The fight to run Australia’s finances

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By:
Eric Ellis
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With five prime ministers and five treasurers in six years, Australia’s top two political offices have been likened to an AirBnB short-let, but with an election looming, can the new treasurer Josh Frydenberg keep his surging opponent Chris Bowen from again becoming the country’s top economic policymaker?

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Pity Australia’s latest treasurer, Josh Frydenberg. As the country enters its 28th year without a recession, the 47-year-old Deutsche Bank alumnus should be coasting in office.

After all, he arrived at the job in August with the economy ticking over at 3.4%, one of the highest growth rates of the developed world. In November, the so-called 'lucky country' was deemed by Credit Suisse to have the world’s wealthiest households. Surging tax collections could hand him a budget surplus by April, the first one in a decade. The conservative, Liberal party-led coalition, in power since 2013, must face voters by May. With that record, re-election should be a shoo-in, right?

Wrong. Four months after he became Australia’s premier economic policymaker, Frydenberg looks like a lame duck. His Liberal party is in open ideological civil war. Australia’s big banks, protected by government policy, have been exposed as venal profiteers and their long-overdue reform is top of Frydenberg’s agenda. But if recent voting is any guide, Frydenberg won’t just cede his job to his Labor shadow, Chris Bowen, next year, but also risks losing his own seat in Melbourne, deemed one of the country’s safest.

Does any of this seem to concern Frydenberg?

Not outwardly, as Asiamoney discovers on meeting him at his bustling office in Canberra’s Parliament House. Indeed, he opens the discussion by cracking a lame joke about Bowen on learning that his rival had met Asiamoney the previous day.

“Who? What’s his name?”

No matter that Bowen has been Labor’s shadow treasurer for more than five years – 58 months longer than Frydenberg has been in his job – the current treasurer seems unable to place the competition.

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Josh Frydenberg

Frydenberg’s gag hints at the bookish Bowen’s limited national profile. Even though Frydenberg is regarded as one of parliament’s more genial members, the toxic tendency of Australian politicians to ridicule rivals seems irresistible.

But the political joke increasingly appears to be on Frydenberg and the Liberal-led government that is collapsing around him. In August, the elected prime minister, Malcolm Turnbull, was toppled in a putsch led by hard-right insurgents. The coup was botched and instead elevated Frydenberg as treasurer and deputy Liberal leader, while Scott Morrison, who had been treasurer, became prime minister.

In October, the government lost Wentworth, the Sydney seat that Turnbull had held since 2004. In November, the Labor government in the key southern state of Victoria was re-elected with a 5% swing away from the Liberals, the electoral damage mostly being felt in Melbourne’s wealthy eastern suburbs, where Frydenberg is a federal member.

With colleagues defecting to the cross-benches, such was the crisis facing Frydenberg that he decided it was best not to attend the December G20 summit in Buenos Aires where, with that enviable economic record, he should have been a star.

Political shenanigans

Voter anger at the recent political shenanigans and anti-Turnbull treachery within the government is palpable: one internet meme implores politicians to ‘do their f**king job’ instead of imploding elected governments.

Bowen’s Labor needs just a 1% election swing for him to become treasurer. If that happens, Frydenberg will become Australia’s shortest-serving treasurer since, well, Bowen, who held office in 2013 for just 83 days before voters tired of the way that Labor also torched a parade of leaders and tossed the party out. But, remarkably, Australia continues to prosper: that 27 years of growth has been delivered by both sides.

On big picture banking and economic policy, there seems little to choose between Frydenberg and Bowen.

Both men reaffirm to Asiamoney their support for the independence of the central Reserve Bank of Australia, while noting the populist tendencies from world leaders such as US president Donald Trump to rein in central bank powers elsewhere.

“Yeah, I watch all that,” says Bowen. “But, no, less reserve bank independence is not on my agenda.”

Frydenberg agrees.

“We have an established system in Australia where the Reserve Bank independently sets that monetary policy, and I regularly meet with the Reserve Bank governor,” he says, adding that he has “a great deal of respect for his expertise and experience, and for the integrity of that institution. Their commentary has been a positive reinforcement of the trajectory in which the Australian economy is going.”

