Business Now | 21 September

0:00This is Business Now with Edward Boyd. Hi and welcome to Business Now. Thanks for your company today. I'm Edward Boyd. Coming up on the program, Treasurer Jim Charmer's released his second intergenerational report today which says artificial intelligence will have a defining influence on our economy over the next 40 years. But the report shows deficits for decades in aging population and a warning over our woeful productivity. Independent economist Chris Richardson will join us very shortly. Prime Minister Anthony Albanese spent the weekend in the Silicon Valley visiting the headquarters of one of the world's largest tech companies Apple is now in New York advocating for a seat on the UN Security Council and global AI safety standards. Professor Toby Walsh from the UNSW will give us his thoughts as well. Plus, auction clearance rates remain below 50% with cautious buyers worried about the reserve bank raising interest rates next week. It would be the fourth rate rise this year. RIA Group will explain a bit later in the program.

1:06Other stories today you should know about. The big four bank economists all expect the RBA to raise rates next week by 25 basis points in response to rising inflation, fuel by higher oil prices and increased spending on the AI rollout. ANZ expect two more rate increases this year, one in September and another in November. CBA Westpac and NAB expect a rate increase on September 29th and say there's a risk of another in November. Money markets are currently pricing in two more rate increases from the RBA and a seasawing on a third increase by the middle of next year. RBA Governor Michelle Bullock she scheduled to be interviewed tomorrow at an event by the Committee of Economic Development of Australia which will be streamed live by the RBA so we'll watch that one with interest. ASIC is suing the former CEO of Super Retail Group Anthony Heriti alleging he breached his director's duties and lied to the board and shareholders about his relationship with the former head of HR at Super Retail.

2:06Mr Heriti was sacked as CEO in September last year, with the company saying his prior disclosures were not satisfactory. ASIC has now commenced civil proceedings against him claiming that Mr Heriti failed to disclose his relationship with Super Retail's former head of HR Jane Kelly and failed to manage conflicts of interest including supervising Miss Kelly and participating in decisions affecting her employment, salary and incentives. ASIC alleges Mr Heriti put himself in a position where his personal interest conflicted with his duties to Super Retail Group and that he failed to properly disclose and manage that conflict. The chair of ASIC, Sarah Court said this morning ASIC is seeking declarations of contravention, pecuniary penalties and disqualification orders which could be problematic for Mr Heriti in his new role as the chief executive of the Retail Up winning group. Let's see how the market finished up for the day. The local market dropped at the open this morning, briefly turned positive around midday, banks and healthcare companies with the top performers, tech stocks, mining businesses and energy producers dropped.

3:08The market finished the day essentially flat, not even up by one point. Goldbina Ramelea surged after releasing its four-year outlook guidance. New Zealand Electricity retailer Meridian was the top utility. Nickel industry started bouncing back after being sold off last week. Small and medium-sized business lender Judo Bank was the best from the banking sector and hearing implant maker Cochlear was the strongest from health. Fun manager Perpetual plunged a bit over 15% after it rejected a revised $2.6 billion HG over bid from the Swedish private equity giant EQT. That was their final offer, so today's announcement ends months of negotiations. Coal miner New Hope went ex-dividend. Aluminium produced, our colour was the weakest from the mining sector, TILICS slumped after announcing a $3.3 billion HG over of a German pharmaceutical company, and accounting software maker Zero, the worst tech stock. Well, the Treasury released the latest intergenerational report today, which forecasts deficits for the next four years,

4:12an aging population and increased pressure on government spending and taxes. The report relies on an assumption that Australia's productivity will grow at 1.2% a year over the long term, which is well above the current rate for our economy. It includes a warning that if we don't achieve 1.2%, then our economy will suffer with much weaker GDP and much higher levels of debt. The Treasury was asked how confident he is of that forecast to average 1.2% at a press conference today. Every number in the document is sensitive to assumptions and uncertainties, and the further you go out into the 40-year horizon, obviously it becomes harder and harder to make concrete predictions. We acknowledge that. I think every treasurer who has presented the NIGR has acknowledged that in one way or another. Let's bring in Chris Richardson, independent economists from rich insights. Chris, great to see you. We know the report's full of assumptions and projections, which are very easy to get wrong,

5:16but is that assumption around productivity growth 1.2% a little bit ambitious? It is rather brave. This is the first intergenerational report that says the pace of productivity is going to pick up. That number, the 1.2% that we're talking about here, is the foundational stone of almost everything in today's document that intergenerational report. It tells you how fast our prosperity will grow and the equation is pretty simple. The more prosperous we are, the easier our budgetary juggle will be. Trouble is, in the last decade, Australians have not become more productive at all. We are literally tracking at zero productivity growth now. If you assume 1.2% for four decades, then that's quite a turnaround and something that delivers 60% increase in our living standards over that period.

