Tony Abbott And Joe Hockey Need The New Senate To Be A Circuit Breaker After Their Budget Disaster

Treasurer Joe Hockey and Prime Minister Tony Abbott speak before House of Representatives question time at Parliament House on May 14, 2014 in Canberra, Australia (Photo: Getty Images)

Australia’s new Senators start their six-year terms today. This changes the balance of power in the Upper House, and therefore the dynamics for the government when it comes to passing legislation.

Tony Abbott needs this circuit-breaker. After a strong early start to his first term as prime minister where he was doing what he said he would do on border protection and starting to dismantle the carbon tax, even knocking over a couple of free trade deals along the way, the government is suddenly in a rut and that is starting to look like it could be deep and lasting.

The budget has gone down with the Australian public like a flat, warm schooner of beer. It remains bewildering that political veterans like Abbott and Treasurer Joe Hockey – with the breadth and depth of expertise available to them in government – managed to stuff this up so badly.

Apart from some arch-conservative types in politics and business circles, they have found themselves offside with everyone, from the young to the old, the sick and their doctors, parents of kids of every age, and anyone who is thinking about the cost of tertiary education. They even blindsided the Liberal Party state premiers, who suddenly found themselves flapping about trying to explain how they would deal with reductions in education and health spending. And there are billions of dollars in budget measures which remain in limbo because it’s unclear what exactly they’ll get through the Senate.

The net effect of this has been a dive in the polls and, arguably much worse for the government, a collapse in consumer sentiment which is now threatening to start biting throughout the economy.

Today’s Newspoll shows the Coalition 10 points behind on the two-party preferred, and Abbott’s approval ratings as prime minister at a new low. Now the government will look at that number and see a two-year line between here and the next election.

But there are increasing signs the economy could take a hit because the Coalition’s budget message that started ramping up in April – that everyone will have to make sacrifices – is causing people to stop spending.

Rhonda’s sales pitch.

I was on a short trip out of Sydney on Saturday, and there was a sign up outside a wine store in Pokolbin advertising its special offers with the slogan “Beat the Budget Blues”. The store manager, Rhonda, said business had dried up noticeably in recent weeks. We had the now-familiar conversation about the budget: probably about right, but a terrible sales job, it scared people, and was a bit unfair to people on the margins. I’m pretty sure she was a Coalition voter, and she said she could have retired but decided to keep going because she liked mucking in.

Rhonda was a lifter, not a leaner; she understood the budget but was shaking her head at how it had been sold.

Of course Rhonda’s sales pitch and anecdotes aren’t signs of a wider malaise in the economy. For that we need to look at some more industrial-scale examples. Let’s turn to the stock market: Pacific Brands and The Reject Shop have both issued profit warnings earlier this month, blaming the collapse in consumer confidence (along with the unseasonably warm May, which may have kept shoppers at the park instead of Westfield). Then Qantas shares took a bath at the start of trade on Monday, with the airline blaming weak consumer sentiment for the poor performance in its domestic arm in May.

Today, the ANZ-Roy Morgan weekly consumer sentiment index was out and the snapback in consumer sentiment we have been looking for isn’t there. Here’s the chart – the very last line shows the rebound stopping dead and even retracing a little in the last week.

ANZ noted that we might actually be confronted with a more sustained shift in the attitude of the Australian consumer, commenting that “the bounce we have seen so far has not been large enough to make us comfortable that the deterioration in confidence is transitory”.

In other words, hold your breath.

Business has remained confident through this dip in consumer sentiment, which will be some comfort to the government because it signals that they are not planning on cutting spending (read: jobs) just yet. But if consumers really do start stuffing money under the mattress, then it won’t be long until that tune changes.

There’s some perspective needed: it isn’t yet two months since the budget was delivered. The polls show the immediate effect, politically, has been disastrous, but as mentioned they will be confident that this can be turned around. And it’s too early to gauge the real effects on the economy, just yet. It could well turn out that the May readings we’ve been getting on spending in certain quarters like retail and domestic travel are more connected to the unseasonably warm weather than budget tightening.

The arrival of the new Senate might get some momentum up behind the government, particularly with the repeal of the carbon tax now likely not far away. Some wins are within reach for Abbott. Surveys show Australians are actually more optimistic about the economy on a longer-term basis. These are all positives. But they need to show they also have a grasp on how this has affected people’s short-term outlook and spending plans, or risk looking out of touch.

They don’t want to be the experienced political operatives who promised to manage the economy brilliantly, only to botch it with the sales pitch of their first budget.

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