CMAX Advisory closely follows political developments internationally and analyses implications for businesses operating in Australia.
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This week's top story
12 August 2019
Don’t panic, says Treasurer
Federal Treasurer calls for calm as the growing trade war between Washington and Beijing threatens to undermine Australia’s economic growth.
United States President Donald Trump’s decision to raise more tariffs on Chinese goods – and China’s retaliatory devaluing of its currency and a ban on US agricultural imports – sent Australia’s share market plummeting. The currency followed the same trajectory.
Amid the sell-offs, the Reserve Bank of Australia downgraded its growth projection for the local economy from 2.75 per cent over 2019 to 2.5 per cent.
Calling for calm, Treasurer Josh Frydenberg said people “shouldn’t overreact to these developments, but we should recognise that China’s currency moves and the increase in US tariffs are an unwanted escalation”.
The “escalation” is exactly what the RBA Governor Philip Lowe has feared, warning in July that the trade spat between Washington and Beijing was dragging down the outlook for global growth – and therefore Australia’s outlook.
“The thing that worries me most at the moment is the disputes about technology and trade are making businesses right around the world very nervous. And when businesses are nervous, they don’t want to invest,” he said.
The uncertain economic growth has renewed calls from economists for the federal government to step in to prop up the economy amid any downturn. That, of course, would require the Treasurer opening the metaphorical wallet, something he remains steadfastly opposed to as it would put the projected budget surplus at risk.
Mr Frydenberg again reiterated the government was “absolutely determined” to deliver a surplus. Eventually, however, it may be forced to choose between stimulating the economy and sacrificing its surplus, or delivering the surplus amid lower economic growth. The latter, however, would further contract the economy as the surplus sucks money from the system.
Subdued economic growth will affect the government’s ability to meet its own spending obligations in areas such as defence, health, and infrastructure as a result of lower tax receipts.
Pacific “step-up” to be a focus for PM
Prime Minister Scott Morrison is set to join Pacific Island leaders for talks in Tuvalu this week, with China and climate change likely to be high on the agenda.
Speaking ahead of the Pacific Islands Forum, Fiji’s Attorney-General and Minister for Economy and Climate Change, Aiyaz Sayed-Khaiyum, said the global community’s lack of action on climate change was “grossly irresponsible and selfish”.
Mr Morrison has been pushing for greater Australian engagement with Pacific Island nations as part of his government’s so-called Pacific “step-up”. For Mr Morrison the need for greater engagement is to counter an increasingly proactive China, which is seeking to extend its influence in the Pacific through investments and loans.
But for Pacific Island nations the priority will be the existential threat they face from climate change, with rising seas submerging their territories and increasingly intense storms worsening humanitarian crises. They will no doubt be calling on Australia to do more to combat climate change – something the Coalition government has a poor record on to date.
They will also be seeking greater Australian – and New Zealand – contributions to humanitarian assistance in the face of worsening cyclones in the region, requiring a “step-up” from both nations in terms of military missions to deliver assistance.
Special forces receive A$3bn funding boost
Australia is set to spend A$3 billion over 20 years boosting the capabilities of its special forces, with the government approving the first tranche of A$500 million, to be delivered over the next four years.
Minister for Defence, Linda Reynolds, said the money will fund new combat systems, unmanned vehicles, body armour, weapons, diving technology and communications equipment. It will also provide parachuting systems and combat equipment, medical technology, and human performance training. It will be supplemented by up to 16 special operations support helicopters, which have already been announced for delivery in 2022.
The defence spending is the first stage of LAND 1508-1, Project Greyfin, which comes out of recommendations made in the 2016 Defence White Paper, and is part of the government’s commitment to restore defence spending to 2 per cent of GDP by 2020-21.
The aim is to provide Australia’s special forces with the ability to deploy rapidly and operate anywhere in the region and comes amid increased tensions in the Indo-Pacific.
In announcing the spending, Prime Minister Scott Morrison said: “Global threats will continue to evolve. This funding will ensure our Special Forces have cutting edge capabilities to stay ahead of those who might threaten Australia’s interests.”
Victoria may expand Solar Homes scheme
The Victorian government is planning to revamp its Solar Homes scheme following complaints that it is undermining the industry.
The scheme offers a A$2,225 discount on rooftop solar panels for households earning less than A$180,000 a year, but is capped to a limited number of applications each month. The 3,767-home allocation for August was exhausted within 90 minutes, according to the Smart Energy Council, which represents solar installers.
Companies complain that this causes a surge, followed by a lull, with the stop-start nature of work hurting businesses. It has prompted protests against the scheme and Victorian Premier Daniel Andrews now says he is “happy to look at expanding the number of installations each month, but I will only do that if I can be completely confident that high quality can be observed”.
Australia’s non-history of high-speed rail
The Guardian’s Australian edition has been running an in-depth examination of the country’s long history of going nowhere with high-speed rail.
A high-speed rail link along the country’s east coast has been proposed in various forms for decades and is a staple of election campaign promises. Despite the interest, no plans have ever seen the light of day.
In one feature, The Guardian looked at a proposal – which currently has federal funding for a study – to build a high-speed rail network between Melbourne and Sydney with eight new cities planned along the route. However, according to the report, the plan appears to have gone nowhere.
In another feature, it takes a wider look at the country’s numerous attempts to deliver ambitious high-speed links between its capital cities and considers whether shorter regional routes would be a better way forward for the nation.
Royal commission into suicides needed
Two academics have joined calls for a royal commission into suicide among veterans, saying it is the only form of inquiry that has the capacity to bring together the disparate pieces of information on why veterans take their lives.
Deborah Morris, a military analyst at Griffith University, and Ben Wadham, Associate Professor at Flinders University’s School of Education, argue that a royal commission is necessary to bring attention to the links between veteran suicide and the institutional failures and bureaucratic barriers to helping personnel after they leave the service.
They say their own research finds links between what they describe as “the unyielding bureaucracy” of the Australian Defence Force and Department of Veterans’ Affairs and veteran suicide.
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