Ringing in the New (Financial) Year

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[Music]

Hello, I'm Alan Kohler, Editor-at-Large of Intelligent Investor and the Finance Presenter and Columnist and Podcaster for the ABC.

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

And we are...

And we are The Money Café, taking a quick break from the World Cup...

Are you?

Mbappe's just scored a classic for France. Gee, they're good, they're leading Sweden one-nil.

Who's this?

Sweden versus France, round of 32. We're time checking ourselves here, it's 8 o'clock on Wednesday morning. Mbappe, the best player in the world has just hit the post and then he's produced an absolute classic, so I reckon they're going to win it, just sublime to watch Les Bleus.

[Laughs]

You're not excited - I hope you're going to get up at 4 o'clock on Saturday at least to watch the Australians and Egypt.

Oh yeah, look, I get up Saturday morning at 4 o'clock anyway to finish the Weekend Briefing, as you know.

You should include it in your Saturday wrap, you produce the best weekend reading in the country every week at 7 o'clock, why don't you have a little bit of Australia-Egypt, Kohler's hot take on that? It'll be perfect timing for you.

Perfect timing, that's right. Happy new Financial Year, Stephen?

Yes, are you nursing a hangover after last night? It's always a big one, New Year's Eve.

Whether it's the normal New Year's Eve or the Financial Year New Year's Eve, I always go to bed early. My days of New Year's Eve parties are well and truly over.

It's funny, my very first ever radio gig was on Triple R in 1989 as a 19-year-old, doing the end of financial year wrap from midnight 'til 2 a.m. on Melbourne's iconic community radio station. I did it again this week, I've done it 37 years in a row, did it again this week, but unfortunately it's now a half-hour pre-record. We don't go into the studio, the waft of interesting stuff smelling in the air, drink a few Crownies and talk for two hours with - Bob Gottliebsen joins every year as well normally.

Did he join this year?

Actually I haven't heard the pre-record. He would always be taking a call at 1 o'clock.

Is that right?

Yeah, two hours on the end of the financial year. Not many people celebrate the end of the financial year, but a lot of changes this year, Alan, there's lots of tweaks from the minimum wage to all sorts of super stuff. We probably should have a quick start with that?

What do you think the biggest stories of the financial year were, Stephen?

Biggest of the year, I would say it's probably the tech boom, just the AI, crowned by SpaceX. I think that is the biggest business story of the year. I think obviously Iran and the Strait of Hormuz and oil and markets is also - that's the global take. What's your biggest take on the biggest yarn of the year?

I couldn't agree more, I think you're right, the biggest story's been AI, the rise of Anthropic with Claude, taking over from ChatGPT and OpenAI. And more recently, the launch of this new Chinese large language model called GLM 5.2 by the company called Zhipu or Z.ai - I can't figure out what the company's named. Anyway, the AI is just as good as Claude and ChatGPT apparently and it's a fraction of the price, so I think that's going to disrupt the whole thing. And also the SpaceX IPO, of course, unbelievable.

As of today, there's 16 companies in the world that are worth more than a trillion dollars, four of them are not American, Aramco, the Saudi oil company, the two Koreans, Samsung and SK Hynix, and then Taiwan Semi. The boom's moved from the AI models to the chips, so it's now a chips bubble. For instance, at the moment, Micron, a chip maker, is worth $1.3 trillion, SK Hynix is worth $1.3 trillion, Samsung $1.33. TSMC, the Taiwan Semi, worth $1.96 trillion. Broadcom, $1.8 trillion. That is an awful lot of value in chip makers. Whether the AI companies themselves which are all burning cash and they're the ones that are creating the value for the chip makers, going into all those data centres, whether they're going to all be around in five years, I think is an open question because they're bleeding cash, making the chip makers rich.

I think it's a crash waiting to happen. I tell you what, I think these companies are just way overvalued, all of them. The amount of capex going on AI and data centres and chips is way too much than is going to be justified, but who knows, I might be wrong. I had this neat gag about what a trillion means - I don't know if I've told you about this, Stephen. A billion seconds ago was 1972, which was when Elton John released Rocket Man, among other things; a trillion seconds ago was 52,000 BC, when we shared the planet with Neanderthals. The difference between a billion and a trillion is colossal.

You're saying that a million million is quite a lot, and it is.

