Macquarie's Changing of the Guard

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Hello, welcome to The Money Café, I'm Stephen Mayne, contributor at Intelligent Investor, Founder of Crikey and shareholder activist.

And I'm James Thomson, Senior Chanticleer Columnist at The Australian Financial Review.

Now, James, it's only been five days since we last had a rare podcast catch up with our boss, Alan Kohler, on leave for a couple of weeks, but back next week. I guess we probably should start with Macquarie, big news at the AGM last week, that being the major CEO succession, Shemara...

I think both of us, Stephen, were excited for the Macquarie AGM anyway, obviously Macquarie was facing a second strike against their pay report, there was this news of these reports that Joyce Moullakis, our Macquarie guru, has been writing about cultural issues inside Macquarie Capital and then Macquarie one-upped us by announcing Shemara's departure and an appointment of the new CEO, a guy called Greg Ward, who's been running the banking and financial services division and running it very successfully, I must say, Stephen. Just on Greg Ward for a minute. I mean, BFS has basically come from nothing a decade ago, to become the most important challenger brand in Australian banking.

Every bank in Australia spends an inordinate amount of time worrying about Macquarie in the banking division... But I think still, for all that, the timing of Shemara's departure was a bit of a surprise and even Greg Ward's appointment was a bit of a surprise, I reckon. What was the feeling like on the floor of the AGM?

I think that certainly stole everyone's thunder in terms of, people were thinking it'd be hot on the whole KPMG audit issues as well. But look, I think she exits on top. She's done 39 years there. There's not too many CEOs out there who've done 39 years, have never sold a share for their entire time they've been at the company and walks out the door with $370m worth of stock and doesn't get a bollocking like, say, Alan Joyce, who stayed for about as long as Shemara, or probably a bit longer actually, stayed too long and left, everyone talking about his pay, $125m, pre-tax, and a total debacle, he's writing books to defend himself. Shemara's just had a great one, I think she can name her board if she wants to go on any board in the country.

I think that she could go there and Macquarie is one of our greatest success stories and the shares are at a record high. The company's worth almost $100 billion dollars. I take my hat off to her. I think Macquarie's had a succession of great CEOs, I actually think she's probably been the best of the lot and well played.

Was there sort of a feeling of - was there love in the room for her?

I think so. It's funny with AGMs, at bank AGMs, you get two things, you get the bank warriors and they're the aggrieved customers who might have lost their business, they're organised and they come in numbers and they ask lots and lots of questions. Then you get the climate campaigners and they put up a shareholder resolution at Macquarie and it had had 35 per cent last year, their resolution, it fell to 18 per cent this year, but there's still support for it. Their number one thing is just to get Macquarie out of the Beetaloo Basin and the Northern Territory and fracking, because they're basically banking the two main companies that are developing the Beetaloo Basin. So you get half an hour from the bank warriors and you get half an hour from the climate campaigners and it just sort of wears you down a bit because it's all just a bit singular.

They're very good humoured in how they sort of take it, they try and structure the AGM in a way that - this is what annoys me, they structure it try and limit the focus, so they don't follow the agenda, so you can't have a focused discussion on rem, they don't disclose how many shareholders voted because voting numbers have crashed to less than 3 per cent and I'm sort of saying, "Come on, tell us, what was the sentiment of the small shareholders, how did they vote...?" And even things like you had to use an electronic device to get into the queue, so they could control - they call out your name to get to the microphone. It's a very controlled choreographed address, they do an hour of formals, then you have half an hour off.

So you've got to wait 90 minutes before the first question gets asked and then you've got to go in a 15-person queue before you get a crack. So, anyway, that's just me getting into the details. In terms of the substance, I was pleased that we pinned the chair, Glenn Stevens, down. He made it pretty clear he'll be retiring, he won't be seeking another term. Now that the CEO succession is sorted, the question is, who will be the next Chair. My money is on Susan Lloyd-Hurwitz, the former Macquarie staffer back in the day, but made her name running Mirvac.

She's just been appointed Chair of the rem committee because Jillian Broadbent is going and you can see, when you rise up the committee structure, that to me says that you're a chance to get the big job. So they'll go from the successful female CEO to the first female Chair, within the year. Now, we shall see.

