Editorial The Economist, 11.07.2016 The government claims victory, but political gridlock awaits it in the Senate
It was hardly the decisive mandate Malcolm Turnbull had hoped for when he called an early general election, asking for a stable majority. On July 10th, eight days after voting took place, Australia’s prime minister was at last able to claim victory for his conservative Liberal-National coalition. He did so after Bill Shorten, the Labor opposition leader, conceded that Mr Turnbull had won just enough seats for a second term.
But the result was so close that Mr Turnbull is still waiting on late counting to know if he will govern with a slim majority of his own, or rely on support from a handful of independents. Mr Turnbull was relieved when he told reporters in Sydney: “We have won the election.” Yet his problems may have only just begun.
The coalition entered the campaign with 90 seats, a majority of 15 in the 150-seat lower chamber, the House of Representatives. The Australian Electoral Commission says the government is leading in 76 seats, just enough for a majority, although it has not yet declared the result (the Australian Broadcasting Corporation is forecasting the government will achieve this). Labor, which had 55 seats, now leads in 69. Independents and small parties are ahead in another five seats. Two independents, Bob Katter and Cathy McGowan, say they will back Mr Turnbull. Andrew Wilkie, a third independent, says he has done “no deal with any party”.
Even if Mr Turnbull has scraped across the line in the lower house, bigger trouble may await him in the Senate. He had called the election as a “double dissolution”, an election for all members of both houses at the same time, calculating that he could rid the chamber of so-called micro-parties and independents that had often blocked government legislation. The strategy backfired. About nine members unaligned to the big parties could hold the balance of power in the new Senate.
Pauline Hanson, a veteran anti-immigrant populist from Queensland, seems certain to win seats there. Joining her will be three candidates from a new party founded by Nick Xenophon, an independent Senator from South Australia. Mr Xenophon favours more immigration, but shares Ms Hanson’s protectionist leanings.
Mr Shorten says his side will not take the tight election result as a mandate to obstruct the government willy-nilly: “We need to make this parliament function.” Even so, Labor has been emboldened by its electoral revival, and will seek to exploit Mr Turnbull’s political vulnerabilities.
A big one could now centre on the country’s uncertain economic future. Mr Turnbull’s core campaign promise, to cut Australia’s company tax rate from 30% to 25% over the next decade, now seems doomed in the Senate. Labor, the Australian Greens and Mr Xenophon support tax cuts for small companies, but not big business. The plan would cost around A$50 billion ($37 billion) in revenue, but Mr Turnbull argued the measure would generate “jobs and growth”.
In his victory speech, Mr Turnbull highlighted the need for Australia to transition from an economy “fuelled up” by a mining boom, linked to Chinese demand, to one with more diverse growth sources. With annual GDP growth at 3.1% and the unemployment rate below 6%, Australia has so far managed this transition well.
But the risk of political gridlock now has markets focused on the budget’s A$37 billion deficit, 2.2% of GDP, in the current fiscal year. A balanced budget is not projected before 2020-21. After the election Standard & Poor’s, a ratings agency, issued a negative outlook on Australia’s AAA credit rating: it believed the possibility that neither of the big parties may command a majority in either house meant “fiscal consolidation may be further postponed”. Paul Bloxham, an economist at HSBC, says bigger global problems, such as Brexit and Italy’s ailing banks, mean that markets have been “largely untroubled” by Australia’s close result. He worries that will change if the new government fails to confront the deficit with tax reforms or spending cuts (or both). Yet Mr Turnbull will be wary of too much belt-tightening: Mr Shorten won votes with a pledge to champion Australia’s public health-insurance system, and a scare campaign claiming that Mr Turnbull would privatise it.
This fiscal dilemma, in turn, will confront Mr Turnbull in the fractious politics of the Liberal Party, the coalition’s senior partner. A centrist, Mr Turnbull persuaded the Liberals’ rightists that he could rescue the party from its dire electoral prospects under his divisive predecessor, Tony Abbott, whom he unseated last September. That rescue has proved far from convincing. The Liberals are due to hold their first post-election meeting on July 18th. For Mr Turnbull, steering a middle course just got harder.