I am saying a million million is quite a lot, exactly. You just say the word, a trillion this and a billion here and a trillion there and all that, but...

Pretty soon you're talking real money, yeah.

That's another good gag.

It is. Speaking of falling stars, I know we're a bit of a branch office in the world economic affairs in Australia, but I just ran some numbers, there's five companies on the ASX which have now fallen by more than $100 a share. I think a bit of a theme of the year is the fallen star in Australia. CSL has gone from $314, broadly to $114, down $200 bucks. Cochlear, peaked at $340, it's now down to $120. WiseTech, basically $133 to $33. Pro Medicus, $325 to $120. REA, $260 to $140. We were overvaluing our small number of global superstar stocks and five of them have crashed by, well...

More than $100 bucks, that's amazing, I didn't know that.

It is incredible, yeah.

I sort of didn't really focus - I mean, Pro Medicus is still a star, it's going well, but it got overvalued, like all these things.

And it's got back up towards $200. Pro Medicus is probably the one that shouldn't be in that category, it hasn't had profit warnings and this sort of stuff. WiseTech, it's just all sorts of calamities around the billionaire founder, Richard White. Cochlear has had shares fell 40 per cent in one day. CSL has had multiple profit warnings and problems with vaccine aversion, that sort of stuff. REA, I think is a SaaS-pocalypse thing, it's the threat of AI disrupting their moat and their monopoly.

Also a decline in the property market in Australia and elsewhere, listings are well down.

That's right, so when it comes to Australia, Alan, it's still big banks. Macquarie closed last night at over $250. I was telling you the other week, I've got three and if it gets to $250, I'll sell one, so I sold one and now I'm down to two - because you've got to have $500 bucks worth of shares. Our big five banks are now worth $700 billion, which I think is close to a record with Macquarie certainly at record highs. The genuine global international success stories, with all the CSLs and the WiseTechs in the wall, I think you're left with Computershare, Macquarie, QBE, Brambles and Aristocrat, if you can tolerate the gambling, but not enough. Why don't we have an SK Hynix worth $1.3 trillion US dollars. How'd the Koreans do so well in tech and we're just mines and banks and supermarkets?

We haven't got any tech of that sort of tech company, AI and chip makers. We've got the sort of tech companies that are threatened by AI, well the software businesses like REA and WiseTech.

And Tech One, yeah.

We just happen to do that, but all the big four banks, reminds me at $700 billion altogether, they're still half of each of the chip makers, amazing.

All those figures are US dollars, they're $16 US trillion dollars.

That's right, of course.

The top five is, Nvidia, $4.8; Alphabet, $4.3; Apple, $4.25; Amazon, $2.7; Microsoft, $2.57; then SpaceX is the sixth biggest in the world at the moment at $2.24. There's six of them that are worth more than $2 trillion, which was broadly $3 trillion Australian. It's just incredible. But we've got lots of iron ore mines and commodity prices are strong and you'd only want to be in Australia, wouldn't you? We're still the luckiest country in the world.

And copper mines, copper's going to be what it's all about in the future, so we've still got a few copper mines, so that's all right.

We should go through some of these June 30 changes, we've got the world's highest minimum wage and it's going up by 4.75 per cent today or $57 a week up to $1,005, so $26.44 an hour for the world's highest minimum wage. The fuel excise is only going up 16 cents today and then it'll go up the other 16 cents down the track. A whole bunch of other stuff like the lowest tax rate falls from 16 per cent to 15 per cent today, so for all those earning between the tax-free threshold of $18,200 up to $45,000, they will go down from 16 to 15 and then in a year's time it goes down to 14 per cent. They're small but they're noteworthy, modest tax cuts, an actual cut in the rate, the percentage rate of the first tier, down from 16 to 14 per cent over a couple of years, which is handy. $268 bucks a year, it saves everyone.

Not exactly tax indexation, I guess. I don't know what it would have been if the scale had been indexed, as Angus Taylor is promising.

Well, much lower, I mean we've had the budget figures come out for the end of May and it's $18 billion better than forecast, it's all the same story. Higher than expected income tax because unemployment is low and everyone's creeping through the brackets and booming commodity prices because we're still getting over $100 a tonne for our iron ore when it only costs them $20 bucks to dig it up, so that's an $80 profit margin and Canberra gets 30 per cent, so the budget's in good shape.