Just to finish on the Macquarie AGM, we had correspondence from Steve, including some great photos of a selfie with yourself at Macquarie, he sent some pictures of security trying to keep you in line and the catering which from Steve's correspondence was very important. It sounded like there was some Money Café listeners onsite as well.

Because I mentioned it with you last week, two literally came up to me and said, "I only came today because I heard it was Money Café..." So I literally sat next to Lindsay for the whole Q&A and he actually got up for a couple of questions, he got up and asked about some exit reflections for Shemara and Jillian Broadbent, got up and asked another about audit tendering and then Steve popped up afterwards for a chat. I think there might be a bit of a line of business in this, James, flag which AGMs you're going to in advance and then try and get a gaggle of Money Café listeners to come along, particularly for a well catered AGM like Macquarie, who probably puts on the best spread of any company in the market, I have to say.

There you go, well maybe you can run a tour business, Stephen.

I think there's definitely a tour business in there... I mean, Chemist Warehouse will be flat out this year because they do a shareholder showbag probably worth a couple of hundred bucks. If they do the shareholder showbags or good catering, you will get good numbers at the game.

I did love this comment from Steve that he consumed more catering than his dividend payment was worth, so...

[Laughs] We should give a timestamp - we're talking on Monday morning at 8 o'clock - you've just filed the latest for Chanticleer for the AFR on Iran and the markets. Keeping up with this five-month war - it's five months tomorrow, this war, dragging on - what's your latest thoughts?

Well, we've had another TACO, you won't believe it, another TACO moment on the weekend. After Trump went into the weekend promising the biggest ever attack on Iran, all of a sudden, everything's fallen silent, we've had no attacks from the US and no attacks from Iran for the weekend, which is good news. There's a bit of confusion as to what's driving this though. Is it that Oman is shepherding through some peace talks, or is it as several reports including in the Wall Street Journal have now suggested, America's getting worried about its dwindling stocks of Patriot missiles and other air interceptors.

The rationale for this war has always looked a little shaky, this is not going to help things a lot for Trump's credibility and it makes it hard to see a way out of this, probably a deal - that's what every economist and fund manager in the world keeps telling me, but it hasn't proven very easy to find. The problem for this though, Stephen, is we saw last week, obviously we saw the pressure on oil prices, so we had Brent crude going over USD$100 dollars a barrel, back above $100 bucks which is sort of a psychological barrier. We've also seen bond yields moving up really high, everywhere in the world, including Australia, the 10-year bond yields, moved up sharply in the last few weeks.

Everyone watches American bond yields, they really moved last week. A lot of the focus is on the 30-year bond yield, which is up at levels not seen since 2007. That's because people are worried about inflation, they're also worried about the amount of debt the US needs to issue to keep the country running basically. All of a sudden, we've got a Fed interest rate decision coming on Thursday morning Australian time and for weeks, this has been a total non-event, rates will be on hold, nothing's going to happen. All of a sudden, there's now a 40 per cent chance of a rate hike, according to money markets. Economists still don't believe there's going to be a hike, but if there is, that would be an absolute shock to markets. No investor is positioned for that and that is something to really watch.

So, don't worry so much about the TACO, but worry about the flow on effects of this war in Iran, because the pressure is building in bond markets and on the Fed. We might just see something that investors are not positioned for and that's a rate hike on Thursday morning. It's suddenly become a live meeting as they like to say in economic circles.

James, we've got a big set of inflation numbers on Wednesday, which will be certainly interesting for the RBA.

That's right, the quarterly inflation numbers. We've got a pretty movable feast in Aussie inflation and interest rate outlook too. Does the RBA need to go soon, can the housing market sustain that. The news out of the housing market just seems to get worse and worse at the minute. This inflation number is one of the big prints of the year, so look out for that, Aussie inflation into US interest rates, it's a big week for economists.

Exactly right. We've also had bond rates going up as well, which is I guess pointed to the inflation problem, but the 10-year, getting above 5 per cent...

Yeah, we're getting back up towards those 15-year highs we had back in March a couple of months ago. There's a few things to be worried about out there at the minute.

