The RBA's Hat-Trick

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

The Money Café.

It's all happening, goodness me, where do we start today? I guess, interest rates maybe, three months in a row.

Well, three meetings in a row at least, that's right, and the market's predicting another one in August and probably another one by the end of the year, so possibly two more. Certainly, Luci Ellis, the Chief Economist at Westpac, thinks there'll be two more, from here. And the RBA is predicting a slowdown, not a recession, but a slowdown from 1.8 per cent growth to 1.3 per cent growth. But surprisingly, not an increase in unemployment, for this year at least. Next year and the year after, it's predicting unemployment will rise gradually, but nothing too drastic.

So they're basically saying we can jack-up interest rates without smashing the jobs market.

That's what they believe. I think obviously the jobs market and the world economy and the Australian economy in general is in the hands of what's going on in Iran, which we'll get onto in a minute. Bit of a focus this morning on what Michele Bullock said about the Government in the budget, basically warning - in central banker words, warning them not to splash cash too much in the budget next week because that'll just make their job harder and possibly lead to more interest rate hikes, although she didn't specify that.

Did you take that seriously, I thought the headlines went with that, it's not really going to move the dial is it, particularly? I know there's a structural deficit of $35 billion, so yes, the Feds are stimulating to the tune of $35 billion, so they should be reducing that. Maybe all these tax grabs that are proposed give Chalmers cover for the tax grabs - "Oh, Michele Bullock said stop over-stimulating, so we've taken some more money out of the economy with all of these tax grabs we've promised we wouldn't do before the last election."

Look, there's clearly a problem in the sense that the effort of Governments and politicians is to offset the cost of living problems that their voters have in order to get their votes and the Reserve Bank is trying to cause more cost of living problems in order to get inflation down. They're fundamentally in conflict and the question is, what actually takes place? I don't know. I mean, the Government doesn't sound like they're going to do a lot of cash splashing, but maybe they will.

I think it's going to be more cash grabbing, isn't it? They're going to break their promise on capital gains tax, trusts and negative gearing.

Was that a promise at the last election?

Well, Alan, I think this is going to become known as the Cairns declaration. There's a News Corp journo, James O'Doherty, and he was in Cairns on April the 9^th last year and he hit Albo directly with, "Can you promise there'll be no changes to CGT or negative gearing?" And his comment was very dismissive, "Yes. How hard is it? For the 50^th time..." So, I predict, if they do have a brain fade and breach the public trust, that that Cairns declaration will join the Gillard, "There will be no carbon tax under a Government I lead..." and Abbott's election eve, "No cuts to the ABC, no cuts to SBS, no cuts to anyone..."

So I'm just surprised that they're going to be so blatant about it given they got a lesson in 2019 and promised they wouldn't do it. This is not a promise from opposition, this is not, "Oh, we didn't know." They've been in Government for three years, they were in charge of the books and they promised they would not hit CGT or negative gearing and they're going to do it. Are you surprised that they're being so brave? They've got the Greens in the Senate, so there's no problems with Senate power to do it, but it's a bit of an over-reach, isn't it, electorally?

Well look, Jim Chalmers has been going on about intergenerational fairness now for the better part of a year or more and I don't they can basically continue to talk about that if they don't tackle capital gains tax and negative gearing, I just think that's a threshold they have to cross. I think it's more like John Howard's promise not to do GST, which he ended up obviously having to do...

He took that to the people, that was the fundamental - "Never ever..." became, "Actually, I'd like to seek a mandate. Thank you, public, narrow mandate, 98, but thank you for letting me break my promise, I appreciate that." This is very different because they said, "How hard is it? For the 50^th time, we're not going to do this."

Fair enough, that's true, that's right, it sounds like they're going to do it, so we'll see.

You going up to the lock-up or are you having a second year off in a row? I remember last year was your first year off in decades. What's the story next week?

I'm not going to the budget, I don't need to now. The ABC used to get me up there to go on the 7:30, but they've decided they don't need me for that, so that's fine with me, I don't really want to do it, it's great. My son's going to represent me now I think.

Kohler v Kohler. Do you ever get people saying, "How can you compete...?" I mean, you're competing every night on the television. Although, it's different - our family watches both, it's actually different time slots, so maybe you can argue that you're not directly competing.

