Bloomberg News

Gaffes Worsen Abbott’s Woes as $37 Billion in Cuts Stranded

August 26, 2014

Australian Prime Minister Tony Abbott

Tony Abbott, Australia's prime minister. Photographer: Jeremy Piper/Bloomberg

Abortion is linked to breast cancer; people have a right to be bigots; the poorest Australians don’t drive cars.

Unscripted comments by Prime Minister Tony Abbott’s ministers have led to a swathe of damaging headlines for his government, burning political capital and distracting from its efforts to win support for unpopular budget savings as parliament resumes today.

The slipups have drawn ridicule from some upper house lawmakers, whose votes the government needs to secure A$40 billion ($37 billion) of savings and revenue-raising measures, including an increase in gasoline tax. A year after winning office on a pledge to restore “adult government,” failure to enact the legislation risks Abbott’s election promise to return Australia to surplus and may undermine business confidence.

“The government is clearly quite undisciplined,” said Peter Chen, who teaches politics and public policy at the University of Sydney. “These sorts of gaffes just suck up oxygen and distract the government from its message; it’s forced onto the defensive, and that makes it so much harder to sell the budget.”

The Liberal-National coalition trails the opposition Labor party in opinion polls after the worst start for a newly-elected party in polling data in at least 20 years. In the most recent Newspoll conducted Aug. 22-24, Labor led the coalition 51 percent to 49 percent on a two-party preferred basis.

Bigots’ Rights

The recent run of government howlers include Attorney-General George Brandis’s claim in March that people “have a right to be bigots.” He was defending his proposal to abolish penalties for insulting or offending someone because of their race or color.

Earlier this month in a television interview, Employment Minister Eric Abetz cited 1950s research that suggested a link between breast cancer and abortion.

A week later, Treasurer Joe Hockey said a proposed increase in fuel excise would hit higher-income earners harder because “the poorest people either don’t have cars or actually don’t drive very far in many cases.” The comments earned him a public rebuke from Abbott and he apologized on a Sydney radio station.

Australian Motoring Enthusiast Party Senator Ricky Muir, a father of five and a former wood mill worker from a rural area in Victoria state whose vote could help unlock the budget logjam, lambasted the Treasurer, saying in a radio interview “we can’t all hop on cows and ride into town.”

Economic Transition

The impasse comes at a sensitive time for the economy, which needs new domestic drivers to maintain growth after 23 years without recession as mining investment drops away. The central bank has slashed interest rates to a record low 2.5 percent and left them unchanged for the past year to help foster the transition.

Reserve Bank of Australia Governor Glenn Stevens told a parliamentary panel last week that the economy needs an injection of confidence to encourage business spending, saying monetary policy alone can’t provide that trigger.

“I have allowed the horse to come to the water of cheap funding. I cannot make it drink,” he said Aug. 2.

‘Budget Emergency’

The budget stand-off “could lead to a deterioration in business confidence, if firms were to come to the view that the current parliament is no more capable of managing the nation’s finances than its predecessors,” said Saul Eslake, chief Australia economist at Bank of America Merrill Lynch in Melbourne. “That could, in turn, materially adversely affect the outlook for investment and employment in the non-mining sectors of the Australian economy.”

Australia’s dollar fell 0.1 percent today and traded at 92.90 U.S. cents at 3:51 p.m. in Sydney.

Abbott and Hockey invoked a “budget emergency” during last year’s election to criticize the previous Labor government’s management of the economy.

The deficit is estimated to have swollen to A$49.9 billion in the year ended June 30. Total government debt, which includes federal and state borrowings, is projected to rise to 21 percent of gross domestic product in 2015, before gradually declining, Standard & Poor’s said last month.

That ratio should be kept within 30 percent to maintain the country’s AAA credit rating, S&P said, adding that the government needs to deliver on its fiscal consolidation.

Consumer Uncertainty

With the support of Labor, the budget appropriations bill has already passed the Senate with A$20 billion of savings, Treasury figures show. A further A$40 billion of savings or revenue-raising measures are under threat in the Senate, where the government doesn’t have a majority.

“Political uncertainty, budget uncertainty, causes perceptions about the economy, which makes our consumers uncertain,” Gary Perlstein, chief executive officer of Sydney-based retailer Specialty Fashion Group Ltd., said in a phone interview today. “Whenever there’s uncertainty about hip-pockets being affected, it makes it challenging.”

To pass laws, Abbott needs the support of six of eight lawmakers representing minor parties ranging from the socially conservative Family First to mining magnate Clive Palmer’s Palmer United Party.

The key sticking points include resuming indexation of fuel taxes, a proposed A$7 fee to see the doctor and tighter restrictions on unemployment benefits. The Senate is also blocking savings measures, such as abolishing handouts to parents of school children.

Populists Block

“The senators blocking the budget measures are populists, but the government hasn’t helped its own cause with its incoherent message,” said Haydon Manning, a politics professor at Flinders University in Adelaide. “There’s no political narrative or strategy.”

It’s still “early days” for the legislation, Julie Bishop, deputy leader of the Liberal party and the nation’s foreign minister, said last week when asked whether government slipups were hurting efforts to pass the budget.

“In some instances it’s taken years to get measures through the Senate in Australia,” she said at a news conference in Singapore on Aug. 22. “We expect to continue to have to work with the minor parties in order to achieve that, but the government is determined to ensure that Australia can fulfill its potential as a strong economy.”

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net Edward Johnson, Iain McDonald


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