Absolutely, then we've got the Fed on Wednesday as well, what do they do with the rates. They've got the same issue with the long-term bonds and I guess it's a global theme, isn't it, rising bond rates and inflation fears, how do central banks respond?

Yes, let's see where we end up this time next week, I guess. Maybe this Trump TACO calms it all down a little bit, it's going to be a really interesting week for investors.

Absolutely and there's a truckload of US results this week and you wrote a good column on the Google numbers, great cash flow and really strong numbers, but - and it was a very big 'but' - the size of the capex, north of $200 billion and we've now got big tech promising to spend $1.2 trillion dollars next year and the market's getting quite sceptical as big tech company after big tech company flips into negative cash flow, which is something we never thought we'd ever see.

Exactly, it's one of these things where I think the market has given these big tech companies a fairly long leash, but the problem is these capex numbers just keep going up and the message from Google or its parent company, Alphabet, was, "Yep, our numbers are going up in 2026, perhaps as high as US $225 billion for the year," and then they basically said, "The numbers will be higher in 2027."

They're pitching it as there's more demand than supply, computing power is still in short supply, but the problem is, you look at their numbers, they can't actually point to a set of numbers within their profit results and say, "There's the AI revenue we're earning." It's all sort of mixed in with their sort of ordinary business of search advertising, of cloud computing revenue... So it's really hard for investors. They can see the spending, they can't see the revenue as obviously as the spending. The market sort of - I don't know, is it distrust - certainly, scepticism is really building.

Absolutely. I love to keep track of the big five market caps. You've got currently, Nvidia at $5 trillion; Apple, at $4.9t; Alphabet at $3.9t; Microsoft at $2.84t; Amazon at $2.5t... Amazing to think that intraday on June 16, SpaceX was capitalised at more than Microsoft for a nanosecond and it has literally almost halved from that peak of around that $230, it's now down to $115, $20 bucks below the float price of $135. You've got Musk as the former trillionaire and it was amusing on the Tesla earnings call last week where he was basically strongly hinting at the merger with SpaceX play, but sort of saying, "My lawyer in the room here won't let me speak..." hint, hint... "I'd love to say..." So it has been significantly caught up in the whole AI scepticism trade because they're a laggard, certainly with Grok, in terms of they're spending a truckload, massive negative cash flow, but I wouldn't have thought that the SpaceX share price would literally almost halve from its intraday peak on June 16.

I think you're totally right, it's a great example of how - I think investors feel like they've been tricked on this one. I don't really know how else to sugar coat it. This was all set up as a big hype play where the share price could be pushed up very aggressively, a bunch of smart people who were betting on momentum, got out and got big profits and everybody else is sort of now stuck in this thing. I think the sentiment is really soured. There's no immediate sort of moment with SpaceX that's suddenly going to make it more profitable. This is a long-term play and when I say long-term, it's probably decades. And so that is hard, in a market that's extraordinarily short-term, there's probably just better things to do with your money in the short-term.

I think we'll look back and say, never in the history of human capitalism have people paid so much cash for so little, $85 billion dollars for 4.5 per cent of a company. The float's only 6 per cent, the free float's about to double because a whole bunch of locked up employee stock, it will come out of lock-up after the earnings call. Of that free float, it's already 17 per cent short, so the short-sellers are making a fortune, although some of the short-selling apparently is those people locked up who have been getting out early because they know the float price was all about Trump about Musk being a paper trillionaire rather than anything to do with economic fundamentals. The greatest example of pump and dump I think you could ever see. Maybe it turns it around, but I actually regretted not raising this at the Macquarie AGM because it was on my list because Macquarie was the lead Australian broker to the float and they were managing CommSec effectively, so - "Were you worried about pump and dump...?" I should have probably raised it, but you only get so many cracks at it. Now, before we move on to questions, I think we should briefly just touch on Alan Joyce's memoir or book on Qantas, he's taken three years - and I want to say at the outset, we don't get enough business books, we don't get enough CEOs writing their stories.

