When The House Stops Winning

[Music]

Hello, I'm Alan Kohler, Editor-at-Large of Intelligent Investor and 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 The Money Café, Alan.

We are The Money Café. G'day, Stephen.

Lovely to talk to you, Alan. Where do you want to start? I just read your column on the ABC this week about the budget, that was quite a sweeping, interesting piece. Why don't you start with telling us, as the dust settles on the budget, what do you reckon the Government is doing and how is it going?

I had two points to make in the column, it's always difficult to do a column where you're saying two things, but anyway, I think I managed to weave it together. The first thing was that I'm starting to feel like we will see more affordable housing, that all the things that are being done, including interest rates rising which is not being done for housing purposes but interest rates are going up, will all combine to cause house prices not to rise for a while.

But the problem with that is, there is a dark side to that, which is what I pointed out, which is that a whole lot of people who bought houses recently in the last few years and in particular, we're talking young families using a whole lot of debt, they did so on the understanding that they would acquire equity over time because house prices always go up. They are going to be disappointed, I think, if the Government succeeds. This was always going to be the case, I mean you can't actually make housing affordable while house prices continue to go up, obviously.

Therefore, all the people who've bought in the last five to ten years at very high prices using a whole lot of debt are going to find themselves not building equity, as they expected.

Particularly those in the Government's new 5 per cent scheme, which was one of those last little encourage leverage, borrow up to 95 per cent, we'll cover your mortgage insurance. But aren't we all having conniptions? Isn't the response been, oh my god, auction rates are down a bit, volumes are down 15 per cent...? I mean, are we mature enough to handle a long overdue sort of modest correction in housing? Because the first sort of reaction has been, the sky is falling in, house prices are not going to keep going up.

That's right, we are in a correction, we got the May house price data on Monday and the national median price increase was zero, there was no change nationally. Brisbane, Adelaide and Perth continue to rise but not as fast as they have been, so their growth rate is coming down and house prices in Melbourne, Sydney and Canberra and Hobart fell, continue to fall. There is a correction going on, I think the national house prices will fall. In the last couple of decades, house prices have fallen three times by between 7 and 9 per cent, so that will probably happen again. I suppose I'm really talking about the 10 to 20-year timeframe and I reckon we're in a situation now where house prices probably will not rise for a long time, like 10 to 20 years.

A fair chance that volumes will fall because if you're not a forced seller and people generally aren't and particularly all those with grandfathering or grandparenting, why would you sell? Just hang onto your negative gearing. I reckon it's interesting, I reckon you may see the State Governments losing some stamp duty revenue because turnover will change because people have less of an incentive to sell. Some people are saying, "Well, I'm going to wait for the correction before I buy." So, that's where you get that reduction in Auction clearance rates, because buyers and sellers now just have different perspectives. The buyers are all saying, "I'll wait for my 10 per cent correction." The sellers are saying, "I want to get last week's prices," and then you get a bit of a standoff and you get a reduction in turnover.

What about on the rents front and the building approvals? The drop in building approvals in April, 3.4 per cent drop, was a bit of a worry. John Symond warning on 7:30 the other night that rents are going to skyrocket.

Oh, look, building approvals are volatile, I think you need to take a bigger picture of those things and look at actual commencements and housing completions, they are rising. The trend is definitely higher, it's not rapidly higher but it's certainly increasing. I think it's inevitable that that would happen because it's been now a couple of years since the housing accord process began. Basically, for the entire two years I've been reporting that housing completions are falling well short of the target that the Housing Accord set of 1.2 million houses in five years, which requires 20,000 completions a month to meet. They've been 15,000 to 17,000 per month for a couple of years now.

I think all the things that they put in place as part of the accord, which is to tell councils to approve more housing and to shift the zoning and get new high rise apartments built and all this, that's kind of now starting to work. They always said it would take a while and it has taken a while, but it is now starting to happen. There's plenty of headwinds such as construction productivity is still low, it's hard to get it up. They haven't been able to get houses built in factories with pre-fabs and so on, that's not happening to the extent that anyone wants.

