A POLITICAL UPDATE – SETTING THE SCENE FOR 2020

Summer in south-eastern Australia was particularly severe with continuing drought being added to by a prolonged bushfire season. The Morrison Government – having won the “unwinnable election” in May 2019 began 2020 under increased pressure with any Budget surplus looking challenged, especially with the outbreak of the coronavirus virus on mainland China, world markets nervous and the Australian economy appearing to be further threatened. To discuss how the Australian government might handle the year to come, Editor-at-Large at The Australian Paul Kelly joined National Affairs Columnist for The Australian Financial Review Jennifer Hewett to address The Sydney Institute on Monday 10 February 2020.

A POLITICAL UPDATE – SETTING THE SCENE FOR 2020

PAUL KELLY

In 2019 Scott Morrison proved he was an election winner; in 2020 we will discover how good he is at governing.

After the election, there was an expectation that Morrison would be a more successful Prime Minister than either Tony Abbott or Malcolm Turnbull. He offered a practical, down-to-earth, community based leadership with the prospect of unifying the Liberal Party and Coalition after the Abbott/Turnbull political civil war.

But the past two months have cast a shadow over such expectations. Morrison made a series of uncharacteristic mistakes.

 His authority has been seriously damaged. The bushfires were a leadership test and an opportunity and Morrison was found wanting. The political damage was accentuated by the sports rorts affair that created a domino effect of criticism of the government. The resignation of Bridget McKenzie as Agriculture Minister triggered a leadership eruption in the National party with Barnaby Joyce unsuccessfully challenging Michael McCormack. The Nationals are left in a state of permanent schism with Matt Canavan quitting cabinet to join Barnaby Joyce on the backbench, a recipe for instability. The National Party crisis has a long way to run this term.

What do these events mean for 2020? They tell us that instead of a confident Prime Minister living off enhanced authority from his remarkable election victory, both Morrison and his government are on the defensive at the start of the year. Their vulnerability is exposed. The government’s opponents smell Morrison’s weakness; Labor has been ahead in the two previous Newspolls. Labor leader Anthony Albanese has moved ahead of Morrison on the measure of better Prime Minister.

The past two months provide a sobering reminder of the times. They are, above all, unpredictable – in Australia and in the world, from the coronavirus that exposes flaws in China’s governance to the magnitude of Boris Johnston’s election victory to the consequences of Morrison taking a holiday in Hawaii. This is a wild and rapidly moving political world where nearly all past assumptions of the existing order are under challenge. There are no guarantees anymore, from the economy to climate change. Morrison and Albanese operate in broken traffic anxiously trying to discern the public mood.

Australia is a fractured country: the 2019 election result proved that and 2020 will provide more evidence. The divisions between regional Queensland and the leafy suburbs of Melbourne constitute two cultures in one nation. These divisions inevitably feed into the major parties institutionalising tension and division.

The 2020 year will reveal the true character of the Morrison government.

 This is when the policies and outlook it will take to the next election will evolve and be advanced.

The number one issue is the economy. Morrison was elected in 2019 off the back of his economic credentials in contrast with Labor’s tax experiment and big spending agenda. If the economy slips into recession, that becomes a survival threat to Morrison. But recession in 2020, as distinct from one quarter of negative growth, is unlikely. The economic challenge, however, is daunting because the mix of globalisation and the digital age has cancelled past patterns of economic behaviour.

Reserve Bank Governor, Philip Lowe, delivered an optimistic outlook last week – growth of 2.75 per cent this year and 3 per cent next year with unemployment falling below 5 per cent and interest rates staying low for a relatively long time. But Lowe had a grim message on wages – stuck for some time on annual increases of 2 per cent, neither a crisis nor a confidence booster.

This highlights an economy defined by growth going into corporate profits and jobs but living standards, household incomes and retirement incomes stay under pressure. The public will remain anxious with many people impatient and unhappy.

In this economic situation there is no silver bullet, no quick fix, no magic wand. The grim truth for the government is that it doesn’t know, given the coronavirus, where the budget will finish and how much damage is done to the economy. But if the promised budget surplus disappears that will be another blow to be exploited by the Labor opposition.

Productivity is poor and most productivity enhancing measures are either unpopular or come with big time delays. The public has little taste for economic reform and the Senate is reform resistant. Morrison has no interest in the futility of announcing reforms and seeing them thwarted in parliament; all pain, no gain.

The big economic question is whether a slowdown warrants a declared change in fiscal policy.

 Short of that, I think economic policy will be a project in incrementalism. There will be investment tax breaks for corporates in the budget. That is a given. The risk is that growth stays below trend and the Reserve Bank’s optimism is not validated. This is the view of many private sector forecasters.

