CMAX Advisory closely follows political developments internationally and analyses implications for businesses operating in Australia.
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This week's top story
13 January 2020
Bushfires become government’s top priority
The unprecedented fires burning around Australia are dominating the domestic political agenda, as the federal government plays catch-up following its initial handling of the crisis.
The government’s response to the fires has also delivered a political hit, with the latest Newspoll showing the Coalition has suffered a two-point drop in its primary vote to 40 per cent, while the opposition Labor party recovered by three points to 36 per cent. On two-party-preferred basis, Labor is leading the Coalition 51 per cent to 49 per cent.
The poll also found more voters (59 per cent) are dissatisfied with Prime Minister Scott Morrison’s performance, compared to 37 per cent who are satisfied. Opposition Leader Anthony Albanese is now leading Mr Morrison as preferred prime minister — 43 per cent to 39 per cent.
The federal government has turned its full attention to the fire crisis as Mr Morrison attempts to recapture the political initiative. The prime minister has sought to overcome the sharp criticism levelled at him over several missteps in his handling of the crisis, including an ill-timed family holiday to Hawaii, dismissing the fires as a matter for state governments and accusations he was attempting to make political gain from the disaster.
The Australian Defence Force, including up to 3,000 reservists, has been deployed to assist with firefighting efforts as well as evacuations of stranded residents. The government has also set aside A$2 billion in initial funding for reconstruction, and is offering increased welfare payments and tax breaks to affected communities. The budget surplus, once an article of faith for the government, is now negotiable.
The government has prioritised its response to the fires above all else, leaving little bandwidth for other matters. Already-delayed decisions, such as the location of full-cycle docking for the submarine fleet, are unlikely to be at the top of the government’s agenda until later in the year.
Beyond the fire season will be the inevitable inquiry into how the fires were handled and how they can be better managed in future. Whatever form that inquiry takes – a Royal Commission is being considered – it will likely look at how hardware, particularly aircraft, can be used in firefighting and surveillance, as well as the use of integrated communications systems to allow for better coordination of efforts.
Fires to impact economy and budget
The economic impact of the unprecedented fires is still being assessed, but they are almost certainly going to impact growth and the government’s budget priorities.
Moody’s economist Katrina Ell says the economic impact of past fires was usually felt in the communities directly affected by the flames. But she says the scale of the current fires, coupled with the fact that there are still two months of summer to go, mean their impact could well spill over into the wider economy.
Analysts vary in their assessment of the fires’ economic impact, but one thing they all agree on is that growth will suffer. Goldman Sachs expects a 0.3 percentage point hit over the December and January quarters, while AMP is expecting a 0.25 point drop in gross domestic product.
The fires are also having an impact on already subdued consumer confidence, with the latest ANZ-Roy Morgan consumer survey recording a 1.7 per cent drop in confidence since the previous survey in mid-December. ANZ’s head of Australian economics, David Plank, says a drop in confidence at the start of the year is unusual, with consumers typically feeling positive about prospects in the New Year period.
The fires are also happening during peak tourism season in areas that in many cases rely on the summer trade. On a wider scale, the international attention the fires have attracted will likely affect inbound tourism numbers in the short to medium term.
Expectations are rising that the Reserve Bank of Australia will cut interest rates by another 25 basis points next month to 0.5 per cent. Although, with interest rates at already historically low levels, their ability to stimulate economic growth is limited.
Which leads to the budget surplus. Prime Minister Scott Morrison and Treasurer Josh Frydenberg are already signalling that their commitment to a budget surplus this financial year is not as iron-clad as previously announced.
The federal government – stung by the public backlash to its initial poor handling of the fire crisis – has committed $A2 billion in funding to reconstruction efforts, as well as calling up Australian Defence Force personnel and equipment to assist in firefighting and other efforts. That $A2 billion is almost certain to grow as the fire season is far from over.
On the positive side, the government’s willingness to spend will likely help to stimulate economic activity and offset some of the negative economic impacts of the fires.
Defence Force assists in fire crisis
The Australian Defence Force has identified the fire crisis as its main effort, with several thousand full-time and reserve personnel providing direct support.
The ADF has established three joint task forces and appointed a two-star Emergency ADF National Support Coordinator, Major General Justin ‘Jake’ Ellwood, to work in support of state and territory authorities.
The fires have prompted the first compulsory call-up of reservists in Australian history, drawing on 4th, 5th, 9th and 17th brigades to increase the Defence footprint in affected areas.
More than 1,600 reservists attached to the three joint task forces have been deployed in support of Operation Bushfire Assist, with the call out of up to 3,000 reserve personnel occurring over the course of the crisis. They will remain deployed as long as the government deems it necessary.
Among the ADF assistance being provided are rotary-wing support through a combination of MRH-90 Taipan, MH-60R Seahawk and EC-135 helicopters for fire mapping, surveillance, and search and rescue operations.
The Royal Australian Air Force is also providing a flight information service at the Bairnsdale Airport to support local authorities in managing the high volume of air traffic using the airport.
NSW ranked top-performing economy
Economists have named New South Wales as the leader among state economies, saying it enjoys the right mix of policy and strategy.
The Australian Financial Review’s quarterly survey of economists highlighted the state’s ability to beat economy-wide growth with its massive infrastructure investment and tax reforms. NSW has had to invest heavily in infrastructure to meet the needs of a growing population, making it both the most populous and fastest-growing state.
Victoria has also begun a number of significant infrastructure projects, with economists saying both states will benefit from an expected recovery in the housing market.
However, Bank of America Merrill Lynch economist said NSW could be more exposed to slowing consumer spending than Victoria, with the latter having more economic momentum from a combination of stronger population growth, infrastructure spending and a favourable industry mix.
Queensland, meanwhile, is facing lower growth, with its mid-year budget update forecast downgrading growth by half a percentage point to 2.5 per cent and adjusting unemployment to 6.25 per cent from 6 per cent. It is also expecting reduced revenue from a lower coal price and a smaller share of goods and services tax payments from the federal government.
The economic performance of states – as well as the political map – can have implications for federal government spending decisions. It is also worth noting that 2020 is an election year for Queensland, with the Liberal-National opposition hoping to repeat the performance of their federal counterparts, who enjoyed a surge in support during last May’s election in the traditionally Labor state.
More investment in prevention needed
The Australian Medical Association is warning that under-investment in primary care and planning for an ageing population is putting pressure on the already stretched public health system.
AMA President Tony Bartone says public hospitals are feeling the strain of an ageing population that is having more operations and experiencing greater prevalence of chronic disease. He says emergency departments are seeing more patients than ever, with almost a third of them waiting longer than the targeted time for treatment.
The Australian Institute of Health and Welfare reports that 890,000 patients were added to public hospital elective surgery waiting lists during 2018-19, while only 760,000 people were admitted for surgery during the same period. The number of patients undergoing surgery has increased from 698,000 five years ago.
Queensland Health Minister Steven Miles says a shortage of GPs, particularly in rural and remote areas, is adding to the pressure on public hospitals, with patients left with no other option than going to hospital.
His New South Wales counterpart, Brad Hazzard, says the Medicare rebate for GP consultations is too low, prompting thousands of people to use emergency departments. Mr Hazzard says that in regional areas many patients attend hospital because they are unable to access a GP.
Dr Bartone says more needs to be invested in prevention to reduce pressure on the health system in the long term.
“What we’re saying is that if we intervene earlier, if we put more of the health care dollars into prevention, if we put more into primary care, and trying to modify the disease burden into the years ahead, into the decades ahead, we’re going to change that healthcare expenditure curve, we’re going to change the demand,” he said.
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