Liberal Bloodbath Repels Australian Voters

A “bloodbath” in the Victorian state election, the loss of its federal parliamentary majority, and the fallout from knifing its leader have rocked Australia’s ruling Liberal-National Coalition government.

With an election set for March 2019 in the most populous state of New South Wales (NSW) ahead of a federal poll due by May, both analysts and the public have largely written off the Morrison government’s re-election prospects.

On November 24, voters delivered a landslide re-election victory for Victoria’s state Labor government, in what commentators described as a “bloodbath” that would “send shockwaves to Canberra.”

After entering the election with a bare majority of 45 seats in the 88-seat parliament, the government of Victoria Premier Daniel Andrews won a 10 extra seats, achieving an overall swing in its favor of around 6 percent, including large swings in traditionally safe Liberal areas.

Federal Opposition and Labor leader Bill Shorten attributed the result to “a fundamental rejection of the Liberals’ cuts to schools, TAFE [technical and further education] and hospitals, and their failure to invest in renewables and take action on climate change.”

Yet Federal Treasurer Josh Frydenberg said the election was fought on state issues, noting that the Coalition had won previous state elections in South Australia and Tasmania and that Prime Minister Scott Morrison and other colleagues “didn’t play an active role in this campaign.”

However, the election result in Australia’s second-most populous state has added to an increasingly negative climate for the center-right Coalition.

A Newspoll published by the Australian newspaper after the Victoria election put the opposition center-left Labor party ahead of the Coalition by 55 percent to 45 percent on a two-party preferred basis, a result that would hand Shorten the keys to the Lodge and give Australia its seventh leader since 2007.

Nevertheless, Morrison has consistently rated higher than Shorten as preferred prime minister, with his rating in the latest poll climbing by four percentage points to 46 percent versus 34 percent, respectively. Unfortunately for Morrison, who was installed as leader in a party room coup in August, Australian voters elect parties, not leaders.

Speaking at a virtual campaign tour of Queensland state soon after the Victoria polls, Morrison told reporters, “I’m listening and most importantly I’m hearing, and that means we’re doing.”

Morrison was pictured eating pies and drinking beer with locals across the key election state in an apparent pitch as a down-to-earth man of the people, rather than just another Canberra politician. His messaging focused on the party’s economic credentials, including small business tax cuts, along with issues such as health care and industrial relations.

Switched Off

However, while Morrison was apparently listening to the public, voters appear to have switched off already. This was evidenced by the Victoria result and the Liberal party’s loss of the previously safe Sydney seat of Wentworth in the October by-election, forced by the resignation from Parliament of ousted former Prime Minister Malcolm Turnbull.

The maxim that “political disunity is death” appears to have struck again, and with it the likelihood of Morrison winning the 2019 election, according to analysts.

“The electorate has stopped listening. Not only has the Morrison government not found a message, they haven’t found a voice,” said Griffith University’s Dr. Paul Williams. “If you stopped people in the street and asked them what the Morrison government stands for, they’d be hard pressed to give you an answer.”

Williams said the government had yet to explain to middle Australia why it had ousted Turnbull.

While he said the switch to Morrison would help the Coalition in regional Queensland, he predicted that the infighting within the NSW Liberal party and the lackluster opposition in Victoria would only produce “patchy” gains.

“You can’t lose 40 plus Newspolls in a row and not be considered the rank underdog,” Williams said. “I’m not sure the leadership change to Morrison is the catalyst for defeat, but it has failed to reverse the inevitability of defeat for the Coalition.”

Similarly, economist Gene Tunny said the 2019 result was already a foregone conclusion, despite positive economic factors including a shrinking budget deficit, low unemployment, and inflation.

“There are a lot of positives about the economy, but people don’t seem to be feeling it. Wages growth has been low, practically in line with inflation for a few years, so people aren’t feeling that increase in living standards,” said Tunny, principal at Adept Economics.

“The government is trying to run a campaign [on the economy] but it’s had trouble showing it’s got a positive program that will convince people to vote for it.”

