He is very good at explaining how modern economies work. Granted he usually talks about things from the perspective of the UK but, given that Australia and most of the west now operate under the same economic assumptions I find him to be very very good.
Given that in the world you have people in debt and people with net assets. Inflation (so long as it's not hyper inflation) should only scare wealthy people with assets who don't want a fair redistribution of wealth.
For most of us in debt inflation will erode the real value of the debt.
The reason we're told 4% inflation is intolerable is because it means working class people will start asking for more wages and the debts working class people own to banks and wealthy shareholders of banks will be worth less which will erode the value of those assets.
The 2-3% target range is arbitrary and for some reason holds across the western world even though each country measures it totally differently. We're being taken for a ride.....
Australia has two major political parties. One says government spending causes inflation. The other says government spending causes inflation but theirs doesn't. Between them they've governed this country for its entire history and neither of them can tell you where money actually comes from which is a problem, because if you don't know where money comes from, you have absolutely no idea what actually causes inflation. Crack a XXXX and buckle up.
“PM’s reckless spending puts Australia in inflation firing line” Kevin Rudd, Dec 14th, 2021, AFR
“To lower inflation, interest rates, and the cost-of-living, we must reduce government spending.” Angus Taylor, June 16th, 2026, liberal.org.au
If it’s as simple as we’re told, what about Japan? They have run a persistent government deficit every single year since World War Two and spent thirty years trying to escape deflation and failing. What about China, which runs massive public deficits yet has had years of deflation? Or the USA, which has run deficits almost every year since World War Two yet had its worst inflation during the relatively modest deficits of the oil crisis years and normal inflation during the Clinton surpluses.
The data across three of the world’s largest economies over fifty years shows no consistent relationship between government deficit spending and inflation. Not a weak relationship. Not a complicated one. No relationship.
Government spending alone isn't the inflation apocalypse we're told it is. But it's not innocent either. The real story is in how government money interacts with the banking system and who profits from that interaction.
What is inflation and what causes it?
Inflation is when prices increase. Full Stop. It’s neutral and has many different causes. Supply shocks, monopoly pricing and the 2 reasons that we’re going to focus on here which are: When new money is created that outpaces the capacity of the economy to produce more goods and services to absorb it and acute spending surges in a particular part of the economy or specific goods/services i.e. putting in a massive order for steel when nearly all the current supply of steel is accounted for.
How is money created?
The common knowledge version is that governments create money or “print” it’s often said that governments print too much money which devalues the currency and causes inflation. Well it may come as a shock to some people to learn that the government only prints the physical notes and mints the coins. The rest of our money supply is digital and is created by commercial banks by simply pressing computer keys and typing numbers onto a screen to create new loans and bank deposits.
When the Australian government spends money they instruct the RBA to deposit reserve money into the payee’s bank’s reserve account.
Reserve dollars are a different kind of money that is used by the banking sector to settle transactions between each other, it’s a parallel banking currency and importantly this money is not legal tender and does not enter the public money system - ever. The government does not have control over the mechanism to create AUD outside of the notes and coins that are created at the Royal Australian mint.
The implications of this are pretty incredible - the power to create the Australian currency is almost entirely outsourced to commercial banks…. Let that sink in.
I want to focus on three channels of money creation and how these influence inflation differently: Bank loan creation i.e. mortgage lending, the most direct government spending where the government settles a payment like paying wages, and diffused government spending where the government pays in instalments for something like a large infrastructure project delivery.
First I’ll cover the example of mortgages as it’s separate from government spending. As covered earlier commercial banks create money by typing numbers onto a screen. When they create a mortgage they hold the debt as an asset on their balance sheet, to even things out they create a deposit which they credit to the previous owner when you buy the house. This is how money is created. It’s not completely limitless, banks need to manage their risk by holding “safe assets” and other assets on their books, these are a mixture of government bonds, banking reserves (mentioned earlier) and other assets like corporate bonds etc.
