Are rate rises still the best way to manage inflation?

Just when we thought it was safe to return to the supermarket aisle, it seems inflation has come back to bite us again. Worse, the Reserve Bank of Australia (RBA) predicts it will linger for longer than previously expected, adding to cost-of-living concerns.

So, what is inflation, and what causes it? Do we have to worry about inflation? And if so, what are the options for getting it back under control?

What is inflation and how is it measured?

Inflation is a sustained rise in the general level of prices for goods and services purchased by households.

In Australia, inflation is measured by the Consumer Price Index (CPI), which is calculated by the Australian Bureau of Statistics and published every month.

The CPI consists of a basket of goods and services consumed by the typical household. Each month, the Bureau of Statistics calculates the price changes of items in the CPI basket from the previous month, and combines them to work out the inflation rate for the entire basket.

For example, if milk increased during the month by 2% and haircuts by 5%, then the overall inflation rate would include those two price rises based on the item’s weight in the CPI basket.

Each item’s weight in the CPI basket reflects the proportion of a household’s total spending on that item. For example, housing (21%) is the largest category, followed by food and non-alcoholic beverages (17%), recreation and culture (13%, including holiday travel) and transport (11%, including petrol). Communications (2%) is the smallest category.

What causes inflation?

Inflation results mainly from the interplay between demand and supply of goods and services in the economy. Other influences include the level of the Australian dollar, and household and business beliefs about the future path of inflation.

If demand outpaces supply, this excess demand puts upward pressure on prices. This is known as “demand-pull” inflation and is the cause of Australia’s current inflation problem. Inflationary pressures ease when the opposite occurs, which is why inflation falls during recessions.

In contrast, “cost-push” inflation happens when it becomes harder or more expensive to produce goods and services, so supply falls relative to demand. This happened during and after the COVID pandemic, when shipping and other bottlenecks delayed the arrival of goods, causing inflation to spike.

Why worry about inflation?

Inflation is a concern because it erodes living standards. If your wages don’t keep up with inflation, your purchasing power will be diminished. It’s worse for people on low or fixed incomes such as pensioners.

This causes people to devote time and resources to coping with rising prices rather than developing new products or services that create real value.

Inflation also penalises savers by reducing the value of their savings, while benefiting borrowers who repay debts with money worth less than when they borrowed it.

If left unchecked, inflation can be very costly to get back under control, as Turkey’s experience with inflation above 30% shows.

If inflation causes problems, why not aim for zero inflation? While it would be nice for prices to stay constant, achieving zero inflation is not ideal either.

For starters, the CPI as a measure of inflation is imprecise. It has some biases, meaning a small positive number is probably close to zero anyway. Some modest inflation is needed and is a sign of a growing economy.

What is the best way to manage inflation?

The RBA is responsible for dealing with inflation. It does so by raising or lowering the official cash rate, which changes the interest rates we all pay. That flows through to borrowing costs across the economy for households and businesses, and thus influences demand.

But interest rates are a blunt instrument for managing inflation because they affect the whole economy and not just the source of inflation. And interest rates can’t deal with cost-push inflation either.

As a result, some commentators question the effectiveness of using interest rates as a tool for tackling inflation in Australia.

Instead, some are suggesting alternative options, such as:

Both suggestions might be effective in controlling total demand through changing the spending decisions of households. They would have little impact on businesses.

However, since both options would require changes to legislation, the process would require political agreement and could take years to pass. In contrast, changes in interest rates start flowing through to the economy in a matter of days.

More importantly, these alternative options only affect demand and consequently inflation via household spending or the “cash-flow” channel.

In comparison, interest rates affect demand through two other channels, which research by the RBA suggests are more important. These include the wealth channel (mainly house prices) and the exchange rate. Both channels would be lost under the alternative options.

Is there anything the government can do?

Unfortunately, there is no easy fix for Australia’s current inflation problem. The federal government does have a role to play though. In the short term, it could implement policies such as tax hikes or curbing government spending, which seem to be on the agenda for the federal budget in May.

Longer-term, the key to fixing Australia’s inflation problem is by boosting productivity, which has stalled in recent years.

Here the government could implement policies to bolster the supply-side of the economy via deregulation, invest in education and infrastructure, and encourage business growth to boost production capacity.

This would lift the economy’s “speed limit” so it can grow faster without stoking inflation. But this will take time.The Conversation

Luke Hartigan, Senior Lecturer in Economics, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

8 things you need to know about Angus Taylor, the frontrunner to challenge Lib leader Sussan Ley

Angus Taylor has all the on-paper qualifications to be opposition leader. But there are big questions over how well he could do the job, when a miracle worker is needed to lift the struggling Liberal Party from its existential crisis.

Taylor’s political story so far is regarded by many observers and not a few colleagues as one of unfulfilled promise.

If he wins the leadership, he would take over with the party at its lowest, considered to have no prospect of victory at the 2028 election. The first realistic chance for Taylor, now 59, of becoming prime minister would be 2031 – a very long time to survive as opposition leader in this poll-driven era.

His background

Taylor is a Rhodes scholar, with strong qualifications in economics, and an impressive business career behind him, which include having been a director at Port Jackson Partners, a business consultancy firm.

Rod Sims, also a Port Jackson director at the time (and later head of the Australian Competition and Consumer Commission) describes Taylor as “extremely intelligent. He was very, very good at what he did, advising boards of some of the largest companies on corporate strategy”.

Few would doubt Taylor, when elected for the NSW regional seat of Hume in 2013, had his eyes on the ultimate prize, a view reinforced by glowing publicity at the time.

His views and controversies

Over the years, however, several personal controversies dogged him, ranging from questions over alleged illegal clearing of protected grassland by a company in which his family had a financial interest (he denied any wrongdoing) to the use of a mysterious and misleading document (which he could never explain) to attack Sydney Lord Mayor Clover Moore.

In his maiden speech, condemning political correctness, he made an inaccurate claim about living in the same corridor at Oxford University as feminist writer Naomi Wolf, later to be embarrassed when she said she wasn’t at the university at the time. When in trouble he never seemed able to find his way out of it cleanly.

His experience in politics

Taylor’s frontbench experience includes serving as minister for industry, energy and emissions reduction in the Morrison government and as shadow treasurer in Peter Dutton’s opposition.