The other thing that happens today, it's the second anniversary of the National Housing Accord, which kicked off on July the 1^st, 2024, where everyone agreed, the Australian Governments and housing industry agreed that they would have a go at building 1.2 million houses over five years, which requires 240,000 a year. Over the past two years, the housing completions have been 175,000 a year, so well short of the target, nowhere near it. Maybe they'll get there, who knows? They keep saying they will.

House prices were up for 6.5 per cent of the year. I watched your nice end of year wrap on the news last night. Perth up by 25 per cent, Sydney and Melbourne broadly flat and the national average was up another, what?

6.6 per cent for the financial year. But we've just had this morning - we've got the house prices for June and the national average is down 0.4 per cent after being zero in May. So it's now official that the national median house price is in decline, we have a housing correction underway.

What'd you say, point-what?

0.4 per cent, which is the biggest monthly fall since 2022.

Anything that starts with point, is not a correction. It's a tiny, tiny, tiny little take off the massive bubble.

That's true, but it's just begun, we'll see what happens. This is following three interest rate hikes and also, investors are deserting the market because of the budget. I spoke to the Housing Industry Association Chief Economist the other day and he said that they're getting some anecdotal evidence that tradies are deserting the market as well because of the 30 per cent minimum tax on family trusts, because builders tend to use family trusts a fair bit and they're going, "Oh well, we're out of this, this is no good." We haven't got any data yet, so we don't know, but it may be that the supply of housing actually dries up because tradies get out because of the 30 per cent minimum tax on trusts, which would be interesting.

The other thing going on is the war in Iran, which is kind of - is it finished or not? Who knows? They keep firing at each other, having signed the memorandum of understanding, but the memorandum of understanding is simply an agreement to try to reach an agreement in 60 days. But look, a few ships have been getting through the strait, nowhere near what they were before the war started, but there seems to be some optimism that it'll get back to normal.

Certainly the oil price says that because the oil price is back to where it was.

That's right.

I think it's safe to say that the closure of the strait - because the pipelines have performed well, other players have increased capacity, particularly the US. The move away to EVs... Is this the last energy shock that we'll ever have because the economy is just becoming less oil dependent? The intensity of oil and gas is reducing and I think the world's proved itself to be quite nimble in dealing with this major event and not having - the only ones running out of petrol at the moment are the poor old Russians, because the Ukrainians are bombing so many of their refineries.

That's right. What made the difference was China reducing its imports by 40 per cent, unbelievable.

Buyer strike out of China, it is amazing, and they have massive reserves. The world reserving system actually worked quite well and our reserves are pathetically low and it will be interesting to see whether the Federal Government follows through on their $10 billion promise to build up our reserves. They'll say, "Well, we've just coped with the Strait of Hormuz and we didn't run out. Did we really need to spend $10 billion? Maybe we can just survive long-term on 30 days?"

That would be a broken promise, Stephen.

It would be, we've had a few of them, haven't we, this financial year?

That's right. Speaking of politics, you're a big observer of politics, do you think Moira Deeming in Victoria will join the One Nation?

It was quite funny actually, I just popped in for a meal at my local Indian the other night and in walked Matthew Guy and two of his political mates for a war cabinet in the local Indian, as they were workshopping the story that was about to break and I was sort of sitting there going, "What are they talking about over there?" I keep hearing, there's phone calls and so it was about to break and they were war-gaming it and anyway, I think Deeming will - I know it's a bit local Victorian, but she'll be kicked out of the party, One Nation will then logically pick her up and that will be the story of One Nation as they just become a retirement village for rejected conservative politicians, from Cory Bernardi, to Barnaby Joyce, to probably Moira Deeming.

But they're going okay, let's face it, come on! They're the official opposition now, aren't they?

Well, no, the official opposition to the second-largest party in any parliament and they haven't got there. I don't think the monoculture is ever going to get to be an official opposition, Alan, because compulsory preferential voting makes it very different for people who talk about things like monocultures to actually get to 50 per cent support in particularly metropolitan seats. Look, they'll be a Greens-style minor party in Coalition, propping up the conservatives.

Coalition, do you think they'll be in Coalition?