He's great and I'm certainly happy to yield to him, he's better than me on social media, that's for sure.

He's a gun, he's an absolute gun.

What do you think is going to be in the budget next week? Apart from what we've just discussed, there's not much else, I think.

I think it's pretty well leaked. It'll be interesting to see if they can structurally get that $35 billion down. This year, they're going from a $10 billion dollar deficit to $35b, so within this financial year, it is a substantial deterioration in the budget. Top of the market, near full employment and property bubbles and commodity booms ongoing, you really shouldn't be running your budget position deteriorating to the tune of $25 billion. They're promising net savings, but I think for me it's just going to be the forecast of those debts. I mean, the federal debt's at $966 billion, is it going to hit a trillion? When's it going to hit a trillion? I'll be looking out for that.

Just like the Victorian budget yesterday, for me the only figures that mattered were the debt figures. They've got to be negative cash flow $13 billion in the coming year. I just think it's unsustainable. The public sector in Australia, States and Federal combined, are running overall debt funded deficits of - it's well north of $60-70 billion dollars overall at the top of a boom. It's just irresponsible. I have to say, Alan, as an old spin doctor for the Victorian Government, I dusted off my last spin doctoring effort for the Autumn economic statement of 1994 and what staggered me was I've had a look at the numbers, the Liberal Government said back then versus projected now. Total property taxes in Victoria, '93/'94, were $2.1 billion.

Do you know what the forecast is for '26/'27? $19.5 billion in property taxes, so that's stamp duty's $10 billion, land tax $6.5b... It's up 9.3 times in 32 years and inflation over the same period, a $100 dollar toaster would be $240 bucks, so inflation over that period is 140 per cent, yet they've gone 930 per cent in property tax revenue. Even if you do a population stat, the population is up by 56 per cent over that period to $7 million, yet property taxes have gone up - and payroll tax is the same, it's gone up six-fold.

So it's just massive tax increases and even after these massive tax increases, you're still burning $13 billion a year in cash and the simple reason is, when the Labor Government of Victoria got into power, the capital works budget was running at $4.5 billion a year, now it's $25b, and might get back to $15b on the forecast. They've just done this enormous debt funded infrastructure spending spree, CFMEU boondoggles and all the rest and it's all debt funded. Even with massive tax increases, they're still bleeding cash at the top of a boom. For mine, it's just unsustainable.

Obviously, a lot of that increase in property taxes is due to the increase in house prices that have risen at a much faster rate than CPI and incomes and so on, but not entirely, obviously they've whacked up the percentages as well.

The rates have gone up and don't forget the COVID debt levy on payroll tax, the mental health and wellbeing levy, they're both payroll tax increases. But on land tax, you've got the COVID debt levy, you've got the emergency services and volunteers fund, the congestion levy, the metropolitan improvement levy, the windfall gain... They're hitting property holders every which way and before you look at the $5 billion plus in council rates in Victoria, it's going to be $19.5 billion in cash. It's a bubble and they're milking it and so I guess that plays into the capital gains tax negative gearing debate. Property is the story of Australia, isn't it?

It is, that's right. That's without council rates, right?

Yeah, that's right, it's $25 billion a year if you had the rates in. These are very large numbers. When Michele Bullock is giving Jim Chalmers a whack over reckless spending, I think she should be having a look more at the states. If you go around the country, Western Australia, top of a mining boom, $30 billion dollar debt; South Australia, Malinauskis just been re-elected, $37 billion dollar debt; Queensland, $160b, heading for $200b; New South Wales, $177b; Victoria $160b, heading for $200b. They're all borrowing on the federal credit rating and the biggest difference when I was a spin doctor, was you could only borrow when you got approvements from the Loans Council. The Feds used to control how much states could borrow and as soon as they de-regulated that and said, "You can borrow as much as you like." The global markets just said, "No English-speaking Government's ever defaulted, it's risk free..." So you can just borrow with gay abandon, knowing that at the end of the day the Feds will bail you out because Australia's got a good credit rating in the world ratings of credit, so sub-sovereigns can just go absolutely bananas, even though they can't print money if it comes to the crisis. All these states are basically - they should be getting reined in by the Feds and the Reserve Bank, but they're just getting away with it. It's a Labor mateship thing. Albo's not going to come out there and say that Labor's been reckless in Victoria, is he?

