Tag Archives: Scott Morrison

Morrison’s half-hearted climate ploy won’t cut it

Scott Morrison and his government still don’t get it.

A day before arriving at the 50th Pacific Islands Forum Leaders’ meeting in Tuvalu, the Australian Prime Minister announced $500 million to help Pacific nations invest in renewable energy and prepare for the effects of climate change.

Pacific leaders have been building up the pressure on Australia to take their climate change concerns seriously and the Morrison Government is obviously hoping that the package will take some of the heat out of the issue at the PIF meeting.

While it might buy Australia some temporary relief, the announcement is unlikely to work for long, for a number of reasons.

For one thing, it does nothing to address regional concerns about the depth of Australia’s commitment to tackling climate change. By giving money to other countries to do something about their energy usage and disaster preparations, Australia is inadvertently reinforcing the criticism that it is doing all-too little itself.

When Tony Abbott whipped Australia out of the Paris Climate Change Agreement he made the country instantly more vulnerable to criticisms that it does not take climate change seriously and shirks from taking meaningful action to curb its own contribution to the problem.

From the viewpoint of small island Pacific countries who see themselves as on the frontline of the effects of climate change, Australia’s position as one of the world’s largest exporters of coal is increasingly morally and politically indefensible, and a $500 million handout won’t change that.

There is also a bigger story here that goes to the heart of Australia’s national interest.

The Morrison Government has significantly increased the policy focus on the Pacific. The tempo of ministerial visits to the region has surged, accompanied by attention-grabbing announcements like the electrification of rural PNG, the construction of a high-speed data cable between Sydney, Port Moresby and Honiara and the establishment of a joint Australia-PNG-US naval base on Manus.

The cause of Australia’s intensified interest is China’s growing presence and heft in the Pacific as an investor and a provider of development projects, funding and finance.

Australia is rightly wary of what China’s plans and intentions are in the Pacific. At the very least, it spells the end of 70 years of unchallenged hegemony for the US in the region.

There is a well of good will toward Australia in the Pacific region.

But it has gradually been draining away over the years as Australian governments have waxed and waned on the region.

Australia’s influence and diplomacy in the region has had several high points under the stewardship of dedicated ministers like Bob McMullen and Gordon Bilney, and Australia’s leadership of the RAMSI intervention to restore order in the Solomon Islands.

But often its engagement has been tepid, fitful and, in recent times, marked by curious decisions and disdainful remarks that have undermined Australia’s standing, like the penny-pinching move to axe the ABC’s shortwave service to the region and Peter Dutton’s dismissive comments about Pacific Islanders under threat from rising sea levels.

This is the context in which Morrison’s $500 million pledge should be viewed.

The fact that it is being funded at the expense of other areas of Australia’s development program will not go unnoticed.

The ability of Pacific nations to absorb significant amounts of aid is limited. Thin reservoirs of expertise and fragile systems of governance mean the risk of funds being misused or misspent is considerable.

But diverting funds from programs tackling family and sexual violence, building roads or supporting schools and hospitals to boost action on climate change sends a curious signal about Australia’s priorities in the region.

Under President Xi, China is shifting the bias in its foreign policy increasingly toward hard power, particularly through the rapid expansion of its navy and an increasingly nationalist and belligerent posture on the international stage.

The leaves an opening for Australia to augment its soft power in the region. Rugby league is a prime example. PNG, for example, virtually shuts down when the NSW-Queensland State of Origin matches are on.

Australia’s labour mobility programs in the Pacific are another example. Already several thousand workers from Samoa, Tonga and Kiribati are sending welcome funds home from jobs on Australian farms, in our hotels, our nursing homes and other workplaces. PNG, which suffers from high rates of unemployment, particularly among its young people, promises to a particularly rich source of labour for Australian employers. For their part, workers who have had a good experience will extol the virtues of PNG’s near-southern neighbour.

Australia has a head-start in the race for hearts and minds in the Pacific, but it will only maintain its position by treating its Pacific neighbours with understanding and respect.

Half-hearted, penny-pinching climate change policies won’t cut it.

Leave a comment

Filed under Analysis, Uncategorized

Why what happens in Washington matters in Canberra

Among the economic indicators Treasurer Scott Morrison needs to keep an eye on, the US labour market should be toward to the top of the list.