I think Victoria, it's quite likely you'll get One Nation winning 5 to 10 seats and giving confidence to a Jess Wilson Government because everyone's sick of all the CFMEU corruption with the Victorian Labor Government doing nothing about it. Someone joked with me today, The Gatto-Allan Government, but that's probably a bit rough. Another 60 Minutes hit last week on the whole CFMEU thing and the Government doing nothing about it with blowing huge billions - I think they'll get thrown out and One Nation will win a few seats, but not enough to win Government and you'll have a One Nation-Liberal-National Coalition or giving confidence type Government in Victoria on November 29 and that'll be 4 weeks after the midterms in the US which is less than 100 days away and that'll be the biggest election the world will be watching speaking of elections, Alan.

Certainly will.

That's why Trump is trying to get peace with $300 billion cheques for the Iranians, because he doesn't want to get blown up in the midterms.

I think it might be too late for that, wouldn't you say?

Well, I think he's still going to get blown up in the midterms...

That's what I mean.

Yeah, it is probably too late, but he doesn't want bombs going off during the actual elections, he wants to be able to say, "They'll never have a nuclear weapon." It's almost like an end of financial year sale by the US Supreme Court at the moment, they're issuing judgments every 10 minutes, before everyone goes on holidays or something. Judges working hard to clear the decks, you've had seven or eight cases all come out in the last 24 hours.

Before we get to questions, one of them was to protect the Federal Reserve from Presidential decree. They're saying that the President can't sack Governors and the Chairman of the Federal Reserve unless it's for cause, but they haven't really defined cause, but still, they've reinstated Lisa Cook, the person who Trump's been trying to sack.

Correct, so the Fed is ringfenced from presidential intervention, but the other public servants can be more easily sacked now in another judgment, so watch out for the competition policy, the SEC, the Freddie and Fannie, the Justice Department... Presidential power to reach in and just go bang, bang, bang and appoint who you want has been increased by the US Supreme Court, although they've just rolled birthright citizenship six-three overnight, so if you're born in the US - Trump's been trying to roll that for years - so you do get citizenship if you're born there. Unlimited election funding of the US is now allowed. There was something on trans rights. It's just been a festival. Geez, I'm glad our Supreme Court is not involved in our politics like the Americans, stacking the court with conservatives and then trying to get political decisions up through political judges, what an affront to independent merit-based rule of law judiciaries.

Before we get to the questions this week, here's a quick word from our sponsor.

[Recording]

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And just a warning before we get to questions, this is general advice only. If you need personal advice, please seek an advisor. Okay, do you want to start off?

Yeah, Philip's our first question, saying he's done a survey of the big five AI providers in terms of how they provide information analysis. Phil runs his own small business and he's right in that he says, "Most people think that AI is just a scaled-up Google search..." but he's actually doing it for real things, he's been pumping bank statements into the five platforms to see what they can come back with in Excel and he said, Perplexity told him he'd reached their file limit and would have to pay up. Grok was the next best, but a very basic response, so Elon needs to do better. ChatGPT was only marginally better than Grok.

Gemini was a proper step up, so Google's competing well. And Phil reckons Claude was absolutely outstanding in the way that they were able to grab his bank statements and turn them into really useful Excel format within minutes and he says, "The most useful tool." He says he'd be interested in any of our other listeners are doing this because he thinks it's a game changer and Claude is absolutely the best player and that probably explains why ChatGPT have canned their IPO, Alan, until next year, because they're having their clocks cleaned by Claude, their biggest competitor and they're not in a position to actually go public because their product's not that great and they're burning cash and they're waiting until next year now it seems.

I take it Philip is not paying for Claude, he's not paying for any of them, he's doing all this for free, because he said that Perplexity asked him to pay. I pay for Perplexity, I'm a bit disturbed by this, I might have to do a similar thing and check it out.

Is that the only one you're paying for?

Yeah and the reason is - I'm interested in Philip's question, really, because the reason I pay for Perplexity, is because they use Claude. They've got their own large language model called Sonar, but what they do is, Perplexity, they choose which of the AIs to use according to the query, so you can actually get access to Claude and ChatGPT and Gemini via Perplexity. I'm interested as to why Perplexity wouldn't have used Claude in answering Philip's question. I don't know.

I will make one prediction, Alan, that in five years' time there won't be five big American competitors in this space who you could do this with, they'll all be kept honest by the Chinese competitors and the get rich on chips quick scheme will be over and those five will be down to two or three dominant players.

