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Episode 3's Andrew Whitelaw speaks to Westpac's Sian Fenner, Head of Business and Industry Economics.
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00:00:03Hi, my name is Sian Fenner. I'm Head of Business and Industry for Westpac Economics.
00:00:08Right, well thanks for getting you on. It's been an interesting time and you've got a similar
00:00:13background to us with a markets and trade background. And it's been probably the most
00:00:20tumultuous time for markets in probably any three of our careers. And Matt's probably,
00:00:26obviously Matt's had a longer career than the two of us. And so he's experienced things like the
00:00:32tulips and the Great Depression. But for the two of us, it's probably the most tumultuous time.
00:00:41And for Matt, it's probably up there with the Great Depression. So we have to, when we're doing
00:00:47this podcast, we generally have to go through our administration first before we actually interview
00:00:53you. So we do have to go through the complaints, criticism and compliments that we've received
00:00:59since the last podcast. But I got quite a lot of compliments on the last podcast. It said it was
00:01:07very, very informative and had a lot of insights into that sort of comm space. So that was good
00:01:14feedback. We're a bit of a role. Mostly we get complaints, Sian, but this time around we've had
00:01:20couple we've had compliments. Mostly doing something. I have been told that I am doing a good job now on
00:01:27taking on the criticism and the feedback on not using my keyboard whilst we, whilst we record. So my,
00:01:35I have my hands in my pockets for the entirety of the podcast because nobody likes the clacking sound.
00:01:40One person actually liked the clacking sounds. So I'll give them a little bit of that. Other than that,
00:01:46that would be the last clacking. And we're back from Bangkok. Yep. And so we'll, we'll probably,
00:01:53we'll cover that on the Ag Watchers X podcast next week. But before we get into the proper part of
00:02:02the
00:02:03podcast, we actually have to run a psychological test on you, Sian. So, so we, we're actually a tech
00:02:13company. People might think we're just a pair of loudmouth bogans. But we're actually a technology
00:02:19company. And so we integrate Zoom with our AI supercomputer, a quantum computer. And we're going
00:02:29to give you six words or phrases, one after the other, and you give us the first thing that comes
00:02:34to mind. The computer will then analyze the results. It may sound nonsensical, the, the questions,
00:02:42but they are part of a behavioral economics applet that we are running through. Algorithmic,
00:02:48algorithmic, AI model. And also, and also it's a, it's definitely organic and sustainable.
00:02:58And so this is a sixth sense test and Matt is going to make sure that we don't go overs
00:03:05or unders on the test. Yep. And so I'll go first. Go for it. Favourite movie. But if you want
00:03:14a bonus
00:03:15point, you can give a favourite movie and a favourite TV show. Oh, Braveheart, TV show,
00:03:22probably Friends. Okay. You could have an extra bonus point if you said Outlander instead of
00:03:26Friends. But Braveheart is, Braveheart actually, funnily enough, you'd think that would win points
00:03:31with me, but you actually lose points with Braveheart. CPI number? Oh, 4.2. Straight off the bat.
00:03:42Sure. Spot on. As you'd expect from a professional. Well, you'd hope. Yes. Middle Eastern conflict.
00:03:52Oh, damage is done. Hmm. Haggis. Oh, revolting. Oh dear. I've lost points again, haven't I?
00:04:02Yeah. And you can sort of win yourself back. Birkenstocks or Crocs. Oh, neither. Okay. Sorry.
00:04:15It's sliding downhill rapidly. I'm going to give you a chance to... I know, I know. I can only hope
00:04:18things can improve. This is the final one to recover on, Sian, is the federal budget.
00:04:28Oh, probably... I want to say complexity is the first word that sort of comes to my mind. But I'd
00:04:34like to ramble on a little bit more, but we'll stick with complexity. Yeah, we will. We'll say
00:04:37complexity because we'll come back to it. There we go. That's the six. That was six. It's a very mixed
00:04:44one. The computer's on fire at the moment. It's in two minds about whether to allow this podcast
00:04:51proceeds or not. But before we delve into that podcast, I want to ask you, why is Braveheart
00:04:57your favourite film? Well, I don't know. I mean, maybe I had a sort of ongoing soft spot
00:05:04for Mel Gibson. I liked his speech. That sort of, you know, sort of touched a point. And I
00:05:12also quite like a bit of history. So... I blame Braveheart for the collapse of the Scottish
00:05:18economy. Right. Okay. So how... I'd love to see the...
00:05:24What's the logic? What's the logic behind that? So the logic behind that is that Braveheart
00:05:30came out in, what, 1995, yeah? And it created a huge upswell in patriotism and nationalism in
00:05:39Scotland, which I think led to more votes for the Scottish National Party, which they've now
00:05:45been in power for the past 20 odd years, or since the department, parliament was devolved.
00:05:50And there's still a lot of Scottish people that hark back to that independence from a purely
00:05:55cultural point of view. But because that is the main focus of Scottish politics is independent,
00:06:01you're either an independent supporting party, or you're a unionist party. And so now it's meant
00:06:06that they focus exclusively on that at the detriment of the rest of the British, Scottish economy and
00:06:13society. So that's maybe a topic we can do for another day, if we get...
00:06:18Yeah, I mean, there's some valid points behind that. We've seen that in other sort of political
00:06:24spheres, so I wouldn't be surprised about that with Scotland either.
00:06:27Don't encourage him, Sean. Don't encourage him.
00:06:30We haven't actually spoke about Scotland that much, so we'll have to do another podcast just
00:06:35exclusively on Scottish history. Before we go on, we could do a podcast on all the inventions
00:06:41that have come out of Scotland, but I think nobody wants to listen to a seven-hour-long podcast,
00:06:48do they?
00:06:49It would be that long.
00:06:50At least.
00:06:51That would just be A to F.
00:06:56Right on, Sean.
00:06:57CPI. Go to...
00:06:58No, Matt. Be professional. Introduction.
00:07:01Oh, yes. Of course. I just get excited by when it's market announcement days. You can't
00:07:07take the currency trader out of the analyst. Anyway, no, you're right. You're right, though.
00:07:14I'm glad one of us is keeping this as professional as possible. Give us an intro. Who are you?
00:07:18What do you do? Where are you from? And what have you done in the past?
00:07:22Okay. So, I'm an economist. So, I cover sort of industry and agriculture, hence why I'm
00:07:30on here. I have been... I've come back about a year ago, and prior to that, I was 18 years
00:07:37overseas, sort of looking at sort of more the ASEAN and APEC sort of market. So, it's good
00:07:43to be back, though.
00:07:46So, back on economics. Qualified in economics?
00:07:51Sorry?
00:07:52Qualified in economics as well?
00:07:53Yes. Yes. Yes. Yeah. Forecasting and scenario. So, the Middle East, you know, running upside
00:07:59and downside, well, mainly downside, unfortunately, for the Middle East conflict has been keeping
00:08:04me a bit busy.
00:08:05That's going to be difficult for us, Matt, because we've got somebody who's actually
00:08:08a professional, whereas we just make it up as we go.
00:08:13So, CPI. Matt, you had a question?
00:08:15Yes. Yeah. I was going to say, you know, the CPI. So, for those that aren't aware, or,
00:08:18I mean, this podcast is recorded on the day of CPI release, 11.30 today was CPI. And we're
00:08:24just chatting before we started off the recording, Sian, that I was saying to you, I was surprised
00:08:30to say I was expecting the number to be... I think the previous one was 4.6 for the annual,
00:08:34and it's dropped now to 4.2. I was, and I think a lot of the banks were expecting to
00:08:40see it kind of climbing higher. Were you guys surprised by the number?
