CMAX Advisory closely follows political developments internationally and analyses implications for businesses operating in Australia.
We develop a weekly report of the most important political and economic news in Australia, utilising our understanding of complex political issues and processes to inform companies of relevant developments and forecast likely outcomes.
This week's top story
Government to delay budget repair
Federal Treasurer Josh Frydenberg has said the 11 May budget will not pivot towards austerity, adding that the government will instead focus on ensuring the economic recovery continues.
Mr Frydenberg said the government’s strategy will remain on supporting the transitioning economy before any focus on budget repair, saying “we remain firmly in the first phase of our economic and fiscal strategy”.
That will mean a continuation of government spending to support the economy, which to date has amounted to more than A$500 billion, leading to an estimated budget deficit this year of A$213.7 billion.
Prior to last October’s budget, Mr Frydenberg had said the government would pivot towards budget repair once the unemployment rate was “comfortably below” 6 per cent, which he defined as between 5.5 per cent and 5.25 per cent.
However, Mr Frydenberg said that based on new Treasury estimates, the necessary unemployment rate to see inflation and wages accelerate had fallen to between 4.5 per cent and 5 per cent. “In effect, both the RBA [Reserve Bank of Australia] and Treasury’s best estimate is that the unemployment rate will now need to have a four in front of it to deliver this outcome,” he said.
With an election due in the first half of next year, commentators note that pivoting towards budget repair in an effort to demonstrate “good economic management” would have been politically risky. Instead, the government will now provide further fiscal stimulus in a targeted manner.
“Private sector growth is the essential ingredient in maintaining a strong economy and a sustainable fiscal position over the longer term, you can’t have one without the other,” Mr Frydenberg said.
Shadow Treasurer Jim Chalmers said it would be the federal government’s delivery that mattered, not its announcements. “It’s remarkable that the Treasurer has had to publicly rule out austerity measures. Austerity should never have been on the table in the first place,” he said.
Vaccine rollout faces resistance
New South Wales Premier Gladys Berejiklian has said the state is aiming to have vaccinated 6 million people by the end of the year, although that target will depend on the supply of vaccines. The premier added that the state’s Homebush mass vaccination centre would be operational from 10 May.
Ms Berejiklian’s announcement comes as a survey revealed that less than half of people aged over 50 are willing to get the AstraZeneca vaccine, despite it being recommended by health officials.
The latest Guardian Essential poll found confidence in Australia’s vaccine rollout is waning, with 16 per cent of respondents now saying they would opt for no vaccination at all (up from 12 per cent six weeks ago) and one in six people now described as “vaccine hesitant”.
Changed health advice relating to the AstraZeneca vaccine due to a rare but serious blood clot condition has led to a preference for the Pfizer mRNA vaccine across all age groups, which the government has said will be restricted to the under-50s as part of a “reset” of the rollout.
Part of the reset will also see residents of disability care homes with complex needs receiving the Pfizer vaccine, as will whole-of-community Aboriginal and Torres Strait Islander programs.
PM announces NT defence upgrades
The federal government has announced a A$747 million investment to upgrade Australian Defence Force (ADF) training bases in the Northern Territory.
Prime Minister Scott Morrison said the funding will go towards the Robertson Barracks Close Training Area, Kangaroo Flats Training Area, Mount Bundey Training Area and Bradshaw Field Training Area.
The federal government said the upgrades would support greater involvement with the US and other allies to conduct war gaming exercises at the four bases and was part of the A$8 billion fund dedicated to defence infrastructure in the Northern Territory over the next decade.
The upgrades will also increase the opportunity for joint training with US military forces under the Force Posture Agreement, which delivers the US a military presence in the Indo-Pacific region via military bases in Australia’s north.
“Working with the United States, our allies and Indo-Pacific neighbours, we will continue to advance Australia’s interests by investing in the Australian ¬Defence Force, particularly across Northern Australia,” Mr Morrison said.
However, the opposition Labor Party said the announcement was a repeat of a project that had been announced two years ago and was now over budget.
“AusTender documents reveal that the prime minister’s ‘announcement’ today is for upgrades confirmed two years ago in a closed tender. The funding disclosed today (A$747 million) is up to A$447 million above the tender estimates, continuing a trend of delays and blowouts on major procurements such as Future Submarines (A$40 billion blowout) and Future Frigates (A$10 billion blowout),” Shadow Defence Minister Brendan O’Connor said.
Defence to review Darwin Port deal
The Department of Defence will review the Northern Territory’s 99-year-lease of the Port of Darwin to Chinese-owned company Landbridge.
Defence Minister Peter Dutton said the National Security Committee of Cabinet had tasked Defence to “come back with some advice”. Officials will examine whether the company should be forced to give up its ownership of the port on national security grounds under critical infrastructure laws passed in 2018.