His time in the latter post wasn’t happy. He struggled against Treasurer Jim Chalmers. According to Niki Savva in her book Earthquake, Dutton thought Taylor a “terrible retail politician who produced policies that could not be sold or explained to the public”.

His economic background

Taylor wanted the opposition to respond to the government’s 2025 budget tax cuts with an alternative tax policy. But Dutton rejected that, and the opposition went into the election (disastrously) giving the government a big break on the tax issue.

Former Liberal treasurer Peter Costello told The Australian’s Troy Bramston, “At the last election, [the Liberals] got themselves into a position where they were proposing to increase income taxes, run bigger deficits, no real plan to reduce debt”.

Regardless, Taylor as leader would be most comfortable talking about the evils of debt and deficit. But today’s voters no longer care so much about those, and want government to do more, not less.

One economist who has observed Taylor over the years describes him as “very smart and a very good economist”, not a hardline dry but with a market approach of the Howard-Costello era. “He’s in the right party – if it were the party of 20 years ago”. But things have changed.

“I’d be stunned if the times suited Angus Taylor,” this source says. “Would we see the Angus Taylor of his convictions, or Angus Taylor pushed around by the populism of the moment? How would he battle One Nation? That’s hard to do from the viewpoint of market economics.”

In economics Taylor is in the Liberal mainstream, but on climate policy he’s been something of a weather vane.

His climate change opinions

In his business career he was very alive to the climate change issue and a supporter of renewables. But years later, he was against Malcolm Turnbull’s attempt to bring in a National Energy Guarantee (the NEG), a plan to reduce emissions while ensuring the reliability of the grid. Under Scott Morrison he advocated the net zero by 2050 target. In opposition he was one of those opposing it, walking shoulder to shoulder with Andrew Hastie and other conservatives into the party meeting ahead of the dumping of the Liberal commitment to the target.

Turnbull says pointedly, “Angus’ views on energy were more enlightened when he was working for Rod Sims [at Port Jackson] and supported an economy wide carbon price”.

How he's perceived

One of Taylor’s strongest supporters is former MP Craig Laundy, who was a close ally of Turnbull.

Laundy entered parliament at the same time as Taylor, and they’ve kept in touch in recent years. When Laundy had ministerial responsibility for deregulation and Taylor oversaw digital policy. Laundy found him “very good to work with”.

Laundy rejects the perception of some that Taylor has a “born to rule” attitude. “It’s harsh and unfair. He was always a very good communicator and I think [if he is leader] he will surprise many on the upside of how he will connect with the community across the board,” Laundy says.

In his personality Taylor is self-confident but reserved. One source notes a certain vulnerability – a nervousness before a speech, afterwards wondering how it went.

Many disagree with Laundy’s assessment that Taylor communicates well, and even fans see a need for improvement. A former parliamentary colleague says, “Like a lot of really bright guys, Angus can sometimes get into over-analysis of things”.

His views on gender and quotas

Certainly if he were opposition leader, how well he could communicate with women would be crucial. His views on quotas mean he would likely start with a handicap in the eyes of many women.

He said last year:“We absolutely need more women in the party at every level, whether it’s members of our branches, whether it’s on our executives, whether indeed it is as members of parliament, and I think there’s a huge job for us, [but] I have never been a supporter of quotas”.

One prominent Liberal woman outside the parliamentary party, who likes Taylor personally, says he is a “caricature of a Liberal male – males who have managed to progressively alienate women from the Liberal party”.

Another muses:“He’s very handsome, well read, tall and a good farmer – but entirely lacking in charisma. How can that be possible?”

As leader Taylor would have to reach out across the party in a way he has never needed to before. “Retail politics” can be as important within a party – especially a fractured one – as with the electorate.

How he got here

As the most senior member of the conservative faction, Taylor saw himself as the logical opposition leader after the 2025 election. In a serious misjudgement, he encouraged the defection from the Nationals of Jacinta Nampijinpa Price as his potential deputy. Taylor lost to Ley (25-29); Price then did not put up her hand.

He assumed Ley would fail, although he did not want to bring on a challenge this soon. But when the pushy Hastie started to force the issue, Taylor was clear: it was his turn next.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Former 'market-darling' CSL dumps CEO as it reports results

CSL’s board has moved to hit the reset button just hours before a crucial earnings report.

Late last night, CSL confirmed chief executive Paul McKenzie will retire, with long-time company executive Gordon Naylor stepping in as interim CEO while a global search begins. The timing, less than 24 hours before the highly-scrutinised half-year result, caught the market off guard.

Peter Switzer this morning described the move as unsettling in his daily briefing, noting that leadership exits immediately ahead of earnings are rarely interpreted kindly by investors.

He said the market was left guessing whether McKenzie “left through the door or was shown the door”, adding that the late-day disclosure itself unsettled the broader market.

That unease is grounded in hard numbers. Upon releasing its results, the first-half result shows a company still deep in transition. Underlying net profit after tax fell 7 percent to US$1.9 billion, while reported profit collapsed 81 percent to US$401 million after restructuring costs and asset impairments totalling more than US$2 billion.

Revenue declined 4 percent to US$8.3 billion, with key pressures coming from government policy changes, generic competition in iron products and lower albumin sales following regulatory shifts in China. Immunoglobulin sales also softened, although CSL pointed to sequential improvement in the December half.

CSL's impairments were also notable, with the health giant writing down US$843 million in intangible assets linked mainly to its Vifor and Seqirus businesses. This was alongside further hits tied to accelerated manufacturing changes in the US. Management insists these moves are clearing the decks for future growth. Read: don't panic.

On Switzer Investing TV of late, healthcare stocks have repeatedly come up as a sector stuck in no-man’s land, no longer growth darlings, not yet obvious value plays. CSL, once considered one of the market’s most reliable compounders, has become emblematic of that shift.

One guest summed it up bluntly in this week's show, saying CSL still “has a bit of a smell about it”, even as other healthcare names like ResMed remain easier to back on fundamentals. The common refrain has been that CSL needs evidence, not promises, that its long-running transformation will translate into earnings momentum.