No, that's right. You talk about the fact that they're spending all this money on infrastructure and I think that's probably right. I think the actual public services is in deficit as well, but most of it's going on infrastructure spending and we still can't get around. They're just trying to keep up with the growth in population, aren't they?

Yeah, that's right. We've got this massively lopsided federal system where the Feds have all the money and the states do all the work. Infrastructure spending in fast-growing capital cities is a massive burden. You look at all the hospitals and roads and metro rail... It's a massive commitment and so the Feds are increasingly topping that up, bailing it up, because the states just don't have the money to deliver that sort of infrastructure spending.

The Feds are in control of immigration, to the extent that anyone controls immigration, it's their problem and that has been growing rapidly and the states have to keep up with infrastructure.

That is right. I guess at that level, they should say, "We're throwing large licks of population growth at you, we'll have you cope with the cost of that." So, maybe you can run that argument. But the thing I most liked about the state budget, was the $1.14 billion dollar lottery licence extension for The Lottery Corporation, ASX listed. 8:30 yesterday morning on the stock exchange, Lottery Corp says, "Hey, we've got a 40-year licence extension for $1.15 billion dollars..." No tender, no transparency, no public process, no one knew this was coming, but the State Government's going into an election, they needed a billion dollar top up to be able to claim a surplus, so we're front-loading them a 40-year licence payment in the election year budget to make them look good.

This means that gambling tax revenue in Victoria in '26 and '27 will be $4 billion dollars, which also is a record. That's the other reason we're the world's biggest gamblers, Alan, because the states are so dependent on - they've got no revenue options and gambling licences is one of the few things they can do, so they issue them with gay abandon and we end up being the world's biggest gamblers just to prop up a lopsided federal system where one of the few things the states can do is gambling deals and when they're really desperate, they forward sell the revenues and get $1.15 billion upfront for 40 years, no tender.

Jesus, you depress me when I talk to you, Stephen.

Just being an old Liberal Party spin doctor here and an anti-gambling advocate. They're hitting all my buttons yesterday with all these... Anyway, we are still the greatest country in the world, Alan. I'm not moving to Queensland, yet...

We better bring everyone up to date with what's going on in the Persian Gulf, which is that the US Secretary of State, Marco Rubio, announced last night that the Operation Epic Fury, that is to say, the aggressive or the offensive part of the war, is over. He says, "We've achieved the objectives of that operation and now we're into Project Freedom, which is getting ships through the Strait of Hormuz." At the same time, Iran has announced a new system for traffic through the Strait of Hormuz, which they've established something called the Persian Gulf Strait Authority. "Ships seeking to cross through the strait will receive an email laying out their transit regulations. Ships must adhere to the regulations and obtain a transit permit before they cross, according to Iran's state-run English broadcaster." So, they've kind of cemented their control, according to them at least, of the Strait of Hormuz. America's now focused on, rather than trying to defeat Iran anymore, they've stopped that, they're now just focused on trying to offset or counter Iran's new system for ships transiting the Strait of Hormuz.

I think it's incredible, what's going on. The Strait of Hormuz remains closed. We've got the budget next week, I reckon it'll still be closed then and just to briefly discuss the budget, Treasury won't have any idea what to put into the budget if the Strait of Hormuz is still closed. They'll have to have anther mini-budget when it's open and everyone knows what's going on.

If you look at US earnings, US markets, AI boom, isn't there an argument that the energy intensity of the world economy is not what it was during the 1970s crises and the overall economies are adjusting quite well? Jet fuel is an issue, we've had Spirit Airlines collapse over the weekend in the US, pushed over the edge by the soaring jet fuel prices. Fertilisers and jet fuel and diesel, still obviously big pressure points, but the world has been adjusting to the Strait of Hormuz being closed and investors, even with the oil price hitting a new, in dollar terms, record high, I think it was yesterday, when Iran started firing a few drones and missiles at the UAE again, which looked like a resumption of hostilities attached to the skirmishes around US escorting a couple of ships through the strait, the markets are incredibly relaxed.

