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Economy feeling the impact of coronavirus
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Fears over the economic impact of coronavirus continue to grow, with the effects being felt from mining, to agriculture and health care.
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More than 99 per cent of cases are in mainland China, with the government locking down large parts of the country in an effort to contain the spread of the disease, now named COVID-19.
Australia’s resources sector is already feeling the impacts of the shutdown, with concerns that Chinese commodity importers may use force majeure clauses allowing them to suspend deliveries without penalty. About 40 per cent of Australia’s LNG exports go to China, and it exports more than A$60 billion a year worth of iron ore to the country.
Iron ore is Australia’s most important export to China, and its price fell 11 per cent in January. That will not only hurt the bottom line of resources firms, but will have a flow-on effect to the federal budget, which relies heavily on tax revenue from miners.
The Chinese slowdown is being felt in other areas as well, with meat exporters reporting that product has been stuck in ports due to a lack of workers to unload vessels. Australia shipped almost 300,000 tonnes of beef to China last year. Meanwhile, China’s ban on seafood imports has left producers with unsold product.
Australia’s ban on travel from mainland China has dramatically affected the tourism industry and the nation’s universities, who rely heavily on fees from foreign students, with Chinese students accounting for 27 per cent of enrolments. The health care sector is also feeling the pressure, with hearing implant maker Cochlear cutting its profit outlook due to Chinese hospitals putting off surgeries, lowering demand for its products.
The construction industry is also reporting difficulties, with concerns over the supply of building materials from China. A shortage of supplies could lead to a slowdown in construction, which is one of the key economic levers the government can pull to create jobs.
UBS expects the Australian economy to shrink by 0.1 per cent this quarter as a result of the outbreak; the bank’s weakest forecast for Australia since the global financial crisis.
The economic impact will increase pressure on the federal government to intervene with increased expenditure in an effort to soften the blow, but will come as the government can expect lower revenue as a result of the slowdown.
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To be honest, a virus is more powerful in creating political, economic and social upheaval than any terrorist attack.
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— WHO Director, Tedros Adhanom Ghebreyesus
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Budget surplus hopes slip further
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The federal government’s forecast budget surplus is under increasing pressure, as coronavirus and the impacts of the summer fires continue to take their toll on the government’s bottom line.
The most recent set of financial statements from the Department of Finance show that the deficit for the year to the end of December was A$15.2 billion, which is A$1.2 billion larger than the deficit estimated in the mid-year economic update. The statements also reveal that the government’s total receipts were A$309 million lower than the mid-year update, while payments were A$701 million higher.
The main culprit is lower-than-expected company tax revenue, which is down A$500 million on what was forecast. With another six months of the financial year to run, and the full impact of coronavirus and the fires yet to be felt, that number is likely to grow, particularly as company tax accounts for nearly 20 per cent of government revenue.
The result is putting further pressure on the federal government, which had made much of its delivery of a budget surplus. In delivering his budget speech ahead of last year’s federal election, Treasurer Josh Frydenberg opened with, “I announce that the budget is back in the black and Australia is back on track.”
More recently, the government has softened its messaging, saying the a budget surplus was not its primary focus and that the surplus is there to deal with emergencies such as the fires and coronavirus.
The federal opposition has been attempting to pressure the government over the possibility of it not delivering a surplus, with Shadow Treasurer Jim Chalmers telling media that the surplus is a test the government has set for itself. Commentary around the issue suggests that should the government stick with the surplus it would suffer negative headlines any time a community revealed they had not received government assistance.
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Treasurer Josh Frydenberg faces a difficult challenge in attempting to deliver the government’s forecast budget surplus. |
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Government faces more stability questions
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The federal government faced another week of questioning over the stability of the Coalition between the Liberal and National parties.
Commentary around the government focussed on instability within the Nationals, and the possibility that it could break out into open dissent within the government. This came to a head when the government lost its bid to install a National Party MP as deputy speaker of the House of Representatives.
Instead, the opposition Labor Party proposed a different candidate, a National Party backbencher who had been critical of his party’s leader in what was seen as a bit to cause trouble for the government. Crossbench MPs combined with Labor and a number of National MPs to back the Labor proposal.
The fact that the government was unable to place its preferred candidate in the role was seen as an embarrassing loss, and an example of the disunity within government ranks that commentators see continuing for the foreseeable future.