I know he's going to get flogged, but I want to first say that at least he's had a crack, he's added to the public record... There's a fair bit of rebuttal of Joe Aston and the Chairman's Lounge book rebuttal. I haven't read it yet, I've just read a couple of the reviews. What's your take on the concept of the book and what you've learnt about it so far?

I think it's good, it's always good to have the insider's account, but you've got to sort of see that for what it is, it's an attempt by Alan to put his own version of history out there. I did a big interview a few weeks ago with Richard Goyder, who is the Chairman during that sort of period of tumult. I think Joyce's view appears, from what I've seen in the interviews - I haven't read the book either - but Joyce's view appears to accord with that of Goyder and that's that, look, it was a really difficult, stressful time, it's easy to say that this was all going to work out in hindsight and we were running around like Chicken Little saying, "The sky's falling..." but four months into COVID when there was no vaccine in view, it did feel like the sky was falling, particularly for airlines around the world, lots of whom have bail-outs.

Now, I sort of get that. The bit that's hard to cop though, is the illegal sacking of all those workers, 1,400 workers or so. Was that really necessary? There is a right way, clearly, to get the balance between shareholders, staff and customers and they patently failed to get that balance right.

Yeah and I think the ghost flights as well and the brazen attempt to basically take COVID credits. "Use it or lose it, folks!", "Oh, you haven't been able to get on a flight..." because we're charging a small fortune to fly to Sydney - "If you haven't used it by June 30, you've just forfeited it..." and that was going to be literally hundreds of millions of dollars. For me, Alan just went bad during COVID, he just abused his power, got too greedy, shouldn't have sold the 17 million shares right at the end just before the ACCC inquiry.

Shemara never sold a share at Macquarie and then Alan Joyce is ditching most of his stake. I think he's on a hiding to nothing here, frankly, it's just going to rinse and repeat a whole bunch of the issues that he hasn't enjoyed discussing publicly anyway and he's certainly not going to sell as many as Joe Aston's 60,000. So, he'll lose on the bragging rights about whose book was more popular as well.

Yeah, I think Joe made a point today in his latest column for his outlet called Rampart, he makes the point that Alan's sort of unemployable, so what else is he going to do other than write a book, that's another lens through which to see that, I guess.

Yes. Now, before we get to this week's questions, James, here's a quick word from our sponsor.

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Now, we must intone about the general advice warning, that if you want real advice, speak to an adviser, don't rely on us. First question now, Peter has said, "He enjoyed Alan's interview on the ABC with ACCC Chair Gina Cass-Gottlieb and he has a query on the digital monopolies issue and the ACCC's pursuit of the anti-competitive app stores," that's where they clip 30 per cent for in-app sales and basically saying, "Do we think the ACCC is doing enough and do we need to push for vertical or challenge the whole vertical integration at the centre of these giant big tech companies which are making an absolute fortune and have all this amazing data that they can get and is the ACCC doing enough to take on big tech?" What do you reckon, James?

It's a good question and I'm hesitating on the answer a touch, just because I think there's a few different things going on here. We're seeing the big model companies like Anthropic and OpenAI being challenged themselves. So they're being challenged by cheap open source or open weight models that are cheaper and I guess bring down the total cost of AI. We're seeing them challenged in that way, but we have heard people like Satya Nadella, the CEO of Microsoft, say that companies need to be very careful about dealing with the likes of OpenAI and Anthropic, because they're paying twice, they're paying to use these models and then they're paying by sharing their own intellectual property to make the model stronger.

Now, we have seen Anthropic, for example, suddenly turn around and say, "Oh, here's Claude Legal, here's Claude Scientific, here's Claude Accounting..." competing with their customers. I'm not sure it's a competitive thing as much as a pure sort of business cannibalisation thing, I guess. I'm not sure it's anti-competitive, is my point. But I guess the power of these players does need to be watched more generally.

Yes, I thought the interview itself was interesting as well, where she's keen for a second five-year term, Gina Cass-Gottlieb, which most of the previous ACCC bosses, Rod Sims, Allan Fels, Graeme Samuel have had. She also said she was really happy with the change of law with the mandatory reporting, where any takeover or any creeping acquisition above a certain size, it used to be voluntary reporting and she's saying that now that it's mandatory reporting since the start of the year, the ACCC has a much better view of all these incremental bolt-on acquisitions that big supermarket players or whoever might do, so she's very happy with that and talking down the need for divestment powers and saying, "No, I'm just happy that we've got a really good line of sight on every single deal that any major player does in our market."