Banks have a lot of leeway over where they direct this credit (unfortunately) because of the idea that “markets are the best allocator of capital and resources”. In reality commercial banks in the west and particularly in Australia, choose to issue this credit into safe existing housing as people rarely default on mortgages and the bank gets the house as collateral for the loan. This means banks are using the majority of their credit creation power to pump new money into existing housing. This is why our houses are so expensive in Australia and although this gets mostly ignored in CPI this asset inflation is a huge source of rising inequality and a big driver in the so called “cost of living crisis”.
To put this into perspective, housing credit makes up around 70% of all new money entering the Australian economy in any given year. The vast majority of new money our banks create goes directly into existing house prices.
Ok now let’s take the example of the most direct form of government spending, things like wages, benefits and pensions. When government agencies pay wages, the RBA issues reserves to the bank, the bank creates a deposit to pay the wages in AUD. New money enters the economy.
Out of total government spending of around $734 billion, roughly $550 billion is this kind of direct spending, wages, age pension, dole, disability payments. It’s heavily taxed on receipt and through GST, fuel excise etc. so a significant portion flows straight back out of the economy as taxation. These payments broadly track living costs rather than driving them up. A $400 weekly dole payment isn’t causing a consumption boom.
This type of government spending could theoretically be inflationary. Under current conditions it isn’t. The inflation you’re actually feeling comes from somewhere else.
Finally what I’m calling diffused government spending. Take the example of a infrastructure delivery contractor, let’s call it MegaInfraCorp. They will sign a contract with the government to deliver a massive infrastructure project like a high speed rail or metro line. The government doesn’t pay for this all up front, they pay in instalments. When the contract is signed MegaInfraCorp gets an instant line of cheap credit from the commercial banking sector and the printers start whirring. They start to procure materials, sign subcontractor deals etc. Then these subcontractors use their reliable safe contracts to get more credit from the banks to sign more subcontractor agreements. There is a cascading effect and most importantly this new credit expansion (new money entering the economy) is happening before the government has made reserve payments and without strong government oversight. This is explicitly inflationary. One contract signed creates a huge amount of almost unrestricted credit entering the economy. And the crazy thing is that the government has ceded oversight of the money printer and the distribution of subcontracts. This almost always leads to massive budget overruns and sparks acute inflation in the construction market. Banks are incentivised to lend more to increase interest returns and MegaInfraCorp is incentivised to bloat the project as much as possible. The government ends up with no leverage because a half build metro line is a sunk cost and would be political suicide to abandon or delay further.
When you look at all these together the conclusion is quite damning. The government is only directly responsible for creating a small amount of new money with the most direct form of spending. The vast majority of new money is distributed by banks and most of this goes into house prices rocketing which is not properly included in any inflation that is measured when setting policy.
Government spending can and does cause inflation, in our current set up in Australia I would argue that this shows up acutely in the construction sector which is almost always running at or near capacity due to huge equity in existing housing being constantly remortgaged and locking up builders in renovation work, combined with predatory contracts that are gouged at every level.
To solve this problem the government needs to create state directed credit machinery like an infrastructure bank so that commercial banks are limited in the power they have to print near unlimited money off the back of a government contract.
It should re capitalise and re-staff an agency that distributes the subcontracts and regulates the market controlling the predatory nature of multi layered implementation contracts that are guaranteed to blow out on timing and costs by design.
The reality is that most of the financial pain we experience in Australia is caused by rising house prices and the majority of the inflation we all feel is caused by supply side shocks like the war in Iran, Ukraine or the oils shocks that caused the hyperinflation in 1970s. Politicians use it as a hot potato of blame and businesses use it as an excuse to demand evermore control of the money printer to stop government "waste".
The government doesn't run the money printer. Your bank does. And it's pointed squarely at your mortgage.
Given Michelle Bullock doesn't understand what a working class basket of goods look like, nor do any other people who calculate what a CPI basket looks like, why do these people get to decide how much they f*** over working class people by smashing them with crippling mortgage increases and then not factoring that into the basket of essential goods?
Aren't mortgage payments most people's biggest outgoing? Don't mortgage increases trickle down to renters through increased rents? They do this to.... decrease prices? For who? Big businesses who don't want to pay the wages......
I for one am sick of people who are callously detached from the reality of normal people using funny numbers and funny money to enrich themselves and crush working people.
