WITH FRIENDS LIKE THESE…

At a Glance

Post budget, the desired ‘bounce in the polls’ seems to have eluded the Turnbull Government.

In my 25 years-experience it’s rare to see a budget, even one that was generally well received, turn around a Governments electoral fortunes immediately. The political success or otherwise of the budget, will be clearer in 6 months and not just 4 weeks after it was handed down.

One would imagine a continuing concern for the Government would be that their primary vote continues to languish around 36%.  Malcolm Turnbull cannot be re-elected on a primary vote this low.

At the July 2016 Federal election, the Government scrapped over the line with a one seat majority with 42% of the vote. in the 17/18 budget, there was one proposal designed to capture votes – the $6 billion bank levy.

A Liberal Government is always seen as a natural ally of big business, but this one measure in itself led by the Prime Minister, a former banker, shows that for big business in particular, all bets are off when it comes to natural allies in Canberra.

Low Hanging Fruit

The announcement of the bank levy, while taking the banks by surprise has certainly been strongly welcomed by the community.

In his post speech, the Treasurer warned the banks not to pass the levy onto consumers in saying, “They really don’t like you”, in referring to ‘they’ , he was speaking on behalf of the community.

The imposition of the bank levy offers several lessons for business to heed more generally.

Firstly, if the Government can impose a $6 billion tax on the banks then it can similarly act at will in regard to any other industry that has lost both community and political support.

The banks were completely blind-sided, there was no consultation with them by the Government.  If there ever was a single demonstration of what political risk looks like, this was it.

Secondly, while banks have never been popular, after years of numerous inquiries, consumer complaints, warnings from politicians, regulators and consumer bodies, banks have learnt what ignoring those warnings now costs – $6 billion and a near permanent stain on their reputation.

With the Coalition, more than willing to throw what would have been considered a natural business ally under the bus, it would be foolish for other industries to sit back and say ‘this couldn’t happen to us’.

Any large industry, with a major consumer presence, has to be alert to the concerns of its customers, the community and politicians.  It about managing and constantly improving their social licence to operate.

It’s clear that politicians, regardless of their political persuasion are not going to go into bat for big business.  Quite simply, there are no votes in doing so.

Politically, the banks have managed to effectively unite both major parties against them – that in itself is quite a feat.

In this environment, big business is facing heightened political risk and needs to be actively managing their political risk profile in their engagement with Canberra.  Not to do so puts them at risk of being the next piece of low hanging fruit that the Government may choose to target in their desire for votes.

Start Planning for the Next Federal Election

If you cast your mind back to October last year Insight Strategy predicted that the next Federal election was most likely to be held in the latter half of 2018.

Essentially, there are three key reasons for this:

  • The Senate
  • The Victorian State election
  • The NSW State election

Last year’s double dissolution election meant that half the Senate was elected for three year terms, which expire on 30 June 2019.

As a consequence, the latest a simultaneous House and Senate election can be held is the 18th May 2019, in order to meet both constitutional and electoral law requirements.

The Victorian state election is fixed at the end of November 2018, as is the NSW state election at the end of March 2019.  This gives the Turnbull Government a limited window in which to hold a federal election.

The Prime Minister needs to be able to engage the electorate in which to articulate his policies and vision for the nation’s future and this requires time.

Remember as well, a minimum 33 days is required to pass from the calling of the election to holding the election.

Hypothetically, if the Prime Minister wanted to call the Federal election after the NSW election, it would mean calling the election around mid-April 2019.  This would also overlap with both Easter and Anzac Day limiting their campaign opportunities.

Most Governments want a minimum of 6 months without other events (such as state elections) interfering with their campaign strategy in which to ‘sell its message’ and persuade the electorate.

For these reasons, Insight Strategy is predicting the next federal poll will be in August/September 2018.

Business needs to be factoring this into their forward planning and also begin considering what a change in Government might mean for their business objectives given the current state of the polls.

2018 will be a busy election year all round.  State elections are due in Tasmania, South Australia and Queensland in early 2018, and the Victorian election in late November.

It’s going to be a challenging year for business, as they to prepare for 5 elections in one year. Businesses need to build this into their forward strategic planning and their approach to political risk management and Government engagement strategies.

Conclusion

Let the $6 billion bank levy serve as warning to all businesses of what the implications can be if they don’t listen to consumer, customer and political concerns.