The further risk is that the government will look too static – in office but not in control – given drought, bushfires, coronavirus and an uncertain global outlook. This would feed into another dangerous perception starting to take hold – that Morrison lacks conviction, that he is a leader for marketing not for policy belief. I doubt that is an accurate assessment but 2020 should provide the answer, one way or another

There are several related areas of economic policy important this year. It is critical for the industrial relations agenda that the Ensuring Integrity bill when reintroduced is passed. That largely depends on Senator Jacqui Lambie. Senator Pauline Hanson defeated this measure last year to teach Morrison a political lesson.

The modest yet worthwhile IR agenda Christian Porter and Morrison envisage for this term will sustain a major setback if the Australian Parliament refuses again to pass laws to bring the CFMMEU to heel.

Superannuation will be an emerging issue this year and a critical issue this term given the review commissioned by the Treasurer, Josh Frydenberg. My best guess here is that Morrison will not tamper with the existing law under which the superannuation guarantee rises to 12 per cent. Why would he? First, he would battle to legislate such a change. Second, the argument would be that employers would respond by increasing wages. Do you think for one moment Morrison would trust corporate Australia to do this? Third, it would trigger a huge fight at the next election with Labor and the unions and I do not believe Morrison would choose such a fight. The issue, therefore, is to improve and reform the existing system and that is a serious legislative task as the Productivity Commission report documented.

Morrison will advance his commitment to the NDIS, mental health and tackling the issue of Veteran suicide. He believes in these projects with a passion.

 On indigenous issues he wants a referendum on indigenous recognition but will not contemplate putting a Voice to Parliament into the Constitution. Whether a viable referendum question can be devised is doubtful and whether the Voice to Parliament will be legislated instead remains uncertain.

The second overarching policy to highlight is climate change. Morrison will run a compromise, shifting, centrist strategy that will evolve according to the domestic and global pressures. I think the main elements are:

• Being more credible on Australia’s emissions reduction efforts, an essential requirement after the bushfires and critical for Liberal MPs in the major capital cities;
• Framing emissions reduction policy as consistent with avoiding the sacrifice of jobs and industry and avoiding power price increases, a critical requirement in regional areas;
• Having a policy response sensitive to different states and regions, not a “one size fits all” national pricing scheme;
• Sticking by the 26-28 per cent emissions reduction policy for 2030 but identifying a new target for the period beyond 2030;
• Putting a renewed emphasis on technology not taxes as the solution;
• Promoting gas as a “transition” fuel and avoiding being trapped into taking sides on any “coal versus renewables” binary contest.

The government will seek to extend the life of existing coal fired power stations but I doubt it will bank roll a new coal fired facility.

 Morrison’s political task on climate policy is to minimise the political damage as far as possible and to neutralise Labor’s ascendency on this issue. The Coalition cannot beat Labor on climate change but it needs to limit the votes that it loses on this issue, both on the left and the right.

The main electoral threat to Morrison will be from destabilising populist eruption on the right, particularly in regional Queensland. The pressure from Canavan and Joyce on coal will be significant. It will require immense political skill from Morrison to hold together the 2019 electoral constituency extending from regional Queensland to the suburbs of Sydney and Melbourne in an Australia growing more fractured.

The proposed Religious Discrimination bill will become a test for the Morrison government and for Attorney General Porter. It will not be easy to strike a compromise sufficient to give the bill a chance to pass the Parliament.

 But if Porter can satisfy the Coalition party room then the bill could ultimately become a serious test for Labor. Would Labor support or oppose protection from religious discrimination? Or, if the bill fails, who is seen to be responsible? Labor’s standing with the religious, multi-cultural community is fragile and this bill is certain to be aggressively opposed by progressives inside and outside the Labor party.

I cannot see the Liberal leadership issue erupting this term as it erupted in the two previous terms. There is no appetite within the Liberal Parliamentary party for another political bloodletting. Neither of the future leadership figures, Frydenberg or Porter, has any interest in destabilisation this term. In short, there is no leadership rival.

Morrison’s performance in 2020 will inform us whether this period of Coalition government falls away in more dismal under-achievement or, alternatively, whether Morrison can inject enough vigour and commitment to make the third term its most successful. That is the real test.

In these comments I have focused on the government rather than Labor. But Labor faces daunting challenges over its strategy, policy and unity following the 2019 election defeat. It is on a documented trajectory of structural and cultural decline.

Albanese’s efforts to move the party back towards the centre will be resisted, depending upon the issue, by much of the rank and file and the party’s progressive wing.

Politics is more difficult to read these days. The media and the opinion polls have difficulty separating the daily drama from the long run trend. Morrison knows one thing above all – if he looks more reliable and credible than Labor, then he wins.

My final point is to highlight the two competing narratives in our political life today. This is what Morrison calls the Canberra bubble. The 2019 year exposed the gulf between the outlook and assumptions of the political class on the one hand and the outlook of the public on the other hand. What the political media tells you might not be what the public sees.