AUSTRALIAN POLITICS – SCOTT MORRISON AND THE COALITION GOVERNMENT

As 2021 began to emerge from the worst of the pandemic of 2020, the Morrison Government faced new challenges. On Wednesday 10 February 2021, Paul Kelly, journalist, author and media commentator, conducted a Zoom meeting for Sydney Institute members. In a comprehensive discussion, Paul Kelly observed 2021 would be the year the prime minister Scott Morrison established his authority while overseeing the risks for both community health and the economy in rolling out the vaccine and balancing the wind back of government stimulus at the height of the pandemic.

AUSTRALIAN POLITICS – SCOTT MORRISON AND THE COALITION GOVERNMENT

PAUL KELLY

Good afternoon all and thanks to Anne and Gerard Henderson for this invitation to talk to The Sydney Institute again.

Let me begin with a few overarching points. The Prime Minister’s approach to politics and policy this year will be dominated by four things. Economic recovery, the vaccine roll out, repositioning on climate change and managing the China relationship in the context of the new American President, Joe Biden. This is going to be a very challenging agenda with lots of potential traps for the government.

I expect politics to remain highly competitive, with the first Newspoll of the year, a couple of weeks ago, showing a 50/50 two party preferred vote. The Prime Minister I believe is not attracted to a 2021 general election later this year. The most likely time for the election is Autumn 2022. This could change, as we all know; election timing discussions are always susceptible to changing events. But Morrison is wary of plunging the country into an early general election, when he faces ongoing economic and health policy challenges.

The Morrison Government is different from both its predecessors, the Abbott and Turnbull governments. Morrison’s internal authorities are entrenched, there’s no rival; Morrison and his Deputy and Treasurer Josh Frydenberg work very closely together, the Cabinet and the Liberal parliamentary party are more united than at any time since 2014. The main internal issue concerns the National Party, where many of the policy disputes end up being leadership tensions surrounding the leader, Michael McCormack.

Scott Morrison has one political objective this year. This is to establish that he is the right prime minister for the times. That means, above all, managing pandemic recovery in all its dimensions. He operates on the assumption that what the Australian public wants is practical, competent government, not radical, dramatic change. This is because we live in an age best described as radical uncertainty.

When the population has been locked up for much of the previous year, you don’t as a government impose by discretion even more shocks upon their way of life. I would argue that Morrison is a centre ground pragmatist. That, by the way, fits comfortably with the Liberal Party’s prime ministerial tradition. He is less ideological than either Tony Abbott or Malcolm Turnbull.

Let me look briefly at the four main policy issues. The economy is bouncing back faster than the government forecast with 90 per cent of jobs lost during COVID, having been restored. The central bank governor, Phillip Lowe, said the recovery was stronger than the bank expected. The COVID economic recession is clearly not as deep as forecast. The bank scenario is unemployment at 6 per cent by the end of the year and 5.5 per cent by the end of next year. Lowe expects the economy to grow 3.5 per cent in both 2021 and 2022, assuming no major setback in terms of the virus on the health front.

But don’t think the damage hasn’t been done. The governor has said when the December national accounts are released, they are expected to show the GDP is 4 per cent lower than predicted pre-pandemic, and that is a big loss. Note that wages are going to stay low, growth in wages is expected to be below two per cent this year. Living standards will be under pressure, particularly when fiscal support phases out, but the bank is going to maintain monetary support for a long time. The bank will keep interest rates at record lows.

The Reserve Bank governor has announced that the bank will purchase an extra one hundred billion of government bonds from mid-April, when the current programs end; the cash rate will be maintained at 10 basis points for as long as necessary. Monetary policy is playing an absolutely decisive role that generates low cost borrowing for years to come. It will underpin rising asset prices, equities and property prices. The governor seems to be the best friend of the Morrison Government in the year leading to an election.

A question beyond that is; where does this monetary expansion end. History tells us, normally, in a bad place. On fiscal policy, Morrison spelt it out a fortnight ago – we are not running a blank cheque budget, the economy cannot run on taxpayers money forever, especially after $250 billion fiscal support over the past 12 months.

Fiscal support has been fundamental to economic recovery. JobKeeper will phase out from the end of March, and Morrison and Frydenberg insist on that. There will be ongoing support for some sectors, probably hospitality, tourism and aviation. This will be buttressed by tax support, infrastructure investment and support for skills. The end of March phase out of JobKeeper will hit businesses and jobs; zombie firms may expire, unemployment will take a hit, and Labor is getting ready to exploit this event. Will it register in the opinion polls, and what political impact will it have? It will have some, but this transition will be critical to the government.

The second policy area is health. The vaccine roll out is filled with uncertainty. The aim is to vaccinate 25 million people by the end of October. As Morrison said, it will be one of the largest logistical exercises seen in Australia. There are two different vaccines, with different degrees of effectiveness. As overseas news reports have indicated, there are many questions. Do the vaccines work for all age groups? Do they combat the latest manifestations of the virus? How long are they effective?

