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
Worst far from over for economy
Federal Treasurer Josh Frydenberg has said increased restrictions on Victorian businesses will have a “very significant” impact on the national economy, while Treasury Secretary Steven Kennedy said the economic shock from coronavirus is “far from over”.
Their comments come as Victorian Premier Daniel Andrews announced tougher lockdown measures in the state’s capital, Melbourne, in an effort to control a growing outbreak of coronavirus. These include a nighttime curfew and the closure of certain industries. Victoria is the country’s second-largest state, both by population and economic output, and contributes about a quarter of gross domestic product.
The tougher restrictions will inevitably impact Treasury’s economic forecasts and the government’s spending measures. In its recent economic and fiscal update, Treasury forecast that unemployment would peak at 9.25 per cent by the end of the year and the economy would contract 2.5 per cent in the 12 months to 30 June 2021.
“Even since we put this update to government, things have deteriorated in a major state,” Dr Kennedy told the Select Committee on Covid-19.
“Further constraints, be they through [people] movement or through the extension of the six-week measures that the Victorian government announced, will mean growth will be lower, employment will be lower and unemployment will be higher,” he said.
Mr Frydenberg echoed those sentiments, saying the impact on the national economy would be “very significant”, with forecasts not taking into account the tighter restrictions in Victoria. “That wasn’t based on stage four restrictions, nor was it based on restrictions being across the whole state,” he said.
The Treasurer also signalled the federal government would be looking at implementing some form of pandemic leave for workers in an effort to prevent people going to work when they are sick because they do not have sick leave banked. The government will also be looking at amending JobKeeper eligibility for Victorian businesses given the harsher lockdowns in the state.
The country’s internal borders should have been open by now under an agreement reached by National Cabinet in May. However, Prime Minister Scott Morrison said it would now be at least a month before reopening the economy and removing restrictions could be contemplated.
Australia-US sign defence deal
Australia’s Foreign Minister Marise Payne and Defence Minister Linda Reynolds have travelled to United States for the annual AUSMIN talks.
The two countries have signed a classified 10-year agreement on defence co-operation aimed at deterring “coercive acts and the use of force” in the Indo-Pacific. It opens the way for a greater US military presence in Australia, including establishing a strategic fuel reserve in Darwin and carrying out sustainment on US military hardware.
The two countries will establish a bilateral Force Posture Working Group tasked with advancing force posture cooperation in the Indo-Pacific to promote stability and deter coercive acts and the use of force. They have also committed to “increased and regularised” maritime co-operation in the South China Sea and Indian Ocean, including military exercises.
They re-affirmed that Beijing’s maritime claims in the South China Sea are not valid under international law and welcomed the recent ASEAN Leaders’ statement that a South China Sea Code of Conduct should be consistent with the United Nations Convention on the Law of the Sea.
However, Australia declined a request from US Secretary of State Mike Pompeo to sail Australian warships into China’s self-declared 12 nautical miles of national waters around its illegal bases in the region.
In the Pacific, which is facing an economic crisis as a result of the coronavirus pandemic, the two allies committed to supporting the region’s economic stability and recovery, including through advice and budget support for Pacific Island countries and high-quality infrastructure investment.
They also welcomed the continued development of a US-Australia Critical Minerals Plan of Action to improve the security of critical minerals in the US and Australia and plan to progress options to support new investment in the sector to diversify supply chains.
In response to the talks, the Chinese embassy in Australia issued a statement rejecting what it described as “unfounded accusations and attacks” over Hong Kong, the treatment of Uighurs and the South China Sea.
“We urge Australia not to go further on the road of harming China-Australia relations, and truly proceeding from its own interests, do more things that are conducive to mutual trust and cooperation between the two countries,” the statement said.
State borders likely to stay shut
According to the roadmap agreed to by National Cabinet back in May, Australia was meant to be open for business by now, including its internal borders. There was even talk of a trans-Tasman travel “bubble” with New Zealand.
Then an outbreak of coronavirus in Victoria, with hundreds of new cases reported daily, led the New South Wales Premier, Gladys Berejiklian, to close her state’s border with its southern neighbour, even though she had criticised other state leaders for their border closures.
Despite the hard border, outbreaks of the virus have occurred across the NSW capital, Sydney, which prompted Queensland Premier Annastacia Palaszczuk to declare all of greater Sydney a Covid-19 hotspot, effectively barring some 5 million people from entering her state. Even the Australian Capital Territory, which is surrounded by NSW, is exploring the possibility of closing its border.