Both men support maintaining the ‘four pillars’ policy that has insulated Australia’s biggest banks – Westpac, Commonwealth Bank, ANZ and National Australia Bank. Bowen is a scion of Labor’s pro-business right wing and was an understudy to the legendary Paul Keating, treasurer of the 1980s, whose reforms arguably set up Australia’s three-decades-long boom. Both Bowen and Frydenberg support the rise of fintechs and favour legislation allowing them to compete more effectively with the big four.

But while Frydenberg may be the finance minister of an influential G20 power, with electoral ruin looming, should the world instead be looking at his likely Labor successor, Bowen? Neither man seems willing to predict the outcome of the next election.

“Obviously we’ve been through a tumultuous period,” Frydenberg admits. “We believe the next election (will be) very tight, but we’re resetting and we are focused on delivering our economic plan. The results are there for everyone to see.”

For his part, Bowen seems quietly confident about how events are tracking. “We don’t take anything for granted,” he says. “But (losing Wentworth) was a diabolical result for them, absolutely diabolical. Politicians should never get ahead of themselves and people can withdraw their support at any time, but we are in a good position.”


It’s been so long since we’ve had a recession that the political price to pay, when it comes, will be very high. But when the cycle breaks, as it presumably must, there will be blood 
 - Stephen Mills, Sydney University

As Canberra’s parliamentary corridors fizz with intrigues, Frydenberg knows he has just five months to prevent Bowen taking his job.

He reverts to reliable tropes, lauding Australia’s not-too-hot, not-too-cold ‘Goldilocks’ economy to stress the government’s economic credentials; that enviable growth record; a near-balanced budget expected to be in surplus by election time; unemployment at six-year lows; reaffirmation by both S&P and Moody’s of a coveted triple-A sovereign credit rating; ever-lower taxes; and national household wealth that Credit Suisse recently calculated as the world’s highest.

“The Australian economy is strong,” Frydenberg says. “The most recent national accounts showed that our GDP growth through the year was 3.4%. We saw household consumption up, we saw residential investment up, we saw business investment up, we saw exports up, and we saw public demand up on the back of the strong GDP growth numbers, which, by the way, compare very favourably with the OECD averages, faster than any G7 country.”

But if recent history is any guide, the economy is a hard electoral sell, given Australians’ tendency to bounce governments regardless of economic buoyancy.

“A growing economy is taken for granted now,” says Stephen Mills, senior lecturer at Sydney University’s School of Social and Political Sciences.

Indeed, as trade wars threaten international markets, Mills says a global downturn might actually favour Frydenberg and friends, arguing that as memories of the Turnbull coup fade, voters could prove reluctant to elect something new if Australia is impacted internationally.

The timing is crucial, Mills says. If Labor wins in 2019, but that 27-year-long expansion ends, its term may be limited.

“It’s been so long since we’ve had a recession that the political price to pay, when it comes, will be very high,” Mills says. “But when the cycle breaks, as it presumably must, there will be blood.”

Frydenberg is trying to ensure that blood is not his.

“Obviously we’re very focused on ensuring stability of the global financial system,” he says, citing recent currency and inflation chaos in Argentina and Turkey.

Global influences

Frydenberg notes the global headwinds of trade tensions between Washington, Canberra’s closest ally and sixth-biggest commercial partner, and China, which is Australia’s biggest buyer of exports.

“The last time there was a significant downturn, there was the flexibility at the fiscal side to see a $5 trillion stimulus package but there was also flexibility on the monetary policy side with interest rates coming down,” he says.

But it will be different if the world economy falters now, he adds.

“Because interest rates are still relatively low and because debt levels have increased globally, there’s not that same room to manoeuvre,” he says.

“Australia, though, is in a good position. We are a trade-exposed, capital-importing country with the fifth-most-traded currency in the world, so we’re a more than interested bystander,” he says. “We have a deep interest in these disputes being resolved amicably and the tensions not escalating nor spreading,” given, he says, that 20% of Australian jobs are directly reliant on trade.