Last week, former Prime Minister Kevin Rudd had called on the federal government to examine whether the lease is justified on national security grounds. He said the public had a right to know if Landbridge’s A$506 million deal with the Northern Territory government to gain control of the facility was in the public interest.
“The federal government [should] produce a cost-benefit analysis on national security terms as would justify the retention of the existing lease arrangements so that the Northern Territory public, the Darwin public and the Australian public can have a basis for analysing what decision should now be taken,” Mr Rudd said.
Mr Rudd’s comments come amid an ongoing debate about Chinese influence in the Australian economy, and follow a federal government decision to cancel a number of agreements between the state of Victoria and China.
The former Labor leader also suggested that Prime Minister Scott Morrison would “seek to scupper the lease”, since the controversial agreement was “hurting his government politically”.
Defence Minister Peter Dutton has said if the deal was considered to be contrary to the national interest, then Foreign Minister Marise Payne would act. Senator Payne is reviewing more than 1,000 China-related deals, including the 99-year lease on the Port of Darwin.
In March, the Joint Standing Committee on Trade and Investment Growth suggested the federal government provide a report on whether the port lease should be subject to Australia’s new Foreign Relations Act.
India Covid-19 outbreak a test for the Quad
India’s Covid-19 outbreak has turned into an early test of intent for the Quad security grouping, with Australia, the US and Japan looking to assist their South Asian partner.
India’s latest outbreak of Covid-19 has seen the country set, and break, infection records, with daily cases in excess of 300,000 and deaths in the thousands. With hospitals running out of oxygen and authorities struggling to produce enough vaccines, other nations are now sending aid.
Australia has initially pledged to send 500 ventilators, 1 million surgical masks, 500,000 P2 masks, 100,000 surgical gowns, 100,000 pairs of goggles, 100,000 pairs of gloves, 20,000 face shields and 100 oxygen concentrators. The US will also send ventilators and personal protective equipment, as well as the raw materials that would allow India to manufacture the AstraZeneca vaccine on its own.
Amid the ongoing outbreak, Indian Prime Minister Narendra Modi and his Japanese counterpart Yoshihide Suga discussed cooperation in key areas, including creating resilient supply chains and ensuring reliable supply of critical materials.
Japan had earlier provided a Y50 billion loan to implement health and medical policies and develop hospitals equipped with ICUs and infection prevention and management facilities, and a grant of a billion yen to provide oxygen generators to treat Covid-19 patients.
Meanwhile, Australia has halted all flights from India in an effort to give the local hotel quarantine system time to prepare for an influx of infected arrival. The decision has left up to 9,000 Australian citizens and residents stranded in India until flights resume later in May.
“This will give some breathing space to the NSW arrangements and allow people from other countries to come back,” said Prime Minister Scott Morrison.
The situation follows the intent outlined at the Quad’s March summit, where leaders outlined plans to tap the group’s medical and manufacturing capabilities to boost vaccine production and distribution, mostly for other Asian and Pacific island countries.
However, analysts note that the efforts of Australia, the US and Japan to assist India is a test of the intent articulated by India’s Foreign Secretary, Harsh Vardhan Shringla, who said the “Quad does not stand against anything, it stands for something”.
China reacts to talk of war
China has said adherence to its “One China” policy is a prerequisite for the development of relations between Beijing and Canberra.
The message from China’s foreign ministry follows comments by new Defence Minister Peter Dutton that conflict with China over Taiwan should not be discounted, and that people should be realistic about Chinese activity in the region such as growing militarisation.
Mr Dutton said Beijing was clear about its intentions.
“I think China has been very clear about the reunification. If you look at any of the rhetoric that’s coming out of China particularly in recent weeks and months in response to different suggestions that have been made, they’ve been very clear about that goal,” Mr Dutton said.
In response, Chinese foreign ministry spokesperson Wang Wenbin said China sought peaceful reunification with Taiwan and said Australia needed to understand the sensitivity of the Taiwan issue.
“We hope that Australia will fully understand the high sensitivity of the Taiwan issue, adhere to the One China principle, be cautious in its words and actions, refrain from sending any wrong signals to the secessionist forces of Taiwan independence,” Mr Wang said.
The comments also came as Home Affairs Secretary Mike Pezzullo said that while the world must “search unceasingly for the chance for peace”, it would be folly to wish away war by refusing to give it any thought.
In a message to staff, Mr Pezzullo, one of the country’s most experienced senior public servants, said that “in a world of perpetual tension and dread, the drums of war beat – sometimes faintly and distantly, and at other times more loudly and ever closer”.
Although the address did not name China, it was widely seen as aimed at Beijing, and a message that the Home Affairs Secretary was positioning himself to follow Mr Dutton to the Defence portfolio.
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