GREG JENNETT:
Welcome, Treasurer, to Afternoon Briefing. Can we start with this latest decision announced or foreshadowed there by the Prime Minister – non‑military equipment being supplied to Ukraine. What exactly might that be?
JOSH FRYDENBERG:
Well, he also talked about medical supplies and we'll be part of a broader NATO effort to do that. But obviously, our first line of response has been with respect to the sanctions on Russian banks, on Russian elites and other commercial entities that are benefitting from the regime. So we will be part of a global coordinated effort. We're standing alongside the United States, Greg, the United Kingdom, Japan, Canada and, of course, European nations who are heavily impacted by this war in Europe.
GREG JENNETT:
I might get you to break down some of those financial sanctions which are quite obviously in your direct line of responsibility. But this equipment and the medical supplies, obviously non‑lethal means they're not weapons, but they'd be what – communications equipment, radar signalling, other such devices, and are they donations from the Australian government?
JOSH FRYDENBERG:
Well, I'm not going to go into the specifics of the type of equipment. Obviously, that will be done in concert with our NATO partners. But in terms of the support, it's as you say non‑lethal, and we're not sending troops to Ukraine. We've made that very clear. But what we are doing is participating as a part of a broader effort. And, of course, there's going to be a significant humanitarian consequence from this conflict and we're already starting to see the movement of thousands of people trying to avoid the fire and the other consequences of Russia's invasion.
GREG JENNETT:
So just on that refugee movement so far, a thousand at least I think is the reported number, does that accord with the government's expectations and planning and within the envelope of how many might you be expecting to seek visas for Australia?
JOSH FRYDENBERG:
Well, again, it's too early to say. But we are obviously factoring in that people in the Ukraine may seek to come to Australia. There are already some who have applied for visas and we're seeking to fast track those. And, of course, you've got Ukrainians who are in Australia, non‑citizens, who have been given an extended period of time to stay in our country because obviously, it's not safe to return. So we're looking at actions on a number of fronts. We're working with our partners. But it's clearly a very dangerous situation right now in Ukraine.
GREG JENNETT:
Now, what's the impediment, Treasurer, on this international financial transfer mechanism called SWIFT, interbank funding mechanism? It sounds like Australia – and you can elaborate here, I'm sure – Australia is up for blocking that to Russia. But there doesn't appear to be an international consensus. What's the problem? Can you take us inside why this hasn't actually been applied yet?
JOSH FRYDENBERG:
Well, SWIFT is the key global payment system. So you use it to settle inter‑border, cross‑border transactions. So it's very important for banks, for companies, indeed, for governments to use such a payment system. Now, action was taken against Iran, and that was taken to great effect, where they are access to SWIFT was removed. We have said from Australia's perspective we would welcome a decision by our international partners to remove Russia from that particular payment system. It would really hurt them and would effectively remove them from the international financial system.
GREG JENNETT:
So why hasn't it happened?
JOSH FRYDENBERG:
Now, the Americans – well, because in Europe there's clearly, for example, supplies of gas that are coming from Russia still to Europe. Europe gets about 40 per cent of its gas supplies from Russia. In Germany it's higher than 50 per cent, and there's a great deal of dependency on those energy supplies. Now, the inability to settle those transactions may have other knock‑on effects for those European economies, so I think there's a sensitivity there because of that very reason. And you would also obviously need the United States –
GREG JENNETT:
And so presumably, Josh Frydenberg – yeah, sorry, I just wanted to interrupt – so presumably while ever that sensitivity was there around unfinished trades in the energy sector how would you rate the likelihood of this ever being applied to Russia? It sounds like it never would be while ever those trades continue.
JOSH FRYDENBERG:
I wouldn't want to be definitive on that. I think that this is a consideration, a consultation, a discussion that is ongoing. And, of course, we don't know how the events in Ukraine will play out in the coming weeks. And obviously, it looks terrible right now and we're obviously very concerned about the situation. But having the Americans as part of that decision is absolutely critical because the US dollar is so central to the settlement of cross‑border transactions. So this is a discussion we're having. Australia's leaning in, but it will take the European countries and, of course, the United States to agree.
GREG JENNETT:
All right. Can I take you to the hip pocket nerve for most Australians – that is, fuel prices out of all this. Has the government got any forecasts on where retail prices might peak in the near term?
