Abbott's casualties pile up in orderly fashion
The abolition of the Climate Commission that Julia Gillard set up in 2011 was one. The government will need to legislate away other Labor creations including the Clean Energy Finance Corporation and the Climate Change Authority, but the Climate Commission was capable of being killed off with a phone call, and new Environment Minister Greg Hunt dialled Climate Commission head Tim Flannery's number on Thursday.
One of the key "100 day" tasks for incoming chief executives is to make some early moves that signal a new direction. Axing the Climate Commission fits the bill.
Abbott had also promised to fold climate change policies and programs into the Industry Department. That was also delivered cleanly, as part of a wider departmental rationalisation and leadership spill on Wednesday.
The replacement of Agriculture Department head and former Immigration Department head Andrew Metcalfe and Department of Innovation secretary Don Russell and announcement that Treasury secretary Martin Parkinson would step down after the budget next year surprised some, but being a quality executive is sometimes not enough in the first 100 days.
Parkinson was instrumental in the design of the carbon tax/carbon trading scheme that the Abbott government intends to axe. Metcalfe implemented Labor's asylum seeker policies until he moved to Agriculture last January, and Don Russell is a former key Labor government adviser. They were targets in a restructure that included "100 day" aims of jettisoning baggage from the previous regime and sending a message to the public service that the government has new goals.
The first 100 days are also a high-risk period for momentum-sapping losses, and the gathering vehicle industry-state government push against the new government's planned $500 million cut in direct vehicle industry assistance bears watching in that respect.
Industry Minister Ian Macfarlane says he wants to finalise a deal with Holden that secures its manufacturing future by the end of the year. Whether the government can do that without ditching its earlier commitment to reduce the taxpayer stipend for the industry remains to be seen.
Reserve's dollar dilemma
The Australian dollar stayed high on Friday in the wake of the US Federal Reserve's decision to delay the phasing out of its $US85 billion-a-month quantitative easing (QE) program, and China and the Fed may have the currency in a pre-Christmas squirrel-grip.
The taper is unlikely to begin before December given that the Fed has pinned the delay on economic weakness, and NAB says that the delay is combining with signs of an economic bounce in China to push up the value of the Australian dollar.
A taper of quantitative easing next year, a continued commodity price down-shift from the unsustainable peaks of the resources boom and no rate rises from the Reserve Bank until 2015 could push the Australian dollar down to about US85¢ by the end of 2014, NAB says, but it says the currency could spend time around US95¢ now, and head into Christmas above US90¢.
That is a tougher environment for the Australian economy than was expected before the Fed put the QE taper on hold. Competitiveness gains for Australian companies that were being booked while the Australian dollar was falling are being handed back, and NAB says that if it continues to the end of the year, the Reserve will probably cut its cash rate.
Citibank agrees that the Fed's decision to defer the taper and downgrade its US growth forecasts pushes up on the Australian dollar, but it does not foresee another cash-rate cut.
If the currency's leap this week is the beginning of something bigger, the central bank will struggle to avoid cutting rates, it says. The Reserve's regular references this year to the stubborn strength of the currency in the face of rate cuts and softer commodity prices reveal its sensitivity.
Citi says that if the Reserve agrees with the market that a QE taper is likely in a few months, it will see the Australian dollar's rebound as fleeting and keep its finger off the rate-cut trigger.
Macquarie Private Wealth's take is that the delay in the taper potentially shifts the Reserve from looking for reasons to cut again to looking for reasons not to cut again.
The central bank's current forecasts for the Australian economy assume an Australian dollar exchange rate of US90¢, it notes. The Australian dollar was still elevated at US94.45¢ on Friday afternoon, and the Reserve's economic growth and inflation forecasts would both have to be cut by about a quarter of a percentage point if it stayed at those levels. Macquarie says a downgraded growth forecast would be released in November, paving the way for a new cash-rate cut if the start of the Fed's QE taper was not imminent.
Note, by the way, that the Macquarie scenario assumes that the Australian dollar holds around current levels. The pressure on trade-exposed parts of the economy and the likelihood of cash-rate cuts or even fiscal assistance from the freshly minted Abbott government would be even greater if it rose.
mmaiden@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
Abbott has executed several high-profile first-100-day moves that signal policy shifts: he ordered the abolition of the Climate Commission, folded climate-change programs into the Industry Department, and drove a departmental reshuffle that replaced senior public servants. These actions are meant to send a message that the government has new priorities and could affect sectors exposed to climate and industry policy.
The Climate Commission — created under Julia Gillard in 2011 — was cut quickly by the new government (the article notes Environment Minister Greg Hunt rang Commission head Tim Flannery). While the Commission could be killed off by administrative action, other Labor-era entities such as the Clean Energy Finance Corporation and the Climate Change Authority would require legislation to be dismantled. Climate policy responsibilities are being moved into the Industry Department.
The reshuffle replaced figures including Agriculture boss Andrew Metcalfe and Innovation secretary Don Russell, and announced Treasury secretary Martin Parkinson would step down after next year’s budget. These moves were framed as removing 'baggage' from the previous regime and aligning the public service with new government goals. For investors, changes at the top of departments can signal shifts in policy direction and regulatory priorities that may affect sector prospects.
The Abbott government planned a $500 million reduction in direct vehicle industry assistance, prompting a push from vehicle makers and state governments. Industry Minister Ian Macfarlane said he wants a deal with Holden that secures its manufacturing future by year’s end, but it’s unclear whether that can be done without reversing the commitment to reduce the taxpayer stipend. Investors in auto-related companies should watch negotiations closely because policy changes could affect manufacturing viability and local supply chains.
The Fed’s decision to delay phasing out its US$85 billion-per-month QE program, combined with signs of an economic bounce in China, pushed the Australian dollar higher. Banks noted the delay is keeping the AUD elevated — around US95¢ in the article’s period — and could carry it above US90¢ into Christmas. The timing of any future taper is a key driver for the currency.
NAB says the QE delay and China’s recovery are lifting the AUD and that a taper next year plus weaker commodity prices and no RBA rate rises until 2015 could push the AUD toward US85¢ by end-2014, though it could be around US95¢ now. Citibank agrees the Fed delay lifts the AUD but does not foresee another RBA cash-rate cut and sees a rebound as possibly fleeting if taper returns. Macquarie suggests the delay may shift the RBA from looking for reasons to cut rates to looking for reasons not to cut.
A higher AUD makes the operating environment tougher for trade-exposed companies because competitiveness gains from earlier currency falls are being given back. That raises pressure on exporters and manufacturers, and could increase the likelihood of central-bank rate cuts or fiscal support measures to shore up growth in affected parts of the economy.
The article says the Fed’s taper was unlikely to begin before December given weak US data at the time. If tapering is delayed further, the AUD could remain elevated; if tapering begins next year, combined with falling commodity prices and no RBA rate rises until 2015, the AUD could decline toward about US85¢. A prolonged high currency could prompt the Reserve Bank to cut its cash rate or lead to downgraded growth forecasts that make rate cuts more likely.
Call 1300 880 160
Start a chat
Schedule a call
