Bumpy ride ahead for Australian economy

0:00ABC Listen, podcasts, radio, news, music, and more. Good morning. Welcome to AM. It's Wednesday, the 11th of March. I'm Melissa Clark in Canberra, coming to you from Noneowall Country and acknowledging other custodians. The US Defense Secretary says today will be the most intense day of the military campaign against Iran so far. His comments coming a day after President Donald Trump said it was very complete. It comes as Israel's bombardment of Lebanon continues to escalate, displacing nearly 700,000 people, more on those developments shortly. Meanwhile, the war in the Middle East is causing global markets to whipsore, given the uncertainty about how long it will last and the extent of its impact on supply chains. That volatility has extended to Australian markets. The federal treasurer is Jim Charmers and he joins me now. Treasurer, good morning. Thanks for your time. Good morning, Melissa. Markets are, jeezery, there's increased expectation of inflation, accelerating again and interest

1:05rates rising, short Australian households be preparing for tough times. Well, I think it is the case that we're seeing a lot of volatility play out on these global markets. The escalation of the conflict in the Middle East has been dramatic and so has its impact on the global economy and the way that people see energy markets in particular. So to give you an example of that, in the last couple of days we've seen the oil price up around $120 this morning, it was trading briefly in the low 80s, now it's in the low 90s and so you can see from that really how extremely volatile the situation is on global markets and particularly markets for energy. And so we won't be immune from that, we're not complacent about it but we're also really well placed in Australia to deal with what's coming at us from around the world. Our economy's been growing more strongly than the major advanced economies, we've got a good, well regulated financial system, we've got low unemployment, we've got less debt

2:07compared to the major advanced economies and so we've got a lot going for us even at the same time as we've got a lot coming at us. So given that position, should households be relaxed about the current state of the Australian markets or should they be factoring in potential for inflation to be rising further? Well, I think clearly we had an inflation challenge in our economy already and this risks making it worse, that's clear and we've been up front about that in the preparations for the budget in May, we've got these three big challenges, inflation productivity and global uncertainty and at least two of those three will be pretty substantially impacted by what we're seeing in the Middle East. I think Australians understand that we're not immune from what's happening on the other side of the world at the same time as we've got a lot going for us, we do have better economic foundations than a lot of other countries, they're already seeing impacts at the petrol

3:10bowser for example and we've made sure that the A4C is empowered to monitor those markets and police those markets and issue fines if that's necessary, so there will be more pressure on Australians but overall our economy has better place than most to deal with it. What about the budget that you're preparing for May? What impact will this, you know, inflation that's likely to go up, likely more interest rates we're seeing, a lot of movement on the bond markets, the government already spends a lot of money servicing debt, are you preparing for that figure to be much larger in the years ahead than had been anticipated? Well first of all we've got the debt down substantially, about $176 billion less debt than what was forecast when we came to office and so that's put us in a better position than we would otherwise be, you know, to this point we've saved about $60 billion in interest cost because of our efforts to get the budget in better shape, finding those savings. Servicing debt still costs what 20, 25 billion dollars a year, it's still a substantial amount and that would increase given the uncertainty I would expect.

4:11It is a substantial amount to service that, that trillion dollars in debt that we inherited when we came to office. We've got that down a bit. Obviously when there are movements on debt markets, global debt markets, bond markets, then that has implications for our own forecasts and our own budget, we're in the process of updating that. You'd expect that two months and one day out from the next budget that we're crunching all of those numbers, we're a little ways off finalising our forecasts for the economy, for inflation, but also for things like debt servicing costs, but you could expect that when the cost of debt around the world goes up, that has implications for our own budget too. You mentioned the energy markets and the volatility there. That includes prices for LNG going up globally. Australia is one of the biggest exporters of LNG and now some of the major competitors in the Middle East can't export right now. Will that mean a windfall for the budget from the industry along the lines of what we saw at the start of the Ukraine war? Well, I think it remains to be seen. I mean, one of the factors there

5:15is obviously the duration of this conflict. The longer it drags out, the more substantial the economic implications in both directions. What we're seeing is you're quite right to point out what we're seeing is changes in the gas price globally, even as our own East Coast gas prices stayed relatively low. And so we will work through all of that. It's not quite clear yet. We wouldn't necessarily bank a big change in revenue for those companies until we would understand better how long this thing will drag out. Do you think that will be clear in the next two months before you hand down the budget? Well, clearer. It'll be clearer between now and when the budget's handed down obviously, but there's a lot of uncertainty here in all of these forecasts. There's typically a fair bit of uncertainty when you're forecasting the economy with all of this global volatility, but obviously what's happening in Iran makes that more difficult, not easier. And we'll do our best to come up with the best set of forecasts from the treasury,

