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Fear & Greed, Fear and Greed

This is Fear and Greed – The Week Ahead, where Jennifer Duke and Stephen Koukoulas discuss the major events, reports and releases that provide insight into the economy this week (with a look back at the events of last week too).

Find out more: https://fearandgreed.com.au

See omnystudio.com/listener for privacy information.

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Jennifer Duke: Welcome to Fear and Greed – The Week Ahead. I’m Jennifer Duke and I’m

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Jennifer Duke: joined by economist Stephen Koukoulas. You’ll find him at thekouk.

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Jennifer Duke: com, that’s T- H- E- K- O- U- K. com,

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Jennifer Duke: and on X, using the handle TheKouk.
Stephen, good morning.

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Stephen Koukoulas: And a very good morning to you, Jen.

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Jennifer Duke: First off, what happened last week? What sort of data were we seeing?

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Jennifer Duke: And any big trends?

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Stephen Koukoulas: There was really important data last week relating to the

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Stephen Koukoulas: labor force. In no particular order, we had, well, the

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Stephen Koukoulas: employment numbers, which showed a bit of a disappointing pullback

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Stephen Koukoulas: in employment. Employment fell by about 14, 600 people. The

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Stephen Koukoulas: unemployment rate ticked up to 3. 7% from 3. 5%.

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Stephen Koukoulas: And in a way, it’s one of those things that was going to

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Stephen Koukoulas: happen because the economy has been slowing down since the

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Stephen Koukoulas: start of this year. We know that retail spending, GDP,

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Stephen Koukoulas: business investment have all been tapering a little bit lower.

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Stephen Koukoulas: So it was inevitable that the labor market would weaken

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Stephen Koukoulas: a bit, and here we are. We’re starting to see

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Stephen Koukoulas: that come through. So, that was an important issue. It

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Stephen Koukoulas: sort of fits with the narrative that the Reserve Bank’s

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Stephen Koukoulas: been going on about in terms of the weakening in

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Stephen Koukoulas: the labor market. And that’s coming through loud and clear.

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Stephen Koukoulas: So, that’s one thing, and it’s an important part of the adjustment to low inflation. Well, nobody likes

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Stephen Koukoulas: higher unemployment. From a macromanagement perspective, well, it’s what was

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Stephen Koukoulas: anticipated and, frankly, what’s needed to sort of ensure that

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Stephen Koukoulas: the economy is slowing down.
The other really big news

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Stephen Koukoulas: was the Wage Price Index. And that was, well, I’ll call

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Stephen Koukoulas: it disappointing in that it was only a 0. 8%

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Stephen Koukoulas: quarterly increase. The annual increase eased back from 3. 7% to 3.6%.

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Stephen Koukoulas: So, again, in line with perhaps with these softening labor-

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Stephen Koukoulas: market numbers, that that wage price spiral that the Reserve

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Stephen Koukoulas: Bank was worrying about is not coming through. Rather we’ve

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Stephen Koukoulas: got a bit of a pickup in wages growth from

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Stephen Koukoulas: where we were a year or two ago, and that’s

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Stephen Koukoulas: a good thing, but we’re not having that problematic wage

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Stephen Koukoulas: increase that would feed into higher inflation.

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Jennifer Duke: How does this tie into the RBA’s meeting minutes?

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Stephen Koukoulas: Oh, look, I think it would probably just reinforce what

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Stephen Koukoulas: they’ve done for the last two months, because that’s a

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Stephen Koukoulas: really good point because we know that for the last

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Stephen Koukoulas: two months, the Reserve Bank has held rates steady. They’ve

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Stephen Koukoulas: been debating whether to go another 25-point hike or keep them steady, and they’ve obviously

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Stephen Koukoulas: opted for the rates- on- hold decision. And the minutes

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Stephen Koukoulas: still will probably have that bias. Inflation is still high.

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Stephen Koukoulas: Yes, it’s coming down, but there’s this debate about how

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Stephen Koukoulas: quickly will it get back to the target. And of

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Stephen Koukoulas: course, around the world, there are generally higher interest rates

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Stephen Koukoulas: than here in Australia. We’re at 4. 1% cash rate.

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Stephen Koukoulas: In the US and New Zealand, for example, it’s around

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Stephen Koukoulas: about 5.5%, just by way of example.
So, put it this

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Stephen Koukoulas: way. If there is a right move in interest rates

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Stephen Koukoulas: in the next couple of months, it’ll be up not

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Stephen Koukoulas: down. It’s still way, way, way too early to talk

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Stephen Koukoulas: about interest- rate cuts. But the debate about rate hike

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Stephen Koukoulas: has being watered down with almost every data release, and

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Stephen Koukoulas: the data we saw last week on wages and employment,

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Stephen Koukoulas: as we were just discussing, says to me that the

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Stephen Koukoulas: next board meeting in early September will be on hold

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Stephen Koukoulas: again for a third month in a row.