The company board knows it, too. CSL's Chairman Brian McNamee said the company needs “new leadership to continue to drive CSL’s strategic transformation and performance”.

McKenzie, who led CSL through COVID disruptions and expanded plasma collection capacity, acknowledged the past three years had been challenging. His departure follows a period marked by cost blowouts, margin pressure and repeated resets of investor expectations.

Peter added this morning that the real test now lies not in the leadership handover but in what today’s result says about the road ahead. He has noted that many long-term investors have been averaging down into CSL for months and are “praying for a great report” to justify that patience.

CSL has maintained full-year guidance of 2 to 3 percent revenue growth and 4 to 7 percent NPATA growth, excluding restructuring and impairments, betting on a stronger second half driven by immunoglobulin, albumin and newly launched therapies. It has also expanded its share buyback to US$750 million, signalling confidence in its balance sheet.

The market, however, will be looking for more than reassurance.

Bunnings wants to fix the housing crisis by selling tiny homes

Australia is in a deep housing crisis.

The latest National Housing Supply and Affordability Council analysis shows the country is likely to fall more than a quarter-of-a-million homes short of the federal government’s target to build 1.2 million homes by 2029. Its data shows only around 938,000 dwellings are expected to be built in the five-year period, leaving a shortfall of about 262,000.

Another economic estimate suggests demand exceeds supply by 200,000 to 300,000 homes, pushing prices and rents higher as Australians compete for a limited stock of houses.

This gap between demand and supply is why many voices in policy and industry argue traditional ways of building houses are too slow and too expensive.

As Bunnings, Australia’s biggest hardware retailer starts selling tiny homes, it feels like a turning point.

But are backyard pods the answer to a national housing crisis?

Prefab and modular homes in Australia

In response to slow and costly traditional building, many in industry and government have pointed to modern solutions such as modular, prefab or even 3D-printed homes as a key part of the solution.

The idea is to make components or whole sections of homes in dedicated facilities and then assemble them quickly on site.

Recent government analysis shows some of these factory-based homes can be built up to 50% faster than conventional construction, helping speed housing delivery.

The market for prefab and modular buildings is growing in Australia and globally.

The Australian prefab construction sector is valued at A$12.91 billion and is forecast to grow by about 7.88% a year.

However, these methods account for less than 8% of the construction sector.

This is far below countries such as Sweden, where prefab makes up a majority of detached housing.

Bunnings’ pods: novel but not the solution

Bunnings has recently started selling flat-pack backyard pods that have captured attention.

The pods, small modular units costing from about $26,000, can be assembled in days.

At first glance, this looks like an affordable housing innovation. But the reality is more nuanced.

These pods are fundamentally temporary. Their size, layout and fit-out reflect short-term or secondary use rather than long-term residential living.

Beside this, many pods avoid full planning or building approval in some locations, which is a strong signal they are being treated, legally, as ancillary structures.

They are most useful as offices, studios, guest rooms or extra space but unlikely to be suitable as permanent homes for families.

While the price is eye-catching, it does not include site preparation, ground works, connections for power and water, or any compliance costs, all of which can add substantially to the final price.

Buyers would also need somewhere to put the pod – either owning land, or being able to use someone else’s.

Permits and approvals may be required depending on the location and intended use, further complicating the picture.

Bunnings has not said it is entering the housing market to help solve the national crisis. But its decision to partner with prefab manufacturers comes as major lenders and builders are embracing factory-built housing as part of broader affordability responses, and as analysts note growing consumer interest in faster, lower-cost housing options amid soaring property prices.

Why scale matters

The key to reducing housing costs through industrialised construction is scale.

When production levels are small, factories cannot spread fixed costs over many units.

This results in high prices, even if units can be completed quickly.

In countries where factory-built housing works at scale, companies build the same homes repeatedly. That allows workers to get faster and factories to spread the cost of specialised equipment across many homes. They also have strong supply chains for components and labour.

By comparison, Australia’s sector is still small and most manufacturers produce only a handful of units each year.

Without big volumes and steady demand, off-site building can’t unlock real cost reductions.

That said, Bunnings’ entry is noteworthy.

It shows mainstream retail channels see a business opportunity in modular building products. It may help raise public awareness of alternative construction methods in everyday Australian life.

What are the long-term fixes?

The housing challenge will not be solved by pods.

What is needed is much larger investment into these alternative methods of construction, from both state and federal governments, aligned with international partnerships that bring technology, expertise and industrial scale.

Countries that have succeeded in using factory-built homes at scale have done so through coordinated policy support, strong industrial strategies, workforce training and investment in manufacturing facilities.

Some also combine this with land reform, faster approvals and direct procurement of homes for public needs.

A way forward

Bunnings’ backyard pods may be an interesting new product line.

They can provide extra space and appeal to certain buyers but they are not a long-term housing solution for most Australians.

Bunnings is riding the shift toward factory-built housing but the real shift is bigger: Australia needs to build high-quality homes at scale, not just sell small pods.

Australia needs a dramatic expansion of factory-based building capacity, supported by policy, investment and a clear pathway from small prototypes to large-volume, high-quality homes for communities in need.The Conversation

Ehsan Noroozinejad, Senior Researcher and Sustainable Future Lead, Urban Transformations Research Centre, Western Sydney University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Can One Nation turn its popularity into major party status?

Andrea Carson, La Trobe University and Finley Watson, La Trobe University

Recent polling has delivered a spike for the anti-immigration party One Nation, triggering media speculation that Australian politics is on the cusp of a populist realignment.

The latest Newspoll had Labor on 33%, One Nation on 27% and the Coalition on just 18% of primary votes, which constituted both an historic high for One Nation and an all-time low for the Coalition.

Headlines tell us Pauline Hanson’s party is “soaring”, with some analysts asking if she could lead the country or emerge as opposition leader amid a populist uprising.

Yet, the evidence for either of those happening is thin. For a start, it relies on mid-term polling following a landslide victory for Labor in the 2025 election – in other words, is shows one in four Australians would currently vote for One Nation.

A 27% primary vote is certainly a notable boost for Hanson’s party. But framing it as a pathway to One Nation leadership misreads what is fundamentally a Coalition-induced problem. Here are several reasons why One Nation’s support is likely to hit a ceiling.