As the US Federal Reserve begins to gradually edge up its funds rate, Chair Janet Yellen has indicated the tightness of America’s market for workers will be an important factor in shaping the central bank’s thinking on how quickly to proceed with tightening monetary policy.

The state of the US labour market matters because as it gets tighter, so the bargaining power of workers is likely to increase and wages rise, helping force inflation up.

The higher inflation goes, the more the Federal Reserve will feel compelled to raise interest rates.

This matters for Australia because the higher official US interest rates rise, the greater the downward pressure on the Australian dollar (though this relationship should not be overstated).

As the Australian economy tries to establish sources of growth outside the boom-and-bust resources sector, a lower dollar helps by making exports and locally-made goods and services more competitive.

In the past year, the $A-$US exchange rate has slipped down more than 10 cents to 71.2 cents, a far cry from the above-parity levels reached earlier this decade, when massive mining investment was sucking in huge amounts of capital.

Given that the US unemployment rate has already dipped to 5 per cent, it might come as a surprise that the Federal Reserve has only just begun to increase interest rates.

But behind the headline number, data shows that many of the jobs created in the last few years have been casual or part-time. This suggests that there is considerably more slack in the labour market than a 5 per cent unemployment rate would ordinarily imply.

Recent soft income growth underlines the point. In the year to September, US wages grew by 3.66 per cent, virtually half the long-term average of 6.33 per cent.

This is being reflected in consumer spending – US retail sales grew by a modest 1.7 per cent in the year to November.

The Federal Reserve held off embarking on a tightening cycle until it was confident that the US recovery from the global financial crisis was well-established, so its decision earlier this week to raise interest rates, even by a meagre amount, is seen as a vote of confidence in the world’s largest economy.

As he contemplates the sea of red in the Commonwealth’s financial accounts, Scott Morrison can only hope that this is the case.

Despite his bizarre denialism on the matter, the Federal Government does indeed have a revenue problem. Collapsing commodity prices and soft income and corporate tax collections account for a lot of the deterioration in the Budget position.

And the government’s own forecasts suggest there is not going to be a quick turnaround. Earlier predictions that the economy would expand by 2.75 per cent this year have now been pared back to 2.5 per cent, and next year it is expected to grow by 2.75 per cent rather than 3.25 per cent.

Estimates of business investment, household spending, the terms of trade and private final demand have all been downgraded.

As Reserve Bank of Australia Governor Glenn Stevens observed last month, a rebalancing in the sources of growth is underway, but it is a little rockier than might have been hoped for.

With the economy poised between the drag caused by tumbling resources investment and support coming from a nascent recovery in non-mining activity – particularly services – now would seem a bad time to be adding to the weight on activity by cutting into government spending.

To his credit, Morrison has so far eschewed the sort of bloodletting Joe Hockey pursued in his first Budget.

But the cuts he has outlined – crackdowns on welfare ‘rorts’ and the axing and reduction of bulk billing incentives for pathology and diagnostic imaging services, in particular – make little economic sense.

Both sets of measures, collectively worth more than $2 billion, will mean consumers have less money to spend.

As the country’s experience through the GFC has shown, this is significant. Arguably the most effective measure taken by the Federal Government when the GFC hit in late 2008 was to deposit money directly into the bank accounts of millions.

While much of this money was saved, enough was spent to keep shop tills ticking over, shielding thousands of retail and services sector jobs.

This was especially the case among lower-income households, where a higher proportion of income has to be spent rather than saved.

The bulk of Morrison’s cuts will fall on just such households.

At a time when retailers and service providers are trying to find their feet after several years of lacklustre conditions, this is hardly helpful.

Such unhelpful tinkering by governments all too common.

Economists often lament that government interference prevents an economy’s ‘automatic stabilisers’ (floating currency, swings in tax collections and welfare payments) from working effectively, making a difficult situation far worse.

But it is totally unrealistic to expect governments in such situations to do nothing – after all, they have usually been elected on a platform to ‘do something’.

As Ross Gittens suggests, they could do much worse than to devote their energies into devising a path to surplus that kicks in once a recovery is established, and to work out how to better handle future prosperity.

 

Leave a comment

Filed under Analysis