00:08:44Yeah, we were. I mean, I suppose it's a pleasant surprise if your headline inflation actually
00:08:49comes in a bit lower, particularly where we currently are. But yeah, we had been expecting
00:08:55a little bit more sort of showing up for some of those path through effects from the Middle
00:08:59East. We've been getting quite a lot of notifications and sort of liaison with our
00:09:04customers as well that we are seeing a build-up in pressure and price pass through. So, we had
00:09:10been expecting a little bit more coming through there. There were still signs though. If you
00:09:14looked at sort of building costs, you could already see that some of the announcements,
00:09:19particularly in plastics, and I always use this as a stat, toilet seats, you know, have been
00:09:24announced, they announced a 40% increase. So, there is signs of this coming through, and we're
00:09:31probably going to see more, you know, higher numbers going ahead. So, good number for April,
00:09:35but yeah, that underlying inflation is going to be building.
00:09:39Yeah, it can kind of take three to six months to work through the supply chain. And I did
00:09:43see a, I think it might have been on 7.30 report or something last night, just in the
00:09:47preliminary to the inflation numbers today, that they were saying that a survey of businesses
00:09:52said, I think it was about 46% had said that they tried as much as they could to kind
00:09:57of
00:09:57absorb some of the cost rises that have been seen to date. So, maybe that's part of it as
00:10:01well. But that can only go for so long, right?
00:10:03Yeah, absolutely. So, yeah, they're referring to an ABS report that just came out. So, exactly
00:10:10that. I mean, they can only absorb, but for too long, we are seeing margins being compressed.
00:10:15But when you start thinking about, one, freight costs are going to increase. You know, we have
00:10:20that new fuel recovery. So, that is going to, that's going to ricochet through the supply chain.
00:10:25We're getting more building cost increases. You know, what are we going to see in terms
00:10:29of food prices going forward as well? And even restaurants supplying some kind of fuel
00:10:32surcharge. So, you know, there's a squeeze on margins, but, you know, we will see some
00:10:37pass through on to, onto the consumer.
00:10:40I actually, it's interesting because I got my first receipt the other day from, funnily enough,
00:10:45the dumplings place in Melbourne Airport, which had, I think was a 5% surcharge for dumplings.
00:10:53Was that actually saying it was a fuel surcharge? It was a 5% fuel charge. And I was like,
00:10:57well,
00:10:57how do you quantify that's a 5%? Also, it was already $18 for free dumplings, which I thought
00:11:03was excessive at that time. Airport pricing? Yeah, I know. And the problem is like,
00:11:09just Qantas lounges never get anything nice to eat. So, you have to leave a lounge for food.
00:11:13The 5% though is on the lower, when, when that fuel surcharge was first getting applied,
00:11:18I'd heard ranges from 15% to 45% was kind of a broad range in what we were seeing.
00:11:25So,
00:11:255% is probably getting away reasonably, inexpensively.
00:11:29Yeah, the Hospitality Association had been calling out for much larger numbers than that. But I think
00:11:35it's varied across. I mean, the thing is, is though, you're getting a fuel surcharge increase now.
00:11:39Are they going to, is it temporary? Or is it, you know, just going to be absorbed into cost?
00:11:44Yes. Sticky pricing.
00:11:46Yeah, good old sticky prices. Yes. Well, and the other thing too, is that we haven't,
00:11:50like a lot of what's driving this is the fuel and then, and then further through the supply chain
00:11:54to the farm gate is higher fertilizer pricing, which I think we haven't seen any of that really
00:11:59pass through yet, I would expect. But we haven't, we haven't seen, even though there's been promises
00:12:04of a deal getting close, a deal getting close, the straight's still reasonably shut.
00:12:10Of course.
00:12:11You know, it's, it's not that many getting through, those that do, it's, it's, you know.
00:12:15China.
00:12:16Yeah, basically. So, you know, we don't really know how long this is going to continue for,
00:12:22given that we've been told for probably the last month and a half that a deal is imminent.
00:12:27Yeah, I mean, absolutely. I mean, I think that's sort of the key uncertainty that's sort of
00:12:30what everyone's facing at the moment. I mean, as you said, I mean, we've had this ceasefire,
00:12:36you know, are we get, do we have a deal? And then we, you know, sort of hear about the
00:12:40US,
00:12:40you know, attack, you know, attacking some Iranian vessels. So, I mean, I think that's the whole
00:12:45thing. You get a period of sort of skirmishes, but I mean, even if the straight was to open up
00:12:48tomorrow, it's, it's going to take time to return to normal. I mean, we're not expecting that we'll get
00:12:54a full normalization of shipping through the straight probably until mid next year.
00:13:01So we think it's going to be pretty slow. You're going to have sort of episodes of some
00:13:05escalation there. So, I mean, that all sort of pushes to, you know, energy prices, fertilizer
00:13:10prices really remaining above those sort of pre-conflict levels.
00:13:13And I think that's the thing. It's just like the conflicts was 12 weeks or 13 weeks now?
00:13:1712 weeks. This is the 13th week this week, isn't it? And so it's like there has been basically a
00:13:23ceasefire since almost week two, pretty much. And it just reminds me of, funnily enough,
00:13:30your favorite TV show. It reminds me of Rachel and Ross and friends and, well, they won't they.
00:13:38And that's what we're seeing. I don't know. I think they were friendlier than perhaps Iran and US.
00:13:46But it's, it is, it's one of those things that we obviously analyze fertilizer markets and we get
00:13:53asked questions all the time about what's happening in the fertilizer market and a fertilizer space.
00:13:58And it's quite interesting because obviously the focus at the moment for the industry is on what
00:14:03is happening this particular year, because that's human nature. You focus on what's right in front
00:14:07of your face. But next year, we believe is going to be the same as you've said, we believe it's
00:14:13going
00:14:13to be equally as bad, if not worse next year, because I think urea, we'll find ways around
00:14:19urea and we'll have local, local supply, but we don't see drops in fertilizer pricing significantly
00:14:25towards like the norm until sort of post seeding next year. But then we've also got the issues with
00:14:33the sulfur and the phosphate based personalizers, which are a key concern coming because, you know,
00:14:40DAP and MAP, there's very few places you can get it from. China's, we spoke to Weng Fu in Bangkok
00:14:46on
00:14:47Thursday last week, and they're still waiting for news about when China will export. And August is
00:14:54the earliest, but I don't think that's going to happen.
00:14:57No, I mean, China's quite, I mean, for many years have been sort of focusing on their sort of, you
00:15:03know,
00:15:03security for food, fertilizer, energy. So no, I wouldn't be surprised if they hold on to things a little bit
00:15:09more on that front as well. But I mean, I completely agree. So, you know, I'm not looking for any
00:15:15kind
00:15:16of drop in fertilizer prices, just if we think about where LNG is going to be as well. So you've
00:15:21got the normalization, LNG, gas prices remaining elevated. So, you know, I mean, you'll get some
00:15:27moderation. But, you know, for people, farmers who sort of bought earlier, had the stocks, you know,
00:15:34they're then going to, even if it's a moderation for current levels, it's still going to be higher
00:15:38than what they were paying beforehand. So.
00:15:41Yeah. And we have seen it. Look, we have seen like landed urea prices into that replacement value.
00:15:46They are significantly down on the peak because the demand is just not there. It's that demand
00:15:51destruction, but it's still at levels which are absolutely through the roof. But going back to that
00:15:57CPI, like the conflict is only like, it's only 12 weeks. If we look back at like historical,
00:16:04like similar sort of issues, like let's say February 2022, was it 2022 or 23 when the Ukraine
00:16:11war started? 22, wasn't it? 22, yeah. Yeah, because we're four years in here.
00:16:16Four years. A long time ago. How, like we obviously saw an increase in cost, not quite the same level
00:16:23of
00:16:23costs that we're seeing with this current conflict. But how long does that, did that take to
00:16:27be reflected in CPI? Like how long would you normally expect it to actually flow through to CPI?