Historically, One Nation’s limited electoral success has been mostly in Queensland (22.7% first preference in the 1998 state election) and upper houses, where it currently holds four Senate seats out of 76.

Even then, the two One Nation senators contesting the 2025 election were well below quota on primary votes and relied heavily on Coalition preference flows to leapfrog rivals in the WA and NSW count. It was as much about a Coalition preference deal as a One Nation success story.

Australian prime ministers emerge from the lower house (the brief exception was John Gorton), where One Nation has virtually no presence beyond the defection of former National party leader, Barnaby Joyce. Turning a poll spike into a One Nation government would require Hanson (or Joyce) to contest a lower house seat, sustained national support across diverse issues, and a leap from niche anti-immigration messaging to broad policy appeal.

Mid-term polls, especially those not counting undecided voters, often reflect protest sentiment rather than durable electoral momentum. Excluding undecided voters fails to show the degree of voter volatility, especially this far out from a full-term election due in 2028.

Labor’s primary vote has also softened, taking on heavy criticism for its response to the Bondi massacre, and with interest rates rising again and renewed mortgage pain, it too is not immune to a mid-poll protest vote.

Governments (and opposition parties) can suffer mid-term slumps without translating into election losses. Only a year ago, polling pointed to a one-term Labor government and a Coalition victory. Five months later, Labor secured an unprecedented 94-seat win and Liberal leader Peter Dutton lost his own seat.

As former British Prime Minister Harold Wilson, once quipped: “A week can be a long time in politics”, so too with early polling and the final ballot.

One Nation’s recent boost is framed as a rise in right-wing populism tapping into a wave of global anti-immigration sentiment.

But there’s no denying voter frustration with Liberal–National infighting. Sussan Ley’s weakened leadership, with Angus Taylor openly canvassing for her job, has created openings for protest from disaffected Coalition supporters. A quarter of voters at the last election had already moved away from the major parties leading to the rising tide of the independents, particularly the teals, at the expense of former (moderate) liberal heartland seats like Kooyong in Victoria.

Twice in nine months, the Coalition partnership has imploded. It has been patched back together again now, but few see this as a solid arrangement, and most expect an imminent leadership spill in the Liberal Party.

While dismayed National voters could switch to One Nation and follow Joyce, it would put a handful of National seats in play at best. This is especially so given the Queensland version of the party, the Liberal National Party, remains a united single entity against the federal Labor government.

Further, the likelihood of moderate Liberals agreeing to a One Nation–Liberal Coalition replacing the Nationals, is fanciful. Liberal member for Flinders Zoe McKenzie dismissed this notion last week.

Geography and candidate quality further limit Hanson’s prospects. Australia’s population is concentrated on the east coast, where One Nation’s support is uneven, and weak in major cities. Some commentators suggest current polling and high profile recruits such as Cory Bernardi could see upcoming state elections produce lower house One Nation representatives. Even so, state voting patterns are not good predictors of federal election outcomes. Queensland is a good example of that.

One Nation has long struggled to recruit candidates capable of surviving media scrutiny and upholding parliamentary responsibilities. Since the party’s inception until 2023, out of 36 One Nation representatives at state and federal level, only seven have lasted long enough to face re-election. The party’s history of candidate controversies – think of Hanson’s falling-outs with Mark Latham, Fraser Anning and David Oldfield – have been a drag on the party.

Structural factors reinforce these limits. Preferential and compulsory voting systems favour parties with broad public appeal, making it hard for niche-issue parties like One Nation to translate short-term polling attention into seats.

Hanson’s decades-long focus on immigration, cultural threat, and elite betrayal grabs media attention. She is a shrewd political communicator whose polling narratives and immigration rhetoric reinforce one another, driving visibility and public engagement. For example, a Sky News clip of Hanson headlined “Polling higher than the Liberals” currently has 272,000 views. Another segment on immigration, framed around claims that migrants “don’t want to assimilate”, has drawn 180,000 views.

Yet, the party’s message amplification should not be confused with persuasion. These are the same anti-migration themes Hanson has promoted since the 1990s, with limited success in expanding her electoral base. They ignore immigrants’ vital roles in Australia’s health and regional workforces, and in Australian society more generally.

While anti-immigrant sentiment has risen in the wake of the horrific Bondi terror attack, issue salience fluctuates. The most important issues closer to polling day are typically broader, such as cost-of-living pressures, housing affordability, health and aged care. And the next election is still two years away.

For now, the polls tell us more about voter frustration, volatility and media incentives than about who will govern Australia in 2028.The Conversation

Andrea Carson, Professor of Political Communication, La Trobe University and Finley Watson, PhD Candidate, Politics, La Trobe University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Aussie tech stocks: opportunity or value trap?

Australian tech stocks have taken a brutal hit — but is the sell-off finally over?

In this episode of Switzer Investing TV, Peter Switzer is joined by Adam Dawes (Shaw and Partners) and Paul Rickard (The Switzer Report) to unpack whether Australia’s battered tech sector is offering genuine value… or just tempting investors into a classic value trap.

The panel dives into:

 

With markets swinging on sentiment, AI hype, and earnings expectations, the big question remains: are Aussie tech stocks worth the punt right now — or is patience still the smarter play?

Is government spending really to blame for higher inflation?

There has been a spate of articles and commentary in recent days calling on the Australian government to reduce spending.

Those calling for government cuts – mostly long-time advocates of smaller government – claim this would lower inflation, and as a consequence reduce interest rates.

In fact, claims that government spending is now a very large share of the economy are exaggerated.

So, what’s actually going on with government spending?

Federal government spending has fluctuated between 23% and 27% of the economy (gross domestic product or GDP) since the mid-1970s. The exception was a spike during the COVID pandemic. Its current level is not particularly unusual.

Straight talking from the RBA

The latest Reserve Bank forecasts estimate that “public demand” (spending by all governments, federal, state and local) expanded by 2.2% during the course of 2025. This was less than the growth in consumer spending (3.1%), home building (5.5%) and business investment (2.5%).

Nor has increased government spending on services led to a wage explosion in the public sector, which was a significant contributor to inflation in the 1970s.

Both public and private sector wages have been growing around an average of 3.5% in recent years.

