being an optimist and wrong?

I don't like the doomsday, people who go over the top with doomsday scenarios and I just think that we haven't had a technical disruption that's ruined the world before - and I think it's different to climate change, I do agree that that is - it's not quite existential, but I do agree that is a much bigger long-term risk than AI, in my view. I think AI will help deal with climate change, but no one every talks about that. Why aren't we using AI to fix climate...? That's another debate we could be having that never gets had. Now, boss, we're almost out of time, I'll let you pick the last question.

No, I think we need to finish now, in fact.

Oh, we've been talking way too much, ranting on. All right, well we do have some good questions, we'll leave some of them for you and James next week.

Okay and thanks, everyone, for listening to The Money Café, we'll be back next week, I'll be back next week with James Thomson, send in your question to themoneycafe@eurekareport.com.au. Until then, I'm Alan Kohler, Founder of Eureka Report and finance presenter and columnist for the ABC.

And I'm Stephen Mayne and look forward to speaking to you all in a fortnight.

[Music]

---

---

Got a question for next week? Please send it to themoneycafe@eurekareport.com.au.