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
France backs Australia in China standoff
Australia’s list of backers in its ongoing trade and diplomatic standoff with China continues to grow, with French President Emmanuel Macron signalling France will take on a more assertive role in the Indo-Pacific, and UK Prime Minister Boris Johnson saying the country was “shoulder to shoulder” with Australia.
China has imposed tariffs and other trade barriers on a number of Australian exports, such as wine, barley and beef in response to – among other things – Australia’s push for an investigation into the origins of Covid-19, and the banning of Chinese telco Huawei from the rollout of the country’s 5G network.
The moves have been seen as Beijing’s attempt to warn other middle powers of the consequences of defying China, although the impact has been to bring nations closer together to balance China’s rise. The development of the Quadrilateral Security Dialogue of Australia, India, Japan and the US into a more defined regional group has been followed by the Group of Seven’s recent communique backing Australia’s push for a rules-based international order and denouncing economic coercion.
While President Macron did not mention China specifically as he welcomed Australian Prime Minister Scott Morrison to the Elysée Palace in Paris, his comments were widely interpreted as being directed at Beijing.
“I know how much you are at the forefront of the tensions that may exist in the region, of threats, sometimes of intimidation. I would like to reiterate here how much we stand by your side,” he told Mr Morrison.
The French president’s comments follow Mr Johnson’s statement of support during a press conference with Mr Morrison in London. “We stand shoulder to shoulder with our friends. Where there are difficulties, which there evidently are, it’s vital that allies, the UK, Australia, work together.”
The French and British leaders’ comments join similar sentiments from Japan, which issued a joint communique with Australia following a recent meeting between defence and foreign ministers. The communique said the two nations “are drawn ever closer by our shared strategic interests in the security, stability and prosperity of the Indo-Pacific and beyond”.
Earlier this year, the US backed Australia’s stance on China, with President Joe Biden’s Indo-Pacific co-ordinator, Kurt Campbell, saying the US was not prepared to improve relations with China while “a close and dear ally is being subjected to a form of economic coercion”.
Barnaby Joyce elected deputy PM
Deputy Prime Minister Michael McCormack has lost the National Party leadership to former leader Barnaby Joyce. The Nationals held a party room meeting, where a vote to spill the leadership could be brought on. Mr Joyce had downplayed that possibility ahead of the meeting, telling media there was “no prospect of a spill at this time”.
Mr Joyce’s last attempt to unseat Mr McCormack in February 2020 ended in failure.
When Mr Joyce was last leader in 2016, the Nationals held all their seats in that year’s election, with Mr Joyce’s strong personal brand credited with the much of the result. Commentators suggest that the Nationals were looking for a proven performer ahead of the looming election.
The Nationals are also looking for a leader who will push back over any moves the Liberal Party might make on committing Australia to a net zero 2050 emissions target, which they fear may affect votes in coal-mining regional areas.
The shape of a new federal cabinet will be determined in the coming days.
Australia-UK agree on free trade deal
Australia and the United Kingdom have signed an in-principle free-trade agreement that strengthens Australia’s access to the world’s fifth-largest economy and underscores the UK’s increasing focus on the Indo-Pacific.
While the deal – which now goes to officials and negotiators for a final agreement – is largely focussed on the agricultural sector, the mutual recognition of qualifications is expected to boost the movement of professionals between the two countries.
“It will make it easier for British people and young people to go and work in Australia, without having the traditional compulsion of having to go and work on a farm for 80 days, which used to be the rule,” British Prime Minister Boris Johnson said at a joint press conference with Australian Prime Minister Scott Morrison.
Mr Morrison said the pair also discussed the mental health of young people. “In Australia, we have an extraordinary program that supports young people with mental health and we’re very keen to work with the UK government to share that experience, and working together to deal with large multinational media platforms as well,” he said.
The trade deal reinforces the increasingly close relationship between Australia and the UK, with the two nations developing a network of policy exchange and political support, as well as close military and intelligence ties.
That is further reflected in Australia’s championing of the UK’s push to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the 11-nation Pacific Rim group that includes Australia.