What, and Chinese ones?

And Chinese ones, it'll be a couple of American ones and then Chinese ones.

And we'll be driving Chinese EVs and using Chinese AI, do you think?

That's right, that's probably a fair chance. Your turn.

Okay, Rex says, "If there were a significant fall in home prices in Australia which seems possible now, do you think this might trigger a drop in ASX share prices because of the so-called wealth effect? Investors might need more liquidity to service their home loans, particularly if they go into negative equity on their property. Higher interest rates would make the decline even worse, of course." What do you think?

Alan, the only way we get to talk about trillions in Australia is value of residential property at $12.5 trillion and if it was to fall to $10 trillion, so if it was to drop 25 per cent, then that's a $2.5 trillion wealth wipeout and yes, that's a massive impact. I think if house prices were to fall significantly, I do think that would probably cause a recession. I think the recession impact is bigger than immediately crashing the share market, but the recession of itself would crash the share market because profits would be down because people are spending less because they don't feel as rich because their house has fallen by 20 per cent. So, absolutely, Rex, we've never actually experienced it in Australia, we've never had a 10 per cent drop, but I think it would be big. But if it did happen, rates would be getting cut down to zero again, wouldn't it? The political economy would intervene to stop the pain of a recession caused by a housing crash. So, I just don't think it's going to happen.

The biggest house price fall in Australia was 7.5 per cent and I'm just trying to remember that. I think that was 1994 or was it 1982? Either way, anyway, there've been a series of house price falls, three or four house price falls between 7 and 8 per cent and this time could be different because we've not only got three interest rate increases, the national Governments are all trying to increase housing supply, as I mentioned before, they haven't succeeded yet but maybe they will succeed.

But also, the budget changes are causing a big drop in investor demand for property as well. So it's possible this time we'll see a bigger decline in house prices than 7.5 per cent, but I don't think it'll be 25 per cent, that's for sure, it might be 10. Would 10 per cent decline in house prices lead to a recession? I doubt it.

Then it just takes us back to house prices, what, 18 months ago?

Yeah, look, I can't see it...

People haven't actually been able to touch that extra $2 trillion that's been added to the value of the residential property Australian market in the last three years, it's just on paper, but you feel richer.

I think it is true that people feel richer and I think that there is a wealth effect on consumption. I'm not sure there's a wealth effect on ASX share prices, as Rex seems to be suggesting.

That's why half the country's in Europe at the moment. Australians are travelling more than ever because they feel wealthy and that's because they're sitting there with $12.5 trillion of residential property.

Also, a lot of families have got offset accounts where they've got access to money because the house price has gone up...

And they can borrow against the house, they can take it out of the offset and take a cruise.

That's right, take out of the offset for the overseas trip.

Absolutely. Fiona says, "Thanks for an informative pod. This week, ASIC released a large report on governance risks in the super industry. They call for super members to engage more with our funds. How can I find out what sort of reviews my funds apply to their advisors internal and external?" Fiona, I agree that we need to be more vigilant as some of the big super funds, they'll hold an annual information meeting, but it's not like being a public company, releasing a half-yearly report and having your share price go up every day and having to follow continuous disclosure laws. Yeah, I think they could be more transparent and I think ASIC was also this week talking about the platforms and the fact that a lot of money is leaking out of the big super funds into the platforms like Hub24 and Netwealth and ASIC's concerned about them and higher fees, advisors getting $20,000 a year. I do think there are some - after the Shield scandals and stuff, there are some issues and people using those platforms also I think need to be asking questions and be more vigilant. But I think good on ASIC for being on the game, I mean there's $4.5 trillion in super and the governance of it absolutely matters.

I must say, I don't think super fund members are ever going to engage more with the funds, I think they're basically not really that interested, I don't think it's going to happen. But as you say, good on ASIC for having a go at it.

Yeah, that's ASIC's job, they need to be on the front foot with this stuff and I think they're there. We haven't had a sort of 'ASIC's useless, what are they doing?' story for a while. I think they're actually having a bit of a reasonable run. I disagree with them giving SpaceX the green light. If SpaceX crashes, they might get a bit of heat. But it's a bit like voting at AGMs, Alan. Only 2.2 per cent of shareholders bother to vote at the annual meeting in Australia. Those numbers have crashed, it used to be more than 5 per cent when it was on paper. So, people are just disengaged with their finances, they're not engaging with the companies they invest in, they're not engaging with the super funds that are looking after their money. They're hoping it will be all right and so far, touch wood, it's a great system.