Meanwhile, Victorian Premier Daniel Andrews has introduced the strictest lockdown measures so far, introducing a curfew in the state’s capital, Melbourne, and shutting down industries. Amid all of this, Western Australia, South Australia and Tasmania have effectively sealed themselves off.
While Prime Minister Scott Morrison has pushed for borders to reopen and warned leaders against overreacting, state and territory leaders are unlikely to relax them any time soon.
Not only are the cases in Victoria, NSW and now Queensland an ongoing concern, many leaders have an eye on upcoming elections. The first jurisdiction to go to the polls is the Northern Territory on 22 August, followed by the ACT on 15 October. Queensland goes to the polls two weeks later, on 31 October while West Australians will vote on 13 March 2021.
State and territory leaders, and the prime minister, are riding high in opinion polls at the moment given their – to-date – successful handling of the virus. Even Victoria’s premier retains widespread support despite the resurgence in that state.
With voters increasingly concerned over coronavirus, leaders will be looking to assuage those fears, meaning the border restrictions – and their accompanying logistical challenges – are likely to remain.
Covid commission becomes advisory board
Prime Minister Scott Morrison has appointed new members to the National Covid-19 Coordination Commission (NCCC) and said it will become an advisory board working inside the government.
The commission – which largely comprises business leaders from the logistics, energy and mining sectors – was put together in the early days of the pandemic to help deal with supply chain disruptions.
Mr Morrison said the group would now provide policy advice on economic recovery and remain involved as its proposals were considered by federal cabinet’s Expenditure Review Committee ahead of the October budget.
The new members of the NCCC are retired career banker Mike Hirst, the former chief financial officer of Transurban, Samantha Hogg, rural and regional advocate Su McCluskey, food franchise entrepreneur Bao Hoang, Indigenous businesswoman Laura Berry and KPMG partner and former union official Paul Howes. Departing the NCCC are Industry Super chair Greg Combet and energy executive Catherine Tanna.
“Together, they bring valuable expertise in the sectors of finance, resources and infrastructure, regional Australia, small business and workforce issues. I look forward to their contribution to our economic recovery,” said Mr Morrison.
The revamped body will be known as the National Covid-19 Commission (NCC) Advisory Board.
Australia lags in manufacturing
Australia’s manufacturing output of A$378 billion places it below all other Organisation for Economic Co-operation and Development (OECD) countries, according to a report from the Australia Institute’s Centre for Future Work.
However, the Institute’s report noted that investment in the manufacturing sector, combined with the right policy settings, could create more than 400,000 direct jobs and 265,000 supply chain-related jobs, adding A$50 billion to the economy in the process.
The Covid-19 pandemic has prompted a national discussion on the country’s manufacturing capabilities and the need to be more self-sufficient in the production of certain essential goods, particularly those related to health and defence.
“As Australian governments and business leaders realise the importance of manufacturing in rebuilding the national economy after Covid, this research shows that Australia now has the smallest manufacturing industry relative to domestic purchases of any OECD country,” said the report’s author, Dr Jim Stanford.
Dr Stanford said failures in trade and industrial policy had undermined domestic manufacturers’ ability to do business in global markets, but the “spill-over benefits from a strong manufacturing sector into the rest of the economy motivate and justify focused efforts by government to stimulate manufacturing investment and production”.
Victoria postpones elective surgery
The Victorian government has suspended non-urgent elective surgery at Melbourne hospitals as the city continues to record numbers of Covid-19 infections and outbreaks in aged care homes.
Under the ban, category one surgeries, which include emergency heart surgery and the removal of cancers, will continue, as will urgent category two operations, but all other procedures are paused. Elective surgery in regional areas will continue as normal.
Victorian Premier Daniel Andrews said the ban was necessary to free up hospital beds as well as nurses to help protect aged care residents, most of whom are in federally subsidised nursing homes. Mr Andrews said the biggest issue driving the decision was the need to have more healthcare workers available to provide care for aged care residents.
Hundreds of nursing home residents are being transferred to hospitals as coronavirus outbreaks continue across the sector in Victoria. Private hospitals, who are taking in the patients, are receiving funding under the government’s viability guarantee.
Most elective surgery was banned across Australia in April, but resumed later the same month as the country successfully flattened the curve of coronavirus infections.
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