As the recent debate has sparked up around a 25% windfall tax on gas I found myself almost choking on a beer the other day when I realised “F*** I agree with Pauline Hanson on something”
That horrifying realisation drove me to write this. My aim is to lay out in clear and normal language (minimal political and economic jargon bullshit) how the Australian elite political class and oligarchs are squandering our potential through self interest and sheer incompetence.
Why should we tax resource extraction?
You hear all sorts of different reasons as to why we should or shouldn't tax things on this country and almost all of it is utter garbled horseshit. Labor says: "Tax the miners so we have the money to invest in Australia." The Coalition says: "If we tax them, they'll pack up and move to Africa.".
Both are fundamentally wrong (although one is more cynical than the other…).
In reality, taxes don’t directly pay for federal government spending. I know we’ve been bombarded with decades of panic about “balancing the budget,” but it’s a scam.
When COVID hit, the Reserve Bank created $280 billion to prop up the economy. Nobody went round with a collection tin first. They typed numbers into a computer. When it was over, every politician went straight back to telling you we can’t afford new trains unless we find the money somewhere. They found $280 billion in an afternoon for the banks but there’s no money for your hospital.
Don’t take my word for it. The Bank of England explicitly admits this on its own website, stating:
"The money we used to buy bonds when we were doing QE did not come from government taxation or borrowing. Instead, like other central banks, we can create money digitally in the form of 'central bank reserves'."
Ok so we don't need to tax resources to explicitly pay for roads and hospitals in Australia so why should we tax resources then ?
Think of it like this. Brendo runs a local chippy. He pays his staff $25 an hour, turns a decent profit, and supports his community. Then his neighbour, Gina, strikes gold in her backyard. Gina is suddenly making money hand over fist. She decides she wants the whole suburb to sweep her floors and dig her holes, and she can afford to pay them $40 an hour to do it.
Suddenly, Brendo has to double his wages just to keep his staff from quitting. To survive, Brendo has to jack up the price of a flake and chips. Multiply that across a whole country, and you get rampant inflation.
We don’t tax resource giants to get their money. We tax them to drain their purchasing power. If the government vacuums up Gina’s excess cash, Gina can’t outbid the rest of the economy for workers, steel, and power.
Worse, when Gina has infinite untaxed cash, she can buy politicians, outright bribe officials and fund propaganda to ensure she keeps getting her way.
This brain drain and political capture are core symptoms of “Dutch Disease” (or “The Resource Curse”), famously named after the economic rot that set in when the Netherlands struck massive oil gluts in the 1970s.
Another major driver of Dutch Disease happens on the global stage: currency overvaluation.
When foreign buyers purchase our gas and iron ore, they have to buy massive amounts of Australian Dollars to pay for them. This global demand pushes the value of the AUD through the roof. A sky-high currency is a death sentence for the rest of our economy. It makes other local exports, like manufactured goods, way too expensive to compete internationally. It’s why industrial powerhouses like China, Japan, and Korea routinely devalue their own currencies to keep their factories competitive.
But this is the beautiful part: proper taxation goes a long way to solving both sides of Dutch Disease at the same time.
By taxing the resource giants more, the government drags down their excessive domestic purchasing power, stopping the brain drain and political bribery. Then, the government can take those tax revenues and immediately direct the flows into assets denominated in other currencies overseas. By selling AUD to buy foreign assets, we apply the reverse economic logic, pulling the value of our currency back down to a more competitive level which supports our exports.
This is exactly what Norway does with its 2 trillion-dollar sovereign wealth fund. They use resource taxes to protect their domestic industries from a surging currency, using those global flows for the long-term benefit of the country rather than the short-term profit of oligarchs.
Look at what can be achieved with good governance and common sense… 5.5 million people with over $2t in a sovereign wealth fund. They taxed the resources, they kept manufacturing and the resource companies went nowhere. Meanwhile here in Australia we have 28 million people with nothing but holes in the ground and a hollowed out manufacturing sector to show for it.
The great accounting mirage: how do resource companies avoid paying fair taxes ?