Pete Hegseth was so calm with his - yesterday, they've not breached, the ceasefire is not over... It looks like the Americans do want out, Trump does not want another hot water resume and the Iranians are basically saying - they've actually fired a few things at the UAE and they're still keeping the strait closed, but US market's 5 per cent above where it was when the war started. Does it matter as much as all the headline writers suggest?

The war in Iran has coincided with a big surge in the US of AI, by companies and by individuals. What's happening is, analysts are upgrading their earnings forecasts for all the AI companies, as well as other companies, because they'll be using the AI to increase their productivity and increase profits. There's a massive amount of earnings optimism going on both for AI companies and all companies really, that is, at the moment, overwhelming the negativity about the war in Iran, which obviously is no longer a war.

That's right, they might be abolishing quarterly reporting soon, Trump and the SEC are moving on that but the latest quarterly reports for the March quarter that we've just got, the most common comment was beat and raise, they've beaten forecasts and they've raised expectations. You're right, it's not just the forecast though, the actual latest quarterly figures have shown remarkable profit growth within the US corporate sector and a lot of it's AI driven, but it's just the incredible performance. There's 12 trillion-dollar companies in the world, capped at more than USD$1 trillion dollars. TSMC out of Taiwan and Saudi Aramco, still controlled by the Saudi's, are the only two non-Americans.

There's 10 American companies and their profits and their numbers were super across the board and even with this $800 billion capital deluge, people are seeing the profits, seeing the earnings growth and it's just over-powering their doomsday narrative around Iran. In terms of positive or negative, it's all upside in terms of AI and earnings growth and US economic power. But you're saying that the budget's going to be grim because we don't know about the Strait of Hormuz being shut for a long time.

Well, we don't. I just think it's obviously clear a fog at the moment, nobody knows what's going on. Nobody knows what's going to happen with AI either, for that matter. But still, the future of what's going on in the Strait - I think you're right, US is looking for an off-ramp, they're trying to get out and they probably will. The main permanent change that will occur as a result of Israel and America's attack on Iran on February the 28^th, will be that Iran will directly and completely control the Strait of Hormuz for the first time.

Basically, it's always been a part of the UN free passage rules about maritime ship movements and that's what has been the case and now what's happened is the Iran Revolutionary Guard Corps will control the Strait of Hormuz, it looks like that's the kind of big change that's going to occur. Maybe that will be fine because all the ships will get through, they'll just have to pay a toll, which will go onto inflation everywhere, but it won't be the sort of oil shock or fertiliser shock that is caused by ships not getting through. Maybe that's what will happen, but so far at the moment, ships aren't getting through, so we've still got mainly an oil shock.

But you're right, oil intensity has declined and the other big impact of the war in Iran has been a massive increase in renewable energy, so it's probably the best thing that's ever happened to global warming or the efforts to control global warming. This is going to lead to a massive shift away from fossil fuels, towards renewable energy.

I agree, absolutely right.

We probably better move onto questions. Have you got anything to say about AGMs going on?

Busy day today, I've got four. We're recording this at 8 o'clock on Wednesday morning.

Four AGMs, crikey!

Four AGMs today. I've got BrainChip, Capral, Channel Infrastructure - Channel Infrastructure is the dominant New Zealand fuel importer, they do 40 per cent of the fuel, so that'll be interesting - then tonight at 6 p.m., Rio Tinto, first time they've run their London and Australian AGMs at the same time. They've been this dual listed company for 30 years, since 1985. They always used to have the London AGM first and then the Australian AGM, which is a bit clunky. This time, the entire board's flown into Perth, which they should be there every year in my view because it makes $10 billion plus a year in profits. They're opening another one iron ore mine a year, Rio Tinto. And you think about all those royalty fights with the Wright Family and Gina Rinehart, it's all based on Rio Tinto iron ore mines, the whole thing.

That will be interesting at 6 o'clock tonight, you've got the whole board up for elections, which normally happens, and they'll do their usual ridiculous two-question limit for the whole meeting. So I don't like that with Rio, but at least you can ask online questions, so I'm looking forward to a busy day of AGMs.

A bit of a competition to get your question up?