00:16:34Yeah. So, I mean, that's an interesting one. So, I mean, I think there are a couple of things with
00:16:38that. First of all, there's differences. It's huge. It's less energy. Well, yeah, but it's also,
00:16:46I mean, if we think about back in 22, we were coming out of sort of the pandemic, we had
00:16:50all these sort
00:16:51of port congestion. So there was a real supply, you know, a broader supply chain
00:16:56to shop and you had strong demand. Where, you know, if we're going in, you know, if we think
00:17:01about where we are now globally and in Australia even, you know, demand's not as strong as what it
00:17:06was at that point. So that sort of limits, that sort of, you know, changes how consumers or businesses
00:17:14will respond to these prices where beforehand they might have been taking and then, you know,
00:17:18happy to pass it on.
00:17:21So now, I say that on one hand, but then on the other hand, and I know that sounded quite
00:17:25like an economist there, and I'm trying to avoid that. But the other thing is, I think
00:17:30also, you know, what we're seeing, you know, in Australia, probably a little bit more than
00:17:35what we're seeing in other countries is that they, you know, you had businesses that were
00:17:39probably, and construction in particular, that was probably burnt by the increase in input
00:17:45costs. So we're seeing quite a rapid pass through already. So, or at least the announcements. I mean,
00:17:51we didn't have a fuel surcharge back in, you know, 22 by, you know, by the, you know, food industry
00:17:59or
00:17:59anything else like that. So I think there's a, you know, they've looked at what happened there and
00:18:04they're a bit concerned. And so we're, you know, we're seeing them sort of jump on the boat quite
00:18:08quickly, but demand's not as strong. So there's got to be some, you know, you will see some demand
00:18:12destruction through this, or at least, you know, slower growth going ahead.
00:18:15The other thing to bear in mind too, that obviously we were saying there's an unknown
00:18:19quantity around how long it's going to take to actually get the straight opened.
00:18:23The initial reaction on the fuel side, to me, was a lot of demand behaviour within Australia,
00:18:29because, I mean, we track fuel and fertiliser at episode three, and the fuel was showing that prior
00:18:35to the conflict starting in March, we were about 22% ahead of the previous, you know, kind of
00:18:41quarter, we're above in terms of our fuel imports. And then through that kind of March,
00:18:45April, we actually had more...
00:18:47April, like me, we're sort of above 100% of last year.
00:18:50Yeah. So on the supply side, at least, we've been getting more fuel coming in despite the
00:18:55conflict. But that can kind of change if the straight stays shut for another two or three
00:19:02months. We could still yet see a bit of a supply squeeze on fuel, right?
00:19:07We could. I mean, I suppose one thing, and I mean, that was part of the budget, is the
00:19:11Australian government is out going around, you know, talking to, you know, trading partners
00:19:17in Asia, you know, talking to the US, and we're actually getting quite a lot of sort of
00:19:22inventories coming, well, imports coming in. So they're very much looking at how to diversify
00:19:28for that. Now, that being said, I mean, oil inventories globally are falling sharply. It was
00:19:34already tight in terms of sort of the diesel price. If you add to that, then, you know,
00:19:38Russia, you know, the Ukraine attacks in Russia, which is, you know, impacting sort of refinery
00:19:43and diesel on that front as well. You know, there may be limits, but at least at the moment,
00:19:49Australia is showing, the government is showing, we'll pay for it. So, you know, I think it's
00:19:53less of an issue of shortages here. But I mean, there are countries, you know, other countries
00:19:57which aren't able to pay for this, and they're probably going to, you know, and have already
00:20:01sort of been experienced. Or don't have a good trading relationship in the sense that
00:20:07we provide natural gas, and we're good, reliable suppliers there, you make sure that you return
00:20:13the favour type thing. Yeah, absolutely. Absolutely. And we've got that much bigger capacity to
00:20:18pay. Yes. Like, I've said this from the start, you can pay our capacity compared to, let's pick
00:20:24a country, Bangladesh. Like, our capacity to pay is significantly higher. And even if you look
00:20:30it from a federalised point of view, like, we've picked up boats coming from Nigeria with
00:20:34urea, which would normally be earmarked for parts of Africa. And because we have that capacity
00:20:42to pay, like, we always have had that. And so...
00:20:44Yeah. And we've earmarked it in the budget. So we've actually earmarked, I think, I think
00:20:49it's about five billion.
00:20:50I think it was seven, is it not?
00:20:53Oh, was it seven? Yeah. Yeah. So I thought it was between the five and seven. So thank you.
00:20:57Yeah. So I mean, we've earmarked that US dollars. Yeah.
00:21:00Just on that whole kind of scenario, because obviously this current conflict and uncertainty
00:21:07is now front of mind. But even from the kind of beginning of this second Trump administration,
00:21:13we had a whole, it almost seems like years and years ago, but we had a whole lot of trade
00:21:17uncertainty only just a few months back, you know, like, which was the main kind of point
00:21:22of topic of conversation now.
00:21:24Well, this time last year it was the trade tariffs or the great deal or whatever it was.
00:21:28Yeah. So, and I wouldn't mind kind of picking your brains a bit there on that, on the trade
00:21:32aspect of it. Because obviously part of our Australian government now, the negotiation is
00:21:37kind of piggybacking off our trade relationships and our longstanding relationships with key kind
00:21:42of suppliers that we supply them and they supply us top scenarios. So just showing the importance
00:21:46of those bilateral agreements. But how were you perceiving that whole scenario with the
00:21:52disruption to trade more broadly with the tariffs? Because the tariffs scenario obviously
00:21:57is still working through whether he's going to be able to apply it. You know, there's the
00:22:01on and again, off again scenario. Now we've got a deal with the US and China, a bit like we
00:22:06saw in the phase one deal in the first Trump administration phase, although not as big.
00:22:10You know, what's your take on the broader trade picture, you know, in terms of where it's all
00:22:16sitting? And is it starting to normalise or do you think we've still got more uncertainty
00:22:21there as well?
00:22:22Yeah. So, I mean, I think generally sort of we're in a more sort of fragmented world for
00:22:28trade, particularly if we think about sort of the key trading partners or big economic powerhouses
00:22:35of China and the US. In terms of the US, I mean, the biggest risk facing Australia really was
00:22:42actually what the spillovers of higher tariffs were going to be for demand for our goods from
00:22:48our trading partners. So, Australia, yes, we had a 10% tariff, but, you know, that sort of gave us
00:22:54a bit of a comparative advantage.
00:22:56And if we think about...
00:22:57Yeah, we got away relatively easy up there.
00:22:59Absolutely. Yeah, absolutely. I mean...
00:23:01Better than the penguins.
00:23:03Yes. Yes. Yes, I remember that quote entirely. So, I mean, add to that is that also, I mean,
00:23:13a lot of our goods that went into the US, you know, are commodities, you know, those that,
00:23:18you know, haven't been exempted. And so, Australia and, you know, other countries are pretty good
00:23:22at redirecting trade. So, we'd never been really that concerned about trade in itself in terms of
00:23:31the direct linkages for the US. Now, I don't think this has gone away. You know, it is sort of
00:23:37burbling, as you said, in the background. I don't think, at least at the moment, the markets are too
00:23:42concerned about it with that. But I think where we want to think about where trade is going next is
00:23:47actually, you know, what's happening in terms of China and any other countries, particularly in this
00:23:52environment, that are going to put export restrictions. So, of course, with, you know, China's
00:23:57trying to safeguard their domestic market with beef. We know that's going to have an impact
00:24:02on our beef exports. Not only that, it means also other countries that are facing that, you know,
00:24:08they're going to be looking for other markets. So, again, you know, we're going to be sort of
00:24:11redirecting our, you know, goods to other markets. But we're going to be facing increased competition
00:24:16on that front. But, you know, what other kind of export restrictions could we see
00:24:23or quotas that we could see coming forward? I mean, as you sort of mentioned about sort
00:24:27of China, we know China's already put, you know, has already restricted their refined
00:24:32oil exports. So that's one sort of area where we can't get any oil from at the moment. Jet
00:24:37fuel, if you land there. But so, yeah, I think it's the current world we're in. So, you know,
00:24:44it's a matter of making sure we keep diversifying.