6:18It will be marvelous if it happens. It could happen, but it's the number that drives everything. The report mentions the phrase artificial intelligence 50 times. Do you think that's the key thing here for the government to expect productivity growth to be that high? Is it really mostly due to AI and the AI rollout? You wouldn't say that we've had vast amounts of reform from governments or state-all-fed rule or other changes. The key thing out there is the rise of artificial intelligence. And to be fair, it's obviously amazing. It's potentially incredible. To also be fair, it's very early days. So it's a bit of a big call to traveling that 1.2%. If we get it wrong, a whole lot hurts. And if we really do think that AI is the peg on which the future prosperity of Australia and Australians truly holds, then shouldn't we be doing more about skilling up the entire Australian workforce to handle this new world of artificial intelligence rather better than we currently are?

7:36And Chris, the document also assumes GDP is going to grow at roughly 2% for the next 40 years. Is that pretty low historically? Should we try to be aiming a bit higher than that? Two things drive it, basically. What's the increase in number of people and how effective will those people be when they work? And we've talked about that effectiveness side of it, the productivity side of it. Population, given the falls in birth rates, which have been pretty notable around the world, but here too, especially in recent years, then it's migration that will drive about 0.8% of the increase in the economy from year to year. Productivity is the other 1.2% of that combination is what gives that to the 2% overall growth that you've mentioned. So those two things, what will we do around migration?

8:39And will we rise to the challenge and opportunity of artificial intelligence? That tells you what growth will be in Australia over the longer term. And Chris, you've also done a comparison between the economic situation right now compared to when the first intergenre report was released by Peter Castello in 2002. I mean, just briefly, like, why are we sort of worse off now than we were back then? And it is fascinating if you look at every single intergeneration report they have had steadily lower expectations about our living standards, because although that initial intergeneration report, a quarter of a century ago, basically got the size of the economy right underneath that total. You know, we've had a bigger population. People are working harder and for longer, we're retiring later, more women are in the paid workforce, our actual productivity. The key driver and the one that's key to the new document looking forward, that was a disappointment versus the original one.

9:46Every single intergeneration report has overpromised and underdelivered with respect to productivity. My fear would be that this one is going to do the same. Chris, we've got about 40 seconds left. Today's report doesn't mention bracket creep, but how big a role is bracket creep going to play here over the next 40 years, capturing additional tax revenue from Australians? If you take your hands off the wheel of the budgets, then the only thing that helps sticky tape it together is that we get pushed up into higher and higher brackets. You don't want to tax the aspiration, the way Australia does through both company tax and personal tax, both our spending and our taxes can and should be done better. Chris Richardson, thanks so much for coming on the show. After the break, we'll talk artificial intelligence for Professor Toby Welsh from UNSW, focus on the PM stripped of the US, plus the intergenerational report as well. Welcome back, Prime Minister, Anthony Albanese, visited the Apple headquarters in California's Silicon Valley yesterday, even snapped selfie with Apple executive chairman Tim Cook.

10:56The PM is now in New York where he's preparing to present his government's artificial intelligence safety reforms, the UN, which includes a proposed digital duty of care. Now, US President Donald Trump has downplayed concerns about AI and argued that additional regulation is unnecessary. So to chat AI, I'm joined by Professor Toby Welsh from UNSW. Tony, thank you. Toby, sorry. Toby, thank you so much for your time. Let's start with the PM in Silicon Valley meeting with the senior executives from Apple. How beneficial is it for Australia to be their meeting with companies like this? Well, it's a bit of a charm offensive from the Prime Minister meeting all the right people. I mean, AI is being driven by these big tech companies, and we're seeing some spectacular investments being made by them in here in Australia, and through our pickups just opening the largest data center in the plants to open the largest data center in the Southern Hemisphere. It will be Australia's largest electricity user. So I mean, these are significant investments that keeping the economy afloat.