The thing with Rio, is you have to think, which two do you want? Normally I just ask four or five and I don't have to choose, but if you lob three, they'll choose two and they won't pick the top two, they'll leave out the one they least want to ask. You actually then have to go for the one that - if you only do two, they have to read them both out. The last couple of years, I like to do the - two or three times, I did the, "You've stolen Russia's 25 per cent stake in the big Gladstone bauxite refinery as part of sanctions, what's the latest with that?" Because it is pretty amazing that Rio Tinto's running this giant bauxite refinery up in Far North Queensland, Russia owns 25 per cent of it and it's just been stolen off them by the Australians and they never talk about it, so I usually like to get them to say something about that.

Fair enough too.

I might ask about the Gina Rinehart relationship today, "What do you think about all these royalty fights with Gina? Is she a good partner? Do you regret giving her 50-50 in Hope Downs? She's now worth $40 billion and she's doing better than you, is she now a competitor or partner?" So I might have a bit of fun with Gina.

Very good, okay, well before we get to questions, let's have a quick word from our sponsor.

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And just a normal advice, it's general advice only, not personal advice, so please bear that in mind. John says, "I see this coming federal budget as a tax grab, making up for unbalanced budgets, not some excuse for helping new generations. So, what do we get? A pathetic 1 cent tax cut and a broken Stage 3 tax cuts promise. They know how the indexation system works, so why don't they just index the tax brackets as well?"

They certainly won't be giving back all of bracket creep, will they? They'll be banking most of it and throwing a bone, by the sounds of things.

Unless they restructure the tax system in such a way that they're less reliant on rising income taxes, they will not be indexing the tax system.

Yeah, they'll be banking that. I had a look back 10 years ago, the Scomo budget of '15/'16, $187 billion of income tax - or they call that tax from individuals, includes withholding tax, but it's primarily income tax - $187 billion out of $362 billion, so that's 51.6 per cent of the total take and the MYEFO they released on December 22 last year, is $358 billion out of $750 billion, so 47.7 per cent. The proportion of the pie has slightly reduced, but the income tax paid by Australians is up by 91.4 per cent over the decade, when inflation is only 32.5 per cent over the same 10-year period, so you can see that pound for pound, they're paying a truckload more in - it's gone from $187 to $358 billion, up 91.4 per cent in 10 years. Income tax paid by Australians should not be doubling every 10 years, they're not giving it back with indexing or tax cuts and we're one of the highest most income tax reliant countries in the world and people are getting hurt.

Craig says, "I've read that the RBA hasn't hit its inflation target since 2021 and then oil took off. If high oil prices become structural with the ongoing closure or tolling of the Strait of Hormuz, does that effectively lock in higher inflation? And if so, does it still make sense for the RBA to target 2 to 3 per cent? Or should the target evolve with these structural shifts?" Well, if the target wasn't 2 to 3 per cent, Alan, we wouldn't have had three interest rate rises, three meetings in a row, would we? They're just fixated with the target, inflation's above the target, bang, bang, bang. Triple hit.

I don't think it's true that inflation hasn't been within their target since 2021, it did fall last year in fact, before rising again, it went to the low 2s. The target's 2 to 3 per cent, but it has been within the target.

And we've discussed this before, but you're not a supporter of changing the 2 to 3 per cent target, are you? You think it's basically world standard, pretty much. There's not really a case for changing it.

That's right. They've kind of shifted it, it seems to be now more a 2.5 per cent rather than a range, they're going for 2.5 per cent, I think, it's fair to say. I think that there was a time when inflation was under the 2 per cent and they were cutting interest rates in order to get it up, but I think that was a mistake, I don't think they should do that. I reckon they should have a wider target, you know? Maybe even zero to 2.5 per cent or 3 per cent, rather than having a lower level target that they need to get it up to, that's crazy, I reckon.

Yeah, I agree, zero to 3. There you go, Craig, we've fixed it. I'll do Matt, it's an interesting question, it's quite long though. "A question on whether the property playbook that worked for the Boomers still works for younger generations. Think about what drove the 40 years of property gains, interest rates fell from 17 per cent to near zero, dual income became the norm and doubled household borrowing capacity. Credit deregulation opened the lending flood gates and the tax settings were calibrated when prices were a fraction of today's. Most of those tailwinds are now tapped out or reversing. Rates can't go meaningfully lower, we can't shift triple income households and political pressures on negative gearing and the CGT discount is only growing, so are we looking at much more modest property growth from here, leaving young people looking to other asset classes? Or does property still deserve its place as the cornerstone asset for the next generation, the way it was for the last?" Very eloquently put, Matt.