00:24:46Do you think a bigger impact, like from the start, like when it got announced, we got tariffs
00:24:52that were 10%, so the bare minimum, basically. My sort of main concern was basically like
00:24:59a flow on effect. So you have, you know, China getting hit with whatever the tariffs were
00:25:05there, like huge tariffs, lots of other countries having huge tariffs, but they're all sort of
00:25:09trading partners with us. My view was that there's a potential that flow on effect of their,
00:25:14our trading partners' economy is being disrupted because they don't have access to the US,
00:25:20which then reduces their capacity to pay. You know, at the end of the day, like we send a lot
00:25:24of expensive, you know, high-value goods around the world, like wagyu, wool, whatever it may be.
00:25:31But if they're, for I get the sake of the Chinese economy, you know, coughs, then that will affect
00:25:38our economy here if they reduce their spending of, whether it's iron ore or, you know, if their
00:25:44economy contracts. Would that be, do you agree with that one?
00:25:49Absolutely. I mean, that was the biggest risk that we saw, but we didn't think it was going to happen.
00:25:53Yeah. And I mean, I'd say going forward, I mean, let's face it, anything that does actually
00:25:58see China slow significantly will have, obviously, implications for Australia. But the reason why
00:26:05we didn't expect it was to happen was that we, you know, China just largely having the toolkit
00:26:11and the desire to show that they're not reliant on the US and that they do have the ability to
00:26:16actually, you know, continue to grow. And they did last year.
00:26:19Well, I'm probably a series of years of preparation during the Biden terms, between, between the
00:26:25two Trump terms. The other thing, the other thing as well, it's like we obviously had last
00:26:28week, we had Trump and the Trump team over in China. We had the agricultural deal that
00:26:37they're going to buy, what was it? $17 billion, not including soybeans, which I haven't actually
00:26:43heard quite as much concrete evidence that that deal actually is in place. Like we've heard
00:26:48it from the US, but not necessarily, not as clearly from China. But then it comes to like
00:26:54my second sort of real concern about the trade tariffs is preferential deals. You know, we
00:27:02saw in the first Trump administration, well, more than that. Like when we, when we had like
00:27:08the first term, we had the tip for tariffs, and then you had the phase one deal, which
00:27:12was introduced in order to sort of placate the US. So I think that was what was a 35
00:27:18billion US dollars at the time, which meant that China had to preference US products, because
00:27:25obviously, like we're a minnow in comparison to the trade they do with the United States.
00:27:30But now in this term, we've got that, you know, 17 and a half billion plus, let's call it
00:27:34another 10 billion of soybeans. So it's 27 billion, quote unquote, preferential treatment
00:27:40between the US and China. Then we've got Indonesia, Indonesia has agreed to buy 2 million tons of
00:27:46wheat in order to make sure that they meet those, or get reduced tariffs. So it sort of,
00:27:53it's politically based preferential deals. It's not on quality, it's not on price, largely.
00:27:59It's on keeping Trump happy, basically.
00:28:05Yeah, I mean, you're, you're absolutely right, I suppose. I mean, there's a couple things with
00:28:08that is whether or not they'll follow through. So for China, like with the, you know, Trump 1.0
00:28:17Sorry, Sean, are you saying that we shouldn't take Trump's tweets as gospel?
00:28:23With a grain of sulfur, definitely.
00:28:25A grain or a bucket.
00:28:29Yeah, probably a truckload. But I mean, we saw that, I mean, China missed every, every point
00:28:38that we, they were meant to in terms of, you know, increasing sort of the purchases of
00:28:43agriculture, US goods and agriculture in particular. And then COVID, you know, COVID happened. So they
00:28:48were completely off the hook. I would probably argue that, you know, that while they may have
00:28:54agreed to this, and again, you know, we haven't had it confirmed, that we may see some increase
00:28:58in shipments, but, you know, will they reach that target? That's probably up to debate. And
00:29:04interestingly, with Indonesia, because if we sort of looked at the trade data, it did look like last
00:29:10year, that you were getting signs that it was having some impact on Australian weed exports. But
00:29:17more recently, and it's only a couple of months, but it might be that they're also sort of softening,
00:29:24they're, you know, deciding that they don't necessarily have to buy from the US at the moment,
00:29:28because of what's been happening with US tariffs and sort of, you know, the Supreme Court rulings and
00:29:33the like. So because all of these are, I mean, they're agreements, but they're not really sort
00:29:38of signed documents as a normal free trade agreement that we normally, normally experience.
00:29:43So I think there's probably still some wriggle room until at least it comes back on, on Trump's
00:29:48agenda. So just maybe not as bad as what we did, I first sort of was thinking.
00:29:56Yeah, yeah. Given, given your background in kind of trade policy and trade flows, exports,
00:30:01imports, imports stuff. I was curious, did you get a chance to see the Mark Carney speech
00:30:07at Davos, the Canadian Prime messaging?
00:30:09Oh, yes, the middle powers.
00:30:11Yeah. So was that, look, I watched that a couple of times and I was kind of gobsmacked
00:30:17at the directness and what was being said. Like if you read between the lines, I felt it was
00:30:22an incredibly kind of powerful speech, but also interesting in the way in which it was delivered
00:30:28and what it was saying, you know, am I wrong in, or do you think, was that just a level
00:30:34of frustration that may not come to be in terms of what he was aiming for or what he
00:30:39was trying to get amongst those middle powers in terms of some level of cooperation rather
00:30:43than battling each other for the favour of the likes of China and the US and others?
00:30:48Do you think that there could be a change into the dynamic of how trade goes more broadly
00:30:55amongst those middle powers from that speech?
00:30:59Yeah, well, I mean, I think that speech sort of summarised what, you know, what's sort of
00:31:04been going on in the background. I mean, I do think sort of, if you like, the middle powers
00:31:07have been very much still very open to trade. And if anything, when they're seeing, you know,
00:31:14these sort of disputes, these episodes of these trade tensions, which continue to increase
00:31:20both with the US, and we've also, of course, had, you know, China is not afraid to use any
00:31:23of these, their sort of, their clout either. You know, they are still, you know, quite open
00:31:30to trade policies. So, I mean, I think, to me, that was just sort of summarising that, yes,
00:31:35they're all open to it. If we think about sort of all the trade agreements that have been
00:31:40signed in which Australia is sort of participating in.
00:31:42Well, the EU came on the back of that, but, you know, and it had been 10 years, I guess,
00:31:47that we've been negotiating. And then, you know, a couple of months after that speech,
00:31:50here we are with the deal, right?
00:31:52Yeah, absolutely. I mean, also, that's the EU looking for, you know, alternatives as well
00:31:56to the, you know, to the US market. You know, and there's obviously some things that, you
00:32:01know, you can't replace the US, but, you know, there's benefits for both the EU and Australia
00:32:06with that kind of trade deal. So, I mean, I think it's just, you know, it's an indication of, you
00:32:10know,
00:32:11saying middle powers, we're still open to trade agreements, you know, trying to, you know,
00:32:16ease, you know, flows between countries which are beneficial. So, yeah, I mean, I think it's
00:32:22just going to be an ongoing push on that front. So, I mean, I think it's summarised a lot of
00:32:26sort of views that probably, you know, or made it more public, if you like, views that are
00:32:31sort of floating around.