6:18and we'll base a lot of decisions on the economic circumstances as we confront them. And obviously what's happening in the Middle East will weigh very heavily on our budget considerations. With that uncertainty, does that then mean you need to be more circumspect with your plans to implement productivity and tax reforms? I wouldn't say exactly that way. I mean, obviously we've got the reform task and I've indicated a willingness to be ambitious on productivity. We've already got a lot of movement on that front. A lot of changes underway already and we're prepared to consider more in the context of the budget when it comes to tax reform. Our big focus is cutting income taxes two more times for 14 million Australians, you know, that already. But we also need to factor in what's happening on the other side of the world. As I said, the consequences could be quite substantial for the global economy certainly and for our own economy. And that would limit your ability to introduce reforms if the larger those impacts are,

7:24is that a fair assessment? Not necessarily. I mean, in every budget, you weigh up the economic circumstances. We've done that in our first forum. We do that. We will do that in our fifth as well. But the reform task is still pressing and still urgent. And obviously you don't want to do anything that makes it harder to deal with challenges coming at us from around the world. Quite a cute challenge at the moment. But the task of reform is important regardless. Is there anything you can tell us about the current status of members of the Iranian women's soccer team and the officials? Can you confirm if any more players or officials from the team have sought asylum? Well, there are developments this morning that I'm reluctant to go into because Tony Burke, the minister will be up later this morning to give people a proper sense of that. I don't have full visibility on those developments this morning. But I think

8:24like a lot of Australians, I'm really proud that we've been able to issue five humanitarian visas already. Proud of the work that Minister Burke and the PM and their officials have been putting into this because I think a lot of Australians have been really moved by the plight of these brave women. It is a tribute to their bravery and to the work of the officials and the ministers that we've been able to issue those five visas already. As I understand it, there are more discussions this morning and Tony Burke will have more to say about that later in the day. All right, we'll see how that unfolds on another matter. The parliament has now passed your reduction of tax concessions on superannuation accounts with balances worth more than $3 million changes to the low income tax offset. The Greens say they supported these changes as a down payment of goodwill in expectation that you'll deliver substantial tax reforms in the May budget. Does their support for this bill encourage you to be bolder in your reform plans?

9:24Well, I think their support for this legislation that passed last night was a very good thing because it means a fair attack system from top to bottom. It means bigger super balances for people on low incomes and more sustainable tax breaks for people who have got tens of millions of dollars in their super. That's the focus of the legislation. We know that we can't pass anything through the parliament on our own, not through the Senate anyway, and so their support is appreciated. Now, when it comes to broader tax reform, I've indicated a willingness on a number of occasions to consider next steps, but the next steps in tax reform would be a matter for our cabinet to determine and not for the Greens to determine. All right, Jim Charmers. Thank you very much for speaking to me on AM this morning. Appreciate it. Now, all the best. Israel's bombardment of Lebanon on its northern front shows little sign of easing this morning with suggestions that the recently reignited conflict could drag on far longer than any war

10:26that Israel is waging with the United States against Iran. It's fueling a humanitarian crisis that the country is ill-equipped to deal with as the number of displaced people across Lebanon climbs towards 700,000. Middle East correspondent Matthew Doran reports. In northern Israel, near the border with Lebanon, Israeli soldiers are gathering alongside tanks, armored personnel carriers, and jeeps. What was once green grass in the field, they're parked in, now dirt, shredded by the tracks of these military machines. This is a closed area, the soldiers tell us, demanding that we leave. A few kilometers down the road, massive trucks carrying more tanks head towards the area, the intermittent emergency sirens, the occasional rumble of artillery fire, and the constant buzz of drones indicate what's happening beyond the border fence. As Israel's attacks against claimed his bullet targets in southern Lebanon and beyond, continue. I feel I belong here, so I don't have any intention really to leave Lebanon.

11:27Gabi Jamal is a writer based in the Lebanese city of Sidon, which has come under Israeli attack. Leaving my place, you know, it's my small world. If I leave my place, my apartment where I live now, I will really feel defeated. He's currently working with an NGO trying to support his community, but he fears the situation will only get worse. The United Nations refugee agency says more than 53 different locations across Lebanon are under evacuation warnings. More than 700,000 people across the country have registered with the government as being displaced. The death toll is now 570, including many children. While welcoming a shipment of foreign aid which arrived at Beirut's international airport, the country's social affairs minister Hanin Sayed explained at the scale of the crisis.

12:39And she said Lebanon needs help from further afield, given this current emergency has come in the middle of a broader regional conflict, crippling much of the Middle East. Israel says it's protecting itself from the threat posed by Hezbollah, hitting 80 different targets in the last 24 hours as it tries to dismantle the Iranian backed group's infrastructure and eliminated its fighters after it weighed into the broader conflict last week. Back on the border, Sirens continued to ring out on the Israeli side as Hezbollah launched rockets. The warnings issued on the Lebanese side to evacuate areas coming from Israel's social media channels, if at all. This is Matthew Doran on the Israel Lebanon border, reporting for AM. For a President voted in promising not to start foreign wars, the question of when the U.S. military action will end is pressing Donald Trump's defense secretary has been giving another update on Operation Epic Fury a day after the President said it was very complete pretty much. Pete Hexeth says today will be the most intense day of the campaign.