“I made it very clear with public interventions (at the recent World Bank/IMF meeting) in Bali that Australia sees the WTO as an important forum for resolving disputes and that we see free, open and a rules-based trading system as being key to more jobs, more growth, more investment and higher standards of living. We’ll continue to promote that agenda.” 


We are a trade-exposed, capital-importing country with the fifth-most-traded currency in the world, so we’re a more than interested bystander. We have a deep interest in these disputes being resolved amicably and the tensions not escalating nor spreading 
 - Josh Frydenberg

Bowen also worries that Australia could take a buffeting from abroad.

“There will be an international downturn; at the very least the synchronized global upturn will cease,” he says. “It might not be a synchronized global downturn but at some point, somewhere in the world, it’s going to slide, we’re already seeing some signs of that.

“We’re particularly exposed, I think, with very high household debt – the second highest in the OECD,” he says. “It’s high by Australian historical standards, but very manageable by international standards. But there’s more need to get government debt down because we have such high household debt. I do think we’re pretty exposed there. Hence me perhaps taking the unusual position for a progressive left-of-centre party that we’ll have a bigger budget surplus than [the Liberal party].”

Although Frydenberg and Bowen are political foes, there’s nothing separating them on the critical four pillars policy that has long underpinned Australia’s financial sector.

'Four pillars'

Critics deride it as anti-competitive and a means of creating a state-shielded financial oligopoly, but the policy is intended to preclude concentration among Australia’s biggest financial institutions, notably its big four banks – ANZ, Westpac, Commonwealth Bank and NAB – which together control between 80% and 85% of the banking market.

The policy had its origins in 1990 – just before Australia last experienced a recession – under Paul Keating, who was Labor’s treasurer at the time and who later became prime minister. The policy has guided the financial sector ever since, steadfastly maintained by governments from either side of the political divide. Both Frydenberg and Bowen insist it has helped save Australia from economic catastrophe.

“No planned changes to the four pillars policy,” says Frydenberg, who spent four years working as an investment banker with Deutsche in the late 2000s before he went into politics.

Frydenberg’s Deutsche stint, competing with the big four domestic banks, coincided with the late 2000s meltdown, which gave him “an interesting and helpful perspective (into) the ups and the downs of the financial system,” he says. So, it is no surprise he supports the four pillars policy.


There’s more need to get government debt down because we have such high household debt 
 - Chris Bowen

“I was there when the bank was responding to the global financial crisis,” he says. “People were concerned about the impact it was having on credit and jobs and stability and the system as a whole. I also saw the high times where private equity walks through the door and opens its chequebook and everything had a price on it. I saw the peaks and the troughs.

“The financial services sector is such a large part of our economy, and we have seen great stability in that sector,” he says. “Compared to the US, where they had Fannie Mae, Freddie Mac, the sub-prime issue, Australia didn’t have that, and it was that stability that has helped Australia weather the global financial crisis.”

A Keating disciple, Bowen is also a true believer in the four pillars.

“I actually think that four pillars works, and it continues to work,” he says. “I think it was part of the reason we got through the global financial crisis (GFC). If they are seen as an oligopoly, I don’t see the answer is to make it more oligopolistic. You get rid of four pillars, then it’s down to three and then two. That’s just a bigger oligopoly.”

Bowen believes that four pillars has also saved Australian banks from themselves.

“If four pillars had been knocked over pre-GFC, what they would have done is eaten themselves, then gone off to conquer the world and got themselves into trouble,” he says. “They would have got it wrong on all that stuff, I think.”

Royal Commission

But critics of the four pillars policy argue it has bred a culture of impunity among the big banks, contributing to an ethics deficit that has been exposed in a succession of scandals and practices revealed by Australia’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

As resources minister before he became treasurer, Frydenberg had opposed calls for the commission, describing it as a distraction and as populist politics by an agitating Labor, led by former union heavyweight Bill Shorten.

That stance seems forgotten today, after the probe and the public’s revulsion at its findings.

“My comments are on the record about the royal commission,” Frydenberg says. “We took action to strengthen the penalties, to strengthen the resourcing and to put in place a financial compliance authority to deal with those issues. We’ve placed items on the royal commission agenda which were broader than initially pushed by our political opponents.”