Most Australians are starting to realise instinctively that these companies should pay more tax, and that brings us to the 25% gas tax debate. Obviously the gas lobby and the bought off political class will parrot the same lines about “fuel security” , “we pay the most tax in Australia” or another one of the plethora of absolute bullshit lines that they have in their repertoire.
The reality is that by using a bunch of accounting tricks these companies avoid paying a massive amount of taxes and in most cases it's been enabled by our politicians for years.
For offshore projects out in Commonwealth waters, they use the Petroleum Resource Rent Tax (PRRT). It’s supposed to be a 40% tax on "super-profits" but the resource lobby successfully rigged the code so companies can deduct the entire multi-billion-dollar cost of building their massive offshore rigs before paying a single cent. Worse, the government gives them a trick called an 'uplift rate.'
Think of it like a high-interest savings account, but for dodging resource rent. Imagine you want to open a cafe on the high street, you need to buy the equipment and fit out the shop with decorations, let's say that costs you $400k in start up money and of course you own all this equipment now. Now let's say your cafe makes $100k of profit in the first year and you've negotiated a rental deal with the landlord on the same terms as the PRRT. You would have an expense balance of $400k at the end of the first year which would increase to $440k (if we use an uplift rate of 10% but in reality it varies). You pay off $100k of the balance as that's your profit for the year and your balance stands at $340k. If we carry this over 4 years assuming the same profits each year and the same uplift rate you wouldn't pay any rent to the landlord until your 6th year of operation even though you've turned a profit of over $500k by that point and remember you still own all the equipment that you bought.
Because these corporate write-offs grow and compound, it creates a permanent corporate shield. This is exactly why Chevron’s massive $52 billion investment in the Gorgon project exported our gas for nearly a decade before paying a single cent of PRRT.
Let's be clear here, this means that companies extracting gas from Commonwealth waters get to rent the resource for free from the Australian people, until they have paid off their full investment plus exorbitant interest on that investment…. We're subsiding their risk which begs the question - Why doesn't the government get more involved if they're not really outsourcing any of the risk?
Both onshore and offshore projects are also subject to standard corporate taxes and here more typical accounting scams are used. Companies just simply hide their profits by using complex loan structures between corporate entities, writing off expenses or routing profits through Singapore. The Australian Taxation Office (ATO) corporate transparency data reveals that massive players like Santos have clocked a literal decade of zero corporate tax payments despite racking up nearly $47 billion in sales.
If a company does report a profit, they can pull out the Singapore Shuffle: selling the gas to their own sister company in Singapore at a dirt-cheap baseline price, only for the Singapore desk to slap a large markup on it and sell it to Asia at market rates, keeping the super-profits locked in a low-tax playground.
The ultimate proof of this rort is a global comparison. Australia and Qatar export almost the exact same volume of gas. Yet, while the Qatari government collects around $56 billion a year from its gas, Australia’s various levels of government take home a pathetic $11 billion.
I've chosen to mention some of the loopholes and accounting tricks specifically focused on gas but you can extrapolate across all mining and resource extraction and the lists of tricks and loopholes are endless. Tax holidays, under-valuing of gas at the wellhead for royalty calculations, the list goes on. This piece is not supposed to be a total analysis on how gas companies avoid paying tax that would take a book.
I want to draw attention to the fact that we don't tax them enough and the effect that has on our economy. By not draining the purchasing power of these companies we allow them to hire armies of lawyers, accountants and lobbyists to build an ever more complex web of carve outs, loopholes and tax arbitrage strategies. We allow them to drain our best and brightest engineers, create inflationary pressures on our economy, drive up our currency value all of which hollows out our manufacturing sector.
We have a government who in the same breath will rail against increasing taxes on gas companies and mining conglomerates and also tout the future made in Australia policy. What I'm suggesting is that you can't seriously say both.
Without taxing resources properly you make it impossible to build a serious industrial strategy for the future, rendering the “Future Made In Australia” policy a joke.
I think this makes some sense. IMO - CGT should be applied more heavily to unproductive assets like existing housing, shares changing hand on the secondary markets etc. But pre IPO share purchases on technology or other key industries just disincentivises investing in them and the capital goes to fund the businesses directly.