13:46Barbara Miller is at the White House I spoke to her earlier. Barb, did we get any clarity from the defense secretary on how close to completion the U.S. thinks it's Iran mission is? We didn't. He seemed very reluctant to give any kind of timeline despite previously throwing out possible timelines and also saying very recently, it was only just at the beginning of the mission. We also just did a briefing from the White House books woman, Caroline Levitt. She also declined to give any specifics. We've also seen another source of confusion in the administration pop up today. The Energy Secretary Chris Wright put out a post saying that the U.S. Navy had escorted a tanker through the Strait of Hormuz. He has since taken down that post and Caroline Levitt confirming that the U.S. Navy has not escorted any tankers through the Strait. But in terms of the defense secretary, again a very bellicose tone from Pete Hexeth, here he is on that timeline question. This is not endless. It's not

14:51protracted. We're not allowing mission creep. The president has set a very specific mission to accomplish. And our job is to unrelentingly deliver that. Now he gets to control the thought. He's the one deciding. He's the one elected on behalf of the American people when we're achieving those particular objectives. And so it's not for me to pause it whether it's the beginning, the middle or the end. The U.S. Defense Secretary Pete Hexeth there and there have been further closed door hearings on the Hill about Operation Epic Fury. What are you hearing? Yeah, in particular, we're hearing from the Armed Services Committee of the Senate and the Democrats on that committee clearly are highly skeptical about what they heard. In particular, we heard from Senator Elizabeth Warren. Now she is calling for the military not to be funded anymore as long as what she considers to be an illegal war continues. There's a billion dollars a day to go to the Middle East and drop bombs on Iran for military purposes that no

15:52one can describe and that no one can explain how merely from dropping bombs from there, we will accomplish those ends. No, no more money. Democrats are also calling for public hearings to be held into this operation. And we also heard from Senator Richard Blumenthal and another Democrat. He said he was as angry after that latest briefing as he's ever been in 15 years in the Senate and he claimed that it seemed to him that the U.S. was on a path towards sending ground troops into Iran. Caroline Levitt was asked about that at this briefing. She evaded giving a definitive answer on that key question. Barbara Miller there at the White House. If you've had to fill up your car in recent days, then the war in the Middle East might already be affecting your finances. But what about other expenses? Experts worn food prices could soon be on the rise with the potential that the war could disrupt access to fertilizer,

16:56too. Isabel Masali reports. As a charity that supports struggling Australian farmers, Rural aid believes the Middle East war couldn't have come at a worse time. There's not probably a part of the country that hasn't been impacted by a disaster in one way or another. That's John Walters, the CEO. Then for those people who've escaped a flood and escaped to bushfire, many of them are still experiencing drought-like conditions. So and now they have that overlaid with access issues to two of the most vital of ingredients for successful farming operations, fuel and fertilizer. It's the worst possible timing. He's heard growing concerns about the cost of fuel and service stations running out or restricting access in some regional parts of the country. The other big one is fertilizer. The Middle East is a absolute major source of fertilising used by Australian farmers. So the challenge is right now to move that from the Middle East to Australia. I mean, there's limited supply.

17:58The Australian Food and Grocery Council says manufacturers are monitoring the situation, but there's been no immediate impact from the war, and anything longer term will ultimately come down to how long any disruption lasts. Farmers may absorb the costs, but John Walters believes at some point there'll be a flow on. Because it's not just farmers who who become impacted by the situation. Farmers are at the very start of that production cycle. Elizabeth Jackson is an associate professor of supply chain management and logistics at Curtin University and a member of the National Food Council, which was set up last year to advise the government on a food security strategy. I think that we've got some pretty tough times coming with our food prices. So when will shoppers see prices change at the supermarket? I understand the government both state and federal governments are watching very, very closely for price gouging, but, you know, existing stocks in the food chain. Yeah, if I had to make a statement on that,

19:02I'd say 10 days to 14 days, we might see things materialising. She adds the most important thing is for people not to panic by. Federal Energy Minister Chris Bowen has made a similar point about diesel. There is no need for people to panic by or to order 100 or 200% of what they normally ordered. The National Farmers Federation yesterday met with Chris Bowen and other ministers. In a statement, the Federation's president, Habish McIntyre, said it'll continue working closely with government to ensure agriculture has reliable access to diesel and other critical inputs. Isabel Masali reporting and that's AM for today. Thanks for your company. I'm Melissa Clarke. Hi, it's Sam Hawley here, host of the ABC News Daily podcast. They stood on a field on the Gold Coast and bravely refused to sing their national anthem. The Iranian regime condemned them as traitors. Now, a week later, members of the Iranian women's soccer team have been offered

20:05asylum in Australia. Today's sport integrity expert, Catherine Ordway, on how it all dramatically unfolded. Look for the ABC News Daily podcast on ABC News.