Michele Bullock, the Reserve Bank governor, does not try to direct the government on fiscal policy. Likewise, the government does not tell her what to do with interest rates.

The RBA prides itself on independence. Bullock is an independent agent and a direct speaker. If she thought government spending was the main force driving up inflation, she would say so.

Asked directly at her press conference this week, she instead cited other factors driving the pick-up in inflation:

Under questioning in parliament, Treasurer Jim Chalmers has also said government spending has not contributed to the latest rate rise decision.

How do we want our taxes to be spent?

An increase in government spending without a matching increase in taxes would, in theory, fuel higher inflation. However, it would depend on the type and location of the spending.

Spending on foreign aid in other countries (or for that matter on US submarine shipyards) pushes up domestic demand by workers and companies in those locations – not in Australia.

It is entirely reasonable for the community to decide it wants a greater share of its resources to be spent collectively. It may want better health and child care or support for the disabled, for example. This is not inflationary if funded from taxes, as the taxes reduce other areas of demand.

The government budget has moved back into deficit this financial year, after two years in surplus. But the current position, and projections over the next decade, are for relatively small deficits by historical standards.

The projected deficits are also lower than in many comparable countries.

There is no correlation between high government spending and high inflation. Nordic countries with much larger governments than Australia, such as Norway and Sweden, have inflation rates of 3.2% and 0.3%, respectively. Turkey, with some of the lowest government spending and debt among advanced countries, has an inflation rate persistently higher than 30%.

Where government spending can lift prices

It could be argued that it would be better for Australia to return to budget balance more quickly. This would make us better placed to respond to a future recession.

But the current fiscal settings are not the primary cause of the uptick in inflation.

They are, at best, a contributor in some areas of the economy. For example, infrastructure spending during COVID caused prices to rise in construction, more generally.

Other things being equal, cutting government spending, while leaving taxes unchanged, could in theory help reduce inflation. It is incumbent on those arguing for this to specify precisely what they would cut.

To make a difference to inflation, cuts would need to be large, targeting areas where spending is growing the fastest, such as health, the National Disability Insurance Scheme, defence and natural disasters.

Trimming at the margins — for example, cutting public service budgets — would not help much. In any case, the federal government has reportedly already asked public service department heads to suggest where 5% could be cut.

In health, costs are rising mainly due to advances in medical technology, which then leads to government spending. This pressure is hard for government to push back on. Voters tend to prefer a longer and healthier life over helping the government reduce inflation.

Another way government can help inflation is on the supply side, by improving productivity. That is a long, hard journey, but one that offers more promise in the long term.The Conversation

Stephen Bartos, Professor of Economics, University of Canberra and John Hawkins, Head, Canberra School of Government, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Would cutting the capital gains tax discount slash house prices?

Capital gains tax is once again the subject of parliamentary debate, with Treasurer Jim Chalmers declining to rule out options for reform.

Along with negative gearing, the capital gains tax discount has long been suggested as one cause of Australia’s housing affordability crisis.

The tax applies to the capital gain when an asset is held for more than a year, and it currently includes a “discount” of 50% on the total gain as a nominal offset for inflation.

These policies make speculative investment in housing more attractive, driving up prices and making it harder for first home buyers.

The true cost to the federal budget

Australia only introduced a capital gains tax in 1985, applying it to all gains made from investments. Importantly, the family home was not included, but investment properties were. Originally, the tax applied to the gain in value above inflation, known as the consumer price index (CPI) method.

In 1999 the Howard government, informed by the Ralph Inquiry, changed the way capital gains tax was calculated. A flat “discount” of 50% was applied to capital gains, rather than adjusting the price by inflation. This figure was an estimate given the limitations with the available data.

Each year, Treasury calculates the costs of tax policies. This data reveals that in 2024–25 the 50% discount cost the budget an estimated $19.7 billion. This is partly driven by increases in housing prices which have far outpaced inflation, as shown below.

It is notable that between 1986 and 1999 housing prices were growing slightly faster than inflation, but since 1999 (the year the 50% discount was introduced) they have accelerated.

The benefits flow to the wealthy and people over 60

The benefits from the capital gains tax discount overwhelmingly benefit the wealthy and older people.

The Treasury’s Tax Expenditure and Insight Statements show that in 2022–23 89% of the benefit went to the top 20% of income earners, with 86% flowing to those in the top 10%. On average, the highest income earners received a benefit of more than $86,000, while those in the bottom 60% received around $5,000.

Similarly, older people benefit far more than younger people. People over 60 received 52% of the benefit, while those between 18 and 34 received 4%. That is despite both groups comprising around 29% of the adult population.

Some options for reform

Current attention is centred on the prospect of the government reducing the capital gains tax concession for landlord investors in residential property. This reduction would have the combined effect of reducing the attractiveness of owning an investment property.

A further option is to retain this “gift” to landlords and investors, but to make it work much harder to improve housing outcomes, especially for households who are caught in the lower-quality end of the private rental market.

We have previously proposed to make negative gearing and capital gains tax concessions available only to investors who adhere to higher national dwelling and tenancy quality standards or who participate in social housing investment schemes. Landlords who did not want to operate according to these requirements would not receive either negative gearing or capital gains tax concessions.

How the housing system rewards wealth, not work

But a bigger problem lies beyond the investor segment of the residential housing market.

The total overall value of Australia’s residential stock is around $12 trillion. Of this, about $4.5 trillion is growth since 2020, spurred in part by very low interest rates over 2020–22. Around 65% of residential dwellings are owned by owner-occupiers, who are exempt from paying capital gains tax on their primary residence.

Growth in dwelling prices is due to many factors. Income growth and availability of credit are among the most important.

Since the deregulation of Australia’s financial sector in the 1990s, greater access to housing finance and relatively low interest rates have allowed households to leverage their incomes into tax-free capital gains in housing.

Wealthier households can gear their incomes and existing assets into even more valuable housing assets that they can also live in. This comes at the expense of households with lower incomes and assets, or those who are renters.

There is no sound economic reason why owner-occupied housing should be exempt from capital gains tax.

A more rational taxation system that supports home ownership but discourages asset speculation could provide greater financial support to first home buyers but also demand a greater tax share of the capital gains that their asset enjoys.