Also increasing the small business allowance is a positive step.
I'm thinking of writing something about the real causes of inflation. Always hearing from the AFR and various mainstream commentators that it's all about government spending and deficits etc.
Wondering what people's thoughts are?
As the recent debate has sparked up around a 25% windfall tax on gas I found myself almost choking on a beer the other day when I realised “F*** I agree with Pauline Hanson on something”
That horrifying realisation drove me to write this. My aim is to lay out in clear and normal language (minimal political and economic jargon bullshit) how the Australian elite political class and oligarchs are squandering our potential through self interest and sheer incompetence.
Why should we tax resource extraction?
You hear all sorts of different reasons as to why we should or shouldn't tax things on this country and almost all of it is utter garbled horseshit. Labor says: "Tax the miners so we have the money to invest in Australia." The Coalition says: "If we tax them, they'll pack up and move to Africa.".
Both are fundamentally wrong (although one is more cynical than the other…).
In reality, taxes don’t directly pay for federal government spending. I know we’ve been bombarded with decades of panic about “balancing the budget,” but it’s a scam.
When COVID hit, the Reserve Bank created $280 billion to prop up the economy. Nobody went round with a collection tin first. They typed numbers into a computer. When it was over, every politician went straight back to telling you we can’t afford new trains unless we find the money somewhere. They found $280 billion in an afternoon for the banks but there’s no money for your hospital.
Don’t take my word for it. The Bank of England explicitly admits this on its own website, stating:
"The money we used to buy bonds when we were doing QE did not come from government taxation or borrowing. Instead, like other central banks, we can create money digitally in the form of 'central bank reserves'."
Ok so we don't need to tax resources to explicitly pay for roads and hospitals in Australia so why should we tax resources then ?
Think of it like this. Brendo runs a local chippy. He pays his staff $25 an hour, turns a decent profit, and supports his community. Then his neighbour, Gina, strikes gold in her backyard. Gina is suddenly making money hand over fist. She decides she wants the whole suburb to sweep her floors and dig her holes, and she can afford to pay them $40 an hour to do it.
Suddenly, Brendo has to double his wages just to keep his staff from quitting. To survive, Brendo has to jack up the price of a flake and chips. Multiply that across a whole country, and you get rampant inflation.
We don’t tax resource giants to get their money. We tax them to drain their purchasing power. If the government vacuums up Gina’s excess cash, Gina can’t outbid the rest of the economy for workers, steel, and power.
Worse, when Gina has infinite untaxed cash, she can buy politicians, outright bribe officials and fund propaganda to ensure she keeps getting her way.
This brain drain and political capture are core symptoms of “Dutch Disease” (or “The Resource Curse”), famously named after the economic rot that set in when the Netherlands struck massive oil gluts in the 1970s.
Another major driver of Dutch Disease happens on the global stage: currency overvaluation.
When foreign buyers purchase our gas and iron ore, they have to buy massive amounts of Australian Dollars to pay for them. This global demand pushes the value of the AUD through the roof. A sky-high currency is a death sentence for the rest of our economy. It makes other local exports, like manufactured goods, way too expensive to compete internationally. It’s why industrial powerhouses like China, Japan, and Korea routinely devalue their own currencies to keep their factories competitive.
But this is the beautiful part: proper taxation goes a long way to solving both sides of Dutch Disease at the same time.
By taxing the resource giants more, the government drags down their excessive domestic purchasing power, stopping the brain drain and political bribery. Then, the government can take those tax revenues and immediately direct the flows into assets denominated in other currencies overseas. By selling AUD to buy foreign assets, we apply the reverse economic logic, pulling the value of our currency back down to a more competitive level which supports our exports.
This is exactly what Norway does with its 2 trillion-dollar sovereign wealth fund. They use resource taxes to protect their domestic industries from a surging currency, using those global flows for the long-term benefit of the country rather than the short-term profit of oligarchs.
Look at what can be achieved with good governance and common sense… 5.5 million people with over $2t in a sovereign wealth fund. They taxed the resources, they kept manufacturing and the resource companies went nowhere. Meanwhile here in Australia we have 28 million people with nothing but holes in the ground and a hollowed out manufacturing sector to show for it.
