James Morley

As a former North American, I decided I would pay a bit more attention to Prime Minister Tony Abbott’s trip to Canada and the United States than to some of his other adventures abroad. So how did his trip go?

The short answer, at least in terms of the economic agenda, is not all that well.

On the trip, Tony Abbott wanted to focus on the vague theme of “Australia is open for business” (it will have come as a great surprise to most North Americans that it had been previously closed).

But climate change and policy responses to it quickly became the focus of attention for the trip. On this, Tony Abbott has willingly set himself up to be a world-wide posterchild of climate-change denial, along with Stephen Harper, PM of Canada. 

To be fair, Tony Abbott emphasized that he thinks climate change is real and important (just not that important!). But the big policy differences from other leaders in wanting to avoid any demand-side price mechanism and coordination of policies made him look like “yesterday’s man” compared to Barack Obama (Californian Democrat Henry Waxman used the doubly-dismissive phrase “a behind-the-scenes lagger”).

The “Canadia” gaff was a small, if amusing highlight of the trip. But the initial snubbing of key economic leaders, such as Christine Lagarde from the IMF, was flat-footed and more serious. Clearly someone in the PM’s staff figured this out because he did meet socially with Ms. Lagarde in the end.

However, I was surprised that Tony Abbott was initially scheduled to meet Janet Yellen, the Chair of the US Federal Reserve, and not Christine Lagarde. It’s as if someone was confused about the difference between monetary and fiscal policy. It makes more sense to me for someone like Glenn Stevens, Governor of the RBA, to meet with Janet Yellen and for Tony Abbott to meet with Christine Lagarde and the US Treasury Secretary Jacob Lew. 

Of course, the fact that the IMF has in the recent past published statements implying that Australia has no impending budget crisis may have made a formal meeting with Christine Lagarde a little bit awkward. The IMF has also just released a report suggesting that the Australian housing market is one of the most overvalued in the world. Meanwhile, the recent budget cuts mean that the RBA has to hold off on raising rates (by contrast, the RBNZ has been able to raise rates) even though doing so risks inflating a housing bubble.

I doubt Tony Abbott’s lecture to the US on corporate tax manipulation will have much impact. Like addressing climate change, this is something that would require a lot of international coordination. But with the exception of the love-in with Stephen Harper in Canada, I don’t see Tony Abbott in much of an international-coalition-building mode right now. Whether he likes it or not, climate change will get more attention at the G20 meetings than Google’s small Australian tax bill.

A noteworthy economic story from the trip was the fact that US pension funds expressed interest in Australian infrastructure. Canadian pension funds have already invested. This all makes sense given diversification benefits and high returns in Australia right now compared to the US and Canada. But I’m not sure that any future increases in investment will have been because of Tony Abbott’s financial planning advice rather than just what the pension funds would have done in any event.

Indeed, some US fund managers explicitly stated that they would have been just as happy buying Australian government debt (or probably happier because government bonds are highly liquid assets). There just isn’t much Australian government debt to buy nowadays, so they have to directly buy Australian infrastructure instead. But new infrastructure could be financed using debt and this might actually be less costly given the preferences of US fund managers. Of course, borrowing to build infrastructure rather than selling it wouldn’t fit in with the PM’s apparent view that the government avoid owning public goods.

I had particularly hoped that Tony Abbott would get to meet members of the Tea Party as part of his trip. Alas, Eric Cantor, the House Majority Leader and renowned Tea partyer (partier?), cancelled his meeting with Prime Minister at the last minute after he was unceremoniously dumped by his own party. Of course, I doubt the Prime Minister would have enjoyed the meeting under the circumstances. Instead, he had more time to contemplate the loyalty of his own party before his long flight home.

James Morley was born in Canadia and is Associate Dean (Research) of the Australian School of Business.