Economics, politics and Australia’s ‘coup culture’

Economics, politics and Australia’s ‘coup culture’

The constant churn in leadership is preventing Australia from pursuing its foreign policy goals.

WHAT’S HAPPENING?

Scott Morrison is campaigning to retain his newfound position as Australia’s 30th prime minister. He is the sixth individual to hold the office since 2007.

KEY INSIGHTS

– Australia’s continuously strong economy and Morrison’s market-friendly stint as Treasurer have negated short-term market reactions to the leadership change
– Despite Morrison’s successful first international visit to Jakarta, Canberra’s pivot to the Indo-Pacific may be weakened by his lack of foreign affairs experience and the loss of Foreign Minister Julie Bishop
– Morrison’s lack of experience in this area and his focus on rebuilding domestic political trust ahead of the 2019 federal elections may diminish Australia’s influence on regional and global events

After weeks of internal party tensions, Malcolm Turnbull was forced aside in August as Australian Prime Minister and leader of the Liberal Party in favour of his treasurer and party centrist powerbroker Scott Morrison. His replacement was precipitated by a surprise leadership vote just days before, in which Turnbull fended off a challenge from Home Affairs Minister Peter Dutton.

These intra-party tensions have (publicly) settled following Morrison’s victory and he has settled in as the sixth person to hold the Australian premiership since 2007. Australia has earned the unenviable title of being the ‘coup capital of the democratic world’, with an international reputation for political instability and factional warfare within political parties. However, the economy continues to perform well, apparently unfazed by the instability.

LEADERSHIP SPILLS AND MARKET THRILLS

The market repercussions of August’s leadership change were swift, with domestic markets underperforming throughout the week. But markets bounced back following Morrison’s victory and have returned to stable levels. This may be due in part to Morrison’s background in the treasury portfolio, from which he pursued business-friendly policies and budgetary management. These policies contributed to Canberra maintaining the coveted AAA credit rating from the three primary credit agencies despite concerns about growing budget deficits and high levels of foreign debt.

During his tenure as treasurer, Australia’s credit outlook changed from negative to stable for the first time since 2016. Net debt as a share of GDP is expected to peak this year at just over 19%, less than that of Canada, France, Germany and South Korea, and fall over the next five years with gross debt also remaining relatively low. Similarly, Australia’s budget is expected to return to a surplus within the next five years.

Leadership changes in Canberra have tended to do little to sway domestic and regional markets, owing to policies of economic liberalisation and deregulation that governments of both the dominant centre-right and centre-left parties have pursued since the 1980s. This bipartisan stance has contributed to stable levels of economic growth, low levels of debt and unemployment and ultimately the stability of Australia’s market environment. For instance, the Hawke government’s financial deregulation and floating of the Australian dollar in the late 1980s helped to increase control over monetary policy, while the Howard government of the late 1990s and early 2000s continued a path of trade liberalisation and tax reform, and the Rudd government managed to fend off recession during the global financial crisis through government stimulus. Though political leadership has frequently changed, markets and investors have continually trusted Canberra’s economic policies.

DIPLOMATIC SPEED-DATING

Morrison

Photo: Australian Embassy Jakarta / Flickr

Like his predecessor, Morrison hails from the moderate wing of the Liberal Party, suggesting that there will be an element of continuity both in terms of domestic and foreign policy. Little more than a week into the job, he was already flying to Indonesia to announce the long-awaited Australia-Indonesia Free Trade Agreement and the development of an economic and security ‘strategic partnership’ with Jakarta. Despite having no background in foreign affairs, Morrison is already attempting to build on the relationships of his predecessor and continue with business as usual.

However, his lack of foreign affairs experience and the replacement of Foreign Minister Julie Bishop with little-known former Defence Minister Marise Payne will be problematic, especially approaching several key global summits including APEC, the East Asia Summit and the UN’s high-level meeting. While Morrison appeared to handle his first international trip well, he has already raised concerns in Jakarta by suggesting he would be open to moving Australia’s embassy in Israel to Jerusalem, following the US decision earlier in the year. How his new ministerial team will handle other diplomatic and security-oriented issues is yet to be seen.

This will be especially pronounced in the Indo-Pacific, where frustration over Australia’s frequent leadership changes and lack of regional engagement is widespread. Just two Pacific leaders have been invited by Canberra as ‘guests of government’ since 2013, while visits to the region by Australian prime ministers are not a common occurrence. As part of Australia’s diplomatic and military ‘step up’ in the region championed by former Foreign Minister Julie Bishop, it was expected that Morrison would attend the Pacific Islands Forum in Nauru. However, he opted to send the new Foreign Minister Marise Payne, herself just a week into the job. Morrison’s reluctance to attend the leaders’ meeting or April’s Forum Economic Ministers Meeting in Fiji is a source for concern in the region as Canberra attempts to reaffirm its position as the region’s key economic and security partner.

A DAMAGED REPUTATION?

/ Morrison
Despite the political infighting, Australia enjoys an inherently stable political and economic system, with credit agency Standard and Poor’s noting that further electoral change would not jeopardise its credit rating due to bipartisan support to return the budget to surplus. However, continued political instability and preoccupation with internal disputes will hamper the country’s ability to affect regional and global developments. As the 2019 elections approach — with the possibility of the opposition seizing power — Morrison and the governing Liberal Party will have limited time to focus on building economic and diplomatic links; the government will keep its focus on rebuilding trust in the domestic electorate.

A lack of experience and limited influence puts Canberra at a disadvantage when it comes to economic partnerships. Prior to their formal discussions where Morrison and Indonesian President Widodo announced the Australia-Indonesia Free Trade Agreement, Prime Minister Morrison had never met President Widodo. As Canberra looks to pursue other free trade agreements, including with the EU, the constant change of leadership will be problematic as new personalities seek to insert themselves into the highly political debates. Moreover, with the threat of a full-blown trade war between the US and China becoming more pronounced, Australia will have a far more difficult time pleading for a ceasefire between two of its key trading partners with a new prime minister with little experience and a foreign minister with limited influence.

The inexperience of Morrison’s government in foreign affairs has already caused friction within the region. Officials in Jakarta reacted angrily to Morrison’s announcement that Australia may move its Israeli embassy to Jerusalem, even suggesting the future of the Australia-Indonesia Free Trade Agreement could be in doubt. Separately, Melissa Price, the new Environment Minister, has come under fire for insulting the former Kiribati president Anote Tong and claiming that it is “always about the cash” when Pacific leaders visit Australia.

The constant rotation of inexperienced government ministers who lack strong personal relationships will make it increasingly difficult to resolve such diplomatic issues, compromising Australia’s regional foreign policy. Moreover, just as the Pacific is beginning to show concern over China’s growing regional influence and mounting debts from Chinese-backed loans, the diplomatic missteps of the Morrison government may hamper its ability to reinforce its regional leadership and possibly lead South Pacific nations to align more closely with Beijing by default. Canberra will find it increasingly difficult to reap the benefits of its rapidly developing neighbourhood and to shape the region in its favour without some sense of consistency returning to Australian politics.