The great accounting mirage: how do resource companies avoid paying fair taxes ?
Most Australians are starting to realise instinctively that these companies should pay more tax, and that brings us to the 25% gas tax debate. Obviously the gas lobby and the bought off political class will parrot the same lines about “fuel security” , “we pay the most tax in Australia” or another one of the plethora of absolute bullshit lines that they have in their repertoire.
The reality is that by using a bunch of accounting tricks these companies avoid paying a massive amount of taxes and in most cases it's been enabled by our politicians for years.
For offshore projects out in Commonwealth waters, they use the Petroleum Resource Rent Tax (PRRT). It’s supposed to be a 40% tax on "super-profits" but the resource lobby successfully rigged the code so companies can deduct the entire multi-billion-dollar cost of building their massive offshore rigs before paying a single cent. Worse, the government gives them a trick called an 'uplift rate.'
Think of it like a high-interest savings account, but for dodging resource rent. Imagine you want to open a cafe on the high street, you need to buy the equipment and fit out the shop with decorations, let's say that costs you $400k in start up money and of course you own all this equipment now. Now let's say your cafe makes $100k of profit in the first year and you've negotiated a rental deal with the landlord on the same terms as the PRRT. You would have an expense balance of $400k at the end of the first year which would increase to $440k (if we use an uplift rate of 10% but in reality it varies). You pay off $100k of the balance as that's your profit for the year and your balance stands at $340k. If we carry this over 4 years assuming the same profits each year and the same uplift rate you wouldn't pay any rent to the landlord until your 6th year of operation even though you've turned a profit of over $500k by that point and remember you still own all the equipment that you bought.
Because these corporate write-offs grow and compound, it creates a permanent corporate shield. This is exactly why Chevron’s massive $52 billion investment in the Gorgon project exported our gas for nearly a decade before paying a single cent of PRRT.
Let's be clear here, this means that companies extracting gas from Commonwealth waters get to rent the resource for free from the Australian people, until they have paid off their full investment plus exorbitant interest on that investment…. We're subsiding their risk which begs the question - Why doesn't the government get more involved if they're not really outsourcing any of the risk?
Both onshore and offshore projects are also subject to standard corporate taxes and here more typical accounting scams are used. Companies just simply hide their profits by using complex loan structures between corporate entities, writing off expenses or routing profits through Singapore. The Australian Taxation Office (ATO) corporate transparency data reveals that massive players like Santos have clocked a literal decade of zero corporate tax payments despite racking up nearly $47 billion in sales.
If a company does report a profit, they can pull out the Singapore Shuffle: selling the gas to their own sister company in Singapore at a dirt-cheap baseline price, only for the Singapore desk to slap a large markup on it and sell it to Asia at market rates, keeping the super-profits locked in a low-tax playground.
The ultimate proof of this rort is a global comparison. Australia and Qatar export almost the exact same volume of gas. Yet, while the Qatari government collects around $56 billion a year from its gas, Australia’s various levels of government take home a pathetic $11 billion.
I've chosen to mention some of the loopholes and accounting tricks specifically focused on gas but you can extrapolate across all mining and resource extraction and the lists of tricks and loopholes are endless. Tax holidays, under-valuing of gas at the wellhead for royalty calculations, the list goes on. This piece is not supposed to be a total analysis on how gas companies avoid paying tax that would take a book.
I want to draw attention to the fact that we don't tax them enough and the effect that has on our economy. By not draining the purchasing power of these companies we allow them to hire armies of lawyers, accountants and lobbyists to build an ever more complex web of carve outs, loopholes and tax arbitrage strategies. We allow them to drain our best and brightest engineers, create inflationary pressures on our economy, drive up our currency value all of which hollows out our manufacturing sector.
We have a government who in the same breath will rail against increasing taxes on gas companies and mining conglomerates and also tout the future made in Australia policy. What I'm suggesting is that you can't seriously say both.
Without taxing resources properly you make it impossible to build a serious industrial strategy for the future, rendering the “Future Made In Australia” policy a joke.