By Steve Lewis
Photography by Jason Edwards

Having endured a marathon election campaign, Australians now face the prospect of a period of political instability. In record numbers, voters turned to the seductive populist embrace of independent candidates.

So now a weakened Coalition government — with its key reforms under challenge on multiple fronts — must deal with a resurgent Labor Party and an emboldened Senate crossbench.

The prospect of serious economic reform appears dim.

While Malcolm Turnbull will have the numbers — just — to push legislation through the House of Representatives, he will have to negotiate with a far-from-friendly Senate when federal parliamentarians return to Canberra.

How the Prime Minister manages these negotiations — with the likes of One Nation’s Pauline Hanson and South Australian Nick Xenophon — might determine whether the man worth an estimated A$200m can earn his place in Australia’s political pantheon.

The PM will have to channel his inner-Kissinger in order to negotiate the passage of key economic reforms. He should be consulting former Liberal PM John Howard, who managed to secure landmark reforms — the introduction of the GST and the full sale of Telstra, to name just two — with the support of an at times hostile Senate.

One thing is clear: the government, indeed the entire parliament, will have little time to waste if Australia is to avoid a downgrade of its AAA credit rating by Standard & Poor’s.

When S&P issued its warning in early July, the ratings agency said it will be carefully scrutinising the government’s chances of “budgetary repair” over coming months. It has placed Mr Turnbull and his senior ministers on notice that they have little time to waste, and not much room to move.

“There is a one-in-three chance that we could lower the rating within the next two years if we believe that parliament is unlikely to legislate savings or revenue measures sufficient for the general government sector budget deficit to narrow materially and to be in a balanced position by the early 2020s,” the S&P statement said. The statement was unambiguous, sending a clear message that the global investor community wants Canberra to put a premium on economic reform.

Reform and resistance

Here’s the rub.

Mr Turnbull, whose own approval ratings have taken a tumble, must engineer a reform agenda that placates the markets and ratings agencies. But he must do this while facing likely resistance to his reform agenda from the parliament, and even within his own party room.

For instance a number of senior Liberal figures have voiced concerns about some of the government’s more contentious budgetary reforms — reforms that are needed to put Australia back into the black.

Take superannuation. Senior ministers tripped up during the eight-week campaign when challenged over the details of the proposed changes to retirement incomes, which aims to pare back the benefits for people on higher wages.

The superannuation reforms are forecast to save the Budget A$2.9b over four years, but Liberal voices wager they won’t make it through the Coalition party room in their present shape.

Likewise the government’s push to cut corporate tax to 25 per cent — at a cost of A$48.2b — will struggle to pass the Senate, which looks certain to be less Coalition friendly than the previous one.

While the final Senate count was uncertain at the time of writing, the government looks certain to lose its three (previously) strongest Senate supporters — Dio Wang, Family First’s Bob Day and Liberal Democratic Party’s David Leyonhjelm. They are likely to be replaced by the likes of One Nation’s Pauline Hanson, whose anti-foreign investment, anti-Islam, anti-free market rhetoric risks damaging the reputation of Australia Inc.

One of the big winners from the election was the Coalition’s junior party, the Nationals. The rural party performed well and Nationals leader and Deputy Prime Minister Barnaby Joyce will be pushing for a more influential voice within the Coalition party room. That could spell further reform trouble for the Prime Minister with the Nationals hardly likely to embrace pro-market reforms.

And yet Australia — just like New Zealand — confronts a global economy that remains stuck in the slow lane. European leaders have to work out a way to untangle Britain from the EU, while across the Atlantic, the United States faces a period of instability as Donald Trump tussles with Hillary Clinton for the keys to the White House. An ever more assertive China is seeking to build a military machine to rival its economic power.

Have the global winds ever been as confronting or erratic?

Electorate upset

Yet the election outcome in Australia shows that voters are restless and disillusioned with the mainstream parties and their pro-market policies. In the past decade more than one million voters have abandoned Labor and the Coalition, attracted to the populist policies espoused by the Greens and the likes of Pauline Hanson.

This will mean that the government of the day — whether Liberal or Labor — must engage in more horse-trading in order to secure its legislative agenda. At a time when the nation’s credit rating is now on global watch, the stakes have never been higher.

What Australia requires over the short term is a period of stable government and sustained policy bipartisanship. Wishful thinking? Perhaps, after all the Opposition under the leadership of Bill Shorten came within a whisker of ousting a first term government for the first time since 1931.

Mr Shorten — who waited more than a week before formally conceding the election — has indicated that he will look for common ground in this term of parliament. But will he be tempted to adopt the “just say no” stance perfected by then Opposition leader Tony Abbott while Julia Gillard was the nation’s leader?

After all the Labor leader was a genuine winner from the election campaign, despite the ALP securing its second lowest primary vote, of around 35%. In particular the Labor Party and its trade union supporters wooed many swinging voters in marginal seats with a well-orchestrated campaign against a supposed plan to privatise Medicare, the nation’s well-loved health scheme.

Labor lifted its seat count from the 55 it held in the House of Representatives to a projected 69, at the time of writing. That places the ALP within striking distance of securing the necessary 76 seats at the next election, whenever it is held. And it means Labor will be able to help influence the policy agenda by working with the crossbench on key issues.

For instance, Mr Shorten’s call for a Royal Commission into the financial sector struck a chord with a community disillusioned by the behaviour of the big four banks.

While the Coalition vehemently opposes such an inquiry, the Prime Minister may be forced to barter on such issues when he tries to do deals with Senator Xenophon and other crossbench Senators.

For the Labor leader, there will also be a strong temptation to continue to press his reform agenda from the Opposition benches, in the hope of securing support from government MPs angry at their own party’s leadership.

Good government?

Mr Shorten performed strongly through the eight week campaign, adopting a no holds barred approach that sustained him well through to polling day. It will be a test for Labor as to whether it wishes to cut Mr Turnbull any policy slack, in the national interest.

It would benefit the national economy if federal parliament passed the government’s proposed corporate tax cuts, although they are likely to require some fine-tuning. It may well be that Mr Turnbull is required to pare back the benefits for the big end of town, instead focusing on delivering tax cuts to small and medium-sized enterprises.

Other reforms will be just as critical. For instance, Australia’s push to become the innovation hub of South East Asia should be accelerated. The government and Opposition should embrace a unity ticket to ensure that necessary reforms in this area — such as changes to insolvency and bankruptcy laws — quickly pass the parliament.

Just as critically, it will be important to send a resonant message to the global community: that Australia truly is open for business; that the anti-immigration sentiment expressed by One Nation is an isolated instance; and that foreign visitors (such as the one million-plus Chinese flying to Australia each year) are welcome.

Australia and India are also close to signing a trade pact that could open up new opportunities in the booming Asian economy. Hopefully this deal will be one that receives bipartisan support rather than the kind of populist “just say no” approach that could see Australia’s AAA downgraded before year’s end.

Steve Lewis is an author, journalist and senior adviser with Newgate Communications.

This article was first published in the August 2016 issue of Acuity magazine.