But there is a gradual rise in completions, there is a decline in immigration happening, I mean it's nowhere near what Pauline Hanson would like or Angus Taylor was kind of predicting, massive collapse in immigration, it isn't, but it is coming down.

Speaking of Pauline Hanson, she's got a negative gearing policy of no more than two houses per person, which would actually have a much bigger - particularly if you didn't have grandfathering, that would trigger a lot of selling. But what about the broader One Nation, the rise of One Nation? The Fin Review Redbridge poll on Monday, the Fin Review went with the narrative of budget disaster for Labor, budget spurs One Nation vote. There's a little bit of chatter that Labor could get spooked by the polls, by the One Nation now the most popular party and could wind back some of their budget changes to focus mainly on just the property side of things and wind back some of the CGT on shares and trusts, etcetera, etcetera...

What's your take on the One Nation thing? We've never seen a duopoly busting rise in the polls like it. It's quite common around the world, but it's not stopping, is it? They're not imploding and it's going to have a massive effect, presumably starting with the Victorian election in November when they'll probably do better than South Australia where they got 10 per cent of the seats and 23 per cent of the vote.

The Labor Party's already spooked, the Coalition is definitely spooked and so they should be. Kos Samaras of Redbridge who's been doing these polls, who I was supposed to have lunch with today but he's just cancelled on me because he's got some urgent job from a client, but he's been saying that basically the political duopoly in Australia is finished, it's over, we've now got three parties. What's occurred is not so much a shift to the right, but a resorting of the electorate into new and different collections and the supporters of One Nation are people who are disenfranchised, they're sick of the system.

I think one of the interesting things is that the American electorate got to that point 10 years ago when they voted for Trump and it's taken us 10 years to get there and I do think the difference perhaps is a slower kind of concern about immigration. I think 10 years ago America was really worried about illegal immigration and people coming across the border. At that point in Australia, we still kind of have the hangover of Abbott's stop the boats and Labor's kind of falling into line with that where there was offshore processing. We didn't have the same kind of illegal immigration issue that America had 10 years ago...

And we had the deindustrialisation in China, the hollowing out of the rust belt and their house prices hadn't risen like ours. So even people in Australia who might have lost their manufacturing jobs offshore to China in the textiles industry, they'd still seen their house price increase three-fold, so they were feeling pretty good. Whereas, in the US they didn't have that, so the level of disaffection amongst the working rust belt people was the core of the rise of Trump and we didn't really have that same level of inequality and disaffection, but now we do, it seems.

We do and I think that a lot of that has to do with the big burst of immigration after the COVID pandemic, which saw lots of big increase in immigration, 4-500,000 a year for a couple of years, which led to a housing shortage, a big rise in house prices, which was tempered a bit by the rise in interest rates in 2022, but then took off again last year with those rate cuts. So, I do think that now we're seeing the kind of consequences of all that in the rise of One Nation and...

I think also a combination of Bondi and the incompetence of the last Coalition campaign under Dutton... A lot of conservatives, a lot of people on the right just looked at the Coalition and Sussan Ley and changing leaders and Coalition breakups and incompetent nuclear policies and just said, "We've had enough of you, we're going for the alternative on the right which is different. At least they're consistent, we know what they stand for." I think it's partly an incompetence of the traditional parties of the right and Barnaby Joyce giving them more credibility because he's a former Deputy Prime Minister and Nationals leader and One Nation haven't had a recruit like that.

Well, thank god One Nation is a competent smoothly running machine, what do you think?

Well, everyone's waiting for them to implode because that's what's always happened in the past and I still think that it will not get to a situation where they're forming Government, but it's more consistent, it's holding up, they're less incompetent. But I've tried start-up parties myself, it's a very, very hard thing. If you're sitting up there in Queensland trying to roll out a campaign right across Victoria in November and run in all 88 seats and try and get 25 per cent... Start-ups are hard in politics.

But One Nation's not a start-up anymore, let's face it, crikey, they've been going for, what...?

