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The ides of September

September 2015 will be remembered as a remarkable month in politics, business and the financial markets.

  1. Lawyer, turned investment banker, turned politician Malcolm Turnbull removed the unpopular and inept Tony Abbott as prime minister in a bloodless coup, making him the fourth prime minister in as many years. Within three weeks, the new Turnbull ministry had transformed a mood of abject pessimism in the country to one of hope, after building – with the help of the two national newspapers – a modest consensus between business, unions and civil society for economic reform.
  2. Support for the Opposition Labor party has dropped sharply, and it is now facing the prospect of defeat at next year’s election, a scenario unthinkable a few weeks ago.
  3. Despite (1) and (2) the economy still looks anaemic, and many investors on local stock markets face heavy losses. In the quarter ending September 30, the main index fell 8 per cent, the worst quarterly performance in four years. The traditional safe haven for investors – the four big banks – have fared badly, with their prices mostly below those paid by institutions in recent capital raising.

Winners and Losers

The principal winner is, of course, Malcolm Turnbull. Not only has he achieved his long-sought prize, but he has done it in style, exuding an image of strong but flexible leadership with a determination to take the public with him in his commitment to economic reform.  He is fortunate to have another winner, Scott Morrison, as treasurer. Morrison was arguably the Abbott government’s most valuable minister, first, as a tough immigration minister who secured Australia’s borders against people smugglers, and then as a social services minister with an eye to getting people off welfare and into work. Morrison has an enormous capacity for hard work with a ‘can-do’ mentality, and in his first two weeks in the job has sensibly recognised that his immediate tasks are in Australia, not globetrotting to international meetings. He has delegated these time-consuming and important tasks to his minister of finance, the experienced and able Matthias Cormann, who will front up to IMF, World Bank, OECD and G-20 finance meetings.

Foreign minister Julie Bishop is another winner, retaining both this post and that of deputy prime minister, both of which she held in the Abbott government. With Turnbull concentrating on the economy, she will have more latitude than under Abbott. In the last two weeks she has been, amongst other places, to the United States and Iran. Australia is very interested in improving relations with Iran, and Bishop’s visit there is seen as part of a shift in Middle East policy. Bishop has been actively seeking support for a UN brokered political solution in Syria whereby president Bashir al Assad remains in power, at least for the time being, and Russia and Iran are involved. While Bishop does not mince her words with powerful people like Vladimir Putin, she has welcomed the Russian leader’s intervention in Syria. She can be relied upon not to pull media stunts like Abbott’s threat, never carried out, to “shirt front” Putin.

The principal loser is the former prime minister, Tony Abbott; not so much because he lost, but because his conduct since being rejected by his own party room has lost him all credibility. After losing out to Turnbull he promised, “there will be no wrecking, no undermining, no sniping”.  Within a week, Abbott had broken that promise, just as he broke his promises to the electorate before his election not to make cuts to education and health, and not to introduce new taxes. Abbott will now learn that even those MPs who voted for him are pleased he’s gone to sulk on the back benches. Seasoned commentators like Paul Kelly argue that Turnbull and Abbott must reach an accommodation with each other for the good of the Government. This would mean finding a suitable job for Abbott; not an easy task.

 

On the Opposition front bench, Bill Shorten, deputy leader Tanya Plibersek and Tony Burke are looking like losers. Shorten, because he has not yet grasped that his best hope for winning back the middle ground in Australia is to embrace the reform agenda, distance himself from the more extreme elements in the trade union movement (who support the China FTA) and probe the weaknesses in the Turnbull administration, potentially health, and defence). As shadow foreign minister, Plibersek has been limp and ineffective against Bishop. As leader of Opposition business, Burke was effective against Abbott, but does not have the intellectual capacity to outwit Turnbull.

In business, one high profile loser is the outgoing CEO of ANZ Group, Mike Smith, who has brought forward his retirement, aged 60, to the early New Year.  In recent months ANZ has been the worst performing of the major banks, with its current share price below that when Smith took over. So what has been the problem? Smith, a larger than life character with a smooth British accent, a passion for old sports car marques, and owner of a French vineyard, has firmly embraced the Asian century. He has done what few Australian corporate leaders have done – steered his company into Asia, targeting 25 per cent of profits from the region by 2017. Now ANZ is very visible in Asia, particularly in ASEAN and China, but it is still not a major bank. With China slowing down, the strategy has been questioned, and is seen as higher risk than that of the other major banks, whose passion is for the home base and bricks and mortar.

Standout business winner is Alan Joyce, CEO of Qantas. He has been calm in the face of media columnists, shock-jocks, and union heavies baying for his blood. He has shown tenacityn in implementing the airline’s recovery plan.  He has successfully  turned a $1.6 billion loss in 2014 into a pre-tax profit of $975 million. Joyce, who has received few public accolades, is staying put at the airline, and his shareholders are delighted.

The political debate between now and the long summer break will be critical for Turnbull. His new leadership style has been welcomed, even by his critics. But style will not win over substance, and the Turnbull government will find it very hard to get reform through an obdurate Parliament, even if the policies are ‘sold’ to the public. They will most likely include a GST increase to 12.5%, a reduction in income tax for low and middle income earners, removal of some of the concessions the higher paid enjoy in superannuation, and further cuts in government spending. Currently Labor and the Greens show little appetite for cooperation.