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
AUKUS prompts worries over sovereignty
The federal opposition has called on the government to deliver a roadmap for Australian industry after it cancelled the A$90 billion submarine contract with Naval Group Australia in favour of nuclear-powered boats from the US or UK.
The Shadow Minister for Defence Industry, Matt Keogh, said the “rug has been pulled out from under the small and medium businesses in the Australian defence industry supply chain who were already working or were gearing up for work on the Attack Class submarines”.
Mr Keogh said Labor supports the AUKUS partnership and the decision to acquire a nuclear-powered submarine fleet, but the country’s defence industry needs guidance from the government on how it can transition to the new program.
Analysts also note that the surprise cancellation of a high-profile, A$90 billion program puts all other acquisitions on notice, with a precedent now set for ending programs despite the sunk costs. It also provides the opposition Labor Party with the cover the cancel programs should it gain government at the next election.
It comes as questions are raised over the detail of the new arrangement, including the level of local industry involvement. The Future Submarine program initially promised a 90 per cent Australian industry contribution, which then dropped to 80 and then 60 per cent.
“Speculation that now only 40 per cent of the new submarine project will be required to be Australian content means the Morrison-Joyce government must also explain how this new project will create and build sovereign industry capability in Australia, through work for local businesses and securing local jobs,” Mr Keogh said.
Other unknowns include the design of the boats, which could be a US or UK model, although there is speculation that they will be powered by the type of reactor in the US Virginia class submarines.
It is also unclear what the new program will cost, and when the boats will be in the water. There will be an 18-month study to work out the details of the program, with estimates that it will then be a decade before the boats are operational.
Meanwhile, the Department of Defence has announced that Vice Admiral Jonathan Mead will become Chief of the Nuclear Powered Submarine Task Force as part of a range of appointments to implement the new program.
Commodore Matthew Buckley has been promoted to Rear Admiral and becomes Head of Nuclear Powered Submarine Capability, while Megan Lees will transfer from her role as Deputy Commander Defence Covid-19 Task Force to become First Assistant Secretary Nuclear Powered Submarine Task Force Executive.
Two Nuclear Powered Submarine Task Force Liaison Officer positions have been created, with Commodore Mathew Hudson selected for the US-based position, while Commodore Guy Holthouse will fill the role in the UK. Also in the UK, Cameron Heath will establish the position of Minister-Counsellor in London.
OECD warns of risks to economic recovery
The Organisation for Economic Co-operation and Development has warned that Australia is at risk of a slower economic recovery when community transmission of Covid-19 is higher.
The OECD’s 2021 Economic Survey of Australia found the country had weathered the economic downturn from Covid-19 better than most developed countries, but said risks and uncertainties “remain large”. It said there was the possibility of a rapid recovery if household savings were spent, although Covid-19 outbreaks in virus-free states posed a downside risk.
It came as the Governor of the Reserve Bank of Australia, Philip Lowe, said the Delta outbreak in New South Wales and Victoria had delayed the economic recovery. However, Dr Lowe added that the recovery had not been derailed by the outbreak, and the central bank saw a clear path out of the current difficulties and “it is likely that we will return to a stronger economy next year”.
“The exact magnitude of the economic contraction in the September quarter remains to be determined, but it is likely to be at least 2 per cent, and possibly significantly larger than this,” he said.
Dr Lowe said the RBA expected the economy to be growing again in the December quarter, with the recovery continuing into 2022. The key drivers would be the increasing rate of vaccination and the easing of restrictions on economic activity.
The OECD, meanwhile, projected annual output growth of 4 per cent in 2021 and 3.3 per cent in 2022, despite a certain contraction in the third quarter of 2021.
The OECD noted that over the longer-term, spending pressures will grow, with ageing-related costs causing public debt to rise through to 2060. It called for Australia to bolster the recovery through less conventional monetary policy, raising unemployment benefits and greater cuts to greenhouse gas emissions.
Treasurer Josh Frydenberg said the report confirmed the government had delivered a well-coordinated response to the pandemic, including the spending measures aimed at keeping people in their jobs. However, Shadow Treasurer Jim Chalmers said the report highlighted that “the recovery is hostage to the government’s failures on vaccines”.
Christian Porter steps down as minister
Christian Porter has tendered his resignation as Minister for Industry, Innovation and Science, following revelations he took A$1 million in unidentified funds to help support his discontinued legal action against the Australian Broadcasting Corporation.
Mr Porter has revealed in an update to his register of interests that “a blind trust known as the Legal Services Trust” paid part of the fees for his defamation case against the ABC. Prime Minister Scott Morrison said Mr Porter’s actions failed to meet a conflict of interest threshold because the source of those funds could not be disclosed.
The controversy puts an end to Mr Porter’s short-lived tenure as industry minister, with Mr Morrison now having to reshape his ministry. In the past, the prime minister has opted for a minimalist approach to reshuffles and avoided large-scale changes, suggesting he may do the same in this instance.
It has also prompted speculation that Mr Porter may not re-contest his seat of Pearce in Western Australia, which is likely to be a key target of both the Coalition and Labor in the upcoming election. It comes as the latest Newspoll showed the Labor Party keeping its two-party preferred lead over the Coalition of 53 per cent to 47 per cent. However, Mr Morrison remains ahead of Opposition Leader Anthony Albanese as preferred prime minister.
Elsewhere in WA, the Minister for Defence Industry, Melissa Price, will face a preselection challenge in her West Australian seat of Durack from local councillor Jo Barrett-Lennard.