Well, start-up in government sense. I've been elected as a cross-bench oppositionist, you can sit there and criticise, but being in Government is hard and they've never been in Government in any Coalition, they've never been a minority Government. So they've never had the responsibility of actually having to be accountable for doing any policies, it's just legislation tweaking and grandstanding and wearing burqas in the Senate and this sort of stuff. This is where I think they will struggle, is the ground game, they haven't got the resources. Gina Rinehart, a million and a half dollar plane...

The Victorian Liberal Party have got a $100 million dollar share portfolio and all that experience, so I think that - anyway, I guess I'm confused because I've never seen polling like it, so we're all in uncharted territory and I guess many of us all sit there as traditionalists saying, "The institutions will hold." But this is - we've never had a party that's topped the others, so maybe this is different.

I better quickly say what the second thing in my column was about, which is, why is the Government extending the change in capital gains tax from the 50 per cent discount back to the inflation adjustment to business as well as housing? I mean, the whole thing is presented as a housing affordability package, but obviously it's also applying to business. Jim Chalmers says that's because we don't want distortions, we don't want investment decisions made according to tax reasons and that's fair enough. But the trouble is, they're getting hammered on this.

There's so many other tax distortions, more important tax distortions that could be removed, in which they could spend their political capital, than that. It seems to me, obvious, that they should confine the change in capital gains tax and negative gearing to housing and keep it at that and let business off the hook. Heavens above, why not?

Well, I got a few questions getting stuck into me for expressing that opinion too strongly last time I was on the pod with you, Alan. But I think everyone is surprised. The answer is, I think that they felt politically confident, chaos in the opposition, etcetera, big second term majority and there was a whole bunch of long-argued for things that Treasury had wanted to sort out with trusts and then the argument of equality across the asset classes, I think that the policy consistency point was pushed by Treasury and that met the philosophical goals of Labor, which is it's too tough on workers and too easy on capital, which I think we've all agreed with in the past.

So, if I can just hit you with one of the criticisms of our readers, you guys have been arguing this stuff for years, why are you complaining now? What is the argument to that? We've all said capital is undertaxed relative to labour, Labor's done something about it and you're now saying they're mad and they should go back and leave business alone.

The thing is, it's not much of a change, they're changing from a 50 per cent discount to an inflation adjustment and they're putting into the budget, in two years' time, $1.35 billion dollars from it and then $2.6b I think the following year. It's not going to solve the structural budget deficit. They can do it in other ways as well, I mean I think they should think about a wealth tax or an inheritance tax, they should certainly think about a resources tax, increasing gas taxes more and they should think about increasing the GST, which is not a tax on capital, but it taxes everybody including rich people. The problem we have in Australia, is our income taxes are too high so it's whacking, effectively, workers who go onto the top marginal income tax rate of 47 per cent including Medicare levy at $190,000, which is a small multiple of the average weekly earnings, 1.7 times.

All of what you've suggested is incredibly difficult politically...

That's right.

And that's why they've gone for something which is still difficult politically, particularly with the integrity point of the broken promises, but they've gone for it. What I really hope happens, is that after 25 years of boring, do nothing tax policy, that this opening gambit by Labor will lead both sides to actually take decent tax reform policies to the next election. Labor comes up with an inheritance tax that funds dramatic reductions in income tax and the Coalition comes up with GST up to 15 per cent. They actually both have a crack and have competing bold reform packages and then you can choose from them. But the usual thing in Australia, is one side's being bold, the other side says do nothing and then you get the shortened outcome where the bold one gets smashed, while the opposition do nothing and then the opposition gets in with a do nothing mandate and then they do nothing.

That's the story of tax policy reform in Australia for the last 25 years since Howard was bold, put up a package, sneaked over the line and got the GST done which was the last decent piece of tax reform policy. He did do capital gains tax in 2000 which was looking after his base, as in business and workers and business and capital. That was all about the boom, we can give tax cuts and rather than give it back to the workers, we'll give it to capital and that was significant policy and all sorts of super concessions were massively generous that Costello and Howard did, but now even that's being unwound. It's an amazing time. At least it's interesting, Australian politics is normally so boring, between tax reform and the rise of One Nation, it's finally vaguely interesting.