00:32:32Do you think that then is, is that, is that then kind of somewhat, because the Chinese haven't
00:32:37really changed their behaviour that much from previous times, right? They still work in
00:32:43a similar way that they've always worked. Whereas, you know, this, this Trump administration
00:32:47was very different to a Biden administration and even quite a little, you know, more kind
00:32:52of, I would say more aggressive to a degree than the previous Trump. I think the previous,
00:32:58the first Trump administration had people within the ranks that were experienced and, you know,
00:33:03understood diplomacy, understood trade and kind of softened his, his most extravagant thoughts.
00:33:09Whereas in this, in this type of administration, there doesn't seem to be those people in,
00:33:15in positions to influence him.
00:33:16There's no, there's no moderation.
00:33:18Yeah. And so do you think that's, do you think that's damaged the, the kind of U.S.
00:33:23reputation beyond what, you know, this, this kind of pits term? Do you think, or do you
00:33:28think if we, if we see Trump out of, out of office in 2028, that then we go back to
00:33:34a more
00:33:35normalised scenario?
00:33:35Yeah. Like I would say, if we see Trump out of office, if we see him, when it's a man
00:33:40through two terms maximum.
00:33:42There's no, there's no certainty.
00:33:46How many other times have we ever had to even discuss a fuck term?
00:33:51But Leah, but does it, is it just, is the world just basically saying in your view, we just
00:33:57got to get through this period again and then we'll go back to normal again like we did last
00:34:01time?
00:34:02Yeah. Yeah. I actually don't think, I think they are looking at, again, sort of, you know,
00:34:08taking some of that dependency away from the, you know, their dependency from the U.S.
00:34:14A lot of trust has been broken with this Trump administration and it's across the board.
00:34:19It's not just terms of trade, you know, what were actually proper trade agreements being
00:34:24broken and just sort of the heavy hand-ness that Trump has had, but if we think about
00:34:28on the defence side as well.
00:34:30Yeah.
00:34:31And so I think, you know, it's, we've gone through supply chain, you know, diversification.
00:34:36This is one of them where it's just going, well, how can we, you know, remove some of
00:34:40our relights?
00:34:41Pretty much what China was doing after Trump 1.0.
00:34:43So you've got other countries also looking, looking at that because, you know, okay, Trump
00:34:50may be out, may be out.
00:34:52Let's, you know, let's say that he does finish with the second term, but, you know, you don't
00:34:56know who's going to be next.
00:34:58So, you know.
00:34:59Well, we've got to get through the, we've got to get through the midterms as well, right?
00:35:02Like, and that's still, I mean, there's been a lot of political gerrymandering type processes
00:35:06going on to, to try and secure so that Trump doesn't become a lame duck president in this
00:35:12last bit, because that'll be, that'll be another thing.
00:35:14If he does become a lame duck, then, you know, he's got two years where he can throw all manner
00:35:21of different tantrums and carry-ons.
00:35:23We've still got executive orders, right?
00:35:25So, which he's very fond of using instead of going to Congress.
00:35:30Yeah, it's going to be interesting next few months, because I would have thought that
00:35:35Trump would have wanted an early resolution to this conflict, because obviously prices in
00:35:42the U.S. are, whilst he won't admit it, prices in the U.S. are going up just as much
00:35:48as they
00:35:48are here, and whilst there's a lot of rich Americans, there's a lot of poor Americans
00:35:53who will be looking at this.
00:35:56And people that voted for Trump with the promise that he was going to do something about rising
00:36:02costs of food and the basics, right?
00:36:04Well, not even more than that.
00:36:05He also said he was going to be a president that had no new wars.
00:36:10Yeah, well, I mean, we saw consumer sentiments just plunged.
00:36:14But yeah, you're seeing it, you know, I mean, what does every, you know, everyone, the first
00:36:19thing they think about when they see prices, I mean, they look at what's happening when
00:36:21they're filling up the tank.
00:36:23So, you know, the U.S. consumers have very much seen that as well.
00:36:26So, you know.
00:36:27On the domestic front here, in terms of Westpac's kind of views, we spoke earlier about the
00:36:34inflationary pressures we're expecting might still yet come.
00:36:37Does that mean that, from an interest rate perspective, a Westpac considering, you know,
00:36:42further rate rises?
00:36:43Have you got a bit of a forecast there in terms of what's the official outlook?
00:36:46Yes.
00:36:47So, I'll give the good news first.
00:36:50We're not looking for one in June.
00:36:53So, we do think that there will be a pause because obviously we've had those back-to-back
00:36:57since February.
00:36:59So, we're expecting a pause in June.
00:37:02But we do, we are looking for two more rate hikes.
00:37:06So, we're expecting them in August.
00:37:07In terms of, and then that takes us to like a bit of a short-term peak?
00:37:11Short-term peak?
00:37:11Well, not necessarily a short-term peak because we think that they'll keep it on hold and on
00:37:18hold for pretty much all of 2027.
00:37:19The reason being for that is just, again, that pass-through effect that we've got is
00:37:24going to keep prices quite sticky and above that 3% inflation target.
00:37:28And of course, you know, if we think about last year when we saw that pop up in inflation,
00:37:32that took the RBA by surprise.
00:37:34And so, we think they're going to sort of want to, you know, see more evidence that it's
00:37:38going to move sustainably back to that 2.5% before that.
00:37:43Historically speaking though, 4.85%, if it does get there, let's assume you guys are spot
00:37:48on and people would say, oh, that's high interest rates.
00:37:51But historically, if you go back over the last two decades, 4.8% is probably just fractionally
00:37:56above the average, isn't it?
00:37:58Yeah, but I mean, it's more what's restrictive.
00:38:01So, because I mean, obviously you get different, you know, through different periods what's
00:38:05actually restrictive.
00:38:064.85% would be considered quite restrictive.
00:38:09Because of the leverage and that borrowing now, you know, house prices versus wage growth.
00:38:17Yeah, so 4.8% in current terms would be like a 9% or a 12% in previous
00:38:24cycles, you'd say,
00:38:26you know, previous decades.
00:38:27We're not giving those numbers, no.
00:38:33But yeah, we've moved into sort of restrictive, and even the RBA said that.
00:38:37So, what they sort of put it, I mean, they've got quite a wide range of what's a neutral rate.
00:38:41So, you know, the neutral rate being it's not adding, you know, not leaning against the
00:38:45economy.
00:38:46It's not trying to expand it.
00:38:48And I mean, you sort of get it up to, I think, like a 4.35%, say.
00:38:55But they've got quite a wide range on that one.
00:38:57So, I mean, if we're going up to 4.85%, that's saying, okay, they're leaning against the
00:39:01economy.
00:39:02And that interest rate rise on top of potential, you know, inflationary at 5.5%, 6% or something
00:39:10is going to be enough to keep people, you know, moderating their spending and kind of
00:39:15pulling their belts in.
00:39:16Yeah, so, I mean, we're looking for GDP.
00:39:18And if you think about GDP sort of at the end, you know, you're sort of looking at, you
00:39:22were going above 2%.
00:39:23You were running at, the economy was running about 2%.
00:39:25We're putting it down to about 1.1% by the end of this year.
00:39:29So, and a lot of that's on households.
00:39:33So, that's where we're seeing, you know, the most of our day and grades is on the household
00:39:36side.
00:39:37Because as you said, I mean, they've got higher inflation, they've got higher interest rates.
00:39:40And so, that's sort of hitting their incomes and we're going to see it, you know, on what
00:39:46they spent.
00:39:47We might, unless you've got some more international things, Andrew, we might pivot because it's
00:39:51probably a nice segue towards the budget, you know, given that that was only not that
00:39:56long ago that that was released.
