Episode 124 | The new normal: will your household finances hold up? | Brendan Coates, Grattan Institute

The economy is recovering slowly and restrictions are loosening, so are you doing enough to secure your household finances
In today's episode, we move the conversation away from national and global news, to what matters most: your household finances. Back in episode 89 we interviewed Brendan Coates, Household Finances Program Director at the Grattan Institute, and he joins us in this episode to explore the various issues currently affecting households: unemployment, access to super, wages and financial buffers, as well as how the small factors you might not be considering are growing behind the curtain.

Here’s what we covered:

• How many Australians have lost their jobs?

• With restrictions loosening, who will be going back to work and who won't?

• Businesses going down the gurgler is more detrimental to the economy than unemployment?

• What are the long term implications of young professionals being unemployed?

• Should you access your future?

• How much does the average Australian have saved?

• Where should your money be during low interest rates? 

• Who is most protected?`

• How are companies pivoting their business model to survive the pandemic?

• How will the government balance the lack of immigration this year for the future benefits?

• When will the vaccine be available and how will it impact your ability to work?

MENTIONED EPISODES:
Episode 89 | Brendan Coates
Episode 117 | Dr Shane Oliver
Episode 123 | Martin North

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: info@gooddeeds.com.au

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Buy the book - AUCTION READY How to buy property at auction even though you’re scared s#!tless:
www.getauctionready.com.au
Use the coupon ELEPHANT for your 30% listener discount.

EPISODE TRANSCRIPT: 
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded on 28 April, 2020.

Veronica Morgan: You're listening to the elephant in the room property podcast where the big things that never get talked about actually get talked about. I'm Veronica Morgan real estate agent buyer's agent cohost of Foxtel's location, location, location Australia and author of a new book called auction ready, how to buy property at auction. Even though you're scared shitless.

Chris Bates: And I'm Chris Bates, financial planner, mortgage broker, and together we're going to uncover who's really making the decisions when you buy property.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website as well as download our free full or forecast to report which experts can you trust to get it right. The elephant in the room.com.edu.

Chris Bates: Please stick around for this week's elephant rider bootcamp and we have a cracking Dumbo of the week coming up

Chris Bates: Before we get started. Everything we talk about on this podcast is generally nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyer's agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica Morgan: Today we're talking all about household finances, the situation before Corona virus, the immediate impact and the longterm changes we can expect once things return to normal, or should I say the new normal? What levels of unemployment can we expect? What will happen to wages? What about immigration? What does a recession mean for most Australians and how will these translate into property prices? In this episode, we welcome back Brendan Coates, household finances program director at the Grattan Institute. Brendan joined us back in episode 89 and if you haven't tuned into that one, I encourage you to because we really tackled the big issues there, including the affordability crisis tax reform, and whether or not we'll all have enough superannuation to retire on. Brendan's research focuses on tax reform, economic and budget policy, retirement incomes and superannuation, housing, transport, infrastructure, and cities. He's the perfect person to help us understand what's really likely to happen in the wake of covert 19. Thank you for joining us today. Brendan.

Brendan Coates: Thanks for having me.

Chris Bates: Thank you, Brendan. Absolutely loved our last chat in Melbourne. Was the closest I've ever come to missing a flight. So that's how good it was. But I mean, what I loved about the conversation in particular is I went in there with lots of kind of big questions around tax reform and your approach is, you know, extremely pragmatic and you know, you're not willing to back down from the big issues. So at the moment there's more big issues than we can poke a stick at. So can you give our listeners just a bit of an understanding on how bad things have become in the employment sector just over the last four weeks because it's very difficult to get a grasp on how big things are.

Brendan Coates: Yeah, that's right. This is like nothing that we've really in our lifetime. So the economy's basically gone from cruising along. It pretty close to 60 Ks an hour, more or less doing the speed limit, maybe a little bit less. And it literally hit a brick wall in the last couple of weeks of March. So that's never happened before. That kind of sudden stop. And what it's essentially meant is that because of kind of a 19 and the social distancing measures that we've put in place, that hosts waves of of sectors of the economy essentially just been shut down overnight. Particularly, you know, things in the restaurants and hospitality sector arts and recreation. And we've seen that in the in the fact that the government has done a better job than I'd probably expect it in getting some early statistics out there that were actually seeing that the number of people who have lost their jobs, they've actually put together some pretty good data out of the out of the single touch payroll system.

Brendan Coates: The ACO runs that shows that something like 800,000 Australians in that survey lost their jobs in the last couple of weeks of March. Although I still think that that's probably an underestimate because it's captures those people who were, but it's catching those people that have lost their jobs, but it's probably not capturing some of those people who have also lost their jobs, but we're still getting paid in the last period of that pay cycle. So they've, they've finished their diet, they know they're working, but they got paid the following week. So I suspect it's still an underestimate of kind of what's happened in the economy. But it does show that there's a big problem in Australia where we just don't have really good UpToDate labor force statistics. So in the U S you know, you've seen these weekly hits to numbers of people that have applied for unemployment insurance. You know, the latest data that we have in Australia I think is still December, 2019, so it's just completely out of dice. So the abs has actually done a reasonable job of filling the filling, stepping into the breach in the short term.

Chris Bates: So 800,000. I'm an I ice to it's a problem with using outdated statistics. I used to always think the labor force was 10 mill, but I know it's populations reason since then, et cetera. So in my head, I go 800,000 workforce is 10 mil. That's about an 8% jump, but it's probably more like a sequel or something. So how big is I? 800,000. He's at about a 6% jump in the unemployment rate. I say, you know, five and a half to 11.

Brendan Coates: Yeah. So it's a C it's about a six between six and 7% hit to employment are, mind you, there's other data that's come out that suggested there was a household survey, much smaller sample size. The abs released the day before on the Monday. This suggested that something like 16% of people are out of work. So, you know, it's still really early on in trying to understand what's going on, but on the face of it, at least six or 7% of people have lost their jobs. It's probably bigger than that. And that's what our estimates point to. And so we are talking about an unemployment, right? That's probably already hit something a lot. 10%.

Chris Bates: And I guess there's the unemployment rate is such a funny number anyway, right? Cause you've got underemployment, you know, your, your hours, you want to work more, but you can work running, giving me 30 hours a week, but you want 40 or whatever. You've got you know, even if you're only working five hours a week, you still cost is employed. So you've got you know, what about things like temporary residents kind of going back, they've kind of left the workforce altogether. You know, what are some of the things that, you know, people are missing when they just focused on the unemployment at, right?

Brendan Coates: Well, I think the big thing that you're missing is the fact that there's, there's kind of two reasons why the unemployment rate won't pick up. Everyone who's, who's had their livelihoods hit by this. The first reason is that some people, quite a lot of people who lose their jobs, they don't immediately start looking for another one. And we saw this say in the 1990s recession where a whole generation of older people are older workers who lost their jobs in that process, just never worked again. You know, they often ended up on the disability support pension. And so by not being in the labor force, so not actively looking for work, they don't actually show up as being unemployed. So that's going to underestimate it for awhile. And the second is actually what the government's done in response. So the job keep the wage subsidy scheme which you know, we think is a really good idea, like it's not perfect.