Yeah, it's a fascinating example, Stephen. Often, we sort of bemoan the people that it's hard to get really great people to go into public service roles, but this is a great example. Gina Cass-Gottlieb was the best competition lawyer in the country by some margin, all her peers would say that and she's now on the other side of the table, strengthening the merger laws. It's a win for public service, in a way.

Yeah, I'd give her a second five years, I think she's done well. All right, your turn.

Let's go to Mark, he says, "With the scandals in the big four accounting firm, shouldn't there be a limit on auditor appointments, say, three years for public companies. Also, seems like ASIC should regulate partnerships rather than the states. I've sent these ideas to my local member, was also astounded to learn that Labor Party owned gambling devices, that needs to change."

Well, Mark, a few people realise that the Labor Party has built up $100 million dollars' worth of assets in their five pokies venues in Sydney and Canberra. Gamblers lose about $30 million dollars a year visiting Labor club operations in those cities. It is pretty ridiculous, but in terms of the big accounting firms, it is worth remembering that there used to be so much more competition. PwC was only created in - I think it was 1998, when they merged with Coopers & Lybrand, Price Waterhouse merged with Coopers & Lybrand. Even it was 1989, I think, when Ernst & Whinney merged with Arthur Young to create Ernst & Young. Then of course, Arthur Andersen went under in 2002-3. Only having four, it does limit the competition a bit.

As for rotation, I tried to get Glenn Stevens to admit at the Macquarie AGM, I said, "Glenn, do you now admit, 40 years of PwC..." or whichever of the predecessors it was, "...and no tender, this was wrong. Do you admit now this was wrong?" And of course, he wasn't going to say of course he was wrong, but times have changed. But look, I do support mandatory audit change like the UK, every 20 years. We only have mandatory partner change every five years of the partner and I think the UK with their system of mandatory tenders every 10 years is also something we should look at.

I also agree that the states shouldn't regulate partnerships. Australia's done really well with our states handing over so many powers to the Feds, whether it's income tax or corporate law or competition law... It seems really ridiculous that partnership regulation remains in the states and territories, just hand it over to the Feds, for goodness sake.

I think we discussed this last week, there's room for tightening the way audits are governed and the timing factors around those. Just on the partnerships, can someone regulate them properly?

Yes...

Again, there's options in front of the Federal Government, I do not understand why they're dragging their heels, we've had another scandal, two of the big four have now been engulfed in scandal, get on with it, just do something, please, start...

I thought it was amazing that KPMG had to fire that partner on Friday after it was discovered they had printed out the Lendlease board papers and stored them in a storage room for the benefit of future tenders, extraordinary. The whistleblower was proven to be right.

Totally, totally.

That's the stunning thing about this, isn't it?

Well, actually, it's not. The stunning thing is that the whistleblower wasn't believed or at least had their claims properly investigated, because otherwise KPMG could have got on top of this.

They could have and the cover-up's always a lot worse than the crime, although the crime here is pretty ordinary, you've got to say.

Very true.

All right, now someone calling themselves The Mad Ox, is saying, "I'm a middle-aged wage earner and investor, increasingly frustrated with the lack of political courage in our governing parties. The more I research the issues in our economy, the more a solution seems so obvious, yet political conflicts of interest seem to be prioritised over the wellbeing of our citizens. What structural changes need to be made to keep our political parties loyal to the Australian citizens rather than the corporations or other organisations that they serve. What are your thoughts on our country's directions?" Geez, Mad Ox, this is a very broad question, looking for system reform... I'll start with, I would boot the unions out of the Labor Party. They have a gerrymander, the unions, where they get control of 50 per cent of the votes on all conferences and this, in my view, allowed the CFMEU scandal to blow up, because they captured the Labor Party as the unions do and the Labor Party couldn't regulate the CFMEU and next thing you know, they're taken over by bikie gangs and billions have disappeared.

