Australia: Double dissolution election to weigh on confidence Politics April 2016

Australia: Double dissolution election to weigh on confidence

Potential double dissolution election could dampen business and consumer confidence

Australia’s turbulent political scene became further convoluted when, on 19 April, Prime Minister Malcolm Turnbull stated that he intends to hold a double dissolution election, which he anticipates will be held on 2 July. The potential election casts doubts over the future political landscape in a country that has already had four Prime Ministers in the span of two years. The uncertainty over the election will inevitably dampen business and consumer confidence at a crucial moment in Australia’s economic rebalancing act.

A double dissolution election is a mechanism in the Australian constitution designed to resolve deadlocks between Australia’s parliamentary bodies: the Senate and the House of Representatives. The possibility to call for such an event arises when the two bodies fail to agree on a piece of legislation, such an instance is called a trigger event. A double dissolution election puts all seats in both houses of Parliament up for grabs, as opposed to a standard election in which only half the Senate seats are held in contention. This means that should the election work in the government’s favor, it stands to gain more Senate seats, which would make it easier for it to push through legislation.

According to the Prime Minster, this trigger event occurred on 18 April when the Senate voted down the Australian Buildings and Construction Commission (ABCC) bill, signaling a deadlock in parliament. The bill aims at establishing a construction industry watchdog that would curb disputation in the construction industry. The ABCC bill is part of the government’s wider plans to pass a series of labor reforms. The government claims it will minimize graft and expand productivity and competition in the sector, while labor unions, and opposition members of parliament claim it would impinge on workers freedoms and rights. Turnbull’s government has prioritized economic growth and he sees the ABCC as means of stimulating growth in the construction sector.

Although the Prime Minister has informally committed to holding a double dissolution, he will formally make the request to the Governor-General 3 May. The Governor-General will have the final decision in calling election although t is widely expected that the Governor General will grant Turnbull’s request.

The government’s support in the poll has been waning in previous months and most polls put the government neck and neck with the opposition in terms of support. This makes the move to call for a double dissolution somewhat precarious as the possibility exists for the governing Liberal party to lose seats in the Senate. The government will have an opportunity to demonstrate to Australians why it deserves another term on 3 May when it delivers it budget speech, thus underpinning the importance of this year’s budget. The official announcement regarding the double dissolution vote will take place before 11 May.

Consumer confidence took another hit in April, falling for the second consecutive month, and business confidence is just now returning to its long-run average. As rates strategist Martin Whetton and Katie Hill from ANZ point out, political uncertainty resulting from the Prime Minister’s call for July elections will no doubt be impacted in these figures during what is now a pivotal moment in the transition from a resource-based economy to a service-sector-led growth model:

“The uncertainty over the election itself will inevitably weigh on confidence and any policy missteps will compound it. […] Any hit to confidence will come at a bad time right now given some signs of slowing retail sales growth recently and continued soft business capex intentions.”

Although the government hopes to streamline the construction industry with the new ABCC bill, it could be putting aspects of the Australian economy at risk.

The Reserve Bank of Australia (RBA) sees the economy growing between 2.0% and 3.0% in 2016. For 2017, the RBA expects GDP growth to be between 2.5% and 3.5%. FocusEconomics Consensus Forecast panelists see the economy expanding 2.6% in 2016, which is unchanged from last month’s forecast. For 2017, the panel expects economic growth to accelerate to 2.8%.

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