00:39:57And you mentioned, I think, in the sixth sense, it was complexity, the word you'd spoken
00:40:01about there.
00:40:02Yes, yes, yes, yes.
00:40:03Did you, but before we go, did you have anything else on the international front, Andrew?
00:40:06What about, how about we talk about projections for, we've talked about, obviously, inflation,
00:40:13CPI, Middle Eastern conflict, Trump and trade.
00:40:16What's the, like, we've got our own projections on livestock and grains, but have you got any
00:40:21views on livestock and grains?
00:40:24Yes, and I mean, I can't give the numbers, but I'll just get some sort of broad.
00:40:28Yeah, just broad.
00:40:30Yeah, just ask also what you're thinking as well.
00:40:34So, I mean, I suppose, I mean, I think this is probably going to be quite the general sort
00:40:37of consensus.
00:40:38So, I mean, we're still looking for sort of sheep and meat prices to be, remain sort
00:40:42of quite elevated, beef prices.
00:40:46Although, for me, I think it's going back to that sort of that China trade policy safeguarding
00:40:52for beef.
00:40:53I think beef prices will come off quite a bit more in the second half of this year.
00:40:59For grain, I think it's sort of an interesting sort of dynamic, if you like, there.
00:41:06So, I know we've been seeing, you know, the Middle East has sort of been seeing some wheat
00:41:09prices and canola prices sort of hold up, but I'm looking for wheat prices.
00:41:14Well, yes and no.
00:41:15I mean, less on the wheat prices, but I mean, they have sort of lifted, if you like, from
00:41:19what we had sort of at the beginning of the year.
00:41:21So, I'm looking for wheat prices, though, to sort of remain sort of held back, if you
00:41:26like, because of sort of the global supply conditions.
00:41:30Canola, I'm a little bit more optimistic on, just because, again, that's sort of that,
00:41:35at least for now, that Middle East implications of sort of the crude oil and sort of it being
00:41:40sort of with the biodiesel.
00:41:42So, I've sort of got a little bit more sort of pushing on the canola.
00:41:45And if you look at sort of the differential between those wheat and canola, I'm a bit more
00:41:49optimistic on the canola front.
00:41:50No, I agree.
00:41:52The canola definitely has got that really closer direct linkage with biodiesels.
00:41:56So, that's, I agree with that.
00:41:58And I think that generally, the sort of the soybean market and, well, the all-seed market
00:42:02in general is pretty buoyant at the moment.
00:42:05But on the wheat side of things, yeah, like, if you look production around the world, it
00:42:09still looks pretty good in a lot of places.
00:42:11We've got hard red winter wheat areas, pretty poor, but soft red winter wheat area, not
00:42:15bad.
00:42:17And I sort of, there hasn't been that sort of really, like, normally you get a close
00:42:22sort of linkage between crude oil and wheat prices and corn prices, but isn't quite there.
00:42:28In fact, it's not there anywhere near as much as what it has historically been.
00:42:32But I can see, like, we've still got that little bit more tightness now with the stocks to use
00:42:38if you look at just the top eight exporters, which I think is where, that's where the potential
00:42:43is.
00:42:43But every day that we get closer to harvest in the Northern Hemisphere, that risk comes
00:42:49out of the market, I think, is the issue.
00:42:51But again, I do see that potential for higher premiums in Australia if El Nino does form
00:42:57and if El Nino does result in dry conditions.
00:43:00Because we've already got Northern New South Wales and Queensland, whilst we've got a bit
00:43:03of rain this weekend, it's still, yeah, it's still, in some cases, too late.
00:43:10So, but I always think that an Australian premium is not a good thing.
00:43:16Like a lot of, a lot of, a lot of farmers say to me, oh, I want, I want X
00:43:20above Chicago.
00:43:21I'm like, yeah, but if you get X above Chicago, it means you've produced diddly squat.
00:43:25And so, and so you're not actually going to recover your value.
00:43:29That's true.
00:43:30I'd actually, I'm much happier if we actually have a discounted to CBOC, because it means
00:43:33we're actually producing a huge crop, because at the end of the day, price is price, but
00:43:37yield is still a bigger driver of profit margin.
00:43:41I suppose, I mean, actually, I just sort of, I mean, we've got, when I'm sort of considering
00:43:44all of this is about our Aussie dollar as well, which, you know, isn't necessarily good
00:43:50for export prices, or exporters at least, because we've sort of, we're still seeing the
00:43:54Aussie dollar holding up, having made those sort of gains at the start of the year, which
00:43:59I mean, you know, it's pretty surprising, but usually unusual, if you like, in terms of
00:44:04sort of a global, you know, risk-off environment that we've meant to be in with this Middle
00:44:08East.
00:44:09Yeah, good news for importers.
00:44:11But yeah, on the exporter side, we're thinking that we're pretty much looking for some sort
00:44:16of further strength on the Aussie dollar going forward.
00:44:20Towards what, mid-75s-ish kind of area?
00:44:23Yeah, yeah, about, about, about there.
00:44:25I mean, that puts us up sort of above sort of the sort of historical fair value, sort
00:44:30of right there.
00:44:31So whilst we're talking about currency, it's a question I haven't asked since, in a long
00:44:36time, since we used to get Trent on from Western Union, what's your views on Aussie
00:44:41versus Sterling?
00:44:44Nothing to do with trades or export, just so Andrew knows if he wants to send some money
00:44:49home.
00:44:50Ah, yes, yes.
00:44:51I should actually be looking at that.
00:44:54Well, I would imagine that actually, without having looked at the forecast for that, so
00:44:58I apologise front.
00:44:59But I mean, the fact is that we still have a better interest rate differential.
00:45:04And I mean, the gilt market always, you know, so for, you know, UK bonds, they seem to always
00:45:10come under a little bit of sort of, you know, pressure.
00:45:14So no, I'd be still quite sort of bullish on the Aussie versus the Sterling.
00:45:18But that, with the disclaimer that I haven't looked at what our Westpac forecasts are on that
00:45:22front.
00:45:22Fair enough.
00:45:24I'm happy.
00:45:25I'm not actually wanting anything sort of a forecast or based on numbers.
00:45:29I just want to, you know, told I'm doing the right thing because I want a UK on holiday
00:45:33again in a few months' time.
00:45:35Ah, well, that's it.
00:45:37Questions without notice.
00:45:41But broadly on the livestock side, from what you were saying, in the sheep, meat, lamb space,
00:45:45I think I'm on a similar page.
00:45:46I think we're looking at kind of sideways movement into next year at fairly elevated historic
00:45:52prices.
00:45:53And that's going to, I don't think we're going to see new peaks necessarily because there's
00:45:56enough uncertainty in markets like the Middle Eastern region and the Chinese demand slipped
00:46:01away a little bit for the mutton side.
00:46:03But there's enough other growth in other markets in terms of demand to hold the market kind of
00:46:08steady.
00:46:08So I think we're, you know, like I said, historic highs and sideways.
00:46:12And for beef, I get what you're saying on the China thing for a bit of a softening perhaps.
00:46:16Through the back end of this year.
00:46:18But I've got the market potentially peaking next year, like as in, you know, and so another
00:46:25kind of move up.
00:46:26And look, it's highly weather dependent, of course, as well.
00:46:29So I'm imagining either average to slightly better conditions.
00:46:33But if we slip into an El Nino, that might take the sting out of it.
00:46:36But, you know, I think we could see one more rally in beef.
00:46:41Yeah, yeah.
00:46:41Just similar to what we saw in the last rebuild.
00:46:44But it'll probably have to be rebuild encouraged as well.
00:46:47So it's very, very heavily dependent for me on weather.
00:46:51Yeah, absolutely.
