What an extraordinary week it has been! We began the week with no clear election winner and the prospect of a hung parliament, and now we end it with the strong likelihood the Government is back with a majority of one or two seats, or only having to rely upon the self-styled Force from the North, Bob Katter, for confidence and supply. So the Government will be returned, although with a greatly reduced ability to get its agenda implemented, which as others have noted makes the Budget repair task even more challenging and the threat to our AAA rating even greater. For example, Griffith University Economics Professor Ross Guest had an excellent piece published at the Conversation following the announcement there is now a negative outlook on our AAA credit rating from S&P:
“In short, there is little or no prospect of achieving the budget repair that is a pre-requisite for maintaining Australia’s AAA credit rating. Both sides of politics need to spell out to all Australians what this means. The effect of a credit downgrade is like an income cut to households, businesses and government.”
This is a very pessimistic assessment from Ross and, alas, probably an accurate one. That said, the Government should continue to argue the case for Budget repair and, given the urgency, should start preparing the public for the even stronger expenditure control measures that will eventually be required to fix the Budget. I have long argued for courageous (i.e. politically unpopular) changes. For example, with a cost of more than $40 billion per year and strong growth due to the ageing of the population, I have previously noted the age pension is a prime candidate for reform:
At the same time as the Federal Government makes the case for expenditure restraint and implements whatever savings measures it can pass in the new parliament, it needs to maintain its discipline in the face of pressure from the Force from the North to immediately invest in new infrastructure in North Queensland. Mr Katter wants the proposed Hell’s Gate dam on the upper Burdekin built, and does not want to wait for another feasibility study report (see Katter names dam as his price). However, others in the region rightly do see the need for feasibility study work, including Townsville Mayor Jenny Hill (see this Townsville Bulletin report from March). The Government faces a tough challenge in managing the Force from the North, and it will be important to impress upon him the need for the necessary feasibility studies to ensure that high valued projects, rather than white elephants, are delivered to North Queensland.