Vaccine rollout faces further delays
Australia’s Covid-19 vaccination rollout is likely to be further delayed, with the federal government’s vaccine advisory body recommending the AstraZeneca vaccine should now only be given to those aged 60 or over, with everyone else to receive the Pfizer vaccine.
The previous advice had been for the AstraZeneca vaccine to be given to those aged 50 and over, but the Australian Technical Advisory Group on Immunisation (ATAGI) revised its advice “due to a higher risk and observed severity of thrombosis and thrombocytopenia syndrome related to the use of AstraZeneca Covid-19 vaccine”.
With the country increasingly relying on the Pfizer vaccine, the widening of the cohort to be administered the vaccine will put further pressure on already stressed supplies. The Victorian government has said the state will not be able to maintain its high rate of Covid-19 vaccinations unless the federal government guarantees better Pfizer supply, with a recent Covid-19 outbreak in Melbourne leading to a jump in demand for vaccinations.
“Victorians have turned out in their thousands to get vaccinated, but we can’t maintain this rate without certainty about supply from the Commonwealth,” said Victoria’s acting Premier, James Merlino.
Federal Health Minister Greg Hunt said the government was working with Pfizer to secure more doses. “I have spoken with the country head of Pfizer … and reaffirmed that in fact, as the general and myself have set out, we will have access to 2.8 million doses during the course of July, which is in excess of what we had previously indicated. So that is positive,” he said.
Mr Hunt also said the government had “high faith” that Moderna’s vaccine would arrive during the course of the year. The rollout will be further boosted by expected supplies of Novavax, which has been found to have more than 90 per cent efficacy, paving the way for its approval in the US and elsewhere in the world during the third quarter of 2021.
Job data shows unemployment falling
Australia’s unemployment rate fell to 5.1 per cent in May, the seventh month in a row it has improved, and is now back to where it was in February 2020, indicating the economic recovery is gaining momentum and increasingly being led by the private sector.
According to data from the Australian Bureau of Statistics, the jobless rate was down 0.4 percentage points from 5.5 per cent in April, with fulltime employment increasing by 97,500 to almost 9 million and part-time employment increasing 17,700 to 4.1 million.
The improving economic conditions make it less likely the federal government will proactively support initiatives to protect or grow jobs. It also moves the economy closer to Treasurer Josh Fydenberg’s goal of unemployment “with a 4 in front of it”, the point at which the government will look towards budget repair.
“What these numbers should do is give Australians confidence that there is light at the end of the tunnel,” said Treasurer Josh Frydenberg, who added that the challenge now would be training workers to take on available jobs, particularly with Australia’s border closed for now.
“While we will start taking in cohorts of international students who meet certain criteria … skilled migrants are a harder proposition as long as those international borders are closed,” Mr Frydenberg said.
While the recovery in jobs has been strong, Reserve Bank of Australia (RBA) Governor Philip Lowe said it has also been uneven, with people unable to find work even though companies were reporting difficulties hiring staff.
Despite the slew of positive economic data in recent months, Dr Lowe said the RBA had not seen any real movement in wages or inflation, which was a result of companies focussing on cutting costs, or delaying hiring staff until borders reopen.
Borders need to open to get workers back
Prime Minister Scott Morrison has said Australia needs to reopen its borders to help with labour shortages in various sectors, but the process will not happen quickly.
“It isn’t one decision. It isn’t closed one day, open the next. I mean, the challenge, the next challenge we have, in addition to getting Australians home, is our workforce needs … we know the challenges [facing] our agriculture sector, but not just our agricultural sector, our defence industry sector, our infrastructure sector,” said Mr Morrison.
Australia closed its border in March 2020 in response to the pandemic, however more than 140,000 citizens and residents have travelled overseas for various exempted reasons since then. Anyone coming into the country faces two weeks of mandatory hotel quarantine on arrival.
The border closure has affected the supply of labour for various industries that have typically relied on temporary visa-holders, as well as the country’s university sector, which is heavily dependent on international students. Technical experts have also been prevented from entering the country, limiting their ability to work on projects.