00:46:52And a huge unsanctioned plug.
00:46:54But if you want those forecasts and information, visit episode3.net.
00:46:57Yeah, that's it.
00:46:59And Westpac for the financial numbers.
00:47:04Now, budget, federal budget.
00:47:06You said complexity.
00:47:07Do you think, because some of the commentary there was obviously some changes to things
00:47:12that were promised not to be changed.
00:47:14So there's a bit of, you know, argy-bargy around, you know, the politics of it.
00:47:18But do you think it was a brave budget and things were done there that were required to
00:47:23kind of restructure, particularly on that kind of CGT and trust and housing type scenario?
00:47:29Well, I mean, it's definitely one of the bigger budgets that we had from the Labor government.
00:47:34And as you said, it wasn't expected.
00:47:36We weren't really expecting this kind of tax reforms.
00:47:39I mean, I think it was this, you know, these are probably steps that do need to be taken.
00:47:47So whether it's sort of, I'd like to say it's sort of one step, because, you know, as with
00:47:53tax reform, you need to take a variety of different steps.
00:47:57And I don't think this fully, you know, covers a number of things that we've sort of called
00:48:01out, like for income tax as well.
00:48:03And I mean, that's sort of important, you know, putting it sort of a broader term.
00:48:08So when I say complexity, but I sort of hesitated, was because on one side, there are a couple
00:48:14of things that the government and the budget actually did, which reduced some of compliance,
00:48:19which is always good for businesses, and, you know, reduced some sort of the uncertainty
00:48:25in regulation.
00:48:26So, I mean, the fact that they, you know, you've got, it's now permanent with the sort
00:48:30of the 20K.
00:48:30Oh, the rot-off, yeah.
00:48:31Absolutely.
00:48:32You know, I mean, that's now certainty.
00:48:34You don't have to worry about if it's, you know, 20Ks or under, and that's for every
00:48:38item.
00:48:38So that's not just a total amount of 20K spending investment.
00:48:42You don't have to worry about sort of any kind of appreciation.
00:48:44So it's anything below 20.
00:48:46I thought it was always 20 grand max per year.
00:48:49No.
00:48:49No, it's per item.
00:48:51Okay.
00:48:51So if you want to take out a subscription to episode three, it's now $19,999.
00:48:58Per episode.
00:48:59Per episode.
00:49:01I like the way you think, Sean.
00:49:06So, you know, I mean, that's a good move.
00:49:08I think bringing in, if we talk about sort of the businesses for cash flows, and this
00:49:12is important for agribusinesses as well, the fact that, you know, they've reinstated that
00:49:16carryback loss.
00:49:18So, you know, if you can use, you know, tax paid in the previous two years, so that can
00:49:24improve some of the cash flow, you know, for that.
00:49:26But, of course, then there's other aspects.
00:49:29And one, you know, I mean, everyone's been, you know, there's a big focus on that capital
00:49:32gains tax, but also it's actually the discretionary trusts.
00:49:37So, I mean, that is now, you know, for a lot of sort of small businesses, well, not classed
00:49:44as small businesses, but they've, you know, they've got sort of a period where they've
00:49:47got to decide if they want to become a small business or they're going to have to pay that
00:49:5230% tax.
00:49:53Now, I mean, for agribusiness, again, some good news.
00:49:56Yeah, they're excluded, aren't they?
00:49:57They're excluded.
00:49:58Yeah.
00:49:59So, I mean, that's sort of one side, but I mean, that's going to, for other businesses,
00:50:03so, you know, other people in sort of the supply chain facing sort of the agriculture,
00:50:07you know, they are going to sort of have to, that's where you're starting to get the complexity
00:50:12because it's, you know, figuring out whether or not what's the best route to go down that's
00:50:18going to require sort of that legal advice, that tax advice.
00:50:22And a lot of these things are also grandfathering and transitioning.
00:50:26So, even with capital gains, you know, it's being indexed with inflation.
00:50:30Yeah, yeah, that's what I was going to say.
00:50:32You've got to give Jim Thomas some credit, I suppose.
00:50:35He said something had to be done to take some of the pressure out of that market in terms
00:50:39of the housing market and provide opportunities for younger people.
00:50:44And the fact that it's grandfathering, the fact that you can still have a capital gains
00:50:47applied against a new build, you know, that still exists.
00:50:51So, that's kind of hopefully going to stimulate supply.
00:50:55And then, yeah, for those that are lucky enough to have already purchased, you're not impacted,
00:50:59you know, on your particular investment decision.
00:51:02So, it hasn't been kind of retrospectively applied, which is always painful when that
00:51:06happens.
00:51:07And then you've got, you know, for the trusts and that other stuff there, the CGT, it's not
00:51:12going to be applied for it.
00:51:12You've got some time to get your affairs in order to a degree, you know, even though it's,
00:51:18obviously not ideal for those that have structured in a certain way and we're getting those tax
00:51:22benefit.
00:51:22When you stand back and look at it, it probably is a reasonable, fair adjustment, I would have
00:51:28thought, on balance of things, would you say?
00:51:30Or am I being a bit too kind of favourable?
00:51:33No, no, no.
00:51:33I mean, I think you're right.
00:51:34I mean, I think, you know, I mean, we see all these big headlines and it's very, very
00:51:38negative.
00:51:39And it's sort of forgetting that, no, there are some things in it which, you know, are
00:51:43good steps in the right direction.
00:51:46You know, as I said, you know, anything that can sort of reduce regulation, I mean, you know,
00:51:49national licensing and things like that.
00:51:53But I think it's sort of just trying to work out, I think there's still some sort of tensions
00:52:00with some of these policies and, you know, things that still need to be sort of ironed
00:52:05out as we go ahead or complemented with other sort of reforms.
00:52:08But, you know, I mean, it's not, you know, it's not the end of tax, well, one hopes it's
00:52:15not going to be the end of tax reform.
00:52:18Yeah, of course.
00:52:19And I mean, you know, there's many other things, I think, moving to some indexation, although
00:52:23that's, I believe, that's just on gains.
00:52:26So how that's also going to then be treated on losses is also probably something that we
00:52:31need more information on as well.
00:52:34So, you know, there's things to sort of, well, to be ironed out before it gets passed.
00:52:38In terms of the budget, though, yeah.
00:52:40So, like, obviously, most of our listeners, let's be honest, most of our listeners are
00:52:45coalition stroke one nation supporters.
00:52:50I think that's just the reality.
00:52:51Most of our listeners are from the right side of politics.
00:52:55They're in agriculture.
00:52:58But, again, I don't think it's necessarily the greatest for business, the budget.
00:53:03But I don't think it's a dumb budget from a labor point of view.
00:53:07Like, you mean politically speaking?
00:53:10Politically speaking, yeah.
00:53:12Like, I doubt they've lost many votes.
00:53:16Like, I just think that the votes that, the votes of the people, the people who are most
00:53:23angry about the budget are the people who are never going to vote labor anyway.
00:53:28And I just see it as being a sort of, I don't think politically, I don't think it will hurt
00:53:33them that much.
00:53:34Obviously, it will hurt them in the press.
00:53:35But politically, I don't think it's going to be a huge issue.
00:53:37Well, I suppose the other thing is we've got a couple, you know, they've got some time.
00:53:41And they've got time to, you know, announce even, say, income tax cuts or, you know, some
00:53:46other sort of election sweeteners as well.
00:53:48So, you know, there is time for this.
00:53:50So maybe timing was on their side for also doing this as well.
00:53:53And, I mean, as you said, you know, tax reform, you know, has been necessary.
00:53:58Were there any things that you would have liked to have seen that didn't eventuate?
00:54:05I suppose, I mean, we've called for a couple of things.
00:54:07I mean, if, I mean, this may, you know, it's generally not that popular.