Public confidence is essential. The suspicions of the vaccine are real and widespread, Newspoll said 17 per cent of people, equating to 4 million people, said they wouldn’t get vaccinated. Renegades, such as Liberal backbencher Craig Kelly, who have attacked the health advice and undermined confidence in the vaccines, have attracted alarming degrees of support. Hence Morrison’s effort to rein him in.

Quarantine and social distancing measures will continue, the international borders will stay closed for a long period of time, and testing and tracing and management of hotspots will continue to be essential. Scott Morrison persuaded last week’s National Cabinet to agree on a new consultation process designed to develop new nationwide rules to manage COVID when there are fewer risks. The aim is to get back to a new form of normality, that won’t be easy.

The virus has empowered the state premiers. They enjoyed a profile last year unmatched in my working life. Their addiction to what I would call “pandemic protectionism”, closed borders and harsh lockdowns, has been fundamental to their political success and in some cases political re-election. Witness the Queensland state election last year. The premiers will only agree to cooperate with Morrison if it suits their interests. I anticipate the vaccination process will be filled with contention, publicised dramas and risks, but successful vaccination is essential for Morrison’s ongoing record as a competent COVID crisis manager.

In his speech a fortnight ago, the Prime Minister said the goal is to reach zero carbon emissions as soon as possible, preferably by 2050. He said that would depend upon technology, ensuring there was going to be no hurt to the economy or jobs, and we would only get there by technology advances, not taxes, a dichotomy many see as false.

Morrison also said, “I will particularly not ask regional Australians to carry that burden.” This form of words was agreed on by Morrison and Nationals leader McCormack. Morrison’s repositioning is a significant challenge given the history, but he is responding to political realities. Climate change politics is defined, always, by the gulf between illusion and reality.

The reality, however, is that net zero at 2050 is becoming the global norm despite truckloads of hypocrisy. It is accepted by international and local banks and financial institutions as increasingly the basis for lending. It is the benchmark increasingly accepted by investors and superannuation funds; it is embraced as policy by the major business lobbies, the Business Council of Australia and the Australian Industry Group, and increasingly by our main companies. It is the policy of every state government, Liberal and Labor, and is the stance of federal Labor. It is endorsed by many bodies from the National Farmers Association, to the Australian Medical Association.

The global trading system is moving to net zero at 2050. The EU has threatened trade retaliations against nations that refuse to accept these ambitious targets, and it seems as though the new Biden administration may move on that front as well. China has announced a policy of carbon neutrality to be achieved by 2060, despite its expansion of new coal fired plants.

Morrison wants a close working relationship with President Biden and has put that on the record. The new president has identified climate change as an existential danger and seeks to secure more ambitious targets and policies on a global scale. However, as of today, Morrison has no document on his desk showing how to get to 2050 without punitive consequences. Morrison is fully aware of Bill Shorten’s mistake at the 2019 election of promising ambitious targets but not explaining economic consequences, or how he would get there.

There are two grounds of complaints over the last week from the National Party about net zero at 2050. They concern principle and price. Barnaby Joyce and Matt Canavan oppose the policy on principle. They state is the wrong policy for Australia and the wrong policy for the National Party, let alone the wrong policy for the Morrison Government. At the same time, many other Nationals are really taking a stand on price; that is, they want to ensure that any Morrison Government commitment to net zero at 2050 comes with truckloads of support for the agriculture sector and for National Party demands that include agriculture, mining and manufacturing.

Any commitment by the Prime Minister to 2050 net zero will only intensify pressure on the government to bring forward more ambitious targets for 2030. That won’t happen. The Morrison Government will stay with the existing 2030 targets of 26-28 per cent emission reductions and take that policy to the next election.

I won’t go into the dilemmas that Labor faces, seeing that this talk is mainly about the Morrison Government, but Labor is divided about climate change, divided about targets and divided about both the politics and the policy.

Finally, let me make a few comments about China. There is little hope of an improvement in relations with China over the next couple of years, and the expectation is that those relations will only get worse, despite the fact that Trade Minister Dan Tehan has written a detailed letter to his new trade counterpart in Beijing, hoping to establish some form of dialogue. All the signs are, that China is making an example of Australia, and if they’re making an example of Australia, then they’re not going to back off in the short term. Scott Morrison, on the other hand, won’t be buckling, won’t be giving into China, or displaying any sense of appeasement.

The fourteen points which the Chinese embassy released towards the end of last year made it very clear, this is not just a trade issue. China has a log of political claims it is making against Australia, and that’s the real significance of this issue and it gives a global significance to the China campaign. The reality is that the Australian government and the Australian people are going to pay an economic price for Chinese retaliation against us. For all that, at the moment, public sentiment is very much behind the government not making significant concessions towards China.

There are two areas where we may well see further tough action by the government in relation to China. They concern, firstly, foreign interference and, secondly, the review of agreements between Australian institutions and China as already authorised under the legislation recently passed.

To finish up, as I said, I think that we will see an election more likely in 2022, rather than 2021. The policy and political agenda for the Morrison Government this year is a pretty ambitious agenda. We shall not, I believe, see fiscal policy moving towards debt restriction and giving a priority to consolidating debt until after the next election. There will be ongoing fiscal expansion and support for various parts of the economy between now and the next election which is also the stance of federal Labor.