It is vaguely interesting, let's face it. Now, we've got a lot of questions, but before we get onto those as we usually do, the AI bubble is taking off again. If you look at the share prices of the AI stocks, they started taking off at the end of March, they'd been kind of static or falling for a while, six months to 12 months, then bang, in April and May it's been absolutely phenomenal, incredible.

The Nasdaq's up 20 per cent since the war and the Dow is up 10 per cent, so there's been no market impact. The AI boom has just absolutely railroaded Iran concerns. Yesterday, Google did an $80 billion dollar secondary equity raising. Google have got $126 billion in cash, they don't need to go out there and raise $80 billion. You've got these three IPOs coming up with trillions, SpaceX, OpenAI and Anthropic, and then even this morning Jensen Huang's been in Taiwan at the big chips conference and overnight he had the CEO of a company called Marvell Technology, a guy called Matt Murphy, and he said, "I predict Marvell is going to be the next trillion dollar company..." and they make AI chips, they're based in California - shares up 30 per cent.

Last week, you had Dell's quarterly result, shares up 30 per cent because Dell was actually making real money, that wasn't a bubble. But I just find this whole thing - where's the cash going to come from for these big trillion dollar IPOs and I think Google's tactic is, well, if they're going to drain the market of trillions or hundreds of billions, let's go out there and help ourselves to $80 billion at bubble prices ourselves. Everyone's going, this is jumping the shark, Google going, "Give us $80 billion," is jumping the shark in terms of how much capital markets are prepared to throw at this bubble and it is an absolute bubble and the capital spending is extraordinary, but the markets are believers, so what do you do?

SpaceX has filed for a public float and it's basically an AI business, it's not really a space company, it's an AI company. They're forecasting massive AI profits, we've got OpenAI and Anthropic also coming up. Anthropic's announced that it's confidentially filed its prospectus to the regulator, so they're coming up. It's going to be a triple whammy of massive floats, the biggest of all time, all based on AI, so it's going to be an interesting question as to how the market absorbs this and what happens when those three stocks join the indexes and all the passive ETF investment funds have to invest in them and they have to sell something else to buy them? A lot of people are saying, "What's going to happen then? How's it going to work?"

I reckon we might look back at this time in five years and say, "That was peak bubble and index gaming, that whole exercise." Because, I'm pretty upset with the SpaceX thing. I got an email from CommSec last week spruiking it and the idea that CommSec, our biggest broker, is spamming hundreds of thousands of their customers... They don't normally email us with, "Hey, new IPO, get onboard!" Then I read that SpaceX is looking to get a billion dollars out of Australian retail investors and 30 per cent of the raise, globally, is retail. Musk is just an evangelist spruiker who retail shareholders love and he's now spreading this disease to Australia and attempting to get a billion out of Australian retail investors and CommSec has agreed to be in on the giggle.

Total addressable market, $34 trillion dollars in space... The thing is absolutely blowing cash, it's a gerrymander, he's got 85 per cent of the votes. It's not one vote, one value, he's unhinged, it's bleeding cash and they're trying to get a billion dollars out of Australians. I'm really upset by it. SpaceX spent $150 million buying Cybertrucks, propping up his Cybertrucks business the other week and SpaceX has got $29 billion of debt to start with. Starlink's a great business but the rest of it's just bleeding cash and blue sky.

We've got to get to the questions, Stephen...

Sorry, that was quite a rant.

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[End recording]

And just before we have the questions, a general advice warning, this is general advice only. Do you want to do the Matt question first?

Yes, so Matt has written in, Matt runs a business called Turramurra Music and our Chief Producer Greg is a big fan of their great service. Matt has got quite a detailed question basically complaining about the latest Australia Post price increases. There's fuel levy costs jacking up the prices, another 5 per cent increase from July 1 on their average parcel post and he's saying, "This is hurting businesses all over the country." He sends out microphones and all sorts of gear by post, people order online and he's got to post it out. I think he's making a really good point, the Government with the monopoly with Australia Post, should not be stoking inflation with above inflation increases in basic utilities that are so important for the operations of the economy such as Australia Post, but then I had a look at the Australia Post annual report, Alan, $9.5 billion in revenue and last year they only made $19 million in profit.

