July 13, 2016 3:00pm by David Farrar

Guest Post: “Straya-bility”

A guest post by MYOB NZ General Manager James Scollay:

If it seems like politics in Australia is always in a state of flux, that’s because for recent history it has been. You could call it “Straya-bility”.

Since 1999, the Lucky Country has been unlucky enough to have six Prime Ministers – John Howard, Kevin Rudd, Julia Gillard, Kevin Rudd again, Tony Abbott and Malcolm Turnbull.

In the same period New Zealand has had two.

That is why its knife-edge election result was such a disaster.

Votes are still being counted in a handful of electorates, but it seems like the Liberal-National Coalition will end up on 76 or 77 seats – giving it the slimmest of majorities in the 150 seat parliament. Even if it does fall short, the enigmatic Queenslander Bob Katter has pledged confidence and supply to the Turnbull administration, meaning it will cling on to the treasury benches.

But if you think that’s messy, wait until you see the makeup of the senate.

At the same time, Turnbull faces considerable descent from disaffected members within his own ranks and you’d be silly to rule out another leadership spill.

So what does all that instability mean for our country? Quite a lot.

Australia remains New Zealand’s top export destination taking almost $13 billion of our goods and services in the year to March 2016, while imports totalled $11.2 billion.

MYOB operates only in Australia and New Zealand meaning we know what happens in one country can have a profound effect on the other. Any slowdown over there hurts business here.

In Prime Minister Turnbull’s speech to launch the Liberal Party’s election campaign, he said, “A strong economy is one where businesses are confident of the future and are prepared to take the risk of investing, expanding and hiring.” He could have added, “and means they are more likely to buy more products and services from our friends in New Zealand.”

Many people had hoped the election would deliver a decisive result that would set Australia up for a new period of political stability. That is important, because political stability leads to economic confidence, and economic confidence leads to business investment.

Running alongside its political instability has been a period of economic difficulty for our Aussie cousins.

Going back a few years, the shocks from the Global Financial Crisis hit just before collapsing world prices for iron ore and other minerals hammered Australia’s current account. In response, the then Rudd Government massively expanded public spending to keep the economy afloat. It succeeded, but the country’s sovereign debt levels sored.

The challenge for the new Government is how to get back to a more sustainable fiscal position. Mr Turnbull has set himself a five-year timetable to return the federal budget to surplus (as did Labor leader Bill Shorten). He has his work cut out for him, given the coming year’s deficit is expected to reach an eye-watering $37 billion.

There are a few other head winds. Rating agency S&P has put Australia’s credit rating on negative watch, the dollar has been on an up-and-down roller-coaster, and business optimism is waning. The last MYOB Colmar Brunton Business Survey of more than 1,000 SMEs in Australia saw 42 per cent of Australian SMEs predicting that the local economy will decline over the next 12 months – a net negative result of 18 per cent.

In contrast, confidence in the New Zealand economy improved markedly in the latest survey, up to net positive 5 per cent from net negative 30 per cent in September 2015.

The more positive economic conditions in New Zealand has been reflected migration figures to this country. Whereas 10 years ago the news was filled with stories about Kiwis upping sticks for the Gold Coast, Perth or Melbourne, in the year to May 2016 New Zealand saw a net inflow of 1,739 people from across the ditch.

No one is tipping Australia’s economy to fall over. Its people and businesses are endlessly innovative, resilient and creative – and Turnbull has promised a tax package that will see the small business tax rate cut to 27.5 percent from 1 July 2018 (for those with up to $10 million in revenue), and over the next 10 years, the company tax rate will fall to 25 percent for all businesses.

However, to see the problems that instability can cause, take a look at its rugby team. Just as it has had six PMs since the turn of the millennium, Australia has had six coaches of the Wallabies in the same period – and we know what is happening there…

While the election rightly took up most of the attention over past couple of weeks, it obscured an important anniversary for the country. Incredibly, Australia has now not had an economic recession for a quarter century. Given the closeness of our economies, New Zealand businesses should hope the country’s recurring political crises do not transform into economic ones and end that remarkable run.