McLARTY AUSTRALIA UPDATE: PM Morrison’s tenure extended in surprise victory

May 20, 2019

KEY POINTS:

Incumbent PM Scott Morrison led his Liberal-National Coalition (LNC) to a stunning victory in Australian national elections on May 18, even though the LNC trailed the opposition Australian Labor Party (ALP) in polls from the time Morrison became Prime Minister in August 2018 to the day of the election.
ALP Leader Bill Shorten ran largely on climate change and economic issues – income inequality, social safety net, rising cost of living, stagnant wages, education. PM Morrison’s message was that Labor’s spending would upend the budget and end Australia’s long run of economic growth.
The bottom line for companies is continuity and an LNC better positioned to act on a pro business agenda of tax cuts and support for all industries – manufacturing, services, agriculture, and mining.

A re-election victory no one expected for PM Scott Morrison

Although the LNC was consistently behind the ALP in polls, incumbent Morrison remained preferred Prime Minister against Bill Shorten. Morrison, 51, is an evangelical Christian, the first to hold the PM position in Australia. He has expressed admiration for President Trump and his victory was termed by the New York Times Australia bureau chief as “another swell in the wave of populist fervor” seen in the US, UK, and parts of Europe. Others, however, saw the election more as a desire for stability after repeated and rapid turnover in government: in August 2018 Morrison became the fifth Prime Minister in five years, and since 2007 there have been three LNC Prime Ministers in six years and two ALP Prime Ministers in the prior six years. While Australians clearly have concerns about climate change and economic and social issues pushed by Labor, observers see Shorten’s positions as overreach and an electorate that rejected sweeping change.

The LNC is made up of the Liberal (center right) and National (rural/agribusiness focus) parties. Morrison is a fiscal conservative and was favored by the business community. He previously served as immigration minister and embraced a strident policy of stopping asylum seekers arriving by boat. With his two predecessors out of government (former PM Tony Abbott lost his seat; Malcolm Turnbull resigned) along with the departure of other popular LNC leaders such as Former Foreign Minister Julie Bishop, Morrison has consolidated power, and with the strong possibility of an absolute LNC majority, his sweeping victory is seen by many as the beginning of a “Morrison era.”

Parallels were seen with the rise and victory of President Trump, not only because Morrison defied the polls. Morrison, who called for tax cuts, restricting immigration, protecting jobs from Labor’s push for renewable energy and fighting climate change, called his victory a win for “quiet Australians.” Although strident on some issues, however, his style is very different than the American President’s. Morrison campaigned as a regular guy, often in a baseball cap. Academics, media, pollsters and betters alike found the election result a complete shock.

Balance Between the US and China

The balance between the long-standing alliance with the US and the allure of Chinese markets was in the background but in play in the election. Shortly before the election, Shorten said that he that he saw China not as a “strategic threat,” but as a “strategic opportunity.” In interviews, he said he would reverse the government’s ban on Huawei, and indicated that the ALP was open to signing on to the Belt and Road program. In 2016, Shorten once referred to some of President Trump’s views as “barking mad.”

In foreign policy and defense white papers and official policies, Australia has taken a very nuanced stance toward China, emphasizing both its strong alliance with the United States and the importance of Chinese markets.

Australia regularly has expressed concern about Chinese interference in Australian politics, its attempts to expand its reach with companies, universities, and ethnic Chinese citizens, and about human rights abuses in China. But the country also is well aware that its economy long has benefited from exports of iron ore, coal, and other natural materials to China, as well as from Chinese tourists, students, and investment. Morrison straddles the divide. When asked recently about the US-China trade war, Morrison said he wouldn’t choose sides: “You stand by your friends, and you stand by your customers as well.” Chinese media favored a Labor victory. President Trump congratulated Morrison on his “great win” and his administration will welcome the continuation of the more conservative government.

US-Australia relations going forward

A continued Morrison administration clearly is more in line with current US policies than a Shorten administration would have been on issues such as climate change, tax policy, and government spending. However, both would have continued Canberra’s strong reliance on the security alliance with the US. Both would have continued to express concern about China’s assertiveness in the South China Sea and cyber threats. Both would have continued to extol the “economic relationship” with the US, whose combined investment and trade far exceeds that of China, the current #1 trading partner. The US and Australia have a free trade agreement, seen as beneficial to both countries, and Australia was exempted from the US steel and aluminum tariffs – perhaps because the US has a small trade surplus with Australia.

But while the strength of the US alliance and economic ties regularly are emphasized, Australia is always cognizant of China’s growing role in Asia and has differences with the US on some issues, such as trade. With Japan, Australia was a leader in turning the TPP into the CPTPP with nine other countries and is a participant in the RCEP negotiation (the ASEAN-lead Regional Comprehensive Economic Partnership), which includes China, India, Japan, Korea and New Zealand along with the 10 ASEAN countries.

What’s next?

President Trump’s first appointed ambassador to Australia, A.B. Culvahouse, was confirmed by the Senate on January 2019 and began his service in March. A distinguished Republican attorney who has served in Republican administrations and for Republican candidates since Ronald Reagan, Culvahouse’s appointment was applauded in Australia and seen as helping to strengthen existing ties and increase communication between the two countries. The White House said President Trump and Mr. Morrison had spoken by phone and “pledged to continue their close co-operation on shared priorities”.

With his new mandate, Morrison will pursue a pro business agenda centered on minimizing government intervention and fiscal prudence, will welcome US trade and investment, and support US efforts to counter terrorism and cybercrime. He also has prioritized strong service delivery in the Australia health system – medicines, the National Disability Insurance Scheme (NDIS), mental health and youth suicide prevention. US and Australian policies generally align on security in the Indo-Pacific and Middle East. Australia is a member of the G20 and the leaders will meet at the 2019 summit in Osaka, Japan at the end of June.

McLarty’s Southeast Asia & The Pacific team would be pleased to discuss the right approach for pursuing your agenda; For more information, contact John Mullen (jmullen@maglobal.com).