“Disunity is death,” then-Australian Prime Minister Malcolm Turnbull reportedly warned his colleagues in February 2017. A year later, Turnbull joined the growing list of Australian leaders failing to see out their first term in office, as internal tensions spilled over in a party room coup that saw Scott Morrison emerge victorious from the bloodletting.
With elections due by May 2019, can the conservative politician nicknamed “ScoMo” “save the furniture” and stave off political annihilation for the Liberal-National Coalition? Or should market watchers start preparing for a Labor government?
For the center-right Coalition, the first opinion poll following the revolt should serve as a reminder of the perils of disunity. The Coalition’s support slumped to its lowest levels in a decade, trailing the opposition center-left Labor party by 44 percent to 56 percent on a two-party preferred basis.
Significantly, Opposition Leader Bill Shorten became the preferred prime minister for the first time in three years, with a 39 percent to 33 percent lead over the new prime minister. In the previous Newspoll, Turnbull had led by 44 percent to 32 percent.
“Voters have delivered their verdict on the chaos within the government and it’s damning,” the University of Sydney’s Stewart Jackson told Bloomberg News. “Morrison has a huge task to win back Liberal supporters who have been turned off by the infighting. The government must at the very least now show a united front.”
Yet if the public was angry, financial markets were much happier concerning the installation of the former treasurer as prime minister. The Australian dollar recovered lost ground on news of Morrison’s victory after having dropped by half a cent against the U.S. dollar, while the stockmarket gained ground Monday after shedding nearly A$30 billion (US$22 billion) in value the previous week.
“He’s more of a known quantity,” JP Morgan’s Sally Auld told RN Breakfast. “He’s obviously been the treasurer in the Turnbull government, and so for markets he’s familiar and I think there would be some sense of broad agreement that he’s done a reasonable job in the portfolio.”
In his first press conference after Friday’s crucial leadership poll, Morrison pledged to fight for “a fair go” and build “an even stronger Australia” with a stronger economy along with increased national security.
“Government stability is being restored; we are getting on with the job,” he said.
Dealing with a national drought and high electricity prices have been cited as two immediate priorities for the new Cabinet, along with handling congestion and population pressures, in what the 50-year-old called “new generation” leadership.
Yet with the next election barely eight months away, the new government has little time to win over an electorate weary of a revolving door of leaders.
Does it matter for Australia’s record-beating economy? In the short term at least, ANZ Research suggests there will be little economic damage from the leadership turmoil.
Although consumer confidence fell sharply in the latest ANZ-Roy Morgan survey, ANZ Research suggests business confidence has been less affected.
“As far as business sentiment is concerned, there is no clear link between politics and the more important measure of business conditions… after a decade of political volatility, businesses have very low expectations about goings on in Canberra,” it said in an August 24 report.
However, it added that “uncertainty around the outlook and, particularly, around government policy, has the potential to weigh on confidence and lead firms to postpone spending and hiring decisions.”
The bank’s economists pointed to uncertainty over energy policy and business tax cuts as two areas of concern. It also warned that further drops in consumer confidence could dampen the outlook for consumer spending, which accounts for the largest share of gross domestic product (GDP).
Nevertheless, ANZ Research still sees the Australian economy continuing its 27-year-long economic winning streak, forecasting GDP growth rates of 3 percent this year and 3.1 percent in 2019.
Yet other economists are looking further ahead to Morrison’s biggest electoral test.
Capital Economics has argued that the “real issue is not who is going to be prime minister for the next few months, but who is going to be in the top job after the next election.”
“It is possible that the change of leadership will boost the standing of the ruling Coalition in the opinion polls. But it is also possible that the public will resent the infighting within the government, thereby boosting Labor’s current lead in the polls,” the London-based consultancy said in an August 24 report.
Paul Dales, chief Australia and New Zealand economist, said Labor’s policies “are perceived to be less conducive to economic growth,” including increased government spending and lower taxes for lower income households but increased taxes for higher income households.
Looser fiscal policy under a Shorten government would give the economy “a bit of a boost,” particularly since lower income households have a greater propensity to spend such tax savings.
However, Dales said Labor’s proposed tax hikes “would restrain economic growth by a disproportionately large amount.” This includes measures to curb tax incentives for residential property investment and halve the capital gains tax discount, which would further dampen an already fragile housing market.
“And in general, it is possible that the animal spirits of businesses would be tamer under a Labor government. That would increase the chances that the [Reserve Bank of Australia] won’t raise interest rates in November 2019 as we expect,” he said.
Dales pointed to the New Zealand experience of more restrictive housing and migration policies resulting in lower business confidence and a weaker currency, as potentially indicative for Australia under a Shorten government.
Regardless of the poll outcome, UBS data based on an average of Australia’s past nine elections (excluding 2007) shows consumption falling in the three months before a poll, remaining in negative territory for a year afterwards. Business investment and GDP also typically rise before an election but drop afterwards.
According to Morgan Stanley, currency and stockmarkets tend to underperform in the months before an election, “likely responding to the uncertainty inherent in the campaign.”
Amid predictions of a slowing U.S. and global economy in 2019, the ‘Lucky Country’ could potentially slam on the policy brakes at exactly the wrong time, depending on the election outcome.
Morrison’s first real electoral test is set to arrive soon however, with Turnbull expected to resign from parliament Friday, triggering a by-election for his Sydney seat of Wentworth.
Turnbull reportedly described the events of last week as “a pointless week of madness” that disgraced lawmakers and appalled voters.
With just a single-seat majority, the Morrison government cannot afford any surprises in Wentworth, a “blue-ribbon” Liberal seat expected to comfortably return a government lawmaker. Winning a general election could prove far more challenging though, after Canberra’s winter “madness” of 2018.