Brendan Coates: And there either we're going to see more and more holes open up in that over the course of the next three or four weeks or like really messy administrative problems. But one of the, what it's done is essentially it's, it's allowing workers, it's Cushing workers from the blow, from what is hopefully a temporary hit to their incomes. But one of the consequences is you're still being paid by your employer. So when the abs asks you, are you receiving a wage from your employer, the answer is going to be yes. And so again, you're not going to show up as being unemployed, which is why we, we've estimated that the actual hit to employment is probably somewhere in the range of four hour VAR, 14 to 26% of all workers, even if the unemployment rate only hits 10 to 15% over that period.

Chris Bates: Yeah. I mean, the big ones there is that, you know, you think about that sixties onwards, employee for example ageism is pretty real. And you know, if they do lose their job now and they can't potentially get another job because, you know, job listings are all time lows as well. You know, do they have to go back into employment or do they go straight to the pension? Do they, you know, you know, that's a big challenge, isn't it?

Brendan Coates: Yeah, that's right. Like it's worth pointing out that in this crisis it's overwhelmingly hitting younger workers just because of the kind of professions that require a lot of close physical proximity tend to be those that you know, younger people working. So people who are working in hospitality, people are working in the arts, whereas older workers tend to be less exposed, a bit less exposed because they tend to be working less in those professions. But yeah, this is, this is the crux of it. If, if this is a relatively short run thing where it's only a couple of months and then we come out the other side and things go back looking, I raised a lot like normal, then the heat to employment and the longterm may not be that large. But in the world where it's going to be a fairly long run thing where people lose their attachments or labor force for a long time or the firm that they work for goes out of business.

Brendan Coates: And I think that's the one we've got to be really worried about. Then yeah, you say potentially a repeat of what we saw in that art is where a whole swath of workers out of work is just ever way back. We never went back to work again. And this time around they don't have the disability support pension to rely on anywhere near as much because it's much harder to get. It's also much harder to get for older people because they tighten the eligibility around things like musculoskeletal injuries, which is tends to be the sort of thing where you do your back in your fifties and used to go and DSP, that's much harder to get. And so new start being at being what has been historically has been very low level of payment. And if we go back to that level of payment again, which I think is unlikely, we'll go all the way back there. It does mean a bunch of people lose their livelihoods. They end up on it in a pretty rural place, pretty rough place for quite a long time before they retire.

Veronica Morgan: It's interesting you talking about the younger workers are hardest heat and so what are some of the longterm implications of that? Because of course you don't want a whole generation of underemployed or unemployed people. Do you, I mean, what does that set us up for?

Brendan Coates: Well, this is what we saw during price recessions is that those that start there, that stopped being employed in the middle of a recession, they start their work where they work. Curry's in the middle of recession tend to do pretty badly. So you see there are a lot, typically there are longterm implications for their earnings. So we call this labor market scarring. So the kinds of connections and the kind of skills that you normally you normally establish early on in your career, you don't get as much of that just because you know, a few people are hiring graduates out of university. There's fewer jobs going around and if you don't get attached to the labor force early on, then loft and get can get pretty hot. And you see that, that those impacts, are they permanent? That will last for someone's whole working life, that they'll have lower incomes than those either side.

Veronica Morgan: Isn't that also assuming though that we have one career, we go to uni, we study for something and then we go and practice in that area or I mean, because you know, I've heard some stats around saying that like millennials for instance will have six careers in their life. And if that's the case, does it matter so much?

Brendan Coates: Well, it still matters because you're, regardless of what career you're in, the labor market's not in your favor in any of them. Right. So it's still affects your long term earnings. Even if you are jumping between careers over time. And I've, there is, there is a debate amongst labor economists as to whether, you know, work is becoming less secure and whether people are moving around more. I haven't seen a lot of evidence that it's actually happening that much. That's, you know, the, the, the rights to say casual work, the rights which people are switching jobs doesn't appear to be that different as my understanding is what it has been historically. But we certainly see me with this studies, well compared to the last 20 or 30 years, right? So we, we don't tend, we do tend to see that if you move into an employment in a major economic downturn, then you know, it does hit your probability of employment and your future earnings for a decade or more.

Brendan Coates: And I suspect the way to think about it, it's probably you've got different options that you might like to think about doing is your career. And what a recession does is it just limits your options. So in, in career one you might've already been thinking between three jobs and one of them, Hey, 60 grand and the others paid 45 and in, in an, in a recession, the 60 grand one doesn't exist. And so it probably hit, it does hit you in the long term, even if you might then change jobs later on.

Veronica Morgan: And on the flip side of that though, do you live in costs? Go down in a recession?

Brendan Coates: Well, I think we're about to experience a period of deflation. So I think you're right. That's in this period. We'll look, we've seen oil prices, crude oil prices go negative for the first time ever. Which has been fascinating. I couldn't believe it was like half the half the price I paid last time and I think I only filled up five weeks ago.

Chris Bates: Sweet. That's what negative process should be. So you should be able to go to a petrol station and actually get paid 50 bucks to go. Haven't seen it yet. But certainly now if you say it,

Brendan Coates: I don't know if we're finding costs have gone to zero yet, but it is, it is, it is. I think, you know, we often were, it is the one outside of this period is that you're saying the process of, well at least some things are a lot cheaper. So the process of some essential are cheaper now. Like rent is going to be cheaper. I think that's undoubtedly going to be true. Which is something I suspect we'll touch on. So what's weird is that because of the job keeper package, the government's put in place you know, I actually suspect poverty might even go down a little bit during this period measured poverty and measured financial stress will fall because it's so generous to low income earners. You know, I'm sure you've probably talked about this.

Chris Bates: It says a doubling of unemployment benefits in terms of job caper. Sometimes even if you're on working part time, you basically get a pay rise sometimes.

Brendan Coates: Yeah. And my neighbor that's my neighbor has got two kids in their twenties, both like they've been working part time at say chemists warehouse more than a year. They're going to be earning the equivalent of $39,000 a year for the next six months.

Chris Bates: Yeah. I think the other side of the coin and your research and there's lots of other research that just is very similar to your research around amount of savings, amount of buffers. People have amount of cashflow they have each month. Just in case, you know, they need to spend money on something like a new fridge or some other, it's pretty diabolical all over the world, not just Australia, U S UK. We have very, very little buffer. How bad does that impact things because yes, there's been a delay with job keeper. There's in a how much are we just running things to, you know, every month and to mouth sort of thing.

Brendan Coates: Yeah, it was. So our research shows that the average working household, half of them, we've got less than $7,000 in the bank. 20% have got less than 500 bucks. So, you know, you're talking about a large number of people that don't have much in the way of financial buffer that's consistent with, you know, a lot of these surveys, as you mentioned, Chris, that sort of point to you ask people, can you raise 500 bucks in emergency or five grand? And the number of people who say yes, it's actually relatively small. And so, you know, that's, that's why the policy response from government has been so important because if they hadn't have done it, you know, we'd be looking at a great depression. I think there's no doubt that that's what we were looking at in mid-March. And it was amazing watching the government very quickly.

