Damaged by growing sovereign risk
AUSTRALIA has long been considered a safe and attractive place to do business. We have a transparent rule of law, strong public institutions and democratically elected governments.
Add to this a record of stable and generally sound policy-making, and we have enjoyed an environment where businesses have a high degree of certainty that their investments will not be subject to inconsistent and bad government decision-making.
Put simply, government, or sovereign, risk in Australia has generally been low.
Unfortunately, this is no longer the case.
Under Labor, Australia has a real and growing sovereign risk problem. Investors are increasingly cautious, with many turning their backs on Australia thanks to a series of bad decisions.
Investors want certainty and they see a long list of issues that threaten their ability to do business. These include the carbon tax, the mining tax, the ban (then reversal) on live cattle exports, poor management of the Australia Network tender, increasing regulation on business and the failure to deliver on promised taxation reforms.
In a recent speech to the Canadian Australian Business Forum, shadow treasurer Joe Hockey explained that since April 30 last year, under Labor, Australia had experienced “at least five different policy positions on climate change, four different iterations of a mining tax, four different positions on live cattle exports, three different countries to send our refugee claimants to, and two Labor prime ministers”. In addition, Hockey says, we have seen “a raft of seemingly capricious decisions and policy backflips [that] have caused reduced financial returns for investments already made or in the pipeline and [that] have greatly increased the uncertainty about the environment for future investment decisions”.
He’s right. The carbon tax is a prime example.
The issue of reducing carbon emissions has been on the public agenda for many years.
Before the 2007 election the main parties made firm commitments. The Coalition promised direct action. Labor promised there would be no carbon tax. Business planned accordingly.
Yet six months later Labor backflipped and announced it would introduce a carbon tax. Adding to the confusion and uncertainty, at the time of the turnaround the details of the tax were not announced. This took another 4 1/2 months. There has been no public announcement stating which 500 businesses will pay the tax, and the modelling of the effects on the economy is incomplete. There is also uncertainty about how some elements of the scheme will be funded.
The fact is, when the Liberals under John Howard proposed a GST, it was put to an election. But Labor refuses to go to the polls to seek a mandate for its carbon tax.
Labor’s new taxes, bad policy decisions and backflips and the failure to seek a mandate have affected international business perceptions of Australia. Businesses do not like uncertainty and that’s what they’re getting from the Gillard government. Some are reassessing future investment in Australia. The nation is becoming less attractive to many investors and this will lead to a reduction in the value of investments that otherwise would have been the case. As a private sector report to domestic and international investors recently opined: “The key issue is that Australian economic and taxation policy remains ‘unpredictable’, with foreign investors displeased with the continual ‘surprise’ movement of the regulatory goal posts in Australia.”
Labor’s alliance with the Greens has left it compromised. This means that potential investors are asking the question: “Who’s calling the shots: Julia Gillard or Bob Brown?”
As each day goes by, Labor’s mismanagement and its inability to deliver certainty are damaging Australia’s reputation.
While the next election may be up to two years away, opinion polling points to a landslide victory for the Abbott-led opposition. However, the hardheads in the Coalition know that the polls will not stay this way.
So instead of sitting on its hands and simply assuming voters will elect them to office in 2013, the Coalition needs to do the hard yards now and show voters that it is a viable alternative.
Some of those same polls also show the Coalition is reassuming the mantle of better economic manager. Abbott and Hockey understand the importance of seizing the economic high ground to remind the electorate of the Coalition’s track record when it was last in government. Both were there as senior cabinet ministers as the Coalition delivered record budget surpluses, while putting more money back into the pockets of taxpayers.
Ahead of the next election, the Coalition has promised to unveil a detailed policy framework outlining how it will turn around Australia’s finances. Hockey is in charge of finding the savings to pay for the Coalition’s commitments and return the budget to surplus. He chairs the Coalition’s expenditure review committee and along with Julie Bishop, Peter Dutton, Barnaby Joyce, Mathias Cormann, Tony Smith and Andrew Robb, is combing through the budget line by line.
The Coalition knows it must restore confidence to consumers and business, who are looking for stability and certainty from the federal government.
Abbott knows that a stable and united opposition is needed to achieve that goal. Supported by Hockey, Bishop and the Nationals’ Warren Truss and Joyce, Abbott is leading from the front. He understands that what Australia needs is a government that is competent, consistent and capable. Above all, Australian and foreign investors want a government that delivers on its promises.
Business is looking for a national government that will restore the trust and confidence of domestic and international investors.
Mindful of the sovereign risk issue, the Coalition rightly aims to establish a sense of economic, fiscal and political certainty that is needed to rebuild Australia’s battered reputation as an attractive place to do business.
But to achieve this key objective it must ensure it doesn’t fall into the same trap as the present government, which appears more concerned with tomorrow’s headlines than the development of sound policy outcomes to promote and protect the future of Australia.
Ross Fitzgerald is emeritus professor of history and politics at Griffith University, the author of 34 books, and co-author of the biographies Alan (The Red Fox) Reid and Austen Tayshus: Merchant of Menace.
August 13 -14, 2011