It is a good system, that's right. Two childcare questions now. We've got, Rob says, "My wife is an academic and when she worked at ANU in Canberra, the childcare we used on campus - there are a couple - allowed for staff to pay childcare from pre-tax income as a salary sacrifice. The centre had a strong and historical relationship to ANU which led to this arrangement, but it was a pretty sweet deal. Now my wife is at University of Sydney and we use a childcare centre on campus, it's $50 a day, more expensive in fees and we don't get salary sacrifice arrangements. Surely there are opportunities to do these arrangements?"

Clayton says, "Free childcare actively incentivises parents to outsource their parenting. Does this equate to free childcare financially penalising parents who choose to raise their own children? To provide free childcare is immoral as well as an economic decision." That's an interesting point and I haven't thought of it. What do you think about that? We'll get onto Rob's thing in a moment, but what do you reckon?

Yeah, cheap, not free, I think. It's a fair point, if they make it totally free, then you are outsourcing parenting to the Government to a degree, so there should be a price signal in there - and it's not an endless pit of Government money as well.

Yeah, it's interesting. My thing about free childcare was really just to say that educating children under five should be like educating them over five, because at the moment you get to send your child to a free public school when they're over five, but kindergarten and what they're calling pre-five education is really expensive. I think Clayton's got a point, actually.

Rob has a nice anecdote about Canberra being the most left-wing city in the country, the most pro-worker city in the country, so of course the biggest uni in Canberra is going to be having more staff benefits than maybe Sydney or other universities...

It's not because they're socialists, goodness gracious.

Well, it's the most left-wing town in the country and if you look at a whole bunch of their laws, when you've had the Greens in Government up there for a long time with Labor, I'm not saying there's anything wrong with how they're governing, but I'm just not surprised that a public service town has better benefits than what you get elsewhere. But I do think that employers subsidising childcare, it's a talent retention thing and if you want to keep your best academics, it probably is a good argument for doing a salary sacrifice scheme.

Yeah, but the interesting thing is, making it a salary sacrifice means the taxpayers are subsidising it, not the ANU itself, I think that's interesting and they should do that, other companies should do it, for sure.

Yeah, I'm sure we'll get quite a few questions coming in telling us who does it and I'm sure there'll be limits from a tax point of view as well as to how much you can sacrifice, but the fact that you can do it, I think that it's logical. If you're a big employer, you want to keep your talent - but I can't imagine Coles and Woolies having little childcare centres in the back of their stores so all their workers can bring their kids in, that would be the ultimate example of this. It's going to be high-value staff in places like universities or tech companies, where you really want to keep your people and keep your staff and you're prepared to pay up with childcare to do that.

Now, we've got three questions on Jim Chalmers and tax. Brad is saying, "The Federal Budget for the current financial year to the end of May, came in with only a deficit of $10.9 billion, which is much better than the Treasury forecast which was $28.3 billion. Chalmers overall is running a surplus of $17 billion since he took over the books in July 2022. Yes, some luck with commodity prices, but has he been given enough credit for his budget management after his predecessors couldn't achieve a surplus post-GFC?" I guess we'll deal with that one first, Alan, I think he's done well overall, it's not sort of brutal budget cutting or anything, it's just the commodities boom and the strong labour market and very high income tax rates.

But yes, what most of the Labor states have done, haven't been spending like drunken sailors and borrowing billions of dollars a week, they've actually been close to or they have actually run a surplus - although, there's some dodgy accounting because it doesn't include off-balance-sheet things like Snowy and NBN, so it actually hasn't been a cash surplus, but overall our books are running quite well even though we're ticking up to a trillion dollars in federal debt.

Chalmers has presided over a big increase in off-balance-sheet stuff, but still, you're right, he didn't go and spend all the money that came in from the commodities boom, so good for him.

If you go back in time, there's only one Howard and Costello, they were running real big cash surpluses, they were talking about paying off the last of our debt, we only had $58 billion of bonds outstanding...