Brendan Coates: Probably, you know, a week or two slower than ideal, but you know, fair credit, they got there pretty fast. Go from thinking about spending $5 billion to spending $200 billion, which is 10% of Australia's GDP, 20% in six months in a couple of weeks. Like it was amazing to watch. And that's because the average Australian doesn't have that much in savings. They're partly, that's not always crazy because a lot of people don't have that much cash in the bank. They've got more money sitting in other, some people got a lot of money sitting in other assets. So you probably don't want your, all of your money sitting in cash in the middle of a period where he just writes for three, two, one, two, 3%. But it does show there are a lot of people who get by on written not very much or don't have much in the way of a buffer. And as soon as something like this happens, if you don't intervene, then you'll get defaults pretty quickly and people will be hit the wall pretty quick.

Chris Bates: So you've said a lot of, you know, you sound like you're very optimistic on how the government's been handling things or positive. And it, you know, from afar it's, you know, I think speaking to you last time, you know, a lot of what you're looking to do is tax reform and thinking about why is the government can do things better. How, how could the government have done things better? What would you have done differently or what some other things they're not doing that they should be doing.

Brendan Coates: So you guys wouldn't know this, but on my old job, when I was at treasuries, I used to be the person responsible for for preparing for pandemics backing. Yes. Really talking to the right person. Well, I think what's interesting is it, looking back on what we were thinking about and obviously you know, it's all internal to government, but you know, I think what's clear is that they've done a good job of thinking about how to help households and in the sense that they, the treasury and the government is well set up to assist households through the income support system through the tax system to give them enough money to, to get through. I think where they probably haven't done enough or where the cracks are gonna start to show is our ability to deliver money to businesses that are in trouble. Because John's job keeper, because it is that, that flat amount of 32 essentially 1500 bucks a fortnight, you know, you have to pay that regardless of, of you know, how much your worker earned. But the firm doesn't actually get a lot for that a lot. Most of the benefit actually goes to the worker, which is fine. Like that's the intent, but they probably

Veronica Morgan: Pocket it if your worker earns more than that. There's also the PAYG payback, and apologies if I've got the terminology wrong, but there are, there is some other support for small businesses as well. 

Chris Bates: Think and that's, you know, is that it hasn't happened fast enough I believe. I mean, the job keeper, there's a delay on it. Keep paying your staff members till then. Secondly, the PAYG kind of up to a hundred thousand dollars, you know, but the minimum of 20 that hasn't come. Anyone need the badges yet? And then

Veronica Morgan: It's coming to mind. It started I think a bit, I mean, look, I know we'll get back to you and say Brendan, but I think households not having buffers is one thing I think that that's really it's a problem in our society that people will maybe not be able to afford to, but also not you know, everyone's got probably got latest televisions and you know what I mean is if people are prioritizing having everything now rather than actually saving for writing day because we're not used to having rainy days. But then businesses is different. And I get that hospitality, for instance, he just shut the doors and all of a sudden revenue just slammed shut. I mean, that's, how do you prepare for that? But I do know that it's a business. It's like when you're looking in property, residential property is treated differently to commercial property because the assumption is that people in business are meant to actually have a better understanding of all these fiscal stuff then then you know, the regular Joe blow. And I think sort of the same goes for business and it's really important to support business. But I think we need to expect the business owners and business managers have a sense of understanding of preparing for downturns. Do you know what I mean?

Brendan Coates: Yeah. They absolutely, sure. I think what's just unprecedented here is no one would have expected. And maybe we should have, you know, government has certainly thought about this. Bill Gates has been going on about it for quite a few years about the risk of a pandemic. I used that, you know, you've just had to shut down whole sectors of the economy for, to achieve a public health objective. And that was the right thing to do. But it has the effect that, you know, that a bunch of businesses literally kind of livelihoods and they've, they've got obligations, they've got contractual obligations that are put in place in an era. That looks nothing like the one we're in now. So I think rents, commercial rents is the classic example, the market value of a commercial rental right now, if you're in a retail space, it's practically zero. You know, if you were to negotiate a contract right now, you wouldn't be able to get anyone to rent that space. But what you've got is a bunch of businesses that I signed up to rinse. You know, they, those rents are quite substantial. In the case of the average retailer pays about 12 grand a month, the average team of about 10 grand and the, we've been pretty slow in trying to work out how to solve that problem. So

Veronica Morgan: What's interesting is that there seems to be a blanket approach to sort of help everybody, which I get and it's nice for me is a business that hasn't been shut down. It's nice to know there's a cushion there. But yeah, I think, I guess my roundabout way of coming around to is that some businesses are being thrown into massive disarray. They just can't, you could never have planned for it. Other businesses, you know, you could be able to trade through with their buffers. John amine and I, and I wonder whether there should be more emphasis going to those that have really had to stop versus everyone.

Brendan Coates: Well, the challenge is how you target that assistance. Because the thing is government just doesn't know as much about those governments don't know firm's balance sheets the way they do and households tax returns. You know, if you're sitting in treasury you can see everything going on or a lot of what's going on inside a household's finances because you know, they've got their, they're paying tax on their income. They declined me, all the deductions. So you've got a pretty good picture of, you know, whether they want to invest in property, all this sort of stuff inside a firm. You just can't see any of that, which makes it really hard to give support to firms cause we're just not set up to do that. And you know, there's reasons why you want to be a bit careful there because you do worry about Phoenix thing. So you know, as long as if I can, I can disappear as a, as a human being and, and come back tomorrow as a separate legal entity.

Brendan Coates: Whereas you can do that as a firm. And so for every firm you help, you do worry that you're going to give some support to those that died. But on the rent's point, the thing that I think we should have done, so the government's come out with a code of conduct that says, you know, where we will negotiate. You have to negotiate with your landlord and there's a process through which you have to go through. What I would have done is you know, it's not really fair. Some businesses get completely smashed by this. And all this diodes. It's, it's just, it's just that you are unlucky enough to be one of the sectors that had to be shut down to stop a pandemic. I would have probably offered rental discounts to two businesses, but then paid for that through a high rate of commercial land tax over the course of 10 years.

Brendan Coates: So you basically defraying that cost of you basically it's basically insurance. So the government space or just trying to insure people against the risk of a cost of a pandemic, which means pulling that risk across all landlords would be better than saying the landlords that happened to rent to retailers and cafes get smashed and everyone else is sort of freight. So that's probably how I would have tackled that. And it's probably the principle we should be using for this in general is you're trying to defray the costs of a severe shock to income that's affecting some people across everyone and stopping that all occurring at once and defraying it across time. So you're paying it back over 10, 20 years.

Chris Bates: Well, it's interesting you say that, that, that in terms of moving to that model, because you know, what's your view on potentially state governments now potentially shifting to a land tax model for residential rather than stamp duty? Because, you know, I know this has been talked about for years, but it seems to be getting up a lot more steam and energy behind it now in this environment than, than usual.

Brendan Coates: So I'd say that the new South Wales government has been making some seagulls that it was keen to go down this path through their review of federal financial relations before this happened. And what's interesting is we now have seen the bits, there's been some talk in the Herald sun this week about the Victoria going down the same path. I think what it shows is they, it just reinforces to them how big the, how volatile the revenue strain from Stanford is, is because there's no doubt that Stanford revenues are gonna collapse. Not necessarily cause prices will fall that far. But just cause there'll be no turnover, there won't be any properties transacted. And that's actually the thing that hurts the, the standard your ever used. The markets. It's not the prices, it's the turnover. So we've been big fans of this for a long time.

