Pearls and Irritations

Now that Scott Morrison has passed the fifty-day landmark as Prime Minister, this article considers what has changed since the demise of Malcolm Turnbull and what difference Scott Morrison will make in resolving the major policy challenges that Australia is facing.  

For many of us, our over-riding sense of Malcolm Turnbull’s time as Prime Minster of Australia, was one of disappointment. We thought Turnbull would do better. He did seem to understand the issues and what needed to be done. His failure was his inability to convince his colleagues and follow through with the necessary policies.

Now after a month or so since Scott Morrison became Prime Minister, it is timely to consider whether he will prove to be any better. Will Morrison be able to correct Turnbull’s weaknesses, and persuasively articulate and implement the necessary strategies to deal with the key policy issues that are challenging Australia right now?

In seeking to throw light on the answer to this critical question, I propose to examine Scott Morrison’s performance so far in three policy areas: Economic policy, Climate Change and Energy, and Foreign policy.

Economic Policy

As Treasurer Morrison was, of course, at least as responsible for Australia’s economic strategy as Turnbull. The key problem is that we haven’t really had an economic strategy; only a slogan: Jobs and Growth. Indeed, as former Liberal Treasurer, Peter Costello, opined last Thursday, Morrison has consistently failed to provide any sort of economic narrative.

The one possible policy exception has been the promised company tax cut which was meant, all on its own, to underpin the alleged future jobs growth. I have, however, previously argued (Pearls & Irritations, 18 January) that the record shows that so long as demand growth remains stagnant, this tax cut will mostly be repatriated to shareholders as dividends and share buy-backs. Thus, very little of the extra cashflow will be invested in new physical assets. Instead, business investment is mainly in response to increased demand, as businesses do not invest in expanding their capacity so long as their existing capacity is still under-used.

In any event, the Turnbull Government was defeated in its attempts to introduce a tax cut for large companies with a turnover of more $50 million, and the 5 percent cut in the tax rate for smaller companies would not take full effect until 8 years from now in 2026-27. But now as Prime Minister, Morrison has seized the initiative and announced that this tax cut for smaller companies will be brought forward and will be fully implemented by 2021-22. And, not wanting to be wedged, Labor has quickly endorsed this decision. However, the question remains: what difference will that earlier implementation of the tax cut actually make to investment?

The reality is that this company tax cut will only benefit Australian companies, as almost all foreign companies are too big to be eligible for the promised lower company tax rate. However, these smaller Australian companies will find that the extra cash flow from their lower taxes will be offset by a matching reduction in their franking credits. In other words, their owners will be no better off financially, and for Morrison to pretend otherwise is really a con. Equally with no actual financial benefit, it is difficult to see how even Morrison can claim that investment will increase, and that the benefits will then trickle down.

In short, not only do we not have a credible economic narrative, we don’t have a credible economic policy. We just have a gimmick, which will achieve very little.

As I have elaborated elsewhere (Pearls & Irritations, 2 October), if Morrison was serious about boosting economic growth he would be focussed on the causes of increasing inequality and low wage growth. The key issue for future economic growth is how best to prepare workers so that they can readily adapt to technological change and innovation. But it was Morrison’s budgets that severely cut the funding for vocational education and training, and there is no sign that he will change his mind now he is Prime Minister.

Climate Change and Energy

Nothing has been more destructive of Coalition unity than their feeble attempts to put together a policy for reducing carbon emissions, while paying due regard to energy prices and reliability. Several solutions have been proposed, including the Finkel Report and the National Energy Guarantee, but all have proved to be too difficult for the Climate Change deniers in the Coalition to accept.

So now these recalcitrants have put one of their own – Morrison – in charge as Prime Minister. And Morrison has immediately obliged by dropping any pretence that carbon emissions matter. Instead, his contribution has been to deny the science and pour scorn on the Report of the Intergovernmental Panel on Climate Change. He also lied when he said that Australia will meet its carbon reduction targets in a canter, and he must know that is false.

Although Morrison and his mates may feel good for the moment, it seems improbable that their policies will be sufficient to induce the electricity industry to invest in new coal-fired generation capacity. Frankly the risks involved for potential investors in coal-fired generation are just too great. While, on the other hand, there is also the risk that Australia will get less investment in electricity generation than will be needed to meet the Government’s own reliability standards, because of the lack of confidence in the Government’s policy assurances. Eventually, the market will probably respond to the present policy vacuum and make the decision to invest in renewables anyway, but the delays will come at a cost to carbon emissions, reliability and price.

Foreign Policy and Defence

The biggest foreign and defence policy challenge facing the Government is how we balance our relationships with our biggest trading partner – China – and the (previous?) guarantor of our security – the US. To date the Coalition Government has seemed divided on this issue, and possibly for this reason the Government seems to have avoided even facing up to and talking about it. So we have not yet even begun fixing on a new strategy to meet the changing circumstances posed by China’s emergence as a great power on the one hand, and the instability and uncertainties that Trump’s presidency of the US poses on the other hand.

To be fair however a speech by Morrison to an Australian Chinese audience, (reposted on Pearls & Irritations, 11 October), gave me at least some cause for hope. Morrison did seem to go out of his way to reassure the Chinese that we wanted to remain strategic partners, and in my opinion this did need saying at this time, and better still, by the Prime Minister.

However, apparently the speech received no publicity in Australia, and the version posted on this web site was obtained from the Australian Embassy in Beijing; in other words the speech was almost clandestine. And that is what worries me. Morrison is I think quite capable of saying different things to different audiences. He could probably get away with this when he was less important, but now he is Prime Minister it will not be like that. Thus we really need our new Prime Minister to stand up and determine the future of our relationships with both China and America going forward, and how we will balance their separate interests.

Conclusion

On his track record, I fear that Morrison’s claim to the Prime Ministership rests more on his ability to market his views than their policy substance. I also fear that trust in government may diminish further. While Turnbull was a disappointment relative to what he promised, I am yet to be convinced that the change to Morrison was for the better.

Michael Keating was Secretary, Department of Prime Minister and Cabinet

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