Worst. Budget. Ever – Fat Tail Daily
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Dear Kali,
Worst. Budget. Ever.
I really don’t know where to start with this one. It is so bad for this country that it’s hard to fathom.
So let me start with the positives…
This is the beginning of the end for the Labor government. They will not win the next election. I know the opposition is a rabble right now. But if they can’t use this lurch to the left as a platform for resurrection, then we are really screwed.
If I’m wrong and Labor does win, it will be clear that Australia is a different country from what it has been throughout its history. That is, a relatively egalitarian society that values and rewards hard work and wealth creation, while acknowledging government’s role in assisting the vulnerable.
If this country endorses the budget changes by giving Labor another term, we will be voting for the politics of envy. We will be voting for a socialist government that isn’t so much about wealth distribution, but wealth destruction.
Because this budget is a war on aspiration and wealth accumulation. The level of economic ignorance and lack of understanding of the power of incentives is astounding.
This is not about restoring intergenerational equality. That is an outright lie. This is about taxing wealth at all levels and across demographics to maintain egregious government spending.
If Labor wins the next election, we’ll know that Australia has become a country where the majority of the population relies on the government for their income and has no aspiration to create independent wealth.
If that happens, get out, and get your kids out too.
Seriously.
Once a country starts sinking down the slope of increasingly taxing productive members of society to enlarge government, it’s all over.
Will this budget tip Australia into recession?
Firstly, you can forget all about the budget forecasts. Treasury has inflation magically falling back to 2.5% next year. That might be true if these economic vandals usher in a recession, but they’re expecting real growth of 1.75%, dwelling investment growth of 4% and wages growth of 3.5%.
Oh, and they’re throwing another $18 billion of spending onto the inflationary fire, risking another interest rate hike. All they had to do with this budget was to show some spending restraint. But no, they had to go and increase spending.
The only ‘savings’ in the budget forward estimates come from anticipated slower growth in NDIS outlays. Good luck with slowing that runaway train. Again, no idea about the power of incentives.
The bond market can see that clearly. The Aussie 10-year bond yield is trading at 5.08%. Yields are poised to break out to their highest level in 15 years (see chart below):
Source: TradingView
[Click to open in a new window]
That’s another headwind for the stock market.
In a sign of just how screwed up the capital gains tax is in terms of incentives, equity market strategists are touting dividend-paying stocks as the winners.
So the government is rewarding companies with little growth prospects (and therefore pay out most of their earnings as dividends). And it’s punishing those who can see opportunities to invest capital for growth.
It’s also punishing the younger generation who are investing for their future. A minimum capital gains tax of 30%, no matter your marginal rate, is outrageous.
Its outrageous for everyone, but especially the young who are being told this budget is about giving them a ‘fair go’. That’s a blatant lie.
That crypto you took a big risk on years ago, because the system is so rigged against you? We’ll take 30% of the gains, thanks.
This is leading to talk of an exodus of ambitious young people to countries with lower tax regimes. Show me the incentive, and I’ll show you the outcome.
The idiotic line by Labor is that this is just bringing the capital gains tax back to how it was in 1999, and you didn’t see an exodus then.
This misses the point that the age of globalisation kicked off around that time, where global tax rates started competing for capital. It’s much easier these days to up and move, and low and zero-capital-gains tax regimes provide the incentive to do so.
Perhaps the biggest insult is the $200–300 tax cut. That’s enough for a family to get halfway around Coles or Woollies for the week. Meanwhile, high inflation means bracket creep just provides the government with more tax dollars to squander.
The government can’t ruin resources too
The only thing going for Australia right now is the resources sector. The government (touch wood) can’t really screw that up. At least not any more than it already has.
Copper just broke out to new all-time highs, riding the booming data centre trade in the US and globally.
BHP and Rio both hit new all-time highs yesterday, too, along with mining services firm NRW Holdings and lithium producer Pilbara Metals.
In fact, the top 20 performers in the ASX200 yesterday were all resource stocks. They’re leveraged to global growth and global trends, and Jim and Albo can’t really hurt them.
The worst performers were our own tech stocks. They’re still richly valued, and the market obviously doesn’t see the incentive (there’s that word again) to stick with them, knowing that the government will take a much bigger chunk of the gains when realised.
While this is a shocking tax-and-spend budget, don’t be too disheartened. The changes to negative gearing and capital gains tax don’t take effect for another year, and the raid on family trusts doesn’t occur until mid-2028.
While the next 18 months to two years will be tough, both economically and from a market perspective, it will provide the evidence needed to show this country that socialism doesn’t work.
Like we really need another example…
But this is what happens when a nation becomes wealthy without understanding why.
We become entitled…
We think wealth materialises magically…
We think we can power our economy with windmills and solar panels…
We vote in fools who have never worked in the real world and don’t understand that tax is an incentive structure, not a piggy bank…
We mis-educate our young to favour socialism and despise capitalism…
And this is where we end up.
But as I said, don’t be disheartened. We have a couple of years to put this country back on the right path.
But if in 2028 we decide that socialism and taxing wealth is the way to go…get the hell out of here.
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What do you think? Let us know at letters@fattail.com.au.