With nominations for Liberal-held seats in WA having closed, it has also been confirmed that the member for Stirling, Vince Connelly, will run for preselection against his sitting colleague Ian Goodenough in Moore. Mr Connelly’s seat of Stirling is to be abolished under a redistribution of boundaries.
Mr Connelly’s move comes despite Mr Morrison requesting the Army veteran run in the neighbouring electorate of Cowan against Labor’s Anne Aly. The contest has been described as a “bitter internal civil war”, and Mr Goodenough faced an internal challenge for his preselection during the last election and had to be saved by the State Council.
In the seat of Swan, which the Liberal Party holds by 3.2 per cent, media commentator Kristy McSweeney is challenging veteran MP Steve Irons for pre-selection. Given the small margin, the seat is a Labor Party target, with the party nominating Zaneta Mascarenhas, who heads the WA team for Energetics, a carbon and energy management consultancy.
The Labor Party will be looking to ride a wave of discontent with Coalition efforts to have the state open its border to the rest of the country amid the pandemic. It will also be hoping to replicate some of the state Labor Party’s success in the March 2021 election, where it won 53 out of 59 of the seats in the lower house, reducing the Liberal Party to just two seats.
Warnings of significant cyber threats
The Australian Cyber Security Centre (ACSC) has warned of significant targeting of critical infrastructure and essential services, including healthcare, food distribution and energy.
In its Annual Cyber Threat Report, the ACSC says a quarter of cyber incidents reported to security officials over the past year targeted critical infrastructure and essential services, which underscores “the vulnerability of critical infrastructure to significant disruption in essential services, lost revenue and the potential of harm or loss of life”.
It said a large number of the attacks were carried out either by state-based actors or by criminals. “No sector of the Australian economy was immune from the impacts of cyber crime and other malicious activity,” the report said.
The ACSC report notes that there were 14 cases in 2020-21 where federal government entities or nationally significant infrastructure suffered the removal or damage of sensitive data or intellectual property. It added that unnamed foreign governments had targeted the country’s health sector seeking “access to intellectual property or sensitive information about Australia’s response to Covid”.
“State and criminal cyber actors alike possess the capability to disrupt Australia’s critical infrastructure —including vaccine supply and distribution chains — with the pandemic only amplifying the opportunities for these actors to cause Australia harm,” the report said.
Among the report’s case studies of incidents was a ransomware attack on a Victorian public health service that affected four hospitals and aged care facilities, resulting in the postponing of elective surgeries.
Vaccine rollout boosted by Moderna arrival
Lieutenant-General John Frewen, the head of the national Covid-19 vaccine rollout, has said every eligible Australian will be offered a vaccine by the middle of next month.
Lieutenant-General Frewen said access will be available for both Pfizer and Moderna vaccines from this week, with Moderna coming through the pharmacy network. “We have the supply, we think we’ve got the distribution network, now it really comes down to people stepping forward, getting booked in and getting vaccinated,” he said.
Supplies of Moderna began arriving in the country late last week, with a million doses delivered over the weekend. It comes as the country passed the 70 per cent first dose mark nationally, along with 97 per cent of aged care staff having had their first Pfizer vaccine by the deadline.
Despite that landmark, Lieutenant-General Frewen said there was no guarantee the country would reach the 80 per cent fully vaccinated mark this year, with international experience showing that getting from 70 per cent to 80 per cent was difficult. “On the current projections, it is possible to get to 80 per cent this year, but the variable here is people and people’s preparedness to get vaccinated,” Lieutenant-General Frewen said. “Watching overseas experience, getting from 70 to 80 is hard work. So, I’m not going to, you know, be sort of complacent or count those chickens just yet,” he added.
Meanwhile, a new review in The Lancet suggests there is not enough evidence to plan widespread booster shots, saying efficacy against severe disease is so high that further doses “are not appropriate” for now, even with the emergence of the more infectious Delta strain.
The review authors acknowledge that a booster shot might work for people who are immunocompromised. However, as well as arguing there is not enough reliable data to confirm the efficacy of boosters, they suggest there is not yet enough evidence to provide reassurance about potential side effects from extra doses.
In an effort to expand the vaccine rollout, businesses are now able to work with providers to administer vaccines to staff at their workplace.
Push to develop hydrogen hubs
The federal government is providing an additional A$150 million to increase the number of “hydrogen hubs” developed across regional Australia to seven under its A$1.2 billion hydrogen energy push.
Darwin, Bell Bay in Tasmania, Eyre Peninsula in South Australia, Gladstone in Queensland, Victoria’s Latrobe Valley, the Hunter Valley in NSW and Western Australia’s Pilbara have all been identified as sites.
The announcement comes ahead of Prime Minister Scott Morrison’s trip to the US, where he is expected face pressure from US President Joe Biden for Australia to do more to combat climate change.
It comes as the government faces criticism from the opposition Labor Party over what it says is the government’s lack of ambition on clean energy. Labor’s Shadow Minister for Climate and Energy, Chris Bowen said this means Australia is at risk of falling behind in the global hydrogen race.
Mr Bowen added that a failure to set medium and long term emissions reduction targets could squander a future economic “boon” for Australia. “Around the world, countries have now accepted the urgent need to decarbonise their economies,” Mr Bowen said.
“They are finally tackling the scientific and economic barriers to hydrogen — because they now have an existential imperative to do so. And carbon-intensive exporters have a second imperative: to diversify their offerings in the midst of the greatest economic transformation since the Industrial Revolution.”
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