 John, the current global situation is obviously very uncertain and there is this kind of historic pattern that Labor governments tend to deal with things like depressions and recessions and global financial crisis. Is that where we're headed, do you think? Well, a couple of points. I mean, I've been analysing and predicting economists since the late 60s and I think the risks today, the unpredictability today is greater than any time I can remember and we've had some pretty big shocks through that period, whether there were oil price shocks or recessions or stock market corrections or Asian crises or whatever, we've had big, big shocks and I think the risks though are much greater than I can remember and last weekend the yield curve as I say in the US inverted, short rates went above long rates which in using Federal Reserve data suggests that there will be a recession in the United States within three to 24 months. So I think the US is slowing down, Europe is definitely struggling and slowing down, China's slowing down and on top of that you've got Trump, which is the main source of volatility in the system and unpredictability, you've got... And China, the whole issue of... China's debt problem, it's around 300% of GDP, a lot of structural issues, their growth rates are a lot lower than probably 4% or 5% rather than 6% or 7% which the government keeps announcing but it's not a real number. And so if global growth slows and we have some of the weaknesses in the system come to the fore, particularly the over valuation of the stock markets, bond markets, currency markets, property markets in different stages but different countries, I mean they're all bubbles and they'll all burst so you could have another global financial crisis in the near term. And the cupboard's a bit bare as far as the Australian government goes for dealing with this, I mean interest rates don't give you much scope these days do they? They don't have much capacity because the Reserve Bank's got the interest rate, I haven't changed it since I think August 2016 but and I've been saying all through that period that they'll probably, the next change of any would be down and I think they might put it down but you're in a world where when it's as low as it is, it's not going to make much difference, people aren't going to rush out and spend or invest so you're not going to get much effect from lowering interest rates even 50 basis points or so. And the fiscal position, although the government will announce a surplus and they'll say how clever they've been and they're back in surplus and they'll probably predict four years of surpluses, the truth is that they've all both sides of politics have made very large expenditure commitments that carry through the 2020s and beyond. Obviously education health commitments are significant, they are moving into the 2020s big numbers, you've got the NDIS which is the disability insurance scheme which is, I think they've predicted a 600% increase through to the end of this decade in the costs of running that and that's going to blow out and then you've got a whole host of infrastructure commitments and you get a lot more in this budget that are unfunded and you've got hundreds of billions of dollars of defence commitments that, you know, submarines, frigates, fighter planes, you know they're all unfunded and they're big numbers so if you look look around the literature there's a book recently been published by Mike Keating who used to be Secretary of the Department of Finance I think in Prime Minister and Cabinet and he's predicting sort of a 3 percentage point increase relative to GDP in the tax burden over the 2020s. I don't hear anything about that and of course we'll hear more tax cuts and mine's bigger than yours, none of them are affordable. And the revenue stuff's kind of all the revenue projections are kind of fictional aren't they? I mean it's based on sort of projections of commodity prices and so probably won't hold up and I mean we're still dealing with, you know, Treasury forecasts about growth that really don't reflect any. Treasury's been, one thing they've been consistent about has been consistently wrong in their forecasts and very ambitious in some of those numbers particularly a turnaround saving wages which is supposed to give you the big bracket creep base of the system. They have underestimated some of the commodity prices in the last budget so now they've come in higher that gives them a revenue boost but that's not sustainable particularly if the world economy is slowing down I mean we might have seen better iron ore and coal prices but they won't be sustained so I think the budget will be scrutinised as to what numbers they actually pick going forward for the next several years and you know so they don't, the revenue looks better now than it has partly because of forecasting errors of the past and partly because they've picked up a bit of additional tax revenue from the corporate sector, some catch-up tax and you know some of the bigger companies where they hadn't paid much tax but basically the corporate tax system has been working like a resource rent tax, high commodity prices, they've had a better return that we also see evidence of how few of the big companies, you know ExxonMobil was you know I forget what it takes out of the system every year but it's well over 30 billion dollars don't pay any tax you know and the those who are in the LNG sector aren't going to pay much tax for another decade or so so the corporate there's an issue as to whether the corporate tax base is really sustainable. And all this is coming on the back to the Banking Rule Commission where there are real issues of trust I suppose and uncertainties about precisely what a new government is going to do with the recommendations that rule commission which were quite modest and in some ways conservative but the findings the rule commission were of course incendiary in a lot of ways so I mean that seems to me to be another uncertainty too. You see they don't, what neither side is doing is really admitting the