With New Liberal Government, Australia is “Open for Business”

With New Liberal Government, Australia is “Open for Business”

When the Australian Labor Party emerged victorious from the Australian federal elections of 2007, few would have predicted the degree of infighting that would plague the party and its governments over the next six years.

Then-prime minister John Howard was swept from over a decade in power by Labor and its leader, Kevin Rudd. Howard even lost his own seat in Parliament in the process. Prime Minister Rudd held the office for the next three years, but internal dissatisfaction with his leadership style led to a leadership challenge, which saw a majority of Labor parliamentarians give the party leadership, and hence the premiership, to Julia Gillard.

In the ensuing election, Ms. Gillard promised that her ministry would not go forward with a controversial suggested carbon tax. She won, but the election resulted in a hung Parliament, which required her to form a coalition government the first since World War II – with the Greens and independent crossbenchers. The result of this coalition was that the Gillard government did, after all, institute an unpopular tax on carbon emissions, a broken promise that Opposition Leader Tony Abbott and his conservative Liberal party would later use to their political advantage.

Over the next three years of Gillard’s leadership, she was constantly undermined, and her government destabilized, by the possibility of a leadership challenge by Rudd. There were several such leadership challenges, but Julia Gillard managed to fend of Rudd’s attempts to regain office. This internal Labor instability continued into the summer of 2013 when, facing dismal polling numbers for the upcoming federal election, the Gillard government was toppled by a snap leadership election.

Labor MP’s who had previously support Gillard defected and supported Kevin Rudd’s return, presumably because they believed him to be better positioned to win the election. The strategic move seems to have only further fueled the party’s public image of an organization in disarray. Despite an initial bump in the polls, Rudd went on to lose the elections on September 7th. It was a landslide victory for Tony Abbott and the Liberal Party, with Labor sliding from 71 seats in Parliament to 57 and the Liberals increasing their majority from 72 to 88 seats.

The change in government carries repercussions for Australia’s economic climate and policies. Although Australia was one of the few Western states to emerge relatively unscathed from the global economic crisis, a slowdown in the mining boom, rising costs of living, and projections for a decline in Australian economic health have played to the advantage of the Liberal Party.

The Australian industrial sector is dominated by, some would say overly dependent on, the mining industry, coal in particular. As demand for coal from developing countries moving to other sources of energy declines, many Australians have lost jobs, a dynamic that contributes to the pessimistic economic outlook.

As overseas investment in Australian commodities has declined, Tony Abbott and Liberal candidates for seats in the House of Representatives have argued that these problems are attributable to a 30 percent mining profits tax and the carbon tax that were implemented by Rudd and Gillard’s Labor government over the previous six years. Therefore, the new Abbott government has pledged to move very quickly to repeal both of these tax levies to stimulate industrial investment and reduce the growing unemployment rate.

Another major goal of the first Abbott ministry will be to put the national budget on a positive trajectory towards a surplus. Abbott and his new ministers stand to inherit a US$27.4 billion (Au$30 billion) budget deficit from the Labor government. Budget cuts, including a reduction in the foreign aid budget by Au$4.5 billion over the next four years and decreasing investment in clean energy technology, are expected to form a part of the deficit reduction plan.

A decline in tax revenue induced by the elimination of mining and carbon taxes could complicate the efforts of the government to balance the budget, but a relatively stable economy and a friendlier business environment may counteract this. Abbott and his party claim that a balanced, stabilized budget will cause economic confidence to rise.

If Tony Abbott’s new low-tax and balanced budget policies are successful in jump-starting the mining boom and spurring economic growth, Australia’s economic outlook will be positive. Whether or not the country’s change in government will halt a potential decline in economic prosperity remains to be seen. But Australia is, in the words of its new prime minister, “open for business.”

Categories: Asia Pacific, Economics

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