Yeah, but they had a bigger commodities boom and they also spent it enormously.

Well, they set up the Future Fund. All I'm saying, is it was real cash surpluses under them and then Labor comes in and the GFC smashed the budget and then they were in structural deficits ever since. The Liberals come in and they promise they were going to fix the budget again and they put out those mugs, 'back in black', and they were getting close and then COVID totally smashed them. So you can't sort of blame Frydenberg and Morrison and stuff with COVID, they were getting the books fixed from structural deficits inherited from Labor and then Chalmers, I think, has done better than Rudd and Swan and the like, in that he hasn't been tempted to just go on a cash splash, he's actually been banking some of the extra boom and been doing good Keating-style budget management. For that, I think he deserves some credit.

But then Grant has got the opposite view and Grant's saying, "Just wondering how we feel about Treasurer Chalmers? When Alan interviewed him some months ago prior to him announcing a disastrous and now cancelled capital gains tax on unrealised gains and of course the recent changes to negative gearing, capital gains tax and super fund borrowing, you all raved how well he spoke. How impressed are you now? He's a fool and I just can't wait until the next election." Says Grant. Grant's basically going on the policy changes, the unrealised gains - that actually starts tomorrow/today, the new extra 15 per cent on - well, they got rid of the unrealised gains, but the extra 15 per cent on super fund balances above $3 million starts today but doesn't have the unrealised gains component. They did announce and then ditched that, just like they announced and ditched a few things. They've been breaking a few promises, but he's not a fool, I would argue. What do you think, Alan?

He's definitely not a fool, but look, Grant, good on you, do what you're going to do at the next election. Jamie, "If a person has made a decision to purchase growth stocks, like small caps versus dividend stocks and they purchase them under the rules of that day, plus then assured more than 50 times by the PM there would be no changes to CGT, how can the ALP's changes possibly be legal or at the very least, morally acceptable?" Go on, Stephen.

It's a similar point. I do think that the broken promises are very, very disappointing and I think they'll pay a political price for that and we'll see the first of that price in November in Victoria, although they've since backflipped and wound some of them back. They've realised they overreached and they copped the backlash and I think they were almost saying, "Thank god for Pauline Hanson." Because the only time we stopped talking about the budget was when Hanson emerged in the polls and then we all just started talking about Hanson, all day, every day. They also wore back the budget changes. Look, it's obviously not illegal, it's just policy changes. But, they promised they wouldn't do something and then they did it, so I do think they will pay a political price for that and so they should.

All right, now Danny says, "Love your pod. My question is regarding ASX capital raisings. Recently I noticed there was a rights issue by Megaport and I only noticed it on the last day to decide and it was lucky that I spotted it in time. Is there another way, apart from reading every boring announcement or easy hack, to find out current and upcoming ASX capital raisings in the market so I don't miss any in the future?" Danny, you are right in my lane with this one because I actually wrote to Megaport two days ago, asking them to be very transparent with their outcome announcement.

Because they've currently got a $309 million retail offer in the market to their 18,675 shareholders, offering them a chance to buy - it's a one for three, so you can buy new shares at $14.30 and the current share price is more than 50 per cent above that because of the AI boom and the stock is currently up north of $21. Retail shareholders, I'm predicting over 10,000 of those 18,000 retail shareholders will not bother to apply because they probably wouldn't have even known about it or their advisor didn't tell them and they'll leave money on the table and if they leave money on the table, the profits will all go to the underwriters, UBS and Bank of America have already been paid $19 million in fees and they'll get to scoop up all these cheap shares from inert or asleep or not informed retail investors who don't act rationally in their best interests - and this is where the system is flawed, Alan.

Yes, indeed. Go for it, Stephen!

You can apply for 50 per cent above your entitled, so the smart shareholder in Megaport will have applied for their full entitlement, plus 50 per cent more, which is called overs, where you can apply for more and that's picking up the slack, picking up the shortfall from your retail colleagues. But 50 per cent is a bit of a narrow cap, it should be 100 per cent of entitlement or 200 per cent of entitlement and I do predict they may well have a shortfall and that is just money for jam and this is what I hate. If a rights issue is renounceable and you get compensated when you don't participate, this is the fairest system because it protects the shareholder who does nothing and the shareholder who does nothing is the biggest victim in Australia's anything goes capital raising system.