So they're not gouging and making huge profits, they're simply passing on the rising costs that every other business is facing and they've got falling volumes, obviously, but those who are still reliant on the postal service are getting absolutely stiffed. So, Matt's right and what do you do? Should the Government just overtly subsidise Aussie Post and provide services at below cost? Where are you on something like that?

Obviously, they're losing tons of money on letters and the Australia Post is internally subsidising the letters with parcels and in the parcels business they're competing with he big global outfits. I think competition in parcels is probably keeping the price down, but they're having to put the price of stamps up to try and make some money there. I mean, I think you can make an argument, and Matt makes it, that maybe the Government should just continue subsidising letters for a while.

It's interesting, I keep hearing from companies and the share registries about how Aussie Post keeps putting the prices up so much, it's prohibitively expensive to send out notices of meeting by post or capital raising offers by post and so we've had this collapse in participation in voting, below 1 per cent basically. You get this hopeless levels of participation in capital raisings and one of the reasons for that is it's so prohibitively expensive to use the old paper method which had much higher levels of engagement in both voting and participating in capital raisings.

Is that right?

Yeah.

So paper's got higher engagement, does it?

There was the one time I ran for the Commonwealth Bank board, I think 70,000 people voted, because everyone got a paper ballot and then a reply paid envelope, so you'd fill it out and you'd pop it back and the company would pay for the post. Now, you just get a little email saying, "Click here, go online..." and no one does it, no one even knows it's a capital raising offer and participation rates, even when they're wildly in the money, a participation rate in a capital raising like a share purchase plan will often be 15 per cent, 20 per cent profit to be made. I'm blaming the move away from paper for the crisis in democracy in corporate Australia and the ongoing shafting of retail shareholders who don't know how to navigate online to avoid themselves being diluted by participating in a capital raise. Anyway, I should stop the rants. Your turn, boss.

Will, who is a chartered accountant and registered tax agent, says, "Love the podcast, given you a five-star rating on Spotify..." Well, thanks very much, Will, that's excellent. "Me and my best mate love discussing your insightful podcast and my wife has also been able to get into it a bit, helping her staying full..." G'day, Will's wife. "I'm writing to suggest CGT discount impact on start-ups is overblown in the media. Small businesses are still eligible for the small business CGT concessions, so this only affects those who do not meet the small business CGT concession eligibility criteria or they are selling for so much money, they exceed the limits." I don't even know what those limits are, actually...

"Noting this, if reform is required, maybe they could tweak the criteria for small business CGT concessions to be less strict around the ownership CGT concession stakeholder requirements." Well, we'll take that as a comment.

I think it is an interesting point that the concessions are things like if your net assets are less than $6 million if you're retiring. If you're buying another business so you can sell your business and as long as you buy another business you get the sort of rollover relief and there's also a 15-year rule. There are four areas of concessions, but I agree with Will that they probably will need to tweak them if they're going to limit the political damage because people are pretty furious and it is a significant increase and I don't know how they're going to do the start-ups thing because that's just going to be treating one sector different from others and that's always difficult to do with policy.

Anonymous says, "I'd be keen to know if you had any of your cool graphs on growth by sector and growth by size of business? Specifically, it feels like businesses in both retail and small hospitality have been in recession for around 15 quarters. With rising interest rates, this means stagflation in these sectors for the last two quarters. My sense is there will be a lot more than the usual closures in those areas in the next six months." This sort of goes to a bubble hurts other sectors that are not loved and there's a lot of talk about retail... Poor old Myer shares, Alan, they were $1.24 18 months ago, they're down to 24 cents. So, yeah, restaurants, hospitality, retail, you got any graphs on them sort of backing up the anecdotal sense that they're really hurting?