Brendan Coates: It is stamp duty is a much more, it's a very inefficient tax. And it's also, you know, pretty inequitable because you're basically funding the health and education services provided by state governments out of a very narrow pool of people purchasing a property in a given year. And those that have owned for a while or for a long time basically get to check out at the state tax system. Because you know, if you buy property and hold it for 30 or 40 years, you pay stamp duty once often. You've probably paid it a long time ago. The cheap, right? You're not, you're not up again for anything, for until you, either you downsize or, or you go into a nursing home. So I think, I think we will see more of a push for tax reform out as a result of this because the States are going to have be budgetary problems. They're going to have to deal with longterm

Chris Bates: At a time when they probably need to start spending more to, you know, since these crazy things, new South Wales government buying $500 million of properties, I'm going to like to scratch the surface SMH today. Like it's this big policy, it's going to change things. I'm not really, but

Veronica Morgan: I do have to laugh at that though because you think about it that you know, and we often say this at first home buyers and sort of hapless investors in particular have been propping up the construction or the construction lid economy. Right? And so you know, it filters down fundamentally the people that really cop it or bear the brunt of it are the people buying this stuff. And so now the state governments turn around saying all this stuff, they can't be sold, which might not be really good quality they're going to buy. I just think it was rather rather ironic.

Chris Bates: Well. Yeah, I mean, so yeah, I mean the state government definitely wants to keep the construction industry coming along and get people buying off the plan and have some advantages packages again because you know, the amount of money they make in taxes along that journey. But Brendan, you mentioned you know, I guess a few demographics that are really going to be affected. Obviously the yard going, you know, the hospitality and art sector. So what are some of the demographics and say for example, young families that are going to be really impacted on this and their finances aren't going to be turned around fast because you know, things don't take time to come back off the beach. It's to unemployment.

Brendan Coates: So if you're in the bottom 40% of the earnings distribution, so you're earning up to about 50 grand as a worker or you're a household that's earning that as a couple yearning, some are up to 80 or $90,000. If you lose your job due to covert, you're relatively well-protected. Which is to say that the job keeper package and the job seeker payments largely replace your pre wage, your previous wage cause you get a whole bunch of family tax benefit on top. You get some rent assistance. If you're a renter. You're paying a low rate of tax. All these things mean that, you know, if you're in the bottom half of the earnings distribution, which is where a lot of these workers are, you're relatively well-insulated for the list of six months. That job keep in place. So the gap in the policies are ironically it's temporary migrants who are being left out completely and that's a problem.

Brendan Coates: And high income earners which I, it's not consistent with the way that we think about these things in Australia. Australia is a very reduced redistributive tax transfer system. But you know, unemployment insurance is basically insurance. It's basically there to protect people against the risk of losing their job. And what we've done is we've basically fully insure the bottom half of owners and we haven't really ensured the top half. So the way I do thinking about this is it just depends. It's all a function of how long the public health crisis lasts which we just don't know yet. So if it's only a couple of months and we come out the other side, then I think you won't find two bigger impacts. But if this is six months where certain sectors of the economy basically can't reopen so if you can't reopen restaurants properly and cafes properly and sporting fields are sporting competitions, can't have crowds, which I think is very unlikely, they'll have crabs, then you have a bunch of people who lose their jobs, their livelihoods permanently or semi-permanently.

Brendan Coates: And that's I think where we'll see the heat will come about as a result of some workers who are in those sectors that are here permanently will find it hard to, you know, keep paying their mortgages. The government and the banks have agreed for this for six months to provide mortgage holidays. But out the other side of that, you are going to see an increasing number for me loans and you're going to see a bunch of people who have been had their incomes heats who are going to ask spend less out the other side. And I think that's what I'd be, I'd be worried about is the risk of defaults down the track and the risks that, because if this is a long process, a long public health crisis, people on the other side just won't spend the money they used to and then you end up with a deeper recession.

Veronica Morgan: So what would be the proportion of people who are protected the most? So say couples owning up to $90,000 previously what proportion of those people would be homeowners for instance?

Brendan Coates: So most, what's interesting in this is why we haven't called for, if I take the flip side, we haven't called for lad sale rental holidays for residential renters is because the packages largely insulate them once they get the money. The problem is just I can show that I don't get evicted before, you know, frankly don't get evicted before the, before the money flows, which from this database is going to be a few, still a few weeks, but then they should be able to make up those Rees with their landlords. The risk is I think high relative medium to high income homeowners because most of the, most of, most of the bottom half like a lot of them rents half of them probably homeowners off the top of your half of the income distribution. Most of homeowners. And that's probably where I'd be worried about the longterm cost is that they won't be able to keep paying those mortgages if they experience a permanent hit to their income if they're in those centers.

Chris Bates: But is it true that the lower incomes, they've got a high chance of losing their jobs because of the industries they are? So that yes, you might see that they are, some may hit, but the actual volume or the actual quantity of higher and middle incomes that actually lose their job is much lower then cite the bottom end.

Brendan Coates: I think they're less likely to be directly affected, which is to say they're less likely to lose their job because of spatial distancing. If you're a high income owner, but you might be quite likely you're a fair chance of losing work or there will be a hit to, to employment for high governors cause they second round effects. So, you know, I work for a a say architects are the classic case. So the first thing that happens when you, you slow down construction is you basically just stop the architects working. Because that's the front end of the production pipeline. And we're seeing that a lot already. You know, professional services firms were the number one group of firms that applied for the job keeper are subsidy according to the ACO data. Because, because they know when he's older, discretionary spending in the economy is basically stopping.

Speaker 3: So firms are cutting back their spending, their discretionary spending in order to preserve cash flow to get through the other side. And that's deepening the crisis. So I would say the risks for the bottom half, you know, we've always said in Australia, we're not too worried about, you know, the, the, the increasing debt because it's mainly occurring to high income earning people. We replete with good income earning capacity and they're often ahead on their mortgages. I suppose what I'd be worried about is those second rounding packs on sectors. That means we've saved in C today and you know, 3% of people working in financial services have lost their jobs according to the abs data, you know, 4% in manufacturing 8% in professional and technical services. You know, it's obviously less than a combination, which is a quarter. But they are large falls. And I think we're going to have a reckoning down the line where there'll be those, we're kicking the can down the road, which is the right thing to do. So we're making banks offer holidays, but out the other range, there's going to have to be some that we, some people that will struggle to repay those mortgages. And we don't quite know yet what we're going to do with those people.

Chris Bates: And we don't even understand the changes to consumer behavior sentiments, you know, the way that we live our lives you know, new habits that are getting formed by changing the way we have to live or even what's valuable and what do we value now coming out of this, you know, we value probably our families and time with them a lot more. And I'm excited to see my parents this weekend, which I haven't seen for several weeks. So, you know, I guess it's just trying to change. We don't actually know how we're going to change out of this. And how big is the impact to consumer sentiment? I guess because I know looking at consumer surveys it's been pretty diabolical and that's shows up. We're pretty concerned out there.