From a structural reform point of view, get rid of the union gerrymander at our biggest, oldest and most successful political party and just go back to a fully democratic, one vote, one value membership system. There you go, there's my opening play on system reforms to fix Australian politics.

Yeah, the one thing I guess, I agree that I think the state of politics in Australia is not good, it hasn't been good for a while. I know Albanese's speech at a Labor Party conference last week was talking to the true believers, but the us against them-ism in that speech, at a moment where Australia's economy is desperate for a united push on productivity and growth...

Well, that's the union culture, isn't it? Attack the bosses, us against them...

It was jarring. You can see what's happening. The one thing I'd say, Stephen, is I guess history says that coalition governments of lots of parties are actually fairly common in other parts of the world. We've got used to this very strong two-party system and so have lots of other places in the west, but maybe over time, a more representative - where you have to form a coalition and compromise and all that sort of stuff, I don't know, maybe there's hope in that...

Couldn't agree more. I would go to full proportional representation where anyone that gets more than 2 per cent of the vote, nationally gets 2 per cent of the seats. And so, you get diversity, you get rainbow coalitions, it forces compromises and no more of this majority government... Because people say, "Majority Government is good..." but there's no diversity in it. You get a Labor Government which is chock full of lefties or union perspectives and not a business perspective in there and then the other side gets in and it's completely the opposite.

It's a diversity argument, you get the best decisions when you've got diverse views and considerations. Moving away from single member seats where you've got to get 50 per cent to win the seat and I'd go PR all the way and celebrate coalition building like most other countries have. Anyway, this is never going to happen, James, sadly.

I think, genuinely, the one thing we need to do that fixes a lot of this, we need to get on top of inflation. Inflation creates inequity, inequity creates polarisation, we need to get on top of inflation, we've had inflation for five years, we've been five years above target, basically, same in the US. That is the problem that needs to be solved. Once inflation is under control, once housing is more affordable, a lot of these problems seem a lot more manageable, I think, anyway, maybe I'm wrong.

I agree with that. All right, your turn.

Okay, "Hi, Stephen. I'm a long-time admirer of you and Alan..." Nothing for me, this is from Julia, she says, "...but she's a much less long-time follower of the podcast. She's just finished listening to the Wealth of Nations on audiobook from a platform which will remain nameless. Shout out to the reader, Gildart Jackson, who deserves a medal for his total unflappability..." Gildart Jackson also reads a great series by a guy called Peter Grainger which I can highly recommend, the DC Smith Mysteries...

You're not just a finance guy, are you, James? Listen to that.

He has this wonderful voice, Gildart Jackson, he's like a character in the book. Anyway, "Adam Smith points out that the value of money is not determined essentially by the value of the metal in the coin, but by the value of the corn it purchases. Do you think that perhaps today this is shifting and the essential commodity is now energy? So, what a Government must apply to pacify the people is no longer bread and circuses, but wi-fi and Netflix."

Whoa, Julia... I think, look, wi-fi, Netflix, it's important, first-world challenge if you haven't got it, but I think if you suddenly found you couldn't get food, water, shelter, policing, rule of law, property rights, road, sewage, all those things that we take for granted, I think you'd suddenly have a perspective that said, actually Netflix doesn't really count. But look, energy is fundamental, always has been, but ironically the energy intensity of the economy continues to fall, albeit with the energy intensity of the data centre rollout. Globally, we are spending less of our total dollars at the individual company economy level than we used to on energy. That said, with the whole data centres thing and with the climate issue and fossil fuels, energy is a massively important policy area, but I don't think it's the total be all and end all and I'm not so sure about the wi-fi and Netflix.

Yeah, I think food security and water security probably still trumps energy security, but Julia makes a fair point, it's not too far - the difference is probably shrinking between these...

And shelter, shelter was always the basic thing and the housing crisis goes to shelter, can you get affordable shelter? That is a massive issue in our economy. Now, this is definitely for you, James, we've got a question asking about the history of Chanticleer and looking for an explanation as to Google tells our listener here that it's named after the sharp crowing rooster from Geoffrey Chaucer's The Canterbury Tales. So, "Do explain the history of the famous Australian column, Chanticleer, which you currently helm."