It is unprecedented for one industry sector to be hit with a $6 billion levy and not be part of the dialogue.  A good conversation with Canberra, requires business to be an equally good listener. There is no point going to Canberra just to broadcast your message, if you also don’t plan on addressing concerns political stakeholders have raised.

In the current political environment being ‘big’ is almost synonymous with being ‘bad’.  The community will automatically look to any ‘big’ business with a degree of cynicism and suspicion.

Any business that falls into this category needs to make sure they are carefully managing their message with Canberra and consumers.

As the banks have discovered,  these are interesting political times .  The question is who could be next, as both parties seek votes in time for the 2018 election?

For more information, in regards to this or any other public affairs issue you may require assistance with please don’t hesitate to contact me or visit the Insight Strategy website at www.insightstrategy.com.au

Image credit: Financial Review

POLITICAL TARGETS

At a Glance

The Federal Parliament is now in recess until the May Budget, with the Government looking to ‘lock down’ it down. The budget remains a major issue for the Government facing the ongoing challenge of ‘debt and deficit’.

Scott Morrison is seeking the political kudos that comes from being perceived as ‘a superior economic manager’, but budget repair is proving ever more elusive. Continue reading “POLITICAL TARGETS”

HAPPY NEW YEAR MR. TURNBULL?

At a Glance

It’s been a challenging start to the year for the Government.

In January, the then Minister for Health was caught up in a travel rorts scandal that led to her resignation.  Senator Bernardi jumped ship to the Senate crossbench and George Christensen MP is looking ever more likely to join the crossbenchers in the House of Representatives, having announced his resignation as a parliamentary whip.

Couple this with the latest Newspoll showing the Government trailing the Opposition by 45-55 on a two-party preferred basis.

If the first two months are any indication, the Prime Minister is in for a rough ride for the rest of 2017. Continue reading “HAPPY NEW YEAR MR. TURNBULL?”

LESSONS FROM THE TRUMP VICTORY

At a Glance

Wow!  What an outcome.  Donald Trump is President-elect of the USA – a result no one saw coming accept his die-hard supporters and very few political pundits.

The Trump victory has proved that in politics never count your chickens until they are hatched.

What might the lessons be for Australian politics?  What messages can we take away and what might business learn from what is widely seen as an upset victory.

First and foremost, never presume.  Never presume that the Government of the day can’t lose and the Opposition can’t win.

Never presume that the policy environment you and your industry currently operate in will be the same policy environment tomorrow.

The one key message from the Trump victory is that presumption, in politics, is risky.

We Have Seen it Before

There are two events in recent Australian political history that prove business should never presume.

Cast your mind back to 2009 when Tony Abbott became Opposition Leader. Keven Rudd was Prime Minister and the prevailing view was that Tony Abbott was, in effect a ‘stop gap’ leader.  At the time, very few believed he would go on to be Prime Minister.

Here, history has shown us never to presume.

In 2012 Campbell Newman became Premier of Queensland winning with the largest electoral landslide in Australian political history.  Holding a 67-seat majority, many in business had pencilled in a decade of LNP rule.  A short 3 years later, at the 2015 election both the Government was gone and so was Campbell Newman (who unbelievably lost his own seat).

It is worth noting that prior to the election, the Queensland Government had made a major commitment to a privatisation program, the proposed asset sales would have raised billions of dollars.

Business quite rationally started to prepare for the sales program on the basis the Campbell Government would be re-elected.  This turned out to be a false presumption.

These two examples alone demonstrate that in the current environment politics is both fickle, fluid and constantly changing.

It means that business need to be constantly assessing and evolving their political risk management strategy.

 Food for Thought

Another example of an industry facing heightened political risk is currently playing out in the Parliament.

The Government currently has before the Federal Parliament a package of Bills to reform the vocational education and training sector.  This follows a litany of complaints and publicity in regards to unscrupulous operators in the sector.

This industry was put on notice that reform was coming, having been flagged earlier this year by the Government.

What has taken many by surprise is the speed with which the government is now seeking to implement these reforms.

The package of Bills was only introduced into the Parliament in mid-October and will most likely be passed by the Senate this week, with the changes due to take effect on 1 January 2017.

This is a very short period for the industry to adjust and implement major structural changes.

It is a tangible example of political risk in action. A major industry sector has become defined by the bad operators.  The Government and Opposition are united in their support for a crackdown in this sector.  This will have a major impact on the reputable operators that will remain.