Brendan Coates: Yeah. So if you look at the consumer surveys, the whip of the week before Jobkeeper was announced, it was the worst ever. Once Joe keeper came back, it became, you know, as bad as the 1990s recession, which is a big improvement, but still not a glowing thought in confidence, a vote of confidence in what's going to happen to the economy. The really interesting data that I've been tracking is stuff that alpha beta has been putting out. I don't know if you've seen it, are looking at real time consumer spending in partnership with early on and they're suggesting that spending per person is currently about 15% below normal normal levels. Know that's, that's depression era at the moment for spending the fall that far to see what people are spending money on though, isn't it? That's right. So data coming out. So really interesting timing.

Chris Bates: Toast, not toast, desire, you know, bake your own bread, fitness DIY home. You know you know, exercise. There's lots of you know, going back to the basics rather than, you know, the more frivolous sort of, you know, spending a lot of treadmill

Brendan Coates: Council cleanups in a year or two I reckon. But I do think one of the consequences of all this is that people are still exposed. A lot of people are still wearing the cost of this on their own balance sheets. You know, they're drawing down their savings, particularly if they're higher income earners and that's going to affect their spending long term. So there's going to be a structural shift in the economy. A way to think about it is that some production technologies, some capital is their worth. It's less productive than it used to be. So if you, sports stadiums are less valuable now than what they were two months ago. My brother in law used to work for one of the catering companies there. That firm is going to be in deep trouble for a long time because there's basically not going to be anyone coming back to those four settings for quite a long time.

Brendan Coates: And so you're going to see that structural shift towards more food home delivery. We've seen a lot of restaurants have been pretty good at offering home delivery of food, whereas cafes are struggling because no one really gets a hard delete the coffee. But in the long term, because in the medium term, because that's the balance sheets have been impaired, that spending's not going to come back for a while. And one thing we haven't talked about is migration, which I think is going to be incredibly important for the housing market. We're going to lose probably a couple hundred thousand people a year for a couple of years. And that's a big difference to how much construction you actually need.

Chris Bates: Let's talk about that cause what do you think? Let's say we do have to have the borders sharp. And the quarantine, which is interesting you mentioned about the food company because you know, one of the biggest food companies out there that supplies the airports and you know, air traffic for example, then all the meals on airplanes they're getting all the isolation you know, feeding all the people coming into the country and giving them meals a day. It's a company is having to pivot, but you know, the impact on migration in the next couple of years. Yes, that's potentially giving us time to play catch up, which is what we were hoping, you know, the gut state got started. Government was asking for anyway, but what do you think the government will do on the other side of the coin? To say, shouldn't we just pick up the speed and instead of importing 200, we go back to say 300 we got to three or 400,000 people. Do you think the government or just get over time on my grades and in the future?

Brendan Coates: So much is uncertain at the moment because we don't know how covert ends. So in the absence of a vaccine, and so now the loss of epidemiology, but we do, we do track the track that debate very closely. You know, if, if I can imagine two scenarios scenario, one way is, is that Australia does better than the rest of the world in, in dealing with Cobra, which is what we're on track to do now. If we can affectively manage that process faster than everyone else and potentially even eradicate the virus, which is we're actually on track to do it. If we keep up on the current shutdown for a period, then Australia becomes enormously attractive as a place for, for people to Cal. This is what happened during the JFC because we didn't really have a recession or it wasn't a traditional recession. Native migration went up because all these are respect packages came to Australia cause they couldn't get work in Australia, in Ireland. So the, the, it's how good we are, how well are we doing relative to everyone else? I think it will make it

Veronica Morgan: Isn't this different largely because do we really want to reopen the borders? If we've eradicated it without a vaccine, without treatment, because by opening up the border borders, then we're opening up the opportunity for it to come back into the country. So basically you got to quarantine everybody. So that keeps the airline food manufacturer in business. You know, like would people want to come here? Certainly travel travelers won't want to come because you've got to be an ISO for what, two weeks for a year and actually go out there and see the country. Are you saying that migration will increase because and people will put themselves through that in order to move to a different country? I know essentially EMA thing, but you know, like is that something that we see ahead of us because I mean, are we going to be traveling? Are we going to be doing all the things that we've been doing before looking like

Brendan Coates: Insured? And so the two globally, we solve covert, you're going to have hardcore attain at the border that is effectively inevitable, which, you know, if this is, this is what we used to do. So if you, if for those that remember the first godfather feel when, when the, I young Colianni into this United States and he's on Ellis Island, he's in quarantine that he was in quarantine for weeks. You know, we used to, we used to do this and then we kind of stopped because you know, how medical science got to a point where we weren't so worried about that he fixes diseases. I suspect we will have a relatively hard part in saying up until the point when the, this is solved globally or all the viruses. Yeah. So the virus are the, either we've developed a herd immunity in some form or we've solved we've, we've, we've achieved a vaccine, so I don't think that you're going to see a lot of tourism, but you could say a lot of people coming to Australia permanently or semi permanently to study and to work if Australia does. Well. the, the, the hard part of it is if we, if we don't manage to control covert or we do as badly as everyone else, then I don't think you'll see a lot of migration to Australia at all. So I think it's incredibly uncertain. But in the world where we don't see a lot of migration that's going to have huge impacts on, on construction 

Chris Bates: And evening. What about Aussies coming back to Australia? I mean, if you're living in New York right now and do you know, you would probably wish you were back home, you know, for example, or even London, you know, I think if those economies are gonna get smashed and you've been worried about your health and your family back in Australia, you know, you do start to think, do you know, do you come back to home? I think you know, so you're going to get that sort of, you know, the brain drain that did go overseas for work. Potentially that opportunity is not there anymore. Maybe they come back to Australia. Do you think that's going to happen as well?

Brendan Coates: Yeah, I do think that will happen to a degree. Obviously other countries have done something different to us in the sense that they've included temporary migrants in their own countries, in their equivalent of job paper and their white subsidy schemes and Australia is not. So if you're a, an Australian living in London and you've lost your job because of what's happens, at least in the short term, you're still being paid. Whereas if you're a temporary margarita in Australia, you and daughter that's going to do a lot of harm to an international reputation, not, not reciprocating those payments to those that I currently here for work. And you know, working for firms that are struggling and the farm confirmed can't pay them. It has to lay them off because they don't get junk caters for that group. But I think longterm, yeah, you could see quite a lot of people come back to Australia because, which is what we saw during the JFC as well. You know, we almost moved to the UK and we didn't basically because of the JSA. Yeah. You know, the opportunities are there, you'll see more people at home.

Veronica Morgan: It's a bit of chicken and egg though, isn't it? And you're talking about potentially if we do well in this country immigration will rise again. But what will, how will that work with unemployment the way it is, the way it's going to be, you know, what jobs will they do?

Brendan Coates: Well that's right. It's all about the relative performance of Australia compared to other countries. So the unemployment rate in Australia is 6% and it's 10% in the U S or 12% of the U S then you'll see a lot of people come home because even though there's less employment opportunities than there was pretty crisis, there's a hell of a lot more than what there is anywhere else

Veronica Morgan: That's returning expert. So as opposed to new immigrants,

Brendan Coates: Well w me, Margaret's son, we know that new migrants also create a lot of employment opportunities cause they increase demands. So it's a, it's a big source of aggregate demands. So it's again, it's about the relative effect. How, how well Australia is doing economically and on the public health front compared to everyone else. So if we're doing well, even if we're at the point, if, you know, we had an unemployment rate that was, you know, got up a couple of percentage points during the JFC and we still had very strong migration through that period. Basically because we had better we had a better economy than, than everyone else.