I could just have a graph of Myer's share price, I guess, it wouldn't be too hard. But, yes, those kind of retailers are struggling. Alistair says, "Of course, this is general advice only, what are your thoughts on the SpaceX IPO? Potentially a good investment with a bright future or is the big money cashing out before it all goes belly up?"

Well, you know my view, Alan, what do you think?

I think it depends a bit on whether there really are going to be data centres in space, which Elon Musk has been talking about for quite a while and it does make sense and the thing that got me interested, is that they're starting to negotiate now a deal with Google where they will actually do it and put data centres in space because being closer to the sun and outside the atmosphere, you get much more solar energy directly onto the solar panels. It's not too hard to get the data back down through microwaves, so I think that there's a fair chance of that.

Also, they're starting to hit a lot of constraints with data centres on the ground, not just electricity constraints, which obviously they're all starting to bump up against the capacity of various electricity grids wherever they're being built, but also zoning. The community's starting to jack up about all these massive data centres being built near them, so I do think there's going to be a limit to how many data centres can be built on the ground.

Apparently, there's 4,100 data centres in America already, but the CNBC had a big interview yesterday in Michigan. The biggest one they're building interviewed Sam Altman there and it's going to cost $45 billion US dollars, $16 billion to build it and then the cost of all the chips and it's like 1.4 gig, so it's absolutely enormous, the amount of compute. They've got their own cement plant, their own steel making plant as part of this whole sort of campus, they're calling it, with three different towers. The scale of the thing is just extraordinary and how you can invest $45 billion US dollars on one site in Michigan and get a return, that's where a lot of people are saying, "I don't think the economics are going to add up." But then you've got Anthropic, where people say, "Well, they're now doing annualised revenues of $47 billion US dollars and they're going to be cash flow positive in the next quarter." Their business is looking real, but SpaceX and OpenAI, trillion dollar valuations, I struggle to see how it stacks up.

I'm not going to be buying shares in the IPO, that's for sure, because I don't do that because most IPOs turn out to be bad, or at least in the short-term you don't make money, you're better off buying them when they come on the market afterwards. Whether that applies to SpaceX, who knows?

I have the same approach, but I'm very nervous about the index ETF side of things. It is a phenomenal change in the way markets work and if you suddenly get a rails run into these indexes and all the index funds are forced to buy you, that can lead to quite irrational share prices, because you've got BlackRock and State Street and Vanguard just buying with their ears pinned back because they have to under their passive investment mandate. If they can establish a valuation of trillion and get that backed up by index weightings, then that just creates a wall of buyers that potentially perpetuates the distortion of the valuation until ultimately the cash flows, profits and dividends come home to roost. But by then, they might be long-gone with your loot sort of thing.

Probably should go straight to Mark, your turn.

Mark says, "The proposed changes limiting negative gearing and CGT concessions to new homes have a massive blind spot, they destroy the secondary market. If concessions only apply to new builds, the next buyer gets zero tax benefit. With no incentive for a subsequent buyer, the resale market evaporates." That's an interesting point, Alan, isn't it? Harry Triguboff's very excited about - "Buy my apartments off the plan, get your negative gearing..." But then if you've bought that and then you go to sell it six months later, who's the buyer? Because all those investors are no longer in the market as buyers, so you've only got the first home buyers.

So, you can just imagine people excitedly buying an apartment off the plan for $900,000, looking forward to the depreciation schedule on the carpets and the curtains and everything else and then they go to sell it in a year or two's time and they cop a capital loss of $150,000 or something.

Yeah, so don't sell it in six months or a year. What this means is that housing needs to not be like private equity where you flip it after a couple of years, it needs to be bought and held, it isn't something that can be just a speculative investment that you flip, that's the whole point.

Negative gearing, particularly on new builds, it does encourage holding for five to ten years because it takes that long to really work through all the depreciation and get your tax down. So you're really doing it when you're in your maximum wage earning years and you're sick of paying $80,000 to the Government and you only want to pay them $60,000 and so you just do the negative gearing through those high paying years and if you can later live in it or one of your kids can live in it... That's the game. I don't think you're going to get negative gearers flipping, but I do agree with the argument that it will prop up the purchase price off the plan and the secondary market will be weaker, so don't expect to be doubling on your new apartment anytime soon.

