Election leaves a budget trapped in a time warp, as the world turns

A FUNNY thing happened on the way to the election. Everything and nothing, writes Terry McCrann.

Scott Morrison: Will it be the budget that never was?

A FUNNY thing happened on the way to the election. Everything and nothing.

It should be obvious but it hasn’t actually been spelt out explicitly anywhere in the frenzy of the last seven days, as far as I can see, but right now all those measures that were outlined in the budget are just a statement of intent.

Very simply, if the government loses the election, on July 3 they all instantly evaporate. It’ll be as if they were all just a figment of our imaginations — or to some, a nightmare that fades on wakening.

Scott Morrison would go down in history with the unique humiliation of being the country’s first and only treasurer, whose one and only budget became ‘a budget that never was.’ A budget that didn’t even make it into the parliament.

That’s what you (might) get, if you have a budget and immediately call an election, as the Prime Minister Malcolm Turnbull quite deliberately set out to do some weeks ago.

It also meant that he has turned the election — more exactly, he deliberately (if unknowingly) set out to turn the election — into a referendum on the budget. But a referendum that is decidedly lopsided.

Turnbull has told voters that if you don’t like the budget, you can kill it at, indeed before, birth by electing Labor. But on the other hand, re-electing the government does not guarantee you get all or even some of the budget measures.

The PM has guaranteed that uncertainty by his changes to the Senate voting system and the double dissolution election which has turned the composition of the Senate after the election into a total ‘crap shoot.’

There would have of course been uncertainty about the composition of the Senate after the election under the old voting rules. But it would have been uncertainty within reasonably established boundaries.

The new rules, where preferences do not go all the way down to the last candidate, make it totally impossible to know how it will play out on those all-important 11th and 12th Senate seats in each state.

It might be easier to understand the possible impact of ‘optional preferential voting’ in terms of three-cornered (Labor, Coalition, Green) contests in the lower house.

A huge number of marginal seats are delivered to Labor by the forced preferences of Green voters.

These would be seats that might not go to Labor if those Green voters didn’t have to preference and they didn’t.

So, all those budget measures might end up as just an interesting historical footnote. But even if the government is re-elected, the measures will be at least frozen for the two months — along with every other government decision.

These include those of the Reserve Bank. Absent some economic or financial catastrophe the RBA will not cut its rate again in June. As an aside, interestingly, it will decide what it will do at its July meeting just before the election but only announce it on the Tuesday after it.

Now, that’s all broadly the ‘nothing’ of my opening sentence. The ‘everything’ is out there in the rest of the world.

Whomever of Malcolm Turnbull and Bill Shorten wakes up as prime minister-designate on Sunday July 3 — and the same goes, perhaps double, for their putative treasurers, Scott Morrison and Chris Bowen — is going to have to deal with what’s happened in the rest of the world over the two months of the campaign.

We might like to think that ‘the world’ will take a ‘time out’ while we ponder our choice; or at least not throw any nasties at us. Unfortunately it won’t; it just ain’t going to stop spinning.

The two big things spinning for us (and everybody else) is what happens in China and what happens to global capital markets, to their (that is, everyone else’s) interest rates but most especially those of you-know-who.

Chris Bowen: The world won’t stop for Australian politics.

The ‘what happens’ in China is a complex mix of developments in the Chinese economy and a whole web of dynamics in and around its financial system.

Who would have imagined even 10 years ago, far less 20, that we would be hanging on what happens to massive property speculation in dozens of Chinese cities we’ve never heard of; and just exactly how many billions of Chinese greenbacks would be going through (James) Packer casinos in Macau.

Similarly, who would have imagined that the entire world would be on tenterhooks over whether the US Fed would raise its interest rate from barely 0.25 per cent all the way to 0.5 per cent.

Self-evidently the soon-to-retire Glenn Stevens is absolutely not going to ‘drop’ a rate rise into the middle of the campaign, as he did in November 2007. But Janet Yellen could.

The Fed meets a week after our RBA, over two days June 14-15. This is one of its ‘special meetings,’ where the Fed chairman Yellen not only gives a press conference after but the Fed publishes its ‘forecasts’ of future rate changes.

Obviously, if it does hike, that will have an impact on global markets. But it could have an even bigger impact if it does not hike — especially when such a non-move is tallied with its forecasts.

Then there’s Brexit. A week after the Fed, just over a week before the election, is the British referendum on staying or exiting the European Union.

If we are to believe all the most eminent ‘experts,’ a vote to leave would unleash a global financial tsunami.

Relax. Don’t believe them; those ‘experts’ are talking a mix of rubbish and self-interest. But relax only a bit; either way the vote will have ‘consequences.’ It’ll all go into the mix ‘making’ the world that will be on July 3.

Bernie Fraser: Didn’t pull the lever.

HE SAID, AND DID THAT

THE guy who essentially created the ‘modern Reserve Bank’ and it’s all-important ‘inflation target’ — and delivered success — was projected in the Fin Review yesterday as attacking last week’s rate cut.

Although he didn’t actually specifically attack the cut in so many words, he could reasonably be interpreted as saying he wouldn’t have done it.

Indeed I think that goes almost without, well, saying — for when the said Bernie Fraser actually had ‘his hand on the lever,’ as former treasurer Paul Keating used to put it, he didn’t pull it — to (by-then) prime minister Keating’s eternal chagrin.

At the time of the 1996 election Fraser was in his last year as RBA governor — just as, coincidentally, Glenn Stevens is now.

Back then the election was also on the 2nd of the month — an interesting coincidence, will history repeat? — but in March.

Fraser took the view that it was inappropriate to change rates in an election campaign — although he also wasn’t totally convinced that they needed cutting. Fraser would ultimately cut, in July, and by 0.5 per cent. Keating forever blamed his defeat on that delay.

Now Fraser would ‘also say that,’ Mandy-style. That’s to say, he’s previously commented on RBA decisions. He did the following year after he had been succeeded by Ian Macfarlane.

Indeed, the RBA had actually made a decision to cut its official rate but deferred announcing it because of Fraser’s comments which had impacted on the value of the Aussie dollar.

Now, Stevens has shown no reluctance to change rates in the middle of the campaign.

So you could eliminate the conclusion that he cut last week to get in ahead of the actual campaign. Again, absent a catastrophe, he won’t cut in June — not because of the campaign but because there would be no need.He’s really pretty much on the same page as Fraser.

Originally published as Election leaves a budget trapped in a time warp, as the world turns