reality, the economic realities I mean they're spinning it to favor their particular position and the fact is that you know the narrative say of the government doesn't match the lived experience of most Australians I mean most Australians are really struggling to meet the cost of living week in week out and that's housing or that's electricity and gas prices or it's medical insurance costs or childcare costs or whatever all those elements the big elements in a family's household budget are rising much faster than the measure rate of inflation and people's wages have stayed flat I mean and under 2% of the last several years. This is a big issue, it's a very big issue. Wages thing, I mean for those of us of a certain age the idea of this being a problem it's a bit bizarre really but it is these days and they see that what the households have had to do is is both run down their savings and run up their debts to show you how ridiculous some of the rhetoric of the government has been when the household savings rate fell to pre-GFC levels. Friedenberg went out there and said see that shows you how confident people are you know they're spending because if you look at the consumption numbers they're not spending for the retail sales numbers they're not they're not spending they're pretty pretty flat so basically we've now got a record level of household debt it's about 120% of GDP it's nearly 200% of household disposable income so households have to run up their debt run down their savings just to survive and they're doing it unlike in the early 2000s they're doing it at a time when the value of their houses is stagnating and their houses falling house prices are falling so they're well they're getting a negative world effect and go to the Royal Commission that showed basically that a significant percentage of the bank lending books of mortgage books of the big four banks are subprime they knowingly lent people much more money than they could afford and now the idea there is of course that you know they've got a bit of initial equity in the house as the house price continues to go up they get more equity and they can ultimately service that loan and a lot of those loans are interest only loans but they fudge the the household expenditure numbers income numbers and expenditure numbers to get to give them a big loan then house prices fall their equity falls the pinch is real I mean mortgage stress is becoming very significant as an issue and it's only going to get worse the banks themselves are exposed now of course they've got subprime quality loans on their books you know what are banks like they say oh you're not really meeting your covenants you're not meeting your interest payments and so on where you know we we can't have a fixed interest or so interest only anymore you've got to come to principal interest that kills most people but when your house prices falling your equities disappearing your net position in your house can be negative you bought near the peak and the house's house prices come off 10 or 15 percent you're behind and that's a significant percentage of people because we had really a substantial housing boom now the government's done nothing about the cost of housing and you know it took a couple of decades to create this problem where millennials can't afford to buy a house in Sydney and Melbourne you're not going to fix it in under a decade or so you're going to work on both supply and demand side it's like electricity prices we've had a couple of decades of climate wars scoring points on each other bottom line is electricity prices gas price gone through the roof and people are still getting very large electricity bills despite the government saying I've got a big stick I'm going to belt the power companies or whatever it's not making any difference a couple hot days and your average price goes up because you go you know you really are paying super high prices on peak days and this sort of thing so you know there's a lot of a lot of misrepresentation in all that now I think the average voter knows all that that's one of the reasons why I think the the standing of both major political parties has gone down and even in the last two state elections Victoria and New South Wales and all those by elections the aggregate voter Libra and Labor went down there's people just you know jack of it they've given up on on the two major parties so independence and minor parties are getting nearly 20% of the vote starting to see independence emerge in the lower house now you know this is an interesting interesting situation when neither of them are being believed neither side is really being believed and you know although they don't expect an independent or a minor party to make that much difference to government it's a way of registering a protest vote it was up about a quarter it was around a quarter I think of just under a quarter at the last election in the lower house the other thing I noticed the other day in the New South Wales state election is a very high percentage of pre-polls nearly 20% people are made up there mine don't want to hear the arguments don't listen to the campaign that's all rubbish you know I'll just I've already decided I'm going to vote I did man a polling booth last week and I found a very high percentage of people said I don't want the paper you know just walked in and voted so people are kind of made up their mind that they're basically given up on both sides of politics and it's a choice for the vote of the lesser of two evils and then when they've made that choice they've got to live with the evil of two lessons because they don't have any policy positions right that are really going to solve the problem. I'm interested though I mean some of the the most contentious of economic policy differences between the parties at the moment are very generational that they're sort of about the one you mentioned before housing affordability the franking credits one is you know in many ways about retirees and you know who essentially provides revenue and who gets refunds and all the rest of