Veronica Morgan: Is there any sort of, I hear sort of anecdotally from overseas, a lot of sort of health professionals, doctors, nurses, et cetera, basically saying that when this is all done and dusted, they're leaving their profession there, they're just PTSD and they burned out basically. And I've been hearing anecdotally a bit of a few teachers, particularly from the public's education system saying similar things. If there's any sort of talk or modeling or, or data on any, anything on this in terms of some of these real changes in terms of how people are going to respond or mass in that have been in those industries or professions that have been particularly impacted by this.

Brendan Coates: I think it's too early to tell. I suspect you will see a surge in mental health issues in, in the, in the health workforce less, probably less so in Australia because we will so far, thankfully we have not had the same sort of outcomes we've seen abroad. But you know, we are putting ourselves, you know, I was just thinking of Aaron circumstance. We've got a three on a one year old at home. It's a, it's incredibly stressful situation, but it's nowhere near as stressful as being in a New York hospital. Just the sheer degree of, of, of of stress that people are going through this spirit yet it's going to have longterm consequences. But I just don't think we know enough about what that's gonna look like yet.

Chris Bates: So in terms of shock absorbers to the economy obviously we've got to be thankful for our lower Australian dollar. You know, whether that's for future tourism or future investment or for people buying our resources and things like that. Do you think that will be a huge kind of towel in to, to kind of really get us out of this? Rather than if the dollar was at say 85 or 90 cents or back over a dollar that which it was before.

Brendan Coates: I probably think of it the other way, which is that a low dollars suggests that, you know, obviously you prefer a low dollar to a high dollar all else equal cause it does have the effect of making certain sectors of the economy more and more competitive. I, I, I'm very, I'm very pessimistic about the global situation though because You look at even at say, say, so China is, you know, on the, on the, on the way out of, of, of shutdowns economy is still running 10 to 15% below where it was pre-crisis. Will pretty target pre shut downs. You know, coal consumption is lower a lot and electricity consumption is lower. What, what really worries me is that we, if we get back to where we are to a as steady state out the other side of this, that is the economy major economies growing with activity 10% below where we were previously. That is still the definition of a depression. So we haven't yet seen any country show that it can walk the line there, thread the needle between openness to ensure activity can occur and managing the public health crisis to make sure we don't see a resurgence in infections. We thought we were there with Singapore and then that had to go into lockdown because basically they had a bunch of temporary migrants large, the temporary Margaret's through that, that would house it very well. That is saying that any credit I would be increasing infections until we say, yeah, I country thread that needle. I don't think we can be confident that we're going to get out of this anytime soon. Once we do, we confident.

Veronica Morgan: Yeah. I was watching the ABC last night and they were talking about Sweden and I D I couldn't quite get actually why it's supposedly working over there. You sort of UpToDate or any of that. It's like they've sacrificed the old people but they're still getting on with life. And I actually do not get why they don't have a crisis.

Brendan Coates: There's so many unknowns. You know, I was reading stuff the other day that, you know, there's concerns that maybe the strains are different in different countries so that Italy has a more dangerous strain of covert then cause it's mutating then say the parts of the United States like Washington state. We just don't, we really don't know enough about what this, what this thing looks like. I agree. It is what Sweden study is basically open up, leave the economy relatively open and at pursuing something that looks a bit like a herd immunity strategy where you, you try to manage the number of people that have the varsity one time and they follow that demand from a health system. It certainly allowed the economy to keep functioning, but there are two big unknowns there. One, we don't know whether you develop herd immunity from covert, but that is something we genuinely do not know.

Brendan Coates: You know, a lot of coronaviruses or a lot of ours is like flu virus is the reason they come back is because you don't develop immunity permanently. And so you get these sweeping infections through the community all the time. And secondly, we don't know what the long term health impacts are. So you know, you don't know what long term costs are to someone's health. You're imposing by, even though the death rate might be 0.5%. And therefore you know, and you're trying to be careful with elders, older people they're the two big risks. So we just don't know the answers to those questions. And one of the things I would say is that the way Australia has gone about this, which is to shut down relatively early is the right approach because we can learn from other countries in the next three or four weeks. We will see what country, where countries have got to in being able to reopen. And you see that some countries make mistakes that then we will be able to avoid.

Veronica Morgan: And we're quite fortunate there because of the timing there, aren't we? Because you know, we're got it a bit later than everybody else.

Brendan Coates: That's right. So we had the advantage of foresight only by a couple of weeks, but a couple of weeks matters. That we shut down. I thought we would probably have a larger rate of infection based on what everything that we've seen abroad. And it's, it's reassuring I think because we had so many international cases that actually, that, that led to more numbers earlier for us that caused us to shut down when the rate of community infection was relatively low,

Veronica Morgan: Like a Ruby princess. I mean, a laughy disbelief, you know, that's just appalling. What happened there for all those passengers as well. But yeah, without that our situation could be quite different but it could have been a hell of a lot worse obviously as well.

Brendan Coates: And so the, the real question here is what we do. So the, we try to eradicate or do we try to live with it the way Sweden and other countries have. 

Veronica Morgan: But you can't eradicate it cause if you eradicate it then you basically got to close your borders forever. Right?

Brendan Coates: Well you got to close your borders until you get a either a vaccine or it's, or you've solved the problem globally. I, we are, we do come down on the side of eradication in general for, for for one beat reason, which is that the epidemiological modeling that we've looked at from university Sydney university about it says that you could probably get rid of covert in Australia by June. With the kind of end that the economist is we put in place right now are our on track to do that. If the alternative where you open things up, it's a question about how much you could open up. And if you can only open up enough way, some way of say schools reopen, you know, the question is can you reopen restaurants and cafes and all the rest of it before you get the rate of infection back above one.

Brendan Coates: So the number of people each person's infecting is above one. And so to believe that eradication is not the right strategy, given that a vaccine is probably added, bounced away, you've got to believe that the economic costs of eradication are six times more for each month that they're in place than what the alternative strategy is. And I hear you on international tourism and the borders, but the borders only account for a couple percent of GDP. Whereas we know that restaurants and cafes and a lot of businesses account 20% of GDP and I probably choose a world where the borders are largely shadow, heavily quarantined as they are now in places like Korea, over a world where we just accept that, okay, we'll have to have recurrent shut downs or try to thread the needle with very, with things being opened up very gradually for a long time. I suspect the cost of the former are less than the latter.

Veronica Morgan: Oh, I would 100% agree. I think that how's that going to play out though in terms of our lives? So hopefully, yes, by if that modeling is correct by June could be eradicated, we then you know, leave differently until it's solved as you say. In the meantime, you know, what I guess what do you think is going to be the damage, the permanent damage or is there going to be permanent damage to our employment? How is that going to filter into, into property prices? Because that also has a wealth effect, right? So that in itself people feeling like their home is worth more or less gives them confidence to go out and spend money. So it's all sort of so intrinsically linked and so psychologically linked as well. How do you see that sort of playing out?