What do you think companies should do? Should they get a call centre to ring up shareholders and remind them?

Yes, this is what I always say. I've asked them to release all the data, how many shareholders applied, how many applied for overs...? And if they come out and say, "We're $50 million short," then it's an absolute scandal because they should have extended the closing date and done a phone campaign and sent a postcard to every shareholder. But because the investment bankers who advise them don't have an incentive to do that and actually profit from the shortfall, everyone just sits back and says, "Small shareholders, if they're too stupid to take it up, they deserve to lose their money."

And then the bankers and the insiders and the underwriters, they make a fortune preying on the inertia and preying on badly marketed offers. This is where I say, you've got to ring people, you've got to follow up, you've got to send postcards, you've got to do emails, but companies don't do that because it's an underwritten offer, they've got the money in the bank and they don't care if it comes from underwriters or from the retail shareholders and the retail shareholders are too stupid to take it up more for them, that's the attitude of everyone in the club which needs to be smashed in my view.

Two questions on trusts and income splitting, which might be the last, we'll see how we go.

Yes.

"A quick email, thanks guys. I just kept asking myself, why can't couples who care for young children, say, under five years old, share their tax-free thresholds? I.e., the wage earner would have $36,000 tax-free rather than $18k tax-free each. That would encourage better family dynamics with one partner staying at home to look after the children and reduce the need for childcare in the first place. It seems easy, logical and would support families." What do you think of that, Stephen, just before we get onto the next one?

Well, I think it makes sense, but the next one actually makes a point that if you're trying to get rid of trusts...

This is Kai...

...why would you allow income splitting, because trusts are all about income splitting, so why is the Government going to allow more income splitting direct? My comment on that is that, yes, there's 800,000 trusts out there but not many ordinary workers have the accountants or the lawyers or the smarts to actually get a trust set up, so income splitting just through the regular tax system would make the benefit of trusts available to everyone through the ordinary tax system, not just available to those with the smart accountant and legal advisors.

Yeah, I don't think they're going to do it though, Stephen.

I agree.

It'll cost them too much money.

Sadly, that's right. Now, we've only got two more, we can actually race through these, Alan. The first one is just someone's writing in saying that we're wrong on the big four accounting firms and that Japan has forced them to separate. I've had a look at that and no one actually has forced a legal structural separation of KPMG, PwC, et cetera... There's all these bans on different services or there's disclosure requirements or there's bans on the sorts of amounts of monies you can charge, so we would be first in the world if we passed a law that said KPMG, if it wants to provide any consulting advice to BHP as well as being the auditor, it has to be a legally separate firm and you have to de-merge your audit firm. We've seen demergers of the liquidation firm. All the big liquidations used to be done by the big four accounting firms. These days, it's KordaMentha and it's all those sort of specialist firms.

That's the argument, it forced them to set up specialist audit firms, but if no country in the world has actually gone to full structural separation, I don't see how Australia will be the first. But, interesting... Finally, from Clark, complaining that AGL has written to him and said that your daily supply charges are going up by 40 per cent and he said, "This is unfair and is this because the incumbent players are looking to maintain revenue due to everyone getting on solar and batteries?" And I think the answer to that, probably, Clark, is yes.

Yes, it is. The number of people who are connecting to the system is in decline and those who remain connected to the system have to pay more, I think.

I presume the regulators are approving this, so the regulators must be saying to AGL, "You are allowed to put your daily supply charge up by 40 per cent." Because in the old days, there was a cross-subsidy where usage charges subsidised the connection charges and that's sort of slowly being unwound as the daily charge goes up and the usage charge becomes a lower proportion of the overall bill. But that is a bit of a clawback of people because everyone's clocking off the system and yeah, if you're getting a 40 per cent increase in your supply charge, ring around and see if someone's offering less, Clark, because that's a brutal 40 per cent increase, it's not good.

And that's it. Thanks, everyone, for listening to today's episode of The Money Café with Stephen Mayne, I'll be back next week with James Thomson, so send a question to themoneycafe@intelligentinvestor.com.au. Until then, I'm Alan Kohler, Editor-at-Large of Intelligent Investor and Finance Presenter, Columnist and Podcaster for the ABC.

And I'm Stephen Mayne and we'll talk to you in a fortnight.

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