This example, highlights the stark reality of how the actions of Government can and will have a major impact on an industry sector, where the disruption and cost will be significant.

Business as Usual?

 After the Trump victory, can we truly say that it’s “business as usual”?

Business can no longer take for granted that the community will accept that, what is good for business, is good for the community, in terms of their individual economic outcomes.

Politicians are ultimately representatives of the community.  In this political environment politicians, will be increasingly wary of being seen to support policies that just benefit business to the exclusion of individual voters and the community at large.

That is why the Government’s ability to pass large scale tax cuts for big business is proving so difficult.

The term “big” in itself has become a term of derision when it relates to business.

Last week, the ABS reported that wages growth for the July-September quarter was the lowest on record at 0.4% and annual wages growth was only 1.9%.  The legions of people experiencing stagnating or marginal wages growth will be asking themselves… how will a corporate tax cut for big business be of benefit to them?

The electorate is sceptical that a corporate tax cut will lead to increased wages.  They are more of the opinion that these benefits will be passed onto shareholders or perhaps even higher salaries for CEOs.

This is the challenge that the major political parties face and it is the strain of resentment and anger that Donald Trump tapped into.

Australia is Not Immune

‘The Trump Phenomenon’ has already played out in Australia in several ways.

  1. Firstly, at the recent federal election, Pauline Hanson’s One Nation Party received 500,000 votes and won 4 Senators.
  2. In the Senate, there are now 20 crossbenchers, (an all-time high), where 1 in 3 voters now refuse to vote for the major political parties.
  3. In the House of Representatives, approximately 1 in 4 voters now vote for minor parties.

This fracturing of the vote is a manifestation of a reaction against the established parties.  The community are sending a very clear message they will vote with their heart, not their head –  no matter how illogical or impracticable the alternative parties policies may be.

This phenomenon, at its core, means that political risk is heightened and will continue to be so for quite some time to come.  Businesses who ignore this message leave themselves exposed to significant commercial risk.

Conclusion

The Trump victory has proven that in politics and policy, the only certainty is uncertainty.

For businesses to prosper they usuallly require both policy and political certainty.  While this is not an unrealistic expectation, it’s not necessarily realistic in the current political setting.

The political environment is challenging and this means political risk is ever present and business needs to manage, mitigate and minimise political risk like never before.

Be it Trump in the US, Brexit in the UK, One Nation in Australia or 20 crossbenchers in the Senate.

It’s a new world order for business when it comes to politics.

Political disruption is here to stay.  Business needs to take this seriously and plan accordingly.

With the Trump victory, fresh in our minds, be sure to watch out for the French Presidential election in April 2017 (where Marine Le Pen of the right wing National Front is doing very well in the polls).

It will be fascinating to observe how this “phenomenon” plays out in the Australian Parliament in 2017 in regards to policy positions parties seek to adopt.

For more information, in regards to this or any other public affairs issue you may require assistance with please don’t hesitate to contact me or visit the Insight Strategy website at http://www.insightstrategy.com.au

THE AGE OF UNCERTAINTY

At a Glance

With only three sitting weeks remaining until the end of the parliamentary year – 2016 has been a lost year for economic reform. Furthermore, the Prime Ministers declining approval rating has made the Governments reform agenda evermore difficult to achieve.

Big Business faces an unsettling political environment, with a narrowly returned Government and a Prime Minister facing a disappointed electorate. It’s a potentially volatile situation that can only lead to increased uncertainty for a business community desperate for economic reform.

Many of the government policy initiatives that are of interest to business remain outstanding. Including the following:

  • Company tax cuts
  • Changes to superannuation laws
  • The backpacker tax

In addition to the uncertainty in and around these key initiatives, Treasurer Morrison will release the Mid-Year Economic and Fiscal Outlook (MYEFO) in December. This MYEFO update provides an indication of the current state of the budget and the business community will be looking to see evidence that the budget is back on track to surplus.

Bear in mind, the Governments proposed changes to superannuation (due to come into effect on 1 July 2017), may not actually be passed into law until as late as May 2017.

It’s historically unprecedented to give business such a short period of time to prepare for a major changes to the superannuation laws. With billions of dollars of Australian’s retirement savings in play, and the Australian superannuation sector representing $2 trillion dollars in assets – the next 6 months will be a nervous time for the industry and superannuants.