Brendan Coates: I, I think we're about to experience where were were going through an incredible experiment way will just hurt. We'll see how important monetary policy is for property prices versus fundamentals because we've cut interest rates from a, well look, the average mortgage rates gone from absolving with about a four in front of it or a bit less to something that's probably closer to a three, maybe even a two in front of it. So you've cut interest rates by 70 to say 50, 75 basis points on the RBAs modeling. That's enough to raise property prices by 15% say on the end when we noticed that the interest rates were probably stay live from very long time. On the flip side, you've now got no migration. A whole bunch of Airbnbs are now being put onto the rental market. Those things, you know, on this, on that sale RVA work, those leads to demand would probably suggest to keep to process of five or 6%.

Brendan Coates: You know, cause you've taken away two, you've added 2% of the dwelling stock. My guess is the, that the heat to property prices will pro, my guess is unless there's an, there's a fire sale of people who are, have gone bankrupt. The heater price is actually why be that lodge? That's that noting that it's incredibly uncertain. But my guess is just that the, the interest rate hit is, is, you know, property is almost become, you know, residential property Australia. It's almost like buying a futures contract on interest rates. I don't, I, you know, we still care about fundamentals and we still think we should make sure we fixed supply and planning rules, all this sort of stuff. But your sense of what happens to the price level, do wonder how much of it is just going to be driven by rights in the absence of a financial crisis. And I know the governments and the policymakers sort of showing that they've learned the lessons of the last recession without the financial crisis, that we probably won't have a financial crisis at the back of these if that was that be very hard to avoid that.

Veronica Morgan: It's interesting too because we see, I mean obviously like you said, so much of this is unknown and individuals have individual financial situations as well. So some people will have pressures and others won't and they may both have lost their jobs, you know? So there's no uniform response I guess because nobody's, no two people have got the same financial pressures. But if people don't list their property for sale, then they can't sell. And then you can't really work out where the prices are falling or not. And so what we're, what we're seeing certainly on the ground here as well, is that people aren't feeling pressure yet. Whether they feel that in six months or so, we don't know yet. But they're certainly not at the moment. There's very few people putting their property on the market saying, right, well I'm going to take a bargain basement price. They're putting out, they're still being speculative, which is sort of interesting. And you know, and while that remains to be the case, when you don't have any pre any for sales, then you're not going to have this great flood of opportunity for, for, you know, investors that want to capitalize on this. So it's sort of interesting just to watch human behavior on the ground at the minute to and to wonder how long that can be buffered for all that can be, or they can remain for, I guess across the board.

Chris Bates: I agree. The supplies that, the thing that we don't know what's going to happen in some areas, you know, because of the payment holidays that is masking things a lot. And those things won't last forever. We, you know, job keeper and all these sorts of things that amassing things a lot because people can still afford mortgages and you know, cutting childcare and making that free. There's so many things that are, that are happening. Access to super, which is a thing that I want to ask you about Brendan in a sec, but there's things that are just massive things that won't last forever. And it depends on whether, you know, at the end of that period, whatever that is, that side's six months, you know, do can find it households go back to things as normal and because of low interest rates or do they have to sell them that, does that increase supply or do investors get out?

Chris Bates: I guess on the demand side without doubt I've been going through, you know, not only a banks becoming extremely smart, exactly. Things like they weren't 2018 but, you know, applicant's desire to take out debt is definitely decreasing. And in their abilities, how much they can borrow based on their incomes because of changes to bank policies changing as well. So regardless, we're going to say the amount of people wanting to borrow is going to have, is going to decrease. And it's just whether the dose decreases enough to keep that house process kind of balanced. And I, I actually think you're not, in some areas you will see the demand for credit to drop dramatically. For example, you know, investors and the amount of supply to potentially increase, say for example, high-rises. So you're going to say these dislocations in the market, Brendan, before we kind of go to a, you know, a Dumbo, which I don't know if you've got one for us, access to super. I think this could be the Dumbo, but gee, that's a good idea. You spoke about those temporary residents. I think this is a great idea for them. Give them access to their super now to get them through over the next six months. But do you think it's a good policy and why?

Brendan Coates: I think it is a good policy because he's basically there as a backstop for the fact that the government's policies to provide income support or to sort of you do you Scott Morrison's, whereas build a bridge to the other side are inherently imperfect. They're not going to help everyone perfectly. Now in case of temporary Margaret's, they're not helping them by design. And I think that's a mistake. But certainly, you know, we were talking earlier about the fact that high income earners are fully insured against the prospect of their job losses and their expenses, their commitments tend to be proportion of their income. So I think early access to super is actually there is the extra insurance mechanism behind governors that lose their jobs through the spirit or experience financial stress. As a mistake. I suppose that the government, MIT's that either announced the social distancing rules and putting in place early access to super before at the jockey bar.

Brendan Coates: And so there's a bunch of people who are on lower incomes and casuals and younger that are peaking up or applying for SUPA now because I need the cash because the job, your payments and the job seeker payments are going to take longer than they bank accounts. But on the whole, I think the policies actually a sensible one because it's designed for, it's a vast soft for those that would otherwise struggle. And there's this commentary in the public debate about if you take super out 20 grand or super out, you're going to lose hundreds of thousands of dollars over the course of your retirement. And I think a lot of that's been quite overblown because of two things. One super doesn't operate in a vacuum. You have high super, so you have less Sucre but you get more age pension and most people in future will be on a part pension.

Brendan Coates: And so our numbers suggest that if you take money out of your super $20,000 as a 35 year old for example, then the heat to your total retirement income is only about 20 grand or about 800 bucks a year over your retirement because it's not actually you are on the hook for the cost of taking your super out. The government is because that's that have to pay high pensions to a lot of people. So I think the heat to soup is a good thing and we should have it, but I don't think we should get to where we shouldn't put it on such a pedestal that we don't think we should ever use it in circumstances like this because this is literally unprecedented. And the heat of people's incomes in retirement is actually not that large.

Veronica Morgan: Yeah. It's also, you know, the idea of preventing people entering into retirement without their own home, you know, so if, if you can dip into super now to make sure that you keep your home rather than having to sell out of it and potentially go way backwards, you know, I mean, that's gotta be part of the thought process, right?

Brendan Coates: Yeah, absolutely. And so, you know, the, it'd be much worse if someone loses their, their house and goes bankrupt for their retirement. Then if I did 20 grand out of their super like a good way of thinking about super is that it's a blanket rule. It's a, it's a crude rule that we set force everyone to say none the opposite. And for some people that is probably too much and some people that's too little. And what this scheme does is allows people for whom saving those savings are more valuable to them. Today they can take out a limited amount for a specific purpose to get them through. And I think the signaling that, you know, you taking money out of your super ISIS, it will mean that a lot of people will try very hard to put it back here.

Chris Bates: I think that's pretty optimistic about picking, putting more into super then they're nine and a half. I mean the there's all stats around being compulsory or not compulsory. You look at countries where it's not compulsory. You know, for example, the UK the take up on pensions is, you know, ridiculously low, hence why they're moving to the Australian system. I know that Grattan don't believe that they should be going to 12%, but you know, really the government needs super to stop that pension issues that you spoke about. And I guess the complacency of people thinking that the back stops the pension. You know, it's, it's whether pensions are the same in 20, 30 years time. If you're in your thirties or forties now, like it's pretty dangerous strategy to live your life knowing that the pension is always going to save you.