I think Mark's point is that the fact that the secondary market is not there will mean that the primary market, the first buyers, will kind of think twice because they'll think, crikey, there'll be no market to sell this asset if I buy it, even with the negative gearing.

And apartments are the most affordable part of the market, so a lot of people's first purchase is an apartment, so I hope we don't see massive growth in apartment prices. If people are going to be able to get into a home and rent, we need more construction, so hopefully we will get investors supporting off the plan purchases that make projects stack up economically and Harry can go out and build 10,000 apartments to add to his $29 million dollar wealth or whatever it is. All right, your turn, boss.

Ethan says, "Most can see how disincentivising property investors from buying more houses is theoretically helpful to first home buyers, but how can anyone accept that at the same time, increased taxes on young people's shares and crypto assets increase taxes on the businesses and ever-increasing Government deficits will somehow solve intergenerational inequality? Who's paying off the never-ending debt?" I think this just raises the point we haven't discussed, which is that the CGT tax changes include a provision that says the minimum tax now on capital gains is 30 per cent, which is an interesting addition.

It means that young people who are on low wages and therefore, a low marginal tax rate, if they make any money from shares or any kind of capital gain, they have a minimum tax rate of 30 per cent, even if their employment marginal tax rate is 16 per cent or perhaps even zero because they're making less than the tax-free threshold. That's an interesting and unexpected addition to the whole thing.

That's the bit that I found the most objectionable in the whole budget, was that they went for this flat 30 per cent, no matter how poor you are. Although, as one of our questioners has pointed out, there is an exemption if you're a pensioner. So, if you're a pensioner, the flat 30 per cent doesn't apply. This person who's written in is saying, "If I'm a self-funded retiree, why is my neighbour who's on a part pension being taxed lower on their capital gains?" I think the principle in taxing surely should be consistency and I would have thought, consistency whereas you don't discriminate between labour income or capital income, your tax-free threshold of $18,000 applies whether it's capital or shares. I'm really surprised that the Labor Government's gone for that, I suspect that might be an area they tweak.

What they're doing is they're making capital gains tax consistent with the new minimum tax on trust income of 30 per cent. Their concern was that if people didn't make the minimum tax on capital gains tax, that people would use capital gains to split income. Because they're trying to attack income splitting to get tax down, by splitting with your children or your spouse who are on a lower tax rate and they're trying to stop people doing that with capital gains as well if they're putting a minimum tax rate in trusts of 30 per cent. I can see what they're trying to achieve, but I think that it's having a pretty poor unintended consequence.

Yes, but meanwhile if you're in super, your capital gains tax rate's only 10 per cent. So they're not being consistent, super's just a special - super's like the Vatican, just totally protected and special. We did have a question of - I'll just summarise it, it was later on in the piece, we've got like 20 questions, but one person wrote in and pointed out that there used to be a provision back in the old days when you had the CPI thing, of the five-year smoothing provision, where if you did have a capital gain in the 90s, you could smooth it out over five different income tax years and that's not proposed to be coming back when we go back to the 1999 rules.

This correspondent was saying that it makes the changes even more brutal because it's not returning to the old system, it's returning to a tougher version of the old system because we used to have this five-year smoothing where you could spread your capital gain over five years and now, if you have your windfall of one year, you're going to cop the full amount in that year and you're going to be up to 47 per cent before you know it, so maybe that would be a little compromise, is to return to the 90s era smoothing of your capital gains over five years.

Yeah, okay, fair enough, that's good. Someone's getting stuck into you here, Stephen.

Oh, there's quite a few people getting stuck into me for being too critical of the Government. You bunch of hypocrites, you've been calling for these sort of changes... As I said earlier, I was most upset about the integrity piece. As an occasional poorly paid part-time politician in Local Government, there is integrity, we've got trust losses. To come out and just throw everything out that you've promised, I found that challenging. But look, I take the criticisms and at least they're having a go. I will be positive and say, I'm glad they're having a go, I do agree there should be more tax on capital relative to labour, I was disappointed they didn't offer some tax cuts to working middle Australians because we've got some of the highest rates in the world, but I take the criticisms and...

