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Australian Weekly Report

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 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

24 June 2019

More cuts on the cards

Australia’s central bank has flagged further interest rate cuts to support the economy, with the prospect of quantitative easing becoming a realistic option.

The Reserve Bank of Australia (RBA) has released the minutes of its most recent board meeting, where it cut interest rates to a historically low level of 1.25 per cent. In the meeting, board members said further rate cuts were more likely than not.

The central bank also noted the growing trade dispute between the United States and China had “intensified the downside risk posed to the global economic outlook”. Weak global trade poses a problem for Australia’s export-oriented economy, as does a trade war between two of its largest trading partners.

The Australian dollar fell to its lowest level in around a decade after the RBA released its minutes, with investors anticipating further interest rate cuts in the next few months. That will go some way towards helping the economy and exports, with the weaker currency lowering the price of exports.

With rates at a historic low, and the central bank indicating it is ready to cut further, the prospect of quantitative easing — more or less printing money — is being seriously considered as the RBA starts to run out of room to manoeuvre in terms of further cutting rates.

Other news

Gulf tensions ratchet up

Fears of a confrontation between Iran and the United States continue, after Iran’s downing of a RQ-4 Global Hawk and Washington committing about 1,000 more troops to the Middle East for defensive purposes.

The new deployment to the Middle East follows attacks on two oil tankers in the Strait of Hormuz and is in addition to a 1,500-troop increase announced last month in response to earlier tanker attacks in May. It also comes as US President Donald Trump launched his re-election campaign, with the prospect of war a potential boost for his 2020 run.

Iran’s shooting down of the unmanned aerial vehicle led to fears of a quick escalation when it was revealed that Mr Trump ordered, then cancelled, military attacks on Iranian targets.

While Mr Trump has said he will pursue economic sanctions and United Nations Secretary-General Antonio Guterres has said the world cannot afford a major confrontation in the Gulf, analysts warn that should tensions continue to rise, multiple countries — including Australia — could be drawn into a conflict. The Royal Australian Navy has maintained a presence in the region since 1990, with the ANZAC-class frigate HMAS Ballarat currently deployed on Operation Manitou.

NSW goes on spending spree

The New South Wales government is opening the cheque book, announcing a record infrastructure spend of A$93 billion in its latest Budget, but a slump in the housing market and lower-than-expected economic growth have impacted the bottom line.

Most of the spending measures outlined by Treasurer Dominic Perrottet in his 2019-20 Budget had already been announced, with little in the way of new money or funding commitments, suggesting the Government is bracing itself for a weakening economy.

The State’s weak housing market has had a significant impact on the Budget, with a A$10.6 billion fall in stamp duty revenue since 2017, including a further A$232 million write-down over the next four years. That is in addition to an expected A$2.3 billion reduction in GST revenue over the same period.

States are heavily dependent on stamp duties from property sales and GST from the federal government, so a fall in both will have significant impacts on their ability to spend. Despite that, they tend to be in better fiscal shape than the federal government, meaning they are doing a great deal of the heavy lifting on spending to stimulate the economy.

Labor stands by medevac laws

The Opposition has signalled the days of bipartisanship on national security are over, refusing to support Government demands to overturn the so-called “medevac” legislation when parliament resumes next week.

Home Affairs Minister Peter Dutton urged to Opposition to overturn the legislation after a court decision found doctors can remotely assess offshore asylum seekers who apply for medical evacuation to Australia.

Home Affairs argued doctors should have to personally assess asylum seekers, but the Federal Court found an assessment of records was enough to meet the requirements of the medevac law. Mr Dutton says the ruling highlights the need for the law to be repealed.

But Shadow Home Affairs Minister Kristina Keneally says that is not going to happen, adding that the legislation – which Labor passed in conjunction with the crossbench in the previous parliament – provides a way for sick people to get the healthcare they need while ensuring the minister retains the power and discretion to determine who comes into the country.

With Labor refusing to budge, the Government is turning to the Senate crossbench for help, which will complicate its discussions over the progress of its tax package.

Tax cuts in the frame

The Government continues to negotiate the passage of its tax cuts ahead of Parliament’s return next week. Labor leader Anthony Albanese says the Opposition will not give the Government a “blank cheque” to pass the full A$158 billion tax cut plan, while the Government insists it will not split the package and is attempting to wedge the Opposition on the issue, daring them to vote against tax relief for Australian workers.

Meanwhile, Senators from the Centre Alliance are in talks with the Government about ensuring the tax measures are not “unaffordable” if the economy worsens. For her part, One Nation Senator Pauline Hanson wants the Government to implement the so-called “Bradfield Plan” in return for her support. The widely discredited plan involves turning a number of Australia’s rivers inland to irrigate farmland.

The Government will be thankful that the final Senate results show it picked up four Senate seats at the 18 May election, meaning it now only needs to win over four crossbench Senators to pass legislation. In reality, however, it only needs three votes as Cory Bernardi acts as a de facto Coalition Senator.

The Senate is not quite settled, however, as two casual vacancies will be created with the departure of Arthur Sinodinos and Mitch Fifield, who have been assigned to ambassador roles in the United States. Former Army major-general Jim Molan has already put up his hand for one vacancy, after failing to be re-elected in May.

A bright future, maybe

A major study suggests Australia’s future prosperity is at risk unless decision-makers take bold action and commit to long-term thinking.

The Australian National Outlook 2019, developed by the CSIRO over the last two years, explores what Australia must do to secure a future with prosperous and globally competitive industries.

With the right policy settings and commitments, the report’s authors argue that Australia could maintain its world-class, highly liveable cities, while increasing its population to 41 million by 2060. Urban congestion could be reduced and the country could achieve net-zero emissions by 2050.

However, without the bold thinking and policy commitments, the country would follow a path of what the report describes as “Slow Decline”, missing out on the opportunities inherent in addressing the challenges outlined in the study.

Pharmacy rules in the spotlight

Australia’s complex pharmacy laws are making headlines, with claims the restrictive rules mean Australians are paying more than they should for medicines and rural residents are being forced to drive hundreds of kilometres to fill prescriptions.

Introduced in the 1990s, Australia’s complex rules regarding pharmacies effectively shield owners from competition. But Jennifer Doggett, CMAX Advisory Senior Consultant and chair of the Australian Health Care Reform Alliance, told the Australian Broadcasting Corporation that there is “good evidence” the restrictions mean people pay more for medicines.

Another report claims that patients in rural areas are paying three times more than city residents for medicines because of the restrictions, with some families forced to drive 100 kilometres to have prescriptions filled at a discount chemist to save more than A$1,000 a year on prescription medicines.

Renewables investment hits A$10bn

Australia is the world’s fifth-largest investor in renewable energy projects, spending almost A$10 billion, and has the second-highest use of solar-generated electricity per person, according to a recent report. The UN-backed report by the REN21 think tank also said that Australia surpassed 20 per cent of total electricity production from renewables for the first time, and highlighted the role of government programmes in in encouraging the take-up of household solar and storage systems.

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