The tax rate could be set to allow capital growth in line with inflation, wages or the economy (gross domestic product), but then apply to the gains beyond that.

Such an arrangement could also tax higher-value properties at a higher rate than cheaper properties – thus tilting the burden of taxation towards the wealthy whose properties see the greatest capital growth.

The Conversation

Jago Dodson, Professor of Urban Policy and Director, Urban Futures Enabling Impact Platform, RMIT University and Liam Davies, Lecturer in Sustainability and Urban Planning, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Your investor calendar: what to watch on the markets this week

This week, investors will be watching closely for fresh reads on household spending, inflation and housing — with multiple central bank officials scheduled to speak. The RBA remains in focus as Governor Michele Bullock testifies before the Senate on Thursday, while the US and China both release CPI figures on Friday.

Monday February 9

Monthly Household Spending Indicator (December)
Spending is tipped to fall 0.3% — a sign of caution among Aussie consumers.

Tuesday February 10

CBA Wage and Labour Insights (January)
A key proxy for wage inflation and jobs momentum.

Monthly Consumer Confidence Index (February)
From Westpac and Melbourne Institute — key sentiment barometer.

NAB Business Survey (January)
Business conditions and confidence both picked up in January.

US NFIB Small Business Optimism Index (January)
Expected to lift slightly to 99.8 from 99.5.

US Import & Export Price Indexes (December)
Import prices edged up 0.1% in November.

US Retail Sales (December)
Retail spending expected to rise 0.4%.

Wednesday February 11

RBA Deputy Governor Andrew Hauser speaks
Remarks at the ACCI Business Leaders’ Lunch in Sydney — may offer insight on RBA outlook.

Lending Indicators (December Quarter)
Home loans could jump 6.0% — a big month for housing finance.

US Employment Cost Index (ECI, December Quarter)
Wage growth tipped to slow to 0.8%.

China Consumer and Producer Prices (January)
Core CPI expected to fall to 0.3% from 0.8%.

US Nonfarm Payrolls (January)
Around 50,000 jobs may have been created.

Thursday February 12

RBA Governor Michele Bullock Testimony
Speaking before the Senate Economics Legislation Committee — likely to be market-moving.

US Existing Home Sales (January)
Sales could fall 3.2% to 4.21 million.

Friday February 13

RBA Assistant Governor (Economic) Sarah Hunter speaks
Remarks at the CEDA event in Perth — final RBA voice for the week.

CBA Household Spending Insights (January)
A high-frequency measure of real-time spending.

US Consumer Price Index (CPI, January)
Annual core CPI tipped to rise 2.5% from 2.6%.

China New Home Prices (January)
Home prices have now fallen every month since May 2023.

Key themes to watch

Check back next week for the latest investor calendar — only on Switzer.

Why the Winklevoss Twins are now pulling out of Australia

When Cameron and Tyler Winklevoss launched their cryptocurrency exchange Gemini into Australia in October 2025, the timing looked deliberate and confident.

The time was October 2025. Remember how young we all felt? Bitcoin was trading above US$120,000. Retail participation was strong. Australia was being pitched by crypto firms as a mature, regulated market with high adoption and improving payments infrastructure. Gemini registered with AUSTRAC, hired locally and rolled out Australian dollar banking rails via Osko and the New Payments Platform.

Now, four short months later, Gemini is leaving.

The decision is part of a broader retreat that will see Gemini exit Australia, the UK and the EU as it refocuses almost entirely on the United States. In a blog post published overnight, founders Cameron and Tyler Winklevoss said the move was apparently driven by efficiency, artificial intelligence and a need to simplify operations.

The market backdrop tells a less flattering story.

A confident entry

Gemini’s Australian launch was framed as a long-term commitment. The company cited its Global State of Crypto Report, which estimated around 22 per cent of Australians already owned digital assets, a figure comparable to the United States.

The exchange appointed James Logan as head of Australia, rolled out local payments and positioned itself as a regulated alternative for mainstream investors uneasy about offshore platforms.

At the time, Gemini described Australia as one of the world’s most exciting crypto markets. The message was clear. This was not a speculative beachhead, it was supposed to be a durable expansion.

That narrative has not aged well.

Since October 2025, bitcoin has fallen from around US$124,000 to roughly US$64,000 as of today, and there's no end to the fall in sight. The broader crypto market has followed, wiping hundreds of billions of dollars from valuations, slashing trading volumes and compressing margins across exchanges.

For global platforms, the economics of running local operations in smaller markets have deteriorated quickly.

AI, efficiency and headcount

In their blog post, the Winklevoss twins put artificial intelligence front and centre.

They argue AI has fundamentally changed productivity, turning what they describe as 10x engineers into 100x contributors and allowing far smaller teams to do more work, faster. Gemini’s workforce has already shrunk from a peak of about 1,100 in 2022 to roughly half that size by late 2025. A further 25 per cent cut is now underway.

The company says a smaller organisation, armed with AI tools, is not just cheaper but more effective.

That logic extends to geography.

Gemini admits it has struggled to gain meaningful traction outside the US. Operating in more than 60 countries added regulatory and operational complexity without delivering sufficient demand. Australia is explicitly named as one of the markets being cut.

The company says America remains its core opportunity, citing its capital markets and its ambition to build a broader “super app” combining crypto trading and prediction markets.

The crypto cycle matters

What the blog post does not dwell on is how sharply the crypto cycle has turned since Gemini arrived in Australia.

Exchanges make money on volume. Falling prices reduce speculative trading, discourage new users and compress revenue at exactly the same time compliance costs remain fixed. For firms that expanded aggressively near the top of the market, retrenchment is the predictable next step.

Gemini’s Australian launch now looks less like a carefully timed expansion and more like a late cycle bet that failed to survive the downturn.

That does not make the AI argument wrong. Automation is clearly reshaping how financial platforms operate. But exiting entire regions also reflects harsher realities. Australia is a competitive market with local incumbents, tightening regulation and users who have already lived through multiple crypto busts.

What a difference four months can make.

What the ‘mother of all deals’ between India and the EU means for global trade

The “mother of all deals”: that’s how European Commission President Ursula von der Leyen described the new free trade agreement between the European Union and India, announced on Tuesday after about two decades of negotiations.