11:56So there's certainly a tricky to charm the tech companies to keep putting the money here in Australia. Albanese has constantly said before going on this trip, he wants to make AI work in Australia's interests for all Australians. What does that actually mean? Well, he's responding to the public's growing concern about AI. The Australian public is the most concerned about our intelligence and regular surveys around the world. So the Australians are at the most concerned end of the list. We're rightly concerned about the impact it's having on our environment, or these data centers using all this energy and water being built in sometimes in suburban areas. The impact is going to have also on our jobs, and it's starting to see some disturbing data, especially about entry level, graduate level jobs in those professions that are most exposed to AI. So there's lots of concern amongst the public. So he's trying to square the circle, which is keep the tech company as sweet on the same time, keep the Australian public sweet. Yeah, he's trying to introduce some regulations as well. We've seen from the ATO recently changing the way royalties are calculated a few weeks ago,

13:01which potentially opens big tech to paying more tax in Australia. How careful does the PM need to be here on this charm offensive not go too far on the regulatory side and keep everyone happy? Well, I don't know that he has to be too careful. I mean, he's got to play an interesting poker hand here. We're in a very attractive place for these investments. We've got the second largest pipeline of data investment centers in the world, second only to the United States. We're only the 12 largest economies, so that we're much more attractive than 10 larger economies. We've got stable politics, stable economy. If you're making these billion dollar investments over decades, you want to be a place where the rules and the environment is going to be the same in 10 years time. So Australia, Australia is well connected to the rest of the world. We're in the fastest growing economic region in the world, the Pacific Rim. So there's lots of reasons they want to make these investments here. So I don't think we have to give too many concessions. Also, because there's very few other places that are willing to have these big investments made, to have these big data centers. And the alternative, of course, is to build them in space. That's what they're talking about.

14:05I think Australia might be seen a far-away, long way from most places, but it's a lot nearer and cheaper than space. Your copyright seems to be one of the big issues we've heard from big AI tech company bosses mentioning Australia and its copyright rules. Do you think that's going to be a big topic of discussion over the next few days in the US? That is definitely an interesting and important discussion. The Prime Minister is trying to walk an incredibly tight line here. On the one hand, he made very categorical promises to copyright orders, to artists, creatives, authors in Australia that he was not going to sell them out. The authors were going to be able to choose who used their work, how much they charged for it. But at the same time, he's obviously under significant pressure from the tech companies to water down what copyrights. Not just that they can build models here in Australia, but I think actually, because they realise that Australia sets an important precedent for the rest of the world. Let's remember these US billionaires that run these companies often are very close with Trump. Some of them were in the front row of his recent inauguration a couple of years ago.

15:07If they've obviously got his ear, so there's clearly pressure from that side as well. There is. Trump is following quite a different line. He's made it very clear that he's not interested in any more regulation. And there's a bit of a hoax that the concerns that even the tech companies are saying about the risks of artificial intelligence. There's an important summit coming up with the Chinese president in the next couple of days where AI and tech is right at the top of the agenda. We'll see what comes out of that. And the digital duty of care that we have proposed in Australia, along with the under-16s ban on social media, two things I think other countries in the world of watching it, how it plays out. I think the Prime Minister is going to be speaking about that before the UN in the next day or two. Do you think these ideas will be well received on the global stage, having a duty of care and a ban on under-16s using social media? I think they have. They're proving very popular. More than a dozen countries are discussing reenacting a social media age path.

16:11Australia, we'd actually lead the world in digital regulation. It's actually something the Prime Minister can be quite proud about. It's something for him to sell his trying to win a seat, I think, on the UN Security Council. It definitely shows that we can lead the way in making the world safer, at least in the digital space. So overall, it should be hopefully a beneficial trip for Australia and for AI in general. I hope so. I hope it's a beneficial trip for the Prime Minister. I hope it's a beneficial trip for Australia. We win that seat on the UN Security Council. It's up to the Prime Minister to bargain hard. Toby Walsh, Professor UNSW, thanks for your time. Roger. After break, we've got our regular Monday property segment where we recap the auction clearance rates with RIA Group. Welcome back. There were about 1550 auctions held across Australia on Saturday. Returning a clearance rate of about 46%, Sydney held about 570 auctions with a clearance rate of about 39%. Melbourne held about 600 auctions with a clearance rate of about 56%.