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Jennifer Duke: So, now I want just to turn to housing because the

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Jennifer Duke: other big thing happening last week was the government’s national

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Jennifer Duke: cabinet agreement on housing. What did you make of the 1.

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Jennifer Duke: 2 million home building over five year target?

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Stephen Koukoulas: A great objective, but I think it’s going to be

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Stephen Koukoulas: problematic. There’s a lot of issues. I’ll put it this

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Stephen Koukoulas: way. There’s not a lot of flesh on the bones

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Stephen Koukoulas: of that 1. 2 million target. Great target. I like the target.

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Stephen Koukoulas: It’s a bit like my New Year’s resolutions to lose

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Stephen Koukoulas: weight, to exercise more. It lasts for a little while

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Stephen Koukoulas: and then it’s peters out. So I’m wondering whether it’s

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Stephen Koukoulas: going to be like that. But the 1. 2 million, that would

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Stephen Koukoulas: be an unrelenting record number of new dwelling starts for

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Stephen Koukoulas: five consecutive years. So, to me, that makes me a

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Stephen Koukoulas: little bit nervous about ” This time it’s different. We’re going

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Stephen Koukoulas: to be building all these houses.” It doesn’t really address

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Stephen Koukoulas: the major problem from housing supply, 1. 2 million new

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Stephen Koukoulas: houses, and that is zoning laws, council approval for the

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Stephen Koukoulas: building of new dwellings. And while there’s a few financial

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Stephen Koukoulas: incentives that the Commonwealth’s offering the state and local governments

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Stephen Koukoulas: to ramp up their building activity, you still need council

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Stephen Koukoulas: approval to build new dwellings. And that’s been the bugbear

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Stephen Koukoulas: of the supply side of the housing market for a

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Stephen Koukoulas: long time.
There is another issue, or rather couple of

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Stephen Koukoulas: issues, I should say, is that even now with a relatively moderate

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Stephen Koukoulas: level of housing starts, building companies are finding it hugely

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Stephen Koukoulas: difficult to find the skilled workers and the tradies needed

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Stephen Koukoulas: to build the houses. You need people who know how

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Stephen Koukoulas: electronics work and to hammer in a nail and all

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Stephen Koukoulas: these other things. So the trade is an actually vital

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Stephen Koukoulas: part of this construction side. And if we’re to build 1.

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Stephen Koukoulas: 2 million dwellings over five years, we’re going to need

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Stephen Koukoulas: a lot more skilled workers in the construction area. And

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Stephen Koukoulas: I don’t know if we’ve got them. So that puts

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Stephen Koukoulas: a question mark over whether we’re going to get that 1.

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Stephen Koukoulas: 2 million. A worthy objective, as I said, but there’s

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Stephen Koukoulas: got to be a lot more flesh on how you

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Stephen Koukoulas: actually ramp it up from a number that’s a little

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Stephen Koukoulas: bit less than a million for the last five years

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Stephen Koukoulas: to a 1.2 million target.

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Jennifer Duke: Definitely. And on that skills piece, we do have that

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Jennifer Duke: employment white paper. I think it’s due in September, and

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Jennifer Duke: I wonder if there’s going to be a focus on

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Jennifer Duke: tradies now in there. Is that something that you would

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Jennifer Duke: want to see?

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Stephen Koukoulas: Oh, yes, indeed. You want to see that across all

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Stephen Koukoulas: skills, actually. Education, skills and training are the fuel of

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Stephen Koukoulas: productivity increases. If you can’t have people maximizing or utilizing

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Stephen Koukoulas: their potential in the workforce, you’ve got a substandard level of productivity.

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Stephen Koukoulas: So, skills and training are really important. And one of the

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Stephen Koukoulas: things too, this is probably more from… just rather than

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Stephen Koukoulas: a week ahead, but the decade ahead, we need talented

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Stephen Koukoulas: workers. And in a sense, you’ve got the unemployment rate below 4%,

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Stephen Koukoulas: even though it might go above that in the next few months. Let’s embrace

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Stephen Koukoulas: this low unemployment rate. One way to do that is

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Stephen Koukoulas: to structurally change the talent, the skills, the learning of

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Stephen Koukoulas: your workforce. And trades and training, a vital part of that.