Williams sees Labor winning around a 20-seat majority in the lower house, with the election likely to be called as late as possible, potentially on May 18.

However, with the minor parties expected to fare “reasonably well,” a Shorten government likely would face a hostile Senate.

Should Morrison lose as expected, former Foreign Minister Julie Bishop could emerge from the wreckage as opposition leader.

“The Coalition’s support among women is particularly dire… There is a real mood from the Coalition side to get more women into parliament,” Williams said. “There will be an appetite after the failure of Abbott and Morrison conservatism for the Liberal party to return to the center, to give Labor a run for its money in the 2022 election.”

However, Williams does not see Shorten having an easy time in office.

“I suspect that Bill Shorten will be only the second prime minister in polling history in Australia to start day one of his new job in negative territory. If that’s the case, it will go from bad to worse and he could be extremely unpopular 12 months in,” he said.

“If Labor is staring down the barrel of an election defeat in 2022, they may be forced to act, with the two frontrunners being Tanya Plibersek and Anthony Albanese. But if they do it, they need to do it cleanly and explain why – that’s the problem, the parties haven’t explained why they have ditched leaders.”

Economic Impacts

Australia’s economic winning streak of 27 straight years without recession is seen continuing, regardless of the outcome of the 2019 poll.

In its latest forecasts, the OECD sees Australia posting a 3.1 percent rise in gross domestic product in 2018, slipping to 2.9 percent next year and 2.6 percent in 2020.

However, the Reserve Bank of Australia (RBA) is more bullish, projecting that GDP will “be around 3.5 percent on average over 2018 and 2019.”

“Everyone in the business community is expecting Labor to win. Businesses are forward looking, so is the sharemarket, so it’s not as if they’re going to be surprised by a Labor victory, so I’m not expecting a crash,” Tunny said.

Tunny sees the Australian economy continuing to expand at its average growth rate of around 3 percent, with the main risks to the outlook including the housing market and potentially external threats such as the U.S.-China trade war.

However, certain sectors of the economy are expected to feel a political impact, particularly property, with the industry warning against Labor’s proposed withdrawal of tax incentives.

The Master Builders Association has projected Labor’s policies on negative gearing and capital gains tax could cost 32,000 jobs and result in nearly AU$12 billion (US$8.7 billion) less building activity, saying housing supply, building activity, and employment would all “go backwards.”

Already, plunging prices in Australia’s two largest property markets of Sydney and Melbourne have led to warnings of slowing consumer spending. Investment bank UBS has predicted that a 10 percent fall in house prices could cut 2 percent from household spending, adding to the negative wealth effect caused by low household income and flat wages.

Fund manager Geoff Wilson of Wilson Asset Management has also blasted Labor’s “draconian” plan concerning rebates for franking credits paid to retirees, suggesting it could result in “the first recession in Australia in 27 years.”

Sectors potentially benefiting from a Labor victory include the party’s traditional mainstays of education and hospitals, along with renewable energy, with Labor pledging that 50 percent of the nation’s energy would be obtained from renewable sources by 2030.

Capital Economics sees Labor’s changes to taxes dampening consumer spending by around 0.3 percentage points in both 2019 and 2020.

“Meanwhile, its proposals for a number of regulatory changes could worsen the investment climate and dampen business confidence, but we think their impact on economic growth would be small,” it said in a November 13 research note.

The London-based consultancy also sees the Australian dollar weakening slightly, similar to the New Zealand election result.

“All told, a Labor victory would probably lead to weaker economic growth over the next couple of years. And tighter fiscal policy would be an additional reason for the RBA to keep policy loose when wage growth is muted and house prices are falling sharply,” it said.

Both Labor and the Morrison government have flagged tighter controls on immigration, a move that would be negative for economic growth as “net migration accounts for the bulk of the increase in the population.”

Yet barring a major downturn in the world economy, the “Lucky Country” could ride its economic luck a little longer, regardless of the ruling party. For the Morrison government though, the economic sunshine appears unlikely to save it from an ill wind of voter displeasure.