To protect AAA, Federal Government needs to control age pension and manage the Force from the North

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:

Australia could be about to lose its AAA rating, and here’s why

Ross noted:

“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:

PC calls for partial inclusion of family home in pension means test

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.

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5 Responses to To protect AAA, Federal Government needs to control age pension and manage the Force from the North

  1. cairnseconomy says:

    It isn’t clear to me that the independents have quite the political clout they portray. The outcome of the last hung parliament in 2010 was that the King/Queen maker independents supported a Government not naturally consistent with their own constituency. They were subsequently forced out and notably haven’t been returned this time despite high profile national campaigns.

    Similarly there has been much comment that the Katter vote in Kennedy was a big swing from 2013. Yes. Katter was run close to the line last time after the hung parliament and given a big scare. This swing doesn’t go close to restoring his 2010 position.

    I often have problems with where Katter’s head is at but think he knows what would happen in Kennedy if he sunk a Conservative Gummint. McGowan in Indi would be political toast if she didn’t support the Coalition.

  2. Jim says:

    Fortunately it looks like the Coalition may now be in a position to achieve majority government (I hope so). Even if they do require support from the cross-bench, I hope Mr Katter will be at the back of the line when it comes to negotiations (a nice way of saying negotiating bribes for independents).

    Simply, the price of Mr Katter’s vote is excessive high (several hundred $M for the dam and associated infrastructure like roads to nowhere, an ongoing subsidy to cover the cost of debt (at a minimum), and significantly greater risk to the tourism industry attributable to more damage to the GBR).

    • Gene Tunny says:

      Good points, Jim. I would think however that even though the Coalition will most likely have a majority, I expect Katter will still be powerful because he can pressure some of the Nationals to stand up for the Northern regions. I suspect we’ll be seeing a lot of the Force from the North over the next few years!

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