First 100 days on target as mandarins face the new climate
The "first 100 days" play-book for Tony Abbott is rolling out pretty much according to plan so far. There have been some misses - the shortage of women in his ministerial team is one - but the new Prime Minister has also executed some classic moves.
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 one 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 promised to fold climate change policies and programs into the industry department, and that was also delivered as part of the 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 the 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 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 a high-risk period for momentum-sapping losses, and the vehicle industry-state government push against the new government's planned $500 million cuts in vehicle industry assistance bears watching.
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 car industry remains to be seen.
Our dollar's jumping
The Australian dollar stayed high on Friday after the US Federal Reserve's decision to delay phasing out its $US85 billion-a-month quantitative easing program, and China and the Fed may have the currency in a pre-Christmas squirrel-grip.
The taper of the US easing program is unlikely to begin before December, given that the Fed has pinned the delay on economic weakness, and NAB says the delay is combining with signs of an economic bounce in China to push up on the value of the $A.
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 $A down to about US85¢ by the end of next year, 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 expected before the Fed put the QE taper on hold. The competitiveness gains for Australian companies that were being booked while the $A was falling are being handed back, and NAB says that if this 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 $A, but does not think this will lead to another cut in the cash rate.
If the currency's leap this week is the beginning of something bigger, the central bank will struggle to avoid cutting rates, Citi 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, however, that if the Reserve agrees with the market that a QE taper is still likely to begin in a few months, it will see the $A's rebound as a fleeting thing 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 to not cut again.
The central bank's current forecasts for the Australian economy assume a $A exchange rate of US90¢, it notes. The $A 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 considered imminent.
Note, by the way, that the Macquarie scenario assumes the $A 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 continued to rise.