My view would be that I would hope that property doesn't remain a cornerstone investment asset because we need it to switch to being simply something you live in, rather than invest in, because it doesn't keep going up at a rate that justifies being an investment. I think that property has to stop rising at the same rate as the share market, that's got to stop, otherwise we'll be in strife.

I was looking at US new house prices for new builds, has just dropped by 6.8 per cent in the last 12 months. The first 12 months of Trump, 6.8 per cent drop in the price of a new home in America and partially you'd argue that's the slashing immigration effect. We can never get away from residential property being the cornerstone of household wealth in Australia, because it's worth $12.5 trillion dollars and the tax system massively discourages foreigners or corporates from investing in the segment. You cop land tax and all the exemptions that apply to the family home, it just means it is reserved for Australian individuals, effectively.

With that sort of tax system, how can it not always be the cornerstone asset of Australian wealth? What you're saying, is it should only be the family home and that people, after paying off their mortgage, they should invest in other classes and not in other people's homes, so we should go to a much higher proportion of owner-occupier properties and discourage negative gearing where you've got someone who owns 20 homes on a tax driven negative gearing scheme to get their tax down. It can't ever not be dominant, can it? It has to be always the dominant investment class for total household wealth.

It is worth noting that it is the only investment class where Governments everywhere, Federal and State, are trying to stop it being a good investment by increasing supply to the point where it isn't a good investment. They're not doing that with any other asset class and that's what's happening with housing.

Are they really trying though, Alan? 5 per cent loan deposit scheme, that's just stimulating demand and driving up prices even further.

That's true, I know. I'm not saying that they're going to succeed or they're doing it well, but they're certainly talking about that. I do think that if you invest in residential real estate now, you are investing against Government statements at least, Government rhetoric about what they're trying to achieve. They are trying to increase the supply to the point where house prices stop rising so much. If you invest in residential real estate, you're taking a risk that the Governments will succeed in that and also that they'll tax you out of existence.

Also, the discount on your capital gain at the end will be different from what you thought it was going to be and you mightn't be able to negatively gear and all this. Hopefully I think people will start to think, well, it's not much of a good idea anymore. But the trouble with that of course, and I think we've got a question about this which we'll get to, is that that's not great for renters. We can get onto this, but there needs to be rental supply so that those who can't buy, can actually find a place to rent.

That's right. CC's question was, "He owns a property, he's making a loss of $15,000 a year, he's getting a tax break on that, he's being a perfectly reasonable landlord and his options are now, sell the property, jack up the rent, or look at an Airbnb or short-term rental and all of these options are bad for the people that are renting his house currently." The flipside is, if those renters then have enough cash to be able to buy the house and you just have a net increase across the board in owner-occupied, more people can afford their home, less people are having to rent, that's the solution.

But for those who are currently renting, there's a lot of people getting kicked out of their rentals at the moment because if you make it uncomfortable and force people to sell, the selling process is never with a tenant in the house, is it? It's always, evicted so I can sell. It's highly disruptive for those that are renting and rental supply is tight, not enough of it.

There's an interesting and important question, I think, from Nick here, he says, "I started paying $29 dollars a month to Claude to help solve a data processing problem at work. Wow! I quickly worked out how powerful it was and started using it to tackle some other work challenges. After a week of stellar productivity, I started to wonder if the price was artificially low to draw us into using it. Is this a get you hooked sort of business model that will see much higher prices eventually or stricter usage limits? How is Claude making money at these prices?"

I think you absolutely hit the nail on the head, Nick, that's exactly what I think is going on, is that they're getting us hooked. And it's not just for productivity at work, the famous evolutionary bio-scientist, Richard Dawkins, who's the famous atheist who sort of wrote 'The God Delusion' and all this, he wrote a piece for Unheard last week in which he said that he got involved in conversations with Claude over two or three days and came to the conclusion that Claude is conscious and he wrote in this piece that he's made a new friend. He called her, Claudia, and it's his new friend. This is a bloke who's quite intelligent.