Yes, well our correspondent is right, it does come from The Canterbury Tales written by Geoffrey Chaucer. I'll see if I get this right - the rooster was captured by a fox and to try and get out of this, he sort of kept sweet-talking the fox and eventually the fox let him go and the rooster escaped, so the sharp crowing rooster won out over the fox and I guess the smooth talking Chanticleer - smooth talking, sceptical and loud is perhaps the way we like to think of ourselves. It's a slightly tortured origin story...

But it's stood the test of time, hasn't it? It's so much more interesting than any other prominent business column in the world. The history of Lex, the FT's column, is a Latin phrase for Lex Mercatoria, which is a play on 'Merchant Law'. The Wall Street Journal doesn't have an equivalent, they've only got 'Heard on the Street', which is a pretty unimaginative name. So it's 50 years plus of Chanticleers and everyone just automatically knows it means the best, fastest quality commentary in the country, even if they don't know the history of Chaucer's Canterbury Tales.

Yeah, it's good fun, it is very distinctive and it's served us well, so thank you for asking, our dear correspondent there and I hope my explanation helped a little bit. Do you want to finish with one from Anton, Stephen?

Yes.

He says, "Great show! What are the chances of the Government pushing the highest marginal personal tax rate above 50 per cent, or is this a psychological barrier? There are other countries with personal tax rates higher than 50 per cent, but arguably, those citizens receive better benefits in return, like a guaranteed pension which is not means tested and free tertiary education, which I cannot see our Government doing given their ongoing spending. I fear they will keep coming after us with higher personal taxation.

Well, I think our system shows that it doesn't need to be above 50 per cent to be ridiculously large, because when the 47 per cent kicks in at $190,000 or something, you suddenly have $300 billion plus and a very, very large percentage of your budget coming from income tax. We're one of the highest taxing Governments in the world from an income tax point of view, so I absolutely can't see it going above 50. It only tends to do that in national emergencies, you've got to go back to the war time, where sometimes during wars, income taxes peaked at 90 per cent, but for me the issue is it needs to go the other way and have less reliance on income tax, because particularly young people, you're trying to save for a house, you're paying truckloads of tax to the Government, because we're so reliant on income tax.

Yeah, we have to bring income taxes down some way, if only for the reason that we need to encourage as many people to work as possible, to earn income, because the working population is going to start to shrink as we get more retirees as the population ages. Our 50 per cent top tax rate wouldn't just be a psychological barrier, it'd be a very real barrier to people wanting to move up in the workforce. We need to be going the other way. That's why we've seen these CGT changes, which I don't think have been all that well rolled out, but I spoke to the Chief Economist of UBS Wealth Management last week, Stephen, a guy called Paul Donovan, he said - I always ask, "What's the issue that no one's thinking about?"

And he said, "Well, it's Government debt. Government debt is skyrocketing around the world, but so is personal wealth." He expects that Government will look to solve their debt problem by taxing personal wealth more. He doesn't think wealth taxes, inheritance taxes are all that effective. The most effective form of wealth tax is capital gains tax, because you sell the asset, you've got a price and you've got the proceeds, that's the time to hit people.

Yeah and speaking of Government debt, the US, $37 trillion, can they pay it back? What's the value of US equities at the moment? About $75 trillion, so it's about double. So it would be one heck of a tax on the wealth of Americans if you were to ever get anywhere near paying back that $37 trillion dollars and counting in USD, which makes our trillion dollar Aussie federal debt seem fairly modest, although our equity market's only worth, I think, $3 trillion. So our federal debt is a third of our total stock market value.

Anyway, we better leave it there, James, but thanks for listening to today's episode of The Money Café. James Thomson will be back with the great man, Alan Kohler, next week, so send in a question and they'll answer it together by emailing themoneycafe@intelligentinvestor.com.au. Until then, I'm Stephen Mayne, contributor at Intelligent Investor, Founder of Crikey and shareholder activist.

And I'm James Thomson, Senior Chanticleer Columnist at The Australian Financial Review.

Talk to you soon.

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