An atmosphere of business uncertainty always goes hand in hand with increased political risk and without significant economic reform the business community has indeed entered “an age of uncertainty”

The First Turnbull Budget

The Federal Budget was bought down in May just before the Parliament was dissolved for the July election.

The timing of the last election meant that the Budget Bills were only recently passed in the House of Representatives.  As parliament gets set to go on its Christmas break, these delays contribute to the back log of legislation required to be passed.

Adding to budget concerns is the advice provided by the Department of Finance to the re-elected Turnbull Government that highlighted $18 billion in unlegislated budget savings measures (this has now been reduced to $12 billion). This will make the release of MYEFO in December of much interest to the business community and public at large.

If the Governments savings measures cannot be passed into law, cuts will have to be found elsewhere in the budget for the government to achieve their fiscal targets.

Given these challenges, I think it is safe to say that big business can expect to kiss their promised company tax cut goodbye.

The Government should anticipate seeing  its proposed $50 billion company tax cut over 10 years, significantly scaled back by the Senate.

Given recent statements by Labor, the Greens and Senator Xenophon on tax reform- the Governments best case scenario for its agenda is tax relief for companies with annual revenue of $10m or less.

The 2017/18 Budget is Vital

The reality of the current electoral cycle is that the 2017/18 Federal Budget provides the Turnbull government with its only opportunity to implement policies that will be of benefit to the business community.

While all budgets are important, it’s possible that this will be the only budget to be considered, in its entirety by the Parliament before we go to the polls again.

I can hear many of you asking… how could this be?

Consider this, the next federal election has to be called between 1 July 2018 and 12 March 2019, and this timeline rules out a May 2019 budget.

So what does this mean for the May 2018 budget?

The Turnbull Government will deliver a May 2018 budget, which will be in effect, its election budget. This is because the Government will most likely be going to the polls in either August, September or at the latest October 2018.

This timing has major implications for the Turnbull Government being able to legislate any 2018 business-friendly budget measures into law.

The Government has a very small window of opportunity in which to hold the next federal election.  The simple reason being the Victorian state election is due to be held on 24 November 2018 and the NSW state election is due to be held on 23 March 2019.

This impacts on the Government ability to use the May 2018 budget to legislate major policy changes that could benefit the business community.

Would the Turnbull Government want to call the next federal election and have it overlap with either the Victorian or NSW state campaigns?  This would risk antagonising the electors of the two biggest states, and severely hinders when the Turnbull Government can call the next election.

This means the May 2017 federal budget could well be the Governments best hope in convincing the business community that they are serious about achieving economic reform.

Effectively this Parliament is looking at a two-year life span before the nation goes to the polls again.  This means the business community is facing a potential two-year electoral cycle for the Government to legislate any major reform initiatives.

The business community are traditionally supporters of a Coalition Government. Given the Prime Minister is a former investment banker, it has been surprising to see that he has failed to garner their support while in office.

This factor, combined with the complexity of the Senate, creates an environment where the only certainty for business is more uncertainty and a heightened state of political risk.

Conclusion

The Government continues to face both major budgetary and legislative challenges in pushing its reform agenda through the Parliament.

In the last Parliament, under Malcolm Turnbull the Government struggled to pass key legislation into law.  We may well be about to see history repeating itself.

With only three sitting weeks to go, key initiatives such as the corporate tax cut, backpacker tax (due to take effect on 1 Jan) and superannuation changes (due to take effect on 1 July) remain unlegislated.

Business tends to look to a Coalition Government to provide them with stability. However, the last 12 months has been a roller-coaster for the business community.

It would be a very bold CEO or company board that could plan with confidence in this political environment.  Just ask the major bank CEOs what their thoughts currently are in regards to political uncertainty?

This could well mean the May 2017 budget represents the Turnbull Governments last chance to show they can provide the certainty, the business community so desperately desires.

For more information, in regards to this or any other public affairs issue you may require assistance with please don’t hesitate to contact me or visit the Insight Strategy website at www.insightstrategy.com.au

 

DO YOU UNDERSTAND POLITICAL RISK?

In my 25 years of public policy experience I have seen many clients invest enormous time and effort in establishing complex and integrated risk management frameworks, but the concept of political risk and how it can impact on their business or corporate objectives -often fails to receive the same level of attention.

As a public affairs specialist, assisting companies and organisations in managing political risk is at the core of what I do. Continue reading “DO YOU UNDERSTAND POLITICAL RISK?”