There's been a huge backlash against him saying what an idiot he is, he's confusing intelligence with consciousness. Fair enough, I don't know... I think artificial intelligence - and this is what the markets are starting to realise, is that artificial intelligence is addictive and a lot people, not just Richard Dawkins, a lot of people are going to find it as a friend. It's going to be addictive for a lot of people who really can't do without it.

But, Alan, isn't this the tobacco friend, the alcohol friend, the television friend, the poker machine friend... I mean, we've had dangerous and addictive products that have done a lot of harm in the past and we manage through them, don't we? Not very well, on poker machines in Australia, but overall we can manage addiction.

With all those addictive products, the Government gets involved in controlling or banning them. Cigarette advertising is banned, alcohol advertising is controlled...

Gambling ads should be banned.

Gambling advertising. And now, with social media, which is also addictive, the Government's now banned it for under-16s. There is a recognition that addictive products are bad, right? What Richard Dawkins is missing - and I've written a piece about this for the ABC, which I'm hoping they run in the next few days - what he and a lot of people are missing, this is just a product. AI is a product that's created by corporations to make money. It isn't some sort of evolutionary result, it's not so much consciousness, it's a product and what's more...

It's the most disruptive product that we've seen in my lifetime though, it's a hugely disruptive product and it's having profound - like the industrial revolution, just as big as the internet - it's going to be profound. That's why I think the interesting point of that question, how is Claude making money at these prices. I saw an analyst on CNBC this week make an interesting comment that even with the $800 billion dollars of spending, everyone in the AI value chain is being economically rational, except for OpenAI and Anthropic, who are selling their products for uneconomic rates and are nowhere near getting to a return that would justify the investment.

But because the bubble is so huge and people are valuing them at $800 billion or a trillion and people are throwing cash at them, they are being funded to be uneconomic and they are subsidising the rollout of their product and the play probably is to get people addicted and jack the prices up down the track. But these frontier players, the two big frontier players, OpenAI and Anthropic, they're taking on the existing big tech, there's five or six players in AI, it's a huge duke-out, it's a huge fight, not all will survive, two or three will dominate, but the industrial implications will be profound and there probably will be some addiction. But I think Anthropic cannot survive charging $29 bucks a month, but their revenue is surging, so they're clearly getting truckloads out of big corporates in particular, they're really going for the enterprise level and particularly hitting coding hard early. The take-up is enormous.

That's right. We've only got time for a couple more questions, maybe we should go to Mark's one also about AI, where he says, "Given Dario Amodei, the CEO of Anthropic, stated 25 per cent chance of doom, should the public vote on its development and what would a country level vote, say, in Australia, decide? Also, is there an index tracking AI token costs, or should we monitor global kilowatt hours instead. I've been using the index, artificial analysis, which is rapidly increasing. Anyone who wants to keep an eye on what's going on with AI, Google 'artificial analysis', it's a very good website, it's got lots of graphs about what's going on.

When products were launched, usage, take-up... Yeah, it is very good, I agree.

It's interesting, I interviewed the Head of NextDC, which is the data centre company, Craig Scroggie, for the ABC last week and one of the questions I asked him was, "Would you take a tablet that you knew had a 25 per cent chance of killing you?" And he said, "What's the upside of it?" And I said, "What do you mean, what's the upside? It doesn't matter what the upside is, if it's got a 25 per cent chance of killing you, would you swallow the tablet? Because I wouldn't." He fudged the question, he fudged it. But I think it's very interesting that these characters are going around talking about 20 or 25 per cent chance of extinction of humanity and civilisation doom and stuff. It doesn't seem to be a very good selling point for the product they're making.

It's just like someone saying that drugs can kill you and then someone else saying, "Ban all drugs!" I mean, there are good drugs and there are bad drugs. There will be certain AI products that might be dangerous, the ones like Mythos which can help Russian hackers by identifying holes in bank cybersecurity. Okay, you don't want AIs that are going to automatically launch nuclear weapons and everything, but there'll be a whole bunch of totally benign AIs that can knock up a spreadsheet and create you a website and get your small business up and running in next to no time, so it's a continuum, like anything. There'll be the dark side of AI, like there's the dark side of the drug industry, there's a dark side of every industry.

