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
Afghanistan war crimes inquiry released
Australian special forces troops allegedly killed 39 civilians and prisoners unlawfully in Afghanistan, according to a four-year inquiry.
The investigation by the Inspector-General of the Australian Defence Force, Justice Paul Brereton, found there was credible evidence of 23 incidents in which 39 Afghan nationals were unlawfully killed.
The inquiry’s report recommended 19 soldiers be referred to the police for criminal investigation and that the Australian government pay compensation to the families of the victims.
The report said all 39 killings took place in circumstances that were not in the “heat of battle,” including cases where commanders ordered junior soldiers to shoot prisoners so that they could record their first “kill”.
Chief of the Australian Defence Force, Angus Campbell, described the events detailed in the report as “deeply disturbing”.
An immediate response to the report was the disbanding of the Special Air Service second squadron, which had been struck off the Army order of battle. “Not because it was the only squadron involved in these issues, but because it was at a time one of the squadrons involved in the allegations made,” General Campbell said.
General Campbell also said he would write to the Governor-General requesting he revoke the Meritorious Unit Citation awarded to Special Operations Task Group rotations serving in Afghanistan between 2007 and 2013. As well as criminal prosecutions and compensation to victims and their families, the report recommends cancelling individual medals for those concerned.
CMAX Advisory’s Chief Strategist and Chief Operating Officer, Tyson Sara, provided his insights on the report to the Australian Broadcasting Corporation and The Australian Financial Review. Mr Sara was a civilian advisor in 2010-11 to Regional Command South in Kandahar.
NSW to spend billions on recovery
New South Wales will invest nearly A$30 billion in infrastructure projects, economic stimulus measures and tax relief for businesses as part of its 2020-21 budget.
The NSW economy – Australia’s largest state economy, contributing about a third of national output – is projected to contract by 0.75 per cent, before growing by 2.5 per cent in 2021-22.
NSW Treasurer Dominic Perrottet has taken advantage of record low interest rates to borrow funds for stimulus measures, with debt set to reach almost A$105 billion by 2023-24, while promising not to put the state into “structural deficit”.
The budget reports a deficit for 2019-20 of A$6.9 billion, with a projected deficit of A$16 billion in 2020-21. The budget projects a return to surplus by 2024-25, based on current conditions.
While recognising the need for deficit spending to stimulate the economy amid the coronavirus pandemic, and taking advantage of historically low interest rates to do so, the NSW government is keen to return the budget to surplus and limit the level of borrowing in order to retain the state’s triple-A credit rating.
It has set out A$5.6 billion in savings over four years in an effort to achieve this, with the lion’s share (A$4.3 billion) coming from public sector wage freezes. It will also look for A$729 million in procurement savings across contingent labour, travel, events, marketing and training, facilities and fleet management, medical procurement, software licensing and maintenance, telecommunications, and ICT.
The government will invest A$29.3 billion in the NSW health system to continue its Covid-19 response, including A$500 million to support Covid-19 clinics, hotel quarantine, and increased pathology testing and contact tracing. It will also invest A$385 million for additional PPE to keep frontline workers safe and A$30 million for additional emergency department attendances and ambulance calls.
It will also spend A$10.4 billion over the next four years for Sydney Metro West, which will double rail capacity between the Sydney and Parramatta CBDs; and A$9.2 billion over the next four years for Sydney Metro-Western Sydney Airport, which will connect communities and travellers with the new Western Sydney International (Nancy-Bird Walton) Airport.
The NSW government will also cut the payroll tax rate from 5.45 per cent to 4.85 per cent from 1 July 2020 for two years. The payroll tax reform is part of the government’s A$250 million Jobs Plus Program, which is designed to encourage domestic and international business to move into NSW.
In what has been seen as a clear attempt to grab business from other states, the Jobs Plus Program will support companies who want to relocate their head offices to NSW or expand their jobs footprint in NSW. It includes payroll tax relief, up to a four-year period, for every new job created where a business has created at least 30 new net jobs.
Australia needs more Pacific imagination
Australia cannot ignore the economic devastation that Covid-19 will wreak in the Pacific, a parliamentary inquiry has been told. The Lowy Institute’s Jonathan Pryke told the Joint Standing Committee on Foreign Affairs Defence and Trade that Fiji’s economy is forecast to contract by one quarter and most Pacific island governments lack the financial firepower to fight back.
The committee, which is carrying out an inquiry into Australia’s relationship with the Pacific, heard that the allocation of A$270 million in grant funding is most welcome, but more is needed if the region is to remain viable.
Mr Pryke, the Director of the Lowy Institute’s Pacific Islands Program, said Australia should take the lead in presenting a financial package that supports public investment, budget support and major infrastructure programs to provide economic stimulus.
While the region’s relative isolation has spared it from the worst health impacts of the pandemic, the collapse of international travel has dealt a major blow to tourism-dependent economies in the Pacific.
Professor John Blaxland, from the Australian National University’s International Security & Intelligence Studies, Strategic and Defence Studies Centre, called for more imagination in the way Australia engages with the Pacific in response to increased efforts from China to extend its influence in the region.