The deal will affect a combined population of 2 billion people across economies representing about a quarter of global GDP.

Speaking in New Delhi, von der Leyen characterised the agreement as a “tale of two giants” who “choose partnership, in a true win-win fashion”.

So, what have both sides agreed to – and why does it matter so much for global trade?

What has been agreed

Under this agreement, tariffs on 96.6% of EU goods exported to India will be eliminated or reduced. This will reportedly mean savings of approximately €4 billion (about A$6.8 billion) annually in customs duties on European products.

The automotive sector is the big winner. European carmakers – including Volkswagen, BMW, Mercedes-Benz and Renault – will see tariffs on their vehicles gradually reduced from the current punitive rate of 110% to as little as 10%.

The reduced tariffs will apply to an annual quota of 250,000 vehicles, which is six times larger than the quota the UK received in its deal with India.

To protect India’s domestic manufacturers, European cars priced below €15,000 (A$25,500) will face higher tariffs, while electric vehicles get a five-year grace period.

India will almost entirely eliminate tariffs on machinery (which previously faced rates up to 44%), chemicals (22%) and pharmaceuticals (11%).

Wine is particularly notable – tariffs are being slashed from 150% to between 20–30% for medium and premium varieties. Spirits face cuts from 150% to 40%.

In return, the EU is also opening up its market. It will reduce tariffs on 99.5% of goods imported from India. EU tariffs on Indian marine products (such as shrimp), leather goods, textiles, handicrafts, gems and jewellery, plastics and toys will be eliminated.

These are labour-intensive sectors where India has genuine competitive advantage. Indian exporters in marine products, textiles and gems have faced tough conditions in recent years, partly due to US tariff pressures. That makes this EU access particularly valuable.

What’s been left out

This deal, while ambitious by India standards, has limits. It explicitly excludes deeper policy harmonisation on several fronts. Perhaps most significantly, the deal doesn’t include comprehensive provisions on labour rights, environmental standards or climate commitments.

While there are references to carbon border adjustment mechanisms (by which the EU imposes its domestic carbon price on imports into their common market), these likely fall short of enforceable environmental standards increasingly common in EU deals.

And the deal keeps protections for sensitive sectors in Europe: the EU maintains tariffs on beef, chicken, dairy, rice and sugar. Consumers in Delhi might enjoy cheaper European cars, while Europe’s farmers are protected from competition.

An auction takes place at a busy seafood market.
India’s seafood exporters stand to benefit from the deal.
Elke Scholiers/Getty

Why now?

Three forces converged to make this deal happen. First, a growing need to diversify from traditional partners amid economic uncertainty.

Second, the Donald Trump factor. Both the EU and India currently face significant US tariffs: India faces a 50% tariff on goods, while the EU faces headline tariffs of 15% (and recently avoided more in Trump’s threats over Greenland). This deal provides an alternative market for both sides.

And third, there’s what economists call “trade diversion” – notably, when Chinese products are diverted to other markets after the US closes its doors to them.

Both the EU and India want to avoid becoming dumping grounds for products that would normally go to the American market.

A dealmaking spree

The EU has been on something of a dealmaking spree recently. Earlier this month, it signed an agreement with Mercosur, a South American trade bloc.

That deal, however, has hit complications. On January 21, the European Parliament voted to refer it to the EU Court of Justice for legal review, which could delay ratification.

This creates a cautionary tale for the India deal. The legal uncertainty around Mercosur shows how well-intentioned trade deals can face obstacles.

The EU also finalised negotiations with Indonesia in September; EU–Indonesia trade was valued at €27 billion in 2024 (about A$46 billion).

For India, this deal with the EU is considerably bigger than recent agreements with New Zealand, Oman and the UK. It positions India as a diversified trading nation pursuing multiple partnerships.

However, the EU–India trade deal should be understood not as a purely commercial breakthrough, but also as a strategic signal — aimed primarily at the US.

In effect, it communicates that even close allies will actively seek alternative economic partners when faced with the threat of economic coercion or politicised trade pressure.

This interpretation is reinforced by both the deal’s timing and how it was announced. The announcement came even though key details still need to be negotiated and there remains some distance to go before final ratification.

That suggests the immediate objective was to deliver a message: the EU has options, and it will use them.

What does this mean for Australia and India?

For Australians, this deal matters more than you might think. Australia already has the Australia-India Economic Cooperation and Trade Agreement, which came into force in late 2022.

Australia has eliminated tariffs on all Indian exports, while India has removed duties on 90% of Australian goods by value, rising from an original commitment of 85%.

This EU-India deal should provide impetus for Australia and India to finalise their more comprehensive Comprehensive Economic Cooperation Agreement, under negotiation since 2023.

The 11th round of negotiations took place in August, covering goods, services, digital trade, rules of origin, and – importantly – labour and environmental standards.

The EU deal suggests India is willing to engage seriously on tariff liberalisation. However, it remains to be seen whether that appetite will transfer to the newer issues increasingly central to global trade, notably those Australia is now trying to secure with Indian negotiators.

Chasing an Australia-EU deal

Australia should take heart from the EU’s success in building alternative trading relationships.

This should encourage negotiators still pursuing an EU–Australia free trade agreement, negotiations for which were renewed last June after collapsing in 2023.

These deals signal something important about the global trading system: countries are adapting to American protectionism not by becoming protectionist themselves, but by deepening partnerships with each other.

The world’s democracies are saying they want to trade, invest, and cooperate on rules-based terms.The Conversation

Peter Draper, Professor, and Executive Director: Institute for International Trade, and Director of the Jean Monnet Centre of Trade and Environment, Adelaide University ; Mandar Oak, Associate Professor, School of Economics, Adelaide University , and Nathan Howard Gray, Senior Research Fellow, Institute for International Trade, Adelaide University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

What could a cut to the capital gains tax look like? 

The PM is hush on what a change to the Capital Gains Tax (CGT) would look like. But here's what everyone wants to happen to Capital Gains Tax. Here's how it could look when the CGT is almost-definitely revised in May.