But this idea that - the question was whether we should have a national plebiscite on how to say yes or no on AI, I mean the genie is out of the bottle, it cannot be unscrambled, we've just got to get with it, manage it and like any industry, we've just got to sensibly regulate it to deal with the public goods, limit the damage and try and get some productivity gains and not leave a million Australians unemployed. I think the unemployment element is the trickiest one, that is the thing I'm most worried about, not that it's going to kill us all. It's going to kill a lot of white collar jobs, that certainly looks to be...

Very sensible of you, Stephen, thank you. You can choose the last question.

Okay, Brad says "There's lots of talk about Norway versus Australia, have we gone a different path? Our super sector is much bigger than the famous Norwegian Sovereign Wealth Fund, albeit we have a much larger population. Also, would Australians want the Government as part of their lives in a greater capacity, such is the case in Norway?" Now, I did a little bit of looking at Norway, their corporate tax rate's 22 per cent, which is lower than ours, which is 30 per cent, but they have a flat 22 per cent income tax rate from the very first dollar you earn. Whereas, in Australia, you get $18,200 tax free. So, the Norwegians, they certainly hit you harder and earlier on the income tax side and with that they do things like universal childcare, it's capped at $300 bucks a month nationally, the Government funds about 85 per cent of it, they spend 1.4 per cent of their GDP on childcare compared to 0.4 per cent in the US.

The Norway scheme, the other point is that you can't nationalise a resources industry after you've already invited the foreigners in. The Norwegians had their state-owned oil company, Statoil, I think it was, or Norges - that was the sovereign fund. You need to do it at the start. The West Australians should have had the West Australian Iron Ore Company, it should have taken a 25 per cent stake in all iron ore mines, bring in the miners to actually do it because if you try and do it yourself, you have blowouts, you have CFMEU rorts, North East Link, you have all that sort of stuff... But the Norwegians were smart in maintaining majority ownership of the resources as they were developed and that has allowed them to have one of the world's biggest sovereign funds.

But then again, they haven't got our compulsory super system, our $4.5 trillion in super is world-unique and the Norwegians should be jealous of that, that we've got a truckload more super than they've got in their sovereign fund. There's always overs and unders with these things. Are you a fan of the Norway system, Alan?

Up to a point. I think you're right, those things, there's differences and you're absolutely right, it should have been done at the start, it's too late now, we can't redo it. We probably can't even really impose retrospective taxes on our resources. We can do it going forward but I think it's hard to do it retrospectively.

Before we wrap up, Alan, I should say, our colleague, James Thomson, I saw him interview Leah Weckert at the Australian Shareholders Association Conference on Monday - gee, he's a good interviewer, he also did the panel of regulators. But his Leah Weckert interview was fabulous, the Coles CEO. He was grilling her on everything from AI and Leah Weckert reckons they're saving $250 million a year in costs through tech out and they had the big debate about, "Are you ripping us all off?" Leah Weckert trotted out the old, "2.4 per cent profit margin... We're getting attacked from all quarters on competition, Bunnings is moving into cleaning products and pets, Chemist Warehouse is moving into vitamins, we've got three of the world's 10 biggest retailers, Aldi, Costco and Amazon competing with us, Australia's got far more independent bakers and greengrocers and butchers than other countries like the US..." It was a really interesting discussion. Then James got himself a Chanticleer Column out of the panel discussion as well. Geez, he works hard, he almost works as hard as you, Alan.

I think he works terribly hard, all Chanticleer Columnists do, as I did when I was Chanticleer. It's a busy job, that.

It's a very big job. I wonder if he'll be going to Canberra and getting locked up.

Oh yeah, he will.

We'll find out next week on the Money Café.

We'll be talking to James next week, after the budget, so that'll be an episode of Money Café not to miss. We'll have James Thomson fresh out of the budget.

Very good, I think we're done, boss.

Thanks for listening to today's episode of Money Café, everyone, I'll be back next week with James Thomson, as discussed, send in your questions to themoneycafe@intelligentinvestor.com.au. I'm Alan Kohler, Editor-at-Large of Intelligent Investor and Finance Presenter and Columnist for the ABC.

And I'm Stephen Mayne, contributor at Intelligent Investor, Founder of Crikey and shareholder activist and thank you, everyone, for listening.

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