Peter says, "He's been enjoying the podcast until recently because of your increasingly partisan commentary on the budget." Are you being partisan?

Yes, once a Liberal Party spin doctor, always a Liberal Party spin doctor. Look, I was disappointed, I had a crack, I did once work for the Liberals, maybe I'm a partisan, I don't know. Maybe we can get onto something else. Julian says, "Have you been watching Shaun Micallef's new documentary, Going For Broke, on the ABC? What were your thoughts? Why are we so obsessed with gambling in this country?"

Have you watched that?

My mum rang me last night very excited, telling me it was so good and I had to watch it and I haven't watched it yet, but I know he's brilliant and I am going to watch it and I did hear, even Bob Carr came out the other day saying, "We've got to increase taxes on pokies." New South Wales pokies revenue is going to hit $10 billion this year of the $30 billion. New South Wales is the biggest gambling jurisdiction in the world, every street corner in the CBD seems to have a pokies pub with 30 pokies. I agree with Bob Carr, forget about taxing gas, tax the pokies clubs and pubs. I mean, Arthur Laundy's now worth $1.9 billion... All these rich-listers in the AFR rich list of the pokies pubs... And the clubs, they don't pay corporate tax. Tax the Penrith Panthers, make them pay 30 per cent? I mean, they're tax exempt and they're bleeding the community dry.

I agree, it's a disaster that we're blowing $30 billion a year gambling and well done, Shaun Micallef. The Labor Party owns four pokies venues, they're in on the giggle themselves. The Catholic Church even owns pokies venues, it's just so entrenched. It's very, very difficult to wind back 200,000 poker machines in 5,000 venues all over the country bar WA, which never introduced them, to their benefit.

Yes.

That's my final rant for the day. I'll let you choose the last question, boss, because we're almost out of time.

We are almost out of time and the last question - well, they're all about tax and CGT and...

Actually, I liked one, Lynette, I think it was. We had one that made a really good point, is that those working in the charitable sector, there's a $15,900 FBT benefit that was introduced 25 years ago to make it more competitive for charities and not-for-profits to hire workers. You hire them and you get this $15,900 benefit on your FBT and that hasn't been indexed for more than 20 years, that's the criticism. It should be $30,000 now and I guess my thought is, it's a fair point, it hasn't been indexed, but given that charities don't pay corporate tax either, there's also a question of competition and how level the playing field should be and charities already have it pretty good, as in they can offer workers this $15,900 FBT benefit and then they don't pay taxes.

I don't know, it's a fast growing sector, there's lots and lots of the big Anglicares and the Salvos, there's endless work and endless new Government contracts, the care economy, it's a big growing part, but it's always nice on the podcast to get a new policy question like Aussie Post gouging people and this point about the lack of indexation of the number one tax benefit designed to make the charitable sector do well and be attractive, it hasn't been indexed for more than 20 years.

I think that's an interesting point, I didn't even know that, so that's interesting.

There you go, we learn something on The Money Café, Alan, hopefully.

We do.

Every week, hopefully when you're in the gym, talking to your best mate, you can say, "I learnt three things today..." There you go, Aussie Post, they should cut their prices, says Matt of Turramurra Music.

Paul Graham of Aussie Post won't agree with that, that's for sure.

You know who's on the board? Annastacia Palaszczuk, she's the only political person on the Aussie Post board, the rest are regular solid corporate types, but the Minister obviously controls some of those price changes, so blame the politicians, not Aussie Post, I say.

Thanks everyone for listening to today's episode of The Money Café, I'll be back next week with James Thomson, as usual, so send in your question to themoneycafe@intelligentinvestor.com.au and we will genuinely try to answer it as long as it's short, please keep it short and we'll answer as many questions as we can. 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, contributor at Intelligent Investor, Founder of Crikey and shareholder activist and we'll see you in a fortnight.

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