New South Wales is trialling a scheme to bring international students back into the country, at an initial rate of 250 a fortnight, a move Mr Morrison said could provide a model for the country to follow.
“We’ve got to find practical ways to solve those problems over the next 12 months. And that’s what other countries are trying to do. So, whether it’s that, or whether it’s the student pilots we’re doing, it’s the gradual process of opening things up safely, but also in a way that is targeted on the things that will give us the biggest benefit for our economy in doing so,” Mr Morrison said.
One option being considered is a “traffic light” system dividing the world into green, amber and red zones. New Zealand is the only country currently considered “green”, although Singapore could follow after talks between Mr Morrison and his Singapore counterpart, Lee Hsien Loong.
“That is a common discussion amongst the leaders and even discussions I’ve had these last few days, even with countries that are have much more open borders because the virus is riddled through their countries, they will still be making those choices of green countries and red countries and amber countries across Europe,” Mr Morrison said.
Earlier in June, Health Minister Greg Hunt revealed a proposal to allow Australians who had been vaccinated to leave the country and return with less strict quarantine requirements under a plan that could be trialled in July.
Queensland budget keeps focus on health
Queensland Treasurer Cameron Dick has handed down the state government’s 2021-22 budget, with a focus on health, education, skills and infrastructure. It has also committed to growing the state’s renewable and clean energy sector with a A$2 billion investment.
Queensland’s domestic economy has recovered from the pandemic-induced contraction, with business and consumer confidence at elevated levels. Reflecting the improved domestic conditions, gross state product (GSP) is forecast to rebound 3.25 per cent in 2020-21, significantly stronger than the .25 per cent growth expected at the time of the 2020-21 budget. Growth of 2.75 per cent is forecast for 2021-22 and across the forward estimates.
However, Australia’s worsening trade relationship with China has had an impact on coal royalties, which are down more than 50 per cent this financial year. The government has also identified issues related to the global vaccine rollout as a risk to the state’s economy.
The treasurer said the budgetary improvement would help Queensland deliver an estimated surplus of A$153 million in 2024-25; this follows a predicted budget deficit of A$3.8 billion this financial year, down from the A$8.6 billion estimated last December.
The government sees the ongoing recovery from Covid-19 as its highest priority, with the health response underpinning the state’s economic recovery. In the wake of the economic disruption caused by the pandemic – and the ongoing impact on the tourism and education sectors – the government is looking to improve Queensland’s productive capacity and competitiveness to support jobs and economic growth.
The state government has also established a A$2 billion Queensland Renewable Energy and Hydrogen Jobs Fund, which expands on the previous A$500 million Renewable Energy Fund. The fund will enable investments by Queensland government-owned energy businesses in commercial renewable energy and hydrogen projects, as well as the supporting infrastructure, and assist Queensland to achieve its 50 per cent renewable energy target by 2030.
Energy changes could be “illegal”
The federal government has been told its plan to let the Australian Renewable Energy Agency (ARENA) fund a broader range of technologies, including some using fossil fuels, could be illegal.
The Liberal Party-led Standing Committee for the Scrutiny of Delegated Legislation has written Energy Minister Angus Taylor to say his proposal to change ARENA’s remit without legislation goes beyond what the parliament envisaged when it creates the agency.
Mr Taylor wants to use regulation – rather than new legislation – to let ARENA fund programs such as carbon capture and storage and hydrogen made using natural gas. Labor and the Greens oppose the move, saying it could be illegal and give Mr Taylor the power to declare which technologies qualify as low emissions and could receive ARENA support.
The committee’s chair, Liberal Senator Concetta Fierravanti-Wells, said in the letter there was nothing in the bill’s explanatory memorandum “to suggest that it was contemplated that the ARENA would have the ability to foster anything other than renewable energy technologies”.
The letter asked Mr Taylor to explain why he thought it necessary to use regulation, rather than a bill before parliament, to extend the remit of ARENA, giving the minister until 1 July to respond.
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