The CGT discount windback talk all started in earnest after reporting from the AFR this week from 'confidential government sources' heralded an upcoming change to the scheme was being seriously considered by the Albanese Government. To refresh your memory, the CGT discount scheme introduced during the Howard-era made trading shares more attractive to Aussies and turned property into our national sport by reducing the tax burden on investments. Currently, the tax discount means that if you've owned an investment - be it property, shares, bonds, etc - for over 12 months and make a capital gain on it when it's sold, you'll see your CGT bill cut by 50% on that transaction. 

While there are no concrete details on what a windback of the CGT scheme would look like just yet, everyone has an opinion on what they want. 

Thanks to the Greens, the Senate has been holding a public inquiry into the current CGT discount scheme with a view to rolling it back. Submissions from think tanks, concerned citizens and industry interest groups have all now been made public ahead of the March 17 hearings into the matter. 

Here's what everyone wants to happen.

Housing Industry Association

HIA argues against any reduction in the CGT discount. Its central recommendation is that the 50 per cent discount be retained unchanged.

The association frames housing affordability as a supply problem, not a tax problem. It contends that investors are essential to new housing construction, particularly apartments, townhouses and build to rent projects, and that even small reductions in after tax returns would push marginal projects below feasibility thresholds.

HIA explicitly opposes proposals to cut the discount to 25 per cent. It argues that higher CGT on both new and established housing would reduce expected resale values, deter investment, and ultimately shrink housing supply. The submission warns that investors would not redirect capital from existing dwellings to new builds but would leave the housing sector altogether.

The policy implication is clear. Do not change CGT or negative gearing until supply constraints, planning delays and infrastructure costs are addressed. In HIA’s view, tax reform now would worsen rents and affordability, particularly for lower income households and first home buyers.

Property Council of Australia

The Property Council also recommends retaining the current 50 per cent CGT discount.

Its argument is slightly different in emphasis but aligned in outcome. The council defends the discount as a practical replacement for inflation indexation, arguing that taxing nominal gains would over tax long held assets and distort investment decisions.

The submission rejects the idea that the CGT discount is a meaningful driver of housing prices. It points instead to planning constraints, regulatory costs, infrastructure charges and falling construction productivity. It argues that reducing or abolishing the discount would reduce housing completions, lift rents and weaken employment and growth.

Rather than targeting CGT, the Property Council calls for a holistic, cross jurisdictional review of property taxes and regulation. Its recommendation is to leave the CGT discount untouched and focus reform on supply side barriers if governments want to meet housing targets.

NSW Treasury

NSW Treasury takes the opposite position. It argues that the CGT discount should be reviewed and likely reduced.

The submission concludes that the discount no longer meets its original objectives and now materially worsens housing affordability, home ownership and economic equity, particularly in NSW. Treasury highlights the scale of forgone revenue, the concentration of benefits among high income households, and the way the discount amplifies investor purchasing power.

NSW Treasury recommends reconsidering the level of the discount, with explicit discussion of reducing it or replacing it with inflation indexation. It argues that advances in technology have removed the administrative case for a flat discount and that current inflation outcomes mean the 50 per cent rate overcompensates investors.

While it acknowledges that supply constraints matter, Treasury’s position is that reducing the CGT discount would lower investor demand and place downward pressure on prices over time. It also flags reform of trusts as a priority, given their role in magnifying the benefits of the discount.

The core recommendation is not a single prescriptive model, but a clear policy direction. The CGT discount should be wound back or redesigned to improve equity, reduce housing demand pressures and better align capital allocation with productivity objectives.

Association of Superannuation Funds Australia

ASFA’s core recommendation is that the CGT discount as it applies to superannuation funds be retained unchanged.

ASFA argues that the CGT discount is not a concession layered on top of superannuation, but a foundational part of how super funds are taxed. It emphasises that capital account treatment is the primary tax code for super, with the one third CGT discount producing an effective tax rate of about 10 per cent in accumulation and zero in pension phase.

The submission explicitly warns against removing or reducing the discount for super funds. ASFA argues this would immediately lift tax on unrealised gains from 10 per cent to 15 per cent, crystallising large deferred tax liabilities and cutting member balances. It quantifies the impact as several thousand dollars a year for a typical member with a mid range balance, with compounding effects over time.

Beyond member outcomes, ASFA recommends against CGT changes on the grounds of capital allocation. It argues that the discount underpins super fund investment in long term, illiquid assets, including residential rental housing, commercial property and infrastructure. Reducing the discount, in its view, would reduce domestic investment and weaken housing supply rather than improve affordability.

Australian Prudential Regulatory Authority

Its submission is deliberately narrow and institutional. APRA confines itself to explaining how prudential regulation interacts with housing lending, investor risk and financial stability. It makes no argument for or against the CGT discount as a tax policy.

What APRA does recommend, implicitly, is that housing market risks should be managed through prudential and macroprudential tools, not tax settings. It outlines existing measures, including higher risk weights for investor loans, stricter serviceability buffers and the activation of debt to income limits from February 2026, which it notes will fall more heavily on investors than owner occupiers.

APRA’s position is that bank capital requirements and lending standards are already calibrated above international norms to reflect Australia’s housing concentration, and that these settings have not constrained business lending or damaged productivity. 

In effect, APRA is telling the committee that it sees financial stability risks as manageable within the prudential framework, without needing to rely on CGT reform as a blunt instrument.

Australian Council of Trade Unions

The ACTU explicitly recommends scaling back the capital gains tax discount and reshaping how it applies to property investment.

Its central recommendation is to reduce the CGT discount from 50 per cent to 25 per cent for capital gains on investment properties beyond an individual’s first investment property. The ACTU pairs this with a proposal to limit negative gearing to one investment property per person.

The submission recommends that these changes apply to new investments, with existing arrangements grandfathered for five years. This is designed to limit market disruption while still altering incentives at the margin.

A core part of the ACTU’s proposal is hypothecation. It recommends earmarking a significant share of the additional revenue raised for co-investment with the states in public and social housing, and for funding energy efficiency upgrades in rental properties.

Beyond housing specific measures, the ACTU also calls for a broader review of the CGT discount across all asset classes, arguing that the problems identified in housing reflect deeper structural flaws in how capital gains are taxed.

Again, no plans are on the table just yet but it's fair to say that any decision would have an impact on your varying portfolios. Watch this space.