17:25Brisbane held about 110 auctions with a clearance rate of about 34%. Adelaide held about 60 auctions with a clearance rate of about 51%. And Canberra held 43 auctions with a clearance rate of roughly 65%. So to talk property, I'm joined by Elder Kray from RIA Group. Eleanor, thanks for your time. Auction clearance rates still pretty low. Do you think things are going to pick up for the next few weeks or going to remain below that 50% level? Yeah, look, I mean, auction clearance rates still remaining pretty soft as we're moving through the early part of the spring selling season. Fewer than half of properties headed to auction this this weekend actually sold. And in Sydney, that auction clearance rate is particularly weak, a little bit higher in Melbourne. Sydney also has a pretty high withdrawal rate at the moment. So kind of showing us that where vendors aren't going to meet that price that they're after, they're choosing to withdraw their property from the auction sale method. I mean, it's no surprise that auction clearance rates are pretty soft. We know that buyers have a lot of negotiating power at the moment.

18:29There's a lot more stock on market. And I think with borrowing capacity being constrained and prices moving lower, there's simply a lot less urgency from buyers. So I'd expect that we see these kind of softer auction market conditions remaining probably throughout most of the spring selling season while prices are moving lower. So does that mean properties are taking longer to sell at the moment? They would previously as well or? Yeah, so it's quite interesting. We are seeing that not only are the total volume of stock on market picking up at the moment, not only buyers kind of holding the upper hand with negotiating power. We can see that in auction clearance results, but we can also see that in the time that a property is taken to sell. So nationally, we're seeing that since April, the median time it takes for a property to sell that's listed on real estate.com.au has increased by around two weeks. And that's around eight days longer than this same time last year. So certainly we're seeing that properties are taking longer to sell. It's another reflection, I think of that fact that buyers have much less urgency to move and compete.

19:30And that buyers have in some respects withdrawn a little from the market with prices falling, borrowing capacity being restrained, constrained interest rates, potentially moving higher again in September. So really kind of creating those conditions where a lot of those potential buyers are kind of sitting on the sidelines and waiting to see how things unfold. Yeah, we've obviously got the next RBA board meeting next week. So clearly they're expected to raise interest rates again. What could that do potentially to property prices over the next few months? Is that just going to put further dampener on everything? I think that's about it. So we've already seen three interest rate rises this year and with those three rate hikes, we've seen that conditions have shifted markedly. We've seen that prices are falling in pretty much every capital city market except Darwin, Sydney and Melbourne really bearing a brunt of that downturn. So we're already seeing that the effect of higher interest rates is weighing on the housing market. Certainly with another interest rate rise next week, I'd expect that that downward pressure on home prices continues into the end of the spring selling season and really into the end of the year.

20:34We know that borrowing capacity has been constrained quite substantially affordability is at record low levels. And I think at the moment we have an environment where weaker sentiment is also playing into what we're seeing in the housing market, those taxation changes, causing a pull back to investors as well. So really all culminating in kind of weaker confidence, weaker sentiment, a withdrawal in home buying demand and as a result further downward pressure on home prices. But you mentioned there are some parts of the country where listings are picking up. Are there any areas which are doing better than others? Yeah, again, this is where the national figure kind of hides a little bit of what's going on behind the scenes. So naturally we saw that new listings in August were down around 2%. In Sydney and Melbourne, that's a lot larger. They're down around 20% compared to August last year. But in those smaller capital cities, new listings are up around 20% in each Perth, Adelaide and Brisbane compared to August last year. So some quite different conditions unfolding across the capital cities, but interestingly total stock on markets, so total listings up in pretty much every capital city market.

21:43So the overarching picture is one where buyers have a lot more choice, a lot more power at the negotiating table. And that's another factor that's continuing to put downward pressure on home prices. Well, certainly sounds like a buyer's market, Ilana Kree. Thanks so much for your time. Thank you for having me. And that's all for today's program. Thanks so much for your company today. Now it's time for the Kenny Report with Chris Kenny.