00:54:12But, I mean, in terms of the income tax and the, you know, bracket creep.
00:54:16So we've been calling for that to be indexed, not in terms of the CPI, but in terms of sort
00:54:22of the 2.5% because we're just, the increase, the share of income, the tax income share for
00:54:30disposable income just keeps rising.
00:54:32It had been proved with the sort of the stage three tax cuts.
00:54:35It's now back up.
00:54:36You know, the ones coming are pretty small.
00:54:39So they're not going to do much.
00:54:41And, you know, you'd want that to be distributed a little bit.
00:54:44So, you know, I mean, that's hopefully something that's sort of going to be looked at and looked
00:54:47at in the future.
00:54:49A better way of managing this bracket creep.
00:54:52Yeah, yeah.
00:54:53And I guess if he can, if he's still in power and can get back to the surplus that was
00:54:57projected
00:54:58further down the pathway there, it does allow for additional adjustments to tax kind of
00:55:05policy to give back some more in that way, you know, so that he can sweeten it as he gets
00:55:12closer to another election cycle or something, you know.
00:55:14Not this next one, but the following one potentially or further, depending on how long.
00:55:18Yeah, no, it could very well even come up on the, you know, I think it's still going to
00:55:22be on the agenda.
00:55:23So it could come up, you know, even for the next election.
00:55:26I mean, it's something that hasn't been resolved yet.
00:55:29And, you know, it's successive because it's not quite that popular if you're particularly,
00:55:33say, you wanted to cut the top income tax.
00:55:37Yeah, those things aren't exactly popular.
00:55:39So I think it's like, you know, it's a lot of sort of baby steps.
00:55:42So, again, let's see how that sort of, you know, gets managed.
00:55:46No, good.
00:55:47Very good.
00:55:48Andrew, any other budget-related questions?
00:55:50I know we've probably gone a bit over time here, haven't we, for this particular podcast?
00:55:53We might happen to be having final questions if you've got one.
00:55:59You're on mute, I think.
00:56:01Oh, oops.
00:56:02Sorry, unprofessional.
00:56:04I was going to ask some questions about the UK budget, but, you know, I'll hold that for
00:56:09I'll follow that for another podcast.
00:56:13Yes, but no, I guess with the budget, I think, yeah, it'll be interesting to see, like you
00:56:20say, what happens ongoing.
00:56:23Like, we've got another, how many budgets have we got?
00:56:25Two more budgets to go.
00:56:26Before the next election.
00:56:27If it goes full term, you mean, yeah?
00:56:29If it goes, it's going to go full term, surely.
00:56:31Surely you would think May 2020.
00:56:33Oh, you're jinxed us now.
00:56:36But, yeah, and then that'll be the interesting thing is if the coalition does get in, which,
00:56:41you know, odds are probably not, just based on, well, I'm just using betting odds, sportsbet.com
00:56:48and opinion polls.
00:56:50But, yeah, well, the problem is that they'll reverse all this.
00:56:55And how many times, how hard is it to come in and actually make wholesale change to taxation
00:57:01policy, you know, after it's only been around for three, four years?
00:57:05I suppose it's happened in the past, but it's hard to get across the line in Australia.
00:57:09Yeah, I mean, it'd have to be shown as being very unpopular and consistently unpopular
00:57:14for that time, I think, for that kind of change.
00:57:16And it'd have to be sort of that key platform, I imagine, for them going into the election
00:57:22saying that.
00:57:23And in terms of, in terms of when I look at it from a point of view of, we've all
00:57:29seen
00:57:29the newspaper reports, and we've seen sort of various, you know, my company's going to
00:57:35relocate to Ireland, my company's going to relocate to China for a better working environment.
00:57:40Do you think that actually the sentiment is that bad?
00:57:43Or do you think that is a bit of clickbait journalism?
00:57:49Well, I think some businesses, I think they're extremely unhappy with what happened.
00:57:55But is that the majority?
00:57:59I don't have a real feel for that, but I don't think so.
00:58:04You know, I mean, it's something that, you know, we'll be watching out for.
00:58:07I mean, it's hard also with the Middle East, so trying to unpick whether or not people
00:58:10are unhappy because of the budget or unhappy because of the Middle East, you know, there's
00:58:19a lot going on for them at the moment.
00:58:21Well, when you think about it, like I joked at the start of the podcast about how it's
00:58:25the most tumultuous time that we've probably been through in our careers, apart from the
00:58:29Great Depression that Matt went through.
00:58:31But when you think of it from like the point of view of just this decade, this decade seems
00:58:36still lasted 20 years.
00:58:37You know, we've had COVID, we've had Ukraine, we've had this Middle Eastern crisis, plus
00:58:45the Trump, you know, tariff wars.
00:58:48Like, we've got four years left of this decade, well, three and a half years left of this decade.
00:58:55Surely it can't get any worse.
00:58:57Well, the 70s had two lots of oil price shocks in 73, 74 and then 78 in the early 80s.
00:59:05So that was, that was...
00:59:07The 2000s, when I started working, was the start of pretty much around the GFC.
00:59:13No, no, I started working the commodities boom and then through the GFC.
00:59:18Pre-GFC.
00:59:19So there have been, there have been other ones before.
00:59:21Maybe it just feels like...
00:59:23Maybe social media amplifies everything.
00:59:27I don't know.
00:59:27I think, I feel it is...
00:59:29I mean, I mean, we've had exactly that.
00:59:30We've had some big episodes.
00:59:31I mean, if you think about the financial crisis, for example, that was pretty, pretty, pretty
00:59:39ornamentous, that one.
00:59:40But I mean, I think that's, I mean, when you go, oh, things are going to calm down, I think
00:59:44we're in a period of just, you know, we've got more geopolitical episodes, you know, risk
00:59:50events.
00:59:50So I think it's just happening with more frequency now.
00:59:53The old black swan event is not that rare anymore.
00:59:57No.
00:59:58No.
00:59:58Although, you know, if I could forecast what that, the next one would be.
01:00:03I'd actually argue, if you go back further, and I know Andrew made the joke about my age,
01:00:08of course, but, you know, someone that reads a bit of history, if you go back through history
01:00:13over the centuries, the state, a state of war is actually probably more common than a state
01:00:19of peace, I would, I would argue.
01:00:22And, and even from a, and democracy, democracy is a relatively new invention, and even still
01:00:28being a relatively new invention, there's a lot of countries around the world that don't
01:00:32have a true democracy like we'd have in Australia, right?
01:00:35So that's also not common, you know, to have, you know, autocratic type power or monarchy
01:00:41power or whatever, you know?
01:00:42You put that, you put that together well, Matthew, but I do think somebody else put
01:00:47it together much better.
01:00:49Who's that?
01:00:49A philosopher from the 70s and 80s who said, we didn't start the fire, the world's been
01:00:56burning since the world's been turning.
01:00:59Right, yeah, okay.
01:01:01That's obviously a signal, Sian, that we're getting to the end of the podcast when he starts
01:01:08pulling out these ridiculous references.
01:01:10Matt, you've only heard that because I use it when I'm talking in markets.
01:01:14Exactly.
01:01:15Well, there you go.
01:01:16All right.
01:01:16We might bring it to a close.
01:01:17It's been fabulous having a chat.
01:01:19We're probably going to go on for another hour, but we're conscious we're already going
01:01:21over time that we allotted with you.
01:01:23It was great, great chatting.
01:01:24We might get you on again at some stage when maybe heading in towards the midterms and see
01:01:28how things are playing out.
01:01:30Let's see what's happening.
01:01:31Thank you very much.
01:01:32It's been a pleasure.
01:01:33It was a great chat.
01:01:34See you when you've got nothing on.
01:01:35See you when you've got nothing on.
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