Why the independents’ demand to become a second government won’t work: Gottliebsen

Yesterday three things happened which should create nervousness among all Australians. First the Shanghai Composite Index fell by 2%. Second, BHP Billiton forecast China growth rates for 2011 well below Treasury estimates and third, the three “independents” want to become a virtual second government and go through the books.

What the ‘independents’ want to do is not workable and it is especially unworkable if the China growth decline is a prolonged affair which will require strong Australian government.

I must confess I am disappointed because there were some clear policy areas where the independents had some room to move. As I pointed out two days ago, in theory it is possible for Messrs Katter, Oakeshott and Windsor to be a constructive force.

But now, both Tony Abbott and Julia Gillard have been put on alert that each of the independents will want to vet budget decisions of an elected government. That’s total chaos.

If the independents keep up these antics then we must return to the polls.

And when it comes to Treasury advice the key Treasury forecast that China would grow by at least 9.5% in 2011 has been effectively declared over-optimistic, and not just by BHP. HSBC is looking at China growth rates of 8.9%. BHP’s forecast is between 8 and 9%.

As in the US, the outlook for China’s property prices is an important driver of share prices and growth. Dow Jones reports that the China share fall has been accelerated by Beijing’s unrelenting stance on property sector tightening. There is speculation that Beijing will eventually roll out a property tax as a fresh fiscal tool to rein in excessively high housing prices and increase fiscal revenues of local governments. That means China’s recent apartment building boom is over, which will reduce demand for Australian mineral exports.

Let’s assume first that the ALP takes power. It will rely on a Greens member in the House of Representatives plus the Greens senate majority. The Greens will have every right to demand a look at the books and receive public service advice if that right is accorded to Katter, Oakeshott and Windsor.

Two of the independents are opposed to the mining tax which is a lynchpin of ALP policy. Of course, in forecasting big revenue increases from the mining tax, the Gillard government is relying on the optimistic Treasury forecasts. BHP does not expect to pay anything like government estimates. Treasury actually can’t help the independents, but the precedent created is bad.

But it won’t be easy for Tony Abbott either. Anything Abbott gives the independents’ electorates, he will also have to give to other National Party members who hate the independents. Imagine the task of trying to co-ordinate the Liberals, Nationals and the independents with the independents wanting to examine the books around budget time. That helps explain why Abbott has taken a strong stand on releasing the numbers.

At this stage no party wants an election because they are all out of cash, but if it gets too tough then in the national interest we will have to go back to the polls.

This article first appeared on Business Spectator.