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Jennifer Duke: We need to Fear and Greed the year ahead, I

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Jennifer Duke: think.
So, coming up over this week, what are you expecting to see? Is there

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Jennifer Duke: much data coming out?

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Stephen Koukoulas: No, there’s not a lot of local data. It’s one

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Stephen Koukoulas: of those weeks where we’ve got a bit of a

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Stephen Koukoulas: pause. And, oh, look, the week’s going to be kicking

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Stephen Koukoulas: off with market concerns, which we’ve been brewing over the

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Stephen Koukoulas: last few weeks. In fact, about the slowdown in the

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Stephen Koukoulas: Chinese economy. The Aussie dollar has been thumped in the

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Stephen Koukoulas: last week. We were struggling around about 64 cents, give

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Stephen Koukoulas: or take, one of the lowest levels in a couple

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Stephen Koukoulas: of years. We’ve fallen against the cross rate. So it’s

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Stephen Koukoulas: not a US dollar story this time because we’re very

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Stephen Koukoulas: weak against the Euro, the British pound and the like.

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Stephen Koukoulas: So it’s an Aussie dollar story this time around. So,

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Stephen Koukoulas: I think the focus will be not so much on

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Stephen Koukoulas: the economic hard data, because there isn’t much, it’ll be

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Stephen Koukoulas: more on, ” Well, what’s happening in financial markets now? What’s

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Stephen Koukoulas: happening to the Chinese economy? Are commodity prices starting to

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Stephen Koukoulas: weaken.” And for Australia, with China taking roughly a third

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Stephen Koukoulas: of our goods exports, we don’t want China to have

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Stephen Koukoulas: an economic hard landing because that would spell trouble for us.

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Jennifer Duke: That’s a great point. And we’ve also got the intergenerational

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Jennifer Duke: report, I believe, coming out. Do you have any thoughts on

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Jennifer Duke: what we might want to look out for in that one?

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Stephen Koukoulas: Yes. Well, that’s another one. Maybe Fear and Greed – The

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Stephen Koukoulas: Decade Ahead- type (inaudible) , because every five years or

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Stephen Koukoulas: so, the government puts out an intergenerational report. I like

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Stephen Koukoulas: it. In a sense, it’s a bit a bit of

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Stephen Koukoulas: a convoluted policy document, but it highlights things like the

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Stephen Koukoulas: aging population. We’re all living longer, which I think is a

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Stephen Koukoulas: good thing, but that has implications for the budget. People

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Stephen Koukoulas: on the pension, people who are older tend to have

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Stephen Koukoulas: a higher usage of healthcare, which is very expensive, as

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Stephen Koukoulas: we know. There’s aged care, which has been a hot

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Stephen Koukoulas: topic for the last few years and will continue to

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Stephen Koukoulas: be with the aging population.
And in a sense, it

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Stephen Koukoulas: sort of just describes what is needed for Australia, how

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Stephen Koukoulas: are we going to cope with… in 20 or 30 years, we’ll

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Stephen Koukoulas: have to wait, see what the exact numbers are now

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Stephen Koukoulas: from Treasury, but with a population currently 26.5 million, it’ll

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Stephen Koukoulas: be 40-45 or 50 million in another 30 years. And where are

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Stephen Koukoulas: those people going to live? And dovetails back to that

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Stephen Koukoulas: housing debate that we were just having a moment ago.

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Stephen Koukoulas: But also from the longer- run, fiscal perspective, what are

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Stephen Koukoulas: we going to do? How are we going to pay

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Stephen Koukoulas: for these people who are going to be using public

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Stephen Koukoulas: finances for their aged care, their healthcare, and the like? It’s an

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Stephen Koukoulas: issue that’s got to be brought out into the open,

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Stephen Koukoulas: but it really fuels a lift in the economic debate.

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Stephen Koukoulas: So I’m looking forward to seeing it.

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Jennifer Duke: So, Stephen, a huge week ahead. Have a great time

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Jennifer Duke: over the week looking at that data.

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Stephen Koukoulas: Thanks, Jen. It should be a lot of fun.

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Jennifer Duke: So, that was economist Stephen Koukoulas, better known as TheKouk.

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Jennifer Duke: You can find him at thekouk. com and follow him

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Jennifer Duke: on X, using the handle TheKouk. I’m Jennifer Duke, economics

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Jennifer Duke: correspondent at Capital Brief, filling in for Sean Aylmer. And

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Jennifer Duke: this is Fear and Greed – The Week Ahead.