Reserve Bank ends Coalition celebration
Along with the rest of the nation, Scott Morrison could scarcely believe it. His mother told journalists a lot of prayers went into the shock defeat of Labor, and her jubilant son told the cheering party faithful he had “always believed in miracles”. Four days later, though, the Reserve Bank governor played the devil’s advocate – Morrison’s “strong economy” was faltering.
Philip Lowe ditched the RBA’s usual use of code words to deliver a blunt, pessimistic speech on Tuesday. He said there were few options but for the Reserve to “consider the case for lower interest rates”. The official rate of 1.5 per cent – its resting place for the past three years – is already well below what former Liberal treasurer Joe Hockey used to call emergency levels back in the Gillard government’s day. The governor’s prescriptions for the ailing economy have the real potential of putting in jeopardy next year’s touted budget surplus.
Lowe said without a cut in interest rates, unemployment was unlikely to fall below the worsening rate of 5.2 per cent in the latest figures. Inflation would remain low and workers would fail to enjoy sizeable wage increases. In another embarrassment for our miracle-worker prime minister, the Reserve also downgraded its economic growth forecast for next year, just four weeks after Treasury stuck by its stronger forecast for the economy. But the real rub of this grim counter-narrative to the sunshine of the budget and the Coalition’s campaign rhetoric is Lowe’s call for the government to pull its weight.
The RBA governor said he would be advising state and federal governments “to make sure that they’re investing in infrastructure that creates jobs and increases supply capacity”. Treasurer Josh Frydenberg replied he had already committed to spend “$100 billion on infrastructure over the next 10 years”. Lowe’s comments suggest this is not good enough; the economy demands some spending to be brought forward substantially. But how to do that while giving billions in tax cuts and delivering a $7 billion surplus is extremely problematic.
The promise of the first budget surplus since the Howard years was, according to Liberal Party campaign director Andrew Hirst, a key factor in the turnaround of the government’s political fortunes. Hirst told The Sydney Morning Herald the surplus forecast was “the logical underpinning” for the Coalition’s attack on Labor’s proposed surgery on a range of tax concessions. He said it bolstered the argument that Labor was “going to tax you more and it’s going to hurt” and also that “Labor can’t manage money, so they’ll come after yours.”
Economist Stephen Koukoulas says what may save Morrison is the fact the iron ore price is now $100 a tonne, well above the $45 a tonne that underpinned revenue forecasts. The higher price is worth an estimated $10 billion a year to the budget, if it stays at that level. But it could be a near thing, with the government borrowing $150 million days before the election. “Surplus, budget surplus, come out, come out wherever you are?” Koukoulas asked on Twitter. It’s a sure sign everything is not as rosy as the government would have you believe: the market expectations are for the RBA to cut rates in two weeks, and then again in November.
On behalf of Labor, shadow treasurer Chris Bowen interrupted his short-lived leadership pitch to accuse Morrison on Monday of breaking his first election promise. Bowen said it “was worse than that. He lied about it.” Ten million Australian taxpayers won’t be getting their $1080 tax cuts from July 1, as the prime minister and his treasurer repeatedly promised they would, despite Labor saying the timetable was unrealistically tight, backed up by the clerk of the senate. Morrison told Sky News he had been advised Treasury could not process the cuts until parliament passed them into law. In the campaign he insisted he could do it “administratively”.
Parliament is not expected to sit again until late June, but Frydenberg rushed out to assure everyone they would receive the full tax rebate in the financial year, so it wasn’t really a broken promise. It was more likely overegging the promise in the expectation they wouldn’t have to deliver it. Now the Morrison government is saying it will deliver all of its promised tax cuts by including the full seven-year timetable in one bill.
Bowen still believes Labor should oppose the top-end relief with its cost of $77 billion. But others in Labor argue the cuts should be waved through because in the last budget before the next election, Morrison will have to finally show how he will pay for them. The argument goes, if his government can’t afford to introduce them now, how will it in three years, given the deteriorating economy? It could set the Liberals up for a tax cut backdown, much like the one suffered by the Keating government when it had to repeal its “L. A. W.” legislated tax relief.
While all this was happening, Morrison was working on his ministry. The word out of the government is he will not opt for wholesale change. But he will need to heed the message given loud and clear in a string of hitherto Liberal heartland seats on climate change. Not only did Tony Abbott lose his seat to Zali Steggall, a climate-change-action champion, in a massive 18 per cent swing, but safe Liberal seats in Sydney and Melbourne also saw big swings to Labor. On the eve of the election, Bill Shorten believed the mood was strong enough to deliver him government. That it was not doesn’t alter the widely accepted scientific imperative to reduce carbon emissions, and the business imperative to come up with a firm policy on a transition to renewables.
Liberal moderates who suffered swings against them are determined not to allow the debate to be hijacked by Queensland coal advocates such as George Christensen. They will be emboldened by their success last Saturday, but it is unlikely we’ll see Morrison revert to his lump of coal carrying days. He may have capitulated to Liberal National Party MPs and senators flying under the Nationals’ colours by having Melissa Price give the Adani mine the green light, but he then spent the past five weeks talking renewables and avoiding mention of Adani.
Veteran Liberal strategist and one-time Howard senior adviser Arthur Sinodinos, set to be back in cabinet, told RN Breakfast the election was about going forward and dealing with climate change, “but we have to do it in a way the public understands and supports”. The senator, who left his sickbed to walk with Malcolm Turnbull into the party room that dumped the former PM, didn’t go so far as to endorse the adoption of his former ally’s national energy guarantee but said “we will have to definitely do more”.
Labor will definitely have to do more to win back support in Queensland and regional Australia. Shattering disappointment has given way to anger in ALP ranks around the nation over what is now seen as a botching of the election. One Nationals insider who worked on the campaign says Labor was hit by its equivocation over the Adani coalmine and by its franking credits policy. They generated big swings to the Coalition in north and central Queensland, which saw them lose Herbert, and they lost Longman near Brisbane because of the “retirement tax”, he says.
The Liberals’ civil war for most of the past three years masked the real risks Labor was taking with its “courageous” agenda. The plan to close the dividend imputation rebates loophole, for example, was released a year ago, as the rumblings against Turnbull were growing. It was the loss to Labor in the Longman byelection – which Turnbull said was a test of his leadership against Bill Shorten – that persuaded the LNP to mount the coup last August.
Although Peter Dutton failed to become PM, he succeeded in removing Turnbull. Research had shown there was only one national figure more unpopular than Turnbull in Queensland, and that was Shorten. With Turnbull gone, Shorten’s vulnerability was exposed.
Shorten’s failure to generate election-winning momentum was not picked up by any of the published opinion polls. Even Nine’s exit poll released at the close of voting had Labor ahead 52-48 per cent. As it turned out, that was closer to the final result in the government’s favour.
Morrison has delivered a two-seat majority, bigger than Turnbull’s, but still thin enough to allow maverick backbenchers to cause trouble, as happened to his predecessor.
However, Scott Morrison has proved himself a consummate campaigner. He has reinvented himself as this daggy dad good bloke next door who is happy to see you keep as much of your own money as possible.
One of Labor’s senior members on the Right, who switched their support to the Left’s Anthony Albanese for the Labor leadership, says Morrison has “morphed into ScoMo and that’s why we need someone like Albo to take him on”.
This article was first published in the print edition of The Saturday Paper on May 25, 2019 as "Issuing a bank check". Subscribe here.