Australia’s Battered Morrison Bets on Budget to Repair Image

(Bloomberg) --

For Australia’s Prime Minister Scott Morrison, Tuesday’s annual budget can’t come soon enough as he tries to put a torrid opening to the year behind him and focus voter attention on the strength of the economic recovery.

After having his political judgment questioned, Morrison will attempt to reset the narrative by highlighting his economic stewardship through the pandemic. He’s likely to receive a budget boost as economists see the deficit for the 12 months through June at A$152 billion ($118 billion), about 25% less than Treasury’s December estimate, and unemployment falling to 4.5% in two years.

Morrison will be able to showcase his conservative government’s success in stemming business failures and job losses through stimulus programs such as the JobKeeper wage subsidy. He will also be able to point to the authorities successful combating of Covid-19 that kept infections to fewer than 30,000.

“Compared to where Australia was a year ago amid a national lockdown that seemed to trigger an economic collapse, most voters are happily surprised about the state of the economy now,” said Helen Pringle, a political researcher at the University of New South Wales. “It’s really a strength of the government and it will be seeking to emphasize that with this budget.”

Treasurer Josh Frydenberg pledged that his fiscal blueprint will increase skills, plug workforce shortages and boost aged-care and child-minding services. The government has additional cash to spend from an unexpectedly sharp rise in jobs and a stratospheric iron ore price, providing it with scope to win over voters.

The economy’s V-shaped recovery -- with Commonwealth Bank of Australia chief Matt Comyn describing the employment revival as “miraculous” -- comes as Morrison confronts myriad problems. These have clouded what had seemed very strong prospects to win another term at an election due within a year.

Morrison’s standing with female voters plunged following an awkward response to allegations of sexism and rape within Parliament House. He also faces an international backlash over his coal-supporting government’s refusal to commit to a hard target to achieve net-zero greenhouse gas emissions.

On top of that, a slow vaccine roll-out is likely to mean Australia would remain isolated from much of the world until well into next year. Trade Minister Dan Tehan said Friday the country’s international borders may not completely open until the second half of 2022, a longer-than-anticipated closure that would deal a blow to the airline and tourism industries.

Australia’s Borders May Not Open Until Late 2022, Minister Says

While the pandemic forced Morrison and Frydenberg to ditch a pledge to return the books to the black, it does open up an opportunity for additional spending that’s popular with the electorate and solidifies the recovery.

In Yellen’s Wake

Frydenberg signaled that, like his U.S. counterpart Janet Yellen, Australia’s fiscal program would be geared toward returning the economy to full employment. That will also keep fiscal and monetary policy aligned, improving the chance of achieving that goal.

“Against the backdrop of a highly uncertain global economic environment, it is prudent to continue to support the economy and ensure that our recovery is locked in,” Frydenberg said in a pre-budget speech. “The best way to repair the budget is to repair the economy.”

Australia’s limited vaccination numbers are potentially a major risk for Morrison’s electoral fortunes. Given the program isn’t expected to be completed until well into 2022, he could find himself in the awkward position of conducting a campaign with the rollout in progress.

Still, historically in Australian politics, economic strength tends to trump political mishaps like those that have engulfed his government.

“It certainly looks a different environment for Morrison from the start of the year, where it looked like he would waltz to an election win,” said Haydon Manning, an associate professor at Adelaide’s Flinders University.

“But as we’ve seen time and again in politics here and abroad, if voters judge that the government has been better at preserving their wealth and will put more money in their hip pocket, it’s usually enough.”

©2021 Bloomberg L.P.