it. Superannuation is another one it seems to me there's a range of issues that really bear on the different experiences and opportunities of younger and older voters and I wonder if this is the first campaign certainly in my living memory where that's the case where generational differences matter. Basically a lot of the policies add up to intergenerational theft you know you kick the problem down the road you leave it to the next generation to deal with and it's going to be a lot harder for them to do with that whether it's the budget you need to be repaired in the 2020s as we've been saying or climate change for example you don't want to meet your Paris commitments or you duck and weave around it and actually Paris is about half what it ought to be in terms of you know meeting a sensible 2050 emissions reduction target that's a big legacy to push down to your kids. It is when you think about yes if the taxes are going to be going up in the 2020s that's when you know current folks in their 20s and 30s are going to be going to higher tax break. Just imagine if wages stay flat unemployment starts to become an issue and and cost of living still continues to go up and then the tax burden goes up rather than down you know the it's sort of a multiple number of whammies on the average average person and the younger generation those that are supporting the older generation are really carrying quite a load. So none of that amazingly features I noticed a few years ago when Costello introduced the intergenerational report I'd brought it down at budget time the budget that he brought down didn't reflect one thing in that report there was no medium term strategic thinking and it's never been any different and we know what's happening to population and what will go. Some of these are reasonably hard numbers in terms of the number of people that you know the costs of age care that shift to the older population age age makes shift and some of these things are well known they're well documented they don't factor them in and as you're saying by not dealing with it they push the problem against the older Australians for example or against the younger Australians and it's amazing to me that that doesn't feature more as an issue and Howard gave a speech yesterday saying you know inequality doesn't exist in Australia exaggerated well you know I'm not sure which planet he lives on but I don't this one you know because it is really is an issue and people feel it and you know when you ask a politician why are you in politics I say oh you know to make a difference what most people believe that to mean is they make a difference for themselves and you know they're in there for the sister they're probably earning more money than they'd earn outside they're not skilled for the jobs they get and you know so in those circumstances is not surprising there's a loss of a mounting loss of trust and belief in government do you think I mean one argument would say that a change of governments not going to make an enormous difference and I suppose one of the things you said before yeah I mean I'm thinking of some of these big economic policy issues so the housing affordability is an interesting one I mean how much would something like the negative gearing changes that labors advocating you know what kind of difference is that likely to make I mean my assumption would be not terribly much in the short term given the and it is this grandfather's going to be phased you know but and it's only you it's only on on new houses so they've constrained it quite a lot so but it don't forget it was introduced when the housing prices were running away and there was a lot of foreign demand and speculative demand and so on in the system which is making it harder and harder for the average Australian a particularly younger Australian to buy a house and now of course we have a situation where the markets turned house prices are coming off real mortgage stress and okay you make a negative gearing change it probably won't have much impact I suspect they might delay it further grandfather you know phase it whatever the time is not yet right they don't want to get hit don't want to get hit with the accusations and okay the house prices are falling and you're going to kill it now you know and that exaggeration is there in the system already so yeah some of the policies look from a tax point of view tax reform point of view I don't like any of those small changes while you can defend them as part of a broad review I mean go through all the tax expenditures go through all the concessions that are in superannuation and housing so on that are skewed in favor of the wealthy you know and yeah sure you would fix that as part of a general overarching reform but if you're just doing bits ad hocly you don't necessarily improve the situation and you actually make it more complicated when people want a simple tax system you're making it much harder for the average person to understand their tax and the effects are not necessarily what you assume they will be and you know so I think while they've taken some clear positions on a couple elements tax capital gains tax discount negative gearing you know franking credits they're not necessarily now going to have the effects that I hope they would have when they when they announce them so I suspect when they get into government they'll say oh you know well you know realize it was what it wasn't you know they'll change it and but in some areas they can make a big difference if they really did adopt the idea that we need to make the transition to a low carbon society low carbon's economy and accelerated that process and that created all these jobs and billions of dollars of investment that are presently being lost they could make a huge difference and okay they'll have to accelerate the retirement of coal-fired power stations but seventy percent of the existing coal-fired power stations already beyond their you know their design life so look it's possible for them to do that and that would make a huge difference and we'd stop all this nonsense