JOSH FRYDENBERG:
Well, obviously Treasury is looking at the various scenarios for energy prices and for global economic impacts. This is a significant headwind for the global recovery, just as we were coming out of the pandemic after a pretty trying two years, Greg. The IMF have already said that their global growth forecast of 4.4 per cent for the year is now under challenge from what is going to be another significant economic shock with the events in Ukraine. We've seen European gas prices, for example, up by more than 50 per cent in the last week alone. We've seen wheat prices – Ukraine is a major wheat exporter – up 16 per cent in the last week. And the oil prices up by more than 6 per cent with a barrel of oil now having gone past the $100 mark for the first time since 2014. So this will have an impact on global inflationary pressures. It does represent a headwind to the global economy. And for Australia, we may be geographically remote from events in the Ukraine and Russia, but we're certainly going to be impacted economically by what transpires.
GREG JENNETT:
All right. Well, I want to ask you about the budget and whether you're having to shave any of your own estimates back. But just on fuel, at least a sensible or a sizable proportion of the pump price is excise, about 44 cents a litre. Would you contemplate a freeze or temporary reduction if price pressure became too much for the Australian economy or Australians generally?
JOSH FRYDENBERG:
Well, I've heard people speculate about whether the government would make changes to the excise. What I have pointed out when I've been asked a similar question, Greg is the fuel excise is actually the money that flows directly back into infrastructure spending on our roads and our transport corridors. And that's obviously very critical. But we are going to see higher prices for energy.
GREG JENNETT:
So that's a no?
JOSH FRYDENBERG:
Well, I never get into the habit of commenting in too much detail about budget speculation one way or another, ruling in or ruling out particular measures. But other than pointing out the reality that the fuel excise helps fund better roads across the country. But we will see higher fuel prices. We'll see that flow through here in Australia as we'll see right around the world. Fortunately, we've got strong gas supplies of our own here in Australia and quite different to a number of European countries who are at the mercy of what transpires between, you know, Russia and Ukraine.
GREG JENNETT:
You've also got some strategic petroleum reserves stored offshore in the US, about which Joe Biden has said the US will release additional barrels as required. Is Australia rock‑solid in its understanding that there's no impediment, no reduction in its entitlement or reserves there?
JOSH FRYDENBERG:
Look, we are working through those issues with respect to our strategic reserves. They're obviously for emergency situations, and quite clearly we're getting into one of those right now. So –
GREG JENNETT:
So what could be the consequences? How might that play out under the worst scenario, for those who aren't familiar – and I'm certainly not – with how that reserve storage works. If demand for it became so intense, what would happen to Australia's stocks there?
JOSH FRYDENBERG:
Again, they're emergency holdings that we have access to at times of need. We haven't made any definitive decisions about that as of yet. We'll continue to work through those options. And, again, it will depend on the situation on the ground. But Australia does obviously have access to fuel from various sources. And, of course, we've got a massive domestic gas industry, which has helped keep the price of gas well below what we're seeing now across Europe or, indeed, parts of Asia. So we've been insulated to some extent in terms of the gas price about recent movements. But as for the petrol price, we're a price taker because we're so influenced by the international oil price.
GREG JENNETT:
All right. Now, just finally, you are neck‑deep in budget preparations. You've cited international downgrades that are occurring. What should we reasonably expect about your own outlook for the Australian economy? It can't be improved by the current circumstances, so lower than MYEFO?
JOSH FRYDENBERG:
Well, there are a lot of factors, Greg, that go into determining what the projected outlook is – the unemployment rate, the inflationary numbers and so forth. So we did an upgrade at MYEFO, which you rightly said was in December last year. We'll do a recast of those numbers ahead of budget. The factors at play, of course, are international, but there are also – we take into account domestic – our domestic recovery from the Omicron variant. And we are seeing some positive signs with people getting back to work, with the peak of that wave seeming to have come and gone and the hospitalisation and the ICU numbers reducing. So we are seeing the unemployment rate remain low, strong resilience in our labour market as well as across the broader economy. It's a very good story to tell, but the events in Ukraine are a reminder that things can change very quickly and we can't take our peace and prosperity for granted.
GREG JENNETT:
Not a great time to be forecasting, but then it hasn't been for the last two years, I suppose.
JOSH FRYDENBERG:
It hasn't.
GREG JENNETT:
Treasurer Josh Frydenberg, we'll let you go with your budget preparations and talk again soon.
JOSH FRYDENBERG:
Thank you, Greg.