South Park’s version of roshambo — the enduring “rock paper scissors” game unreliably said to have been played by George Washington and the Comte de Rochambeau after the British surrender in 1781 — was invented by Cartman and involves taking turns kicking each other in the nuts.
The point being — lest it require explanation — you don’t want to go second.
Which is no doubt how Jim Chalmers feels as he contemplates this year’s budget, which is starting to take shape in Treasury.
The war against Iran — and the myriad of downstream fiscal consequences the government is now weighing up — threatens to deliver a most unpleasant thumping of the nethers.
At what point does he take his shot?
Australia will open its fuel reserves for the first time since 2022 amid the conflict in the Middle East. (ABC News: John Gunn)
A pothole or a major wound?
Key decisions need to be made over the next few weeks on what economic assumptions to make about the future, the trajectory of inflation, growth and revenue.
Most years those things can be worked out at Treasury’s leisure. Nobody is kicking anybody anywhere.
This year, the biggest and wildest variable that overshadows everything else is the question of how long the war will last.
Is it two weeks or two months or longer? It’s a bad call to get wrong.
The former — in budget terms — would represent an inconvenience, a very bad pothole requiring some evasive action but not the end of the world.
Ambitions for reform that the government is working on — on capital gains tax for instance — shouldn’t be threatened.
The latter is a much uglier scenario that would require major surgery on what this year’s budget can achieve. And what it needs to do.
Of course, there are always upsides in a full-blown crisis, from the government’s point of view. For instance, it might make it easier for the government to do more radical things, such as impose a tax on gas exporters or overhaul the WA GST split.
Either way, at some point Chalmers and the department’s boffins will have to “stop the clock” and make hard decisions.
LoadingPredicting the end of the war
For now, there is a view at senior levels of the government that the war is unlikely to last beyond another two weeks “tops”.
That’s a scenario in which the disruptions to energy supplies out of the Gulf would impart a material but temporary inflation shock to the global and Australian economies.
Politically unpleasant and potentially dangerous if underestimated but ultimately limited in impact.
Treasury analysis landed in the press gallery late this week indicating inflation would be 0.5 percentage points higher in the June quarter if crude oil averages $US100 a barrel for three months.
For context, in January the consumer price index rose 3.8 per cent from the previous year, which is well above the Reserve Bank’s 2 per cent to 3 per cent target range.
A nastier scenario in which the price averages $US120 per barrel would result in a full percentage point spike, Treasury said, forcing Martin Place to hike interest rates even more aggressively than it was expected to.
Next week’s likely increase would not be the last.
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Much worse would be anything above that level — which shouldn’t require much imagination given the oil price is still well below its 2008 GFC-eve high of $US147.50.
In today’s dollars, adjusted for inflation, that would be closer to $US220.
That’s a staggering number, and would translate into something very ugly at the bowser.
Which is why there are plenty of good reasons to think the government’s “two weeks tops” scenario is not just wishful thinking.
Read more about the Iran war:
For one thing, the person at the centre of this question of how long the war lasts — US President Donald Trump — faces a terrible political and financial market reckoning if oil prices keep heading northwards.
Any political pain suffered by the government here because of high fuel prices would be trivial compared to what the US president would suffer.
Americans have no tolerance for high energy prices, and the president has the mid-term elections in November on his mind.
With every swing downwards, Donald Trump gets another call from a panicked friend on Wall Street. (Reuters: Jonathan Ernst)
Trump distances himself from crisis
Another factor — which the Australian government is tracking — is the degree to which the war disrupts financial markets.
With every swing downwards, Trump gets another call from one of his Wall Street mates spewing panic.
There’s every reason to suspect this is already happening.
One of the president’s biggest tells — and an indicator that he’s about to reverse course — is that he starts to distance himself from the crisis.
Trump claims credit for anything successful but immediately hangs it on others when things go to custard, as they are now as the war drags on and disrupts energy supplies.
Expert analysis on the Middle East:
A few days ago he linked the decision to attack Iran on the advice he was given by administration figures including his Middle East envoy Steve Witkoff, son-in-law Jared Kushner and US Defense Secretary Pete Hegseth.
“The situation was very quickly approaching the point of no return and the United States found it intolerable, in my opinion, based on what Steve and Jared and Pete and others were telling me — Marco [Rubio] is also involved — that I thought that they were going to attack us,” Trump said.
If everything was going swimmingly, Trump wouldn’t say such a thing. The war would have been his idea and his idea alone.
The challenge for the government is that it’s not obvious yet what Trump’s off-ramp will be.
He needs to say he’s won and will need to define what that victory looks like — a slippery concept if the Iranian regime stays intact because of an early withdrawal.
In the meantime, Foreign Minister Penny Wong’s decision on Friday to withdraw all non-essential Australian personnel from the Middle East is a strong sign the war could get worse before its over.
Loading…Israel says war with Iran in early stage
Israel is the other factor, with the Netanyahu government pushing ahead as fast as it can.
The gap between its desire to press every advantage against the Iranian regime and what the White House is thinking will be critical.
Former Israeli defence minister Benny Gantz — who served in Israel’s emergency cabinet after October 2023 — told 7.30’s Sarah Ferguson on Thursday that the war against Iran was still at an early stage.
“We are only at the 13th day of the campaign” and Trump understands “that what we are talking about is not the crisis of last week or this week or next week, but what should be the future”.
“Should we allow the Iranians to take hostage the energy capacity of the world in future times?
“So, it is true that gas price goes up a little bit now. It may even go even higher, but look at it from a longer-term perspective and I think that we should look for the next generations, not only for this current war,” Gantz said.
“Therefore, I’m saying once again, we need to be determined, we need to be patient, we need wisdom to figure out what really is happening and then to take the decision. It’s too early right now.”
Whether Trump has that kind of staying power will become clear in time.
Having started his own version of Cartman’s roshambo, the bet from Canberra is that he’ll pull up stumps sooner than later.
Jacob Greber is political editor of ABC’s 7.30 program.
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