In the Senate, the government faced the prospect of having its union legislation defeated again when crossbench Senator Jacqui Lambie threatened to vote against it unless the government released a report into the sporting grants affair.
That issue will remain in the media throughout the week, with a Senate inquiry into the government’s allocation of sporting grants to marginal electorates ahead of the last election already generating headlines.
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Virus response provides political boost
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Prime Minister Scott Morrison’s approval rating continues to drag, although the government’s response to the coronavirus outbreak is proving popular with voters, suggesting it may be regaining some momentum.
According to the latest Essential poll, Mr Morrison’s approval rating sits on 39 per cent, with more than half the sample (52 per cent) disapproving of his performance. This is in contrast to the prime minister’s approval at the end of 2019, when it stood at 45 per cent.
Voters’ opinion of Mr Morrison dropped over the summer due to what many saw as an inadequate response to the unprecedented bushfire crisis. However, the government’s response to the coronavirus outbreak is a different story, with more than 80 per cent of voters – across party lines – approving of the government’s various measures to contain the outbreak.
Commentary around the results from Essential executive director Peter Lewis suggest the government’s handling of the virus show that Mr Morrison has “seized the initiative in a time of crisis”.
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Submarine program under pressure
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The Attack class submarine program is under increasing pressure, with the federal opposition stepping up its questioning of the government over local industry content.
Labor questioned the government in parliament over the level of local involvement in the A$80 billion project after the chief executive of Naval Group Australia, John Davis, told media the company may not meet a commitment to have 50 per cent Australian content by value on the boats. Mr Davis added that the capability of Australian suppliers was presenting challenges for the French company.
His comments came a week after the Minister for Defence Industry, Melissa Price, said she would audit major foreign defence contractors over their use of Australian content. Opposition defence spokesman Richard Marles said revelations that less than half the project value might be undertaken by Australian firms is “a complete breach of faith by this government” to workers.
Mr Davis will also be called before the Senate’s economics committee later this month to face questions over his comments.
Defence and Naval Group issued a joint statement following Mr Davis’ interview, listing 137 local companies and organisations involved in the project and saying “the development of Australian industry capability will continue to grow, meeting our goal of maximising industry’s involvement in the Attack class submarine program”.
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Innovation summit to focus on health
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Health Minister Greg Hunt has announced that the 2020 Global Innovation Summit will feature health frontiers and robotics.
The summit, to be held in Melbourne in November, will bring together leaders in genomics, robotics, artificial intelligence and 5G technology.
Rapid changes in cutting-edge research and development, advances in new technologies and innovative applications of existing technologies are underscoring the importance of innovation in health care.
The federal government committed A$300,000 to help secure the event, which will also feature Royal Dutch Shell chairman Charles Holliday Jnr, US Council on Competitiveness chairman Mehmood Khan and CSIRO chief executive Larry Marshall.
“Health and innovation are key priorities for our government, including the recent commitment of A$5 billion through the Medical Research Future Fund to support breakthrough medical research into new frontiers of science,” said Mr Hunt.
“The summit agenda will address Australia’s future competitiveness with discussions on navigating the Australian context and opportunities for collaboration between countries,” he added.
The summit will take place on 18 and 19 November.
Read more on the role of innovation in medicine on CMAX Advisory’s LinkedIn page.
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Vic opposition backs tunnel to airport
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Victoria’s Opposition Leader Michael O'Brien has reiterated his support for a direct link between Melbourne airport and the city, saying the state government should drop its cheaper route via Sunshine.
Mr O’Brien said Premier Daniel Andrews preferred to build an airport rail line “on the cheap”, but a dedicated tunnel was the only way to avoid airport trains being run through a congested suburban rail system.
“My call to Daniel Andrews and the prime minister is don’t do a half-baked airport rail link and don’t sell Victoria out,” Mr O’Brien said.
His comments come as superannuation fund IFM Investors offered an extra A$2 billion to build the airport rail link in an effort to secure support for the tunnel option.
IFM Investors leads the AirRail consortium proposing to build a six-kilometre tunnel between the city and Sunshine, has written to Mr Andrews and Prime Minister Scott Morrison offering a “materially higher funding contribution to the project, above the current A$5 billion we have proposed”.
The state government’s preferred option is to run airport trains along existing railway lines between the city and Sunshine and through the new A$11 billion Metro Tunnel. However, the alternative proposal is to build a new tunnel, which proponents say would allow express airport trains to run every 10 minutes, 24/7.
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