Chris Bates: And I think the problem with the scheme I believe is that there's no real rules around it. And if you generally need it because you need to keep paying for the bills, which is your argument that those people in the lower end don't actually need it because there's job keeper, there's higher social security benefits, et cetera. They should potentially be in a financially better position. So getting access to 20 grand out of their super is they don't really need to, it's just going to help the economy, which is what the idea is. And then there's a lot of people or example are hiring coms you know, and have got savings, have got little bit of, but they're just going to get access to super because they can. And whether they and to justify that they just need to show 20 drop in their income. So, you know, I just think the rules around it are ridiculously relaxed and I personally just think it's a massive part of the government just to keep propping up the economy. I'm Robin actually thinking through and going, is this really the best thing for those households? Future longterm?

Brendan Coates: Well Chris, let me say, first of all, like supers a good idea and compulsion works, which is why we have it. So we know that people won't save enough unless they have their compels and that's what its main objective is. It doesn't actually say the pension, the government must compulsory super as a whole doesn't say the pension. That's money that's running pension because the tax breaks a lodger then the pension savings. And that's true. Maybe in the long term it's going to cost us more in the patient. They cost us more in tax breaks than what you get back via lower pension spending. Even treasury work has certainly shown that in the past, I think in this instance, you know, so what super is there for is to help people save more of their own money. It doesn't actually say the government very much at all.

Brendan Coates: What super in this instance is doing or this scheme is doing is it has to be a fairly relaxed set of restrictions because, Oh, the very last set of rules, because otherwise it would take too long for people that need the money to get it. And to be a nightmare. So super funds are not very well placed to make these many to sort of administer the scheme. That's why the ICO is doing it through the early access regime. And I suspect what they are the agent should be doing is they should be policing, you know, you can, you know, when you think you'd be tax return, then the ACA doesn't ask you to show evidence of every receipt when you put it into my gals. What the ACO does is they say, hi, put in your tax return, but there'll be a walking big stick if we catch you out lying on your tax return and your deductions and you'll get fined.

Brendan Coates: And I think that's probably the way they need to approach this is there hasn't been a lot of public communication. Say, look, there'll be consequences if you try to take the money out and prove that you don't need it. It will force you to have to put it back in or we'll tax you some more or we'll do something else. And I think that's probably where the problem is, is that at the moment they're probably, there are people who we able to take money out of the same who probably don't need it. I know beyond a tiny that tax free is in fact would be tax advantages to do it. You take the money out and you put it straight back in and you save yourself three, $4,000 in tax. And so I'm not advocating that or recommending that to your, to your listeners, but it is something that exists and the ACS should be on top of that by restrict by, by being clear in the communication that you will, they will audit the process. And if you can't show that you were, is there'll be some sort of, there'll be some sort of redress.

Chris Bates: Yeah. And that's the thing I've got. You know, it, you could show that, for example you know let's say work in the big four accounting firms, they've all had a, it their income. So pretty much all the big four accounting firms, if you work there, you could potentially go get access to 20 grand in your super fund. And then as soon as you get your hours go back to full time, you just then salary sacrifice that in and like you say, get a tax write off. So you know, there's just things that I just seem to make it too easy to gain system. And you know, people are already distrust super. And if you give them an opportunity to get access to that, they don't know really the longterm facts on themselves. And I actually think they are quite large because, you know, reality is, I believe the modeling shows that it's too light. But I think Greg believe that it's too much. So we'll leave that one to another day.

Chris Bates: Every week. We hear incredible stories of the dumb things, property buyers do, dumb things that end up costing you a whole lot of money and or a whole lot of stress mistakes that can be avoided. Please, Brendan, can you give us an example of a property Dumbo? We can all learn what not to do from these stories.

Brendan Coates: I'm afraid I don't really have one today. I think I use, I spent my any property done by last time I was on the show.

Veronica Morgan: It was a good one. That was about the pile on, in the middle of the lounge room.

Brendan Coates: That's right. So hopefully we will, hopefully we fix 'em we'll fix those those construction standards over the course of the next couple of years.

Veronica Morgan: Well, I didn't know about that because I think, you know, there'd be a lot of, a lot of enthusiastic support of the construction industry to get us out of this mess. So I'm not sure that that's an environment that is really conducive to sorting out the problems in the construction industry when it comes to residential property.

Brendan Coates: Yes. Look at, we've, you know, the world's changed and the, the debates we were having pre covert, you know, it'd be interesting to see which ones in Jura, which ones are get put on the back burner.

Veronica Morgan: Well, I was like, she got one. I've been horrified. I've, I've mentioned a few times in the podcast that we've been going through open houses and you know, I've just been finding that agents haven't necessarily been taking it too seriously. This idea of social or not just an idea of social distancing, but actually the law. And so we've been taking it very seriously in our business. I recently heard there's one particular agency where the young blokes, so they're very, you know, gung ho aggressive salespeople. They've got a competition running as to how many people they can actually get inside a house at the same time during covert.

Chris Bates: Yeah. I mean, the frustrating, to be honest, I mean, I you know, on the weekend we were kind of walking around with Ellie and you know, I would say, you know, families with kids cashing out with other families, with kids. I'd say groups of five got five guys sitting on the beach together. So you know, girls or drinking you know, by the water. So it's like, I guess the whole Australia mentality is, you know, she'll be right. Is extremely frustrating, especially when you come into the professional arena when you know you're meant to be you know, acting professional. So, you know, for me, I just think it's absolutely bollocks and shouldn't be happening. So yeah, not good.

Veronica Morgan: It does make me somewhat embarrassed to be a real estate agent, to be honest. And I'm actually quite astounded at some of the arrogance and ignorance. It's not everyone, but it is more widespread than I would have thought and would have hoped for. And it's very, very disappointing that, you know, as I said, particularly this group that are really treating it like a game. And I just think that that's a bomb, hon. So, you know, my Dumbo is not actually about buyers, it's actually about agents in this particular instance. Braden is so good for you to join us today. I really appreciate you giving us all these insights into, yeah. Basically all the big things that you guys are looking into, but obviously micro and macro level that we and all the questions that we have, we don't know the answers to these questions, but we can certainly see some of the impacts that are happening. And it's great to have some considered debate and considered opinion as to how this can play out. So we really appreciate your time. Thank you very much. Appreciate that. We want to make you a better elephant rider. And this week's elephant rider training is

Chris Bates: So, there's so much research which we spoke about on this podcast around how little families have available in case of emergencies and, you know, advice one Oh one. You know, the first strategy that we're always taught as financial advisors is to set up an emergency fund. Ideally, you know, three to six months of your net monthly income. Just they're available in case something changes. And the people who had that going into this crisis would have gone in there a lot with a lot less stress and a lot less fearful on what could happen to their work situation. And when they did potentially get the call or, you know, the knock on the door that you know, they're not going to have a job anymore. Or they're going to get a pay card or you know, or their industry is going to, you know, the bonuses are going to get paid. Those people aren't going to have to go through that emotional stress of finances. The people who haven't got the buffers. So, you know, emergency money does matter because that's what, you know, will get you through emotionally in these situations. So, but, you know, it's pretty scary when, you know, 50 to 70% of the population can't even raise, you know, five to 10 grand. So for those who aren't doing that, you know, really get that sorted because you can't really look at other things until you've got emergency buffer.