He proposed a “grand compact” to address three overlapping issues: looming environmental catastrophe; governance challenges; and great power contestation. The compact would be similar to the Compact of Free Association between the USA and Pacific island countries in Micronesia and New Zealand’s free association agreement with Niue and the Cook Islands.
Deal signals more independent approach
The long-awaited defence pact between Australia and Japan, aimed at boosting ties between the two nations’ militaries, will have long term implications for both countries, according to analysts.
The in-principle agreement on the Reciprocal Access Agreement (RAA), is the first such agreement signed by Japan in 60 years, the last one being with the US, and will pave the way for stronger ties between the two, such as intelligence sharing, joint exercises and more.
The pact was signed during Australian Prime Minister Scott Morrison’s flying 24-hour trip to Tokyo, in which he became the first foreign leader to meet with Japan’s new Prime Minister, Yoshihide Suga. Significantly, Mr Morrison now has to spend two weeks in quarantine, demonstrating just how important a partner Japan now is for Australia.
“[The agreement] will form a key plank of Australia’s and Japan’s response to an increasingly challenging security environment in our region and more uncertain strategic circumstances,” said Mr Morrison.
The agreement is significant on a few levels, according to specialists. Six years in the making, it is clearly another element of how regional democracies are lining up and cooperating to head off an increasingly assertive China, and in particular unite around the need to protect against China’s territorial claims in the South China Sea and elsewhere. It is a clear sign that Australia and Japan plan to do more together in the Pacific and across Southeast Asia.
At the same time, however, Japan remains constrained by its post-World War Two “peace constitution”, which means its military, called the Self-Defense Forces, are mandated only to act in self defence. However, the forces have been progressively better equipped, and the pact opens the way for the Australian military to enhance their training and help their coordination.
The RAA will likely bring Japan and Australia closer together, and while US power is still needed to ensure stability in the Indo-Pacific, it indicates that regional players are no longer content to rely simply on Washington, but also now see the need to form firm regional alliances to help counter the Chinese threat.
Health insurance memberships rise slightly
The Australian Prudential Regulation Authority (APRA) has released its quarterly private health insurance (PHI) publications for the September 2020 quarter.
Covid-19 and associated economic impacts continued to influence PHI performance during the quarter as the rates of hospital and general treatment utilisation increased, with a flow-on increase in claims paid by industry, which increased 1.5 per cent to A$6.2 billion in the September quarter 2020.
The postponement of premium increases by most of the industry continued to impact premium growth, however a large and unexpected increase in membership underpinned most of the growth.
In the year to September, net margins fell to 2.1 per cent as a result of premium growth not keeping up with the rising claim costs. The weaker insurance performance, coupled with falls in investment earnings, resulted in a 52.6 per cent decline in net profits after tax to A$587.4 million.
Investment income continued to be volatile, according to APRA, falling 58.5 per cent over the quarter to A$99.3 million, which was the main driver of the fall in quarterly industry profits.
According to the data, hospital treatment membership increased by 58,775, although the trend of increasing older members and declining younger ones continued.
Membership in the 50+ age group increased by 70,589 over the year, while membership among people aged 20 to 49 declined by 9,318. Hospital coverage as a share of the population fell to 43.8 per cent from 44.2 per cent at September 2019, continuing a longer-term decline.
Australian Private Hospitals Association chief executive Michael Roff said a 0.9 percent increase in membership over the September quarter was welcome, but it needed to be sustained.
“While it is encouraging to see a small increase in health fund membership, these figures should be treated with caution. We know health insurers have been providing premium relief to policy holders due to Covid-19 and this may be artificially inflating the figures. We need to know if this increase will be sustained or is just a statistical anomaly,” he said.
SA goes into lockdown, then backtracks
South Australia imposed some of the toughest restrictions on movement in Australia following an outbreak of coronavirus, then largely lifted them after it was discovered a hotel worker had lied to contract tracers.
Premier Steven Marshall put the state into lockdown for six days as a “circuit breaker” following a cluster of cases in the state capital, Adelaide. Other jurisdictions were quick to impose travel restrictions on arrivals from South Australia.
The Australian Capital Territory required an online declaration for anyone travelling to Canberra from South Australia, and Victoria closed its border with the state for 48 hours. Western Australia resealed its eastern border and Queensland, Tasmania and the Northern Territory required all passengers arriving from South Australia to quarantine for 14 days. The NT’s quarantine system was overwhelmed with people returning to the territory.
However, just days after imposing the restrictions, the state government eased them when authorities discovered a hotel worker had lied about their activities, revealing that the outbreak was not as widespread as first feared.
“To say I am fuming about the actions of this individual is an absolute understatement. This selfish actions of this individual have put our whole state in a very difficult situation. His actions have affected businesses, individuals, family groups and is completely and utterly unacceptable,” said South Australian Premier, Steven Marshall.
While a relief for South Australian authorities, commentators note that the incident reveals how easily efforts to reopen the economy will be until a successful vaccine is developed and distributed. Prime Minister Scott Morrison has been pushing state leaders to reopen the country’s internal borders, and most were on track to do so by Christmas, until someone lied to contract tracers.
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