He says he welcomes the commission’s interim report “which made it very clear that the banks were putting profits before people and that the regulators were preferring negotiation over litigation”.


I don’t want anything, any knee-jerk actions that may see credit growth constrained 
 - Josh Frydenberg

With his closer cultivation of the banking and finance industry than his boss Shorten, Bowen too was rumoured to have been lukewarm about the commission, claims he has denied.

“We called for the royal commission two years beforehand,” he says. “A lot of people said that was wrong, but it’s been vindicated, frankly. It was the right call. Even among those of us who called for it, I confess I’m surprised by the scale of what it found so quickly.”

Bowen says that while the commission was scathing of banks’ behaviour, he doesn’t see the four pillars policy as responsible for the industry’s ethical failings.

“That’s not what I took out of it,” he says. “I know all the big chief executives really well, all good people. They are certainly chastened. Whether or not they can succeed in getting the culture fixed right through the organization is the big unknown at this point.”

However they each spin the probe, both men must now confront the task of the commission’s eventual recommendations – Frydenberg in the immediate term as incumbent and Bowen as his possible replacement. Indeed, for Frydenberg as treasurer, the commission wash-up looms as the biggest item in his in-tray in the lead-up to the next election.

“The big challenge I have is working through the recommendations and the issues raised through the royal commission process,” Frydenberg says. “Clearly, I want to maintain strong access to credit and I want to also ensure competition in the sector and the viability of the sector, and I don’t want anything, any knee-jerk actions that may see credit growth constrained, or economic growth. We’re now going through a process of implementing some important reforms which will improve outcomes for consumers.”

Bowen says he is interested in exploring ways to promote competition, for example through an expanding fintech sector.

“There’s always been the next big thing in banking. When Paul (Keating) brought in the foreign banks (in 1984), it was to get more competition,” he says. “It was the right thing to do, bringing in the foreign banks, but they haven’t actually, in 30 years, done much in Australia.”

Keating has been an outsized presence in Bowen’s career. Labor was formidable during Bowen’s student years and he was inspired by Keating, first as treasurer then as Bob Hawke’s successor as prime minister, to land on the pragmatic centre-left. Both men hail from modest Irish-Australian roots, and both grew up and cut their political teeth in Sydney’s tough working-class west.

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Chris Bowen

An economics graduate of the University of Sydney (a one-time lecturer was former Greek finance minister, Yanis Varoufakis), Bowen, now 45, describes Keating as his political mentor. 

In his book ‘The money men: Australia’s 12 most notable treasurers’, published in 2015, Bowen declared Keating had been Australia’s best.

“He and I are close,” says Bowen, “but (his) level of economic reform is just unsurpassed.”

As close as he is to Keating, Bowen is nowhere near as voluble as his mentor, nor as acerbic. It’s perhaps revealing that Bowen didn’t take any personal pot-shots at Frydenberg during his meeting with Asiamoney, unlike Frydenberg of Bowen, whereas it would be hard to imagine Keating resisting the opportunity.

Indeed, the politician – and former treasurer – that Bowen has sometimes been compared with in tone is John Howard, Australia’s four-term Liberal prime minister through the late 1990s and early 2000s.

The oft-underestimated Howard was treasurer between 1977 and 1983, a term Bowen adjudges as a “failure of much-needed reform” that successor Keating would famously implement: the floating of the Australian dollar and the deregulation of the banking sector.

“Local media describe Bowen as an almost nerdy scholar who prefers to drive the two or three hours to Canberra from his western Sydney home instead of flying, because it gives him time to clear a backlog of podcasts from the London School of Economics, the Financial Times and The Economist.

He tells Asiamoney that he’s a believer in innovation.

“If you like, I’m a Schumpeterian,” he says, citing the influential Austrian economist Joseph Schumpeter best known for his precept of ‘creative destruction’.

But he’s also been a party-room arm-twister, with mixed success. He helped lead an attempt to overthrow the former prime minister, Julia Gillard, in March 2013 and replace her with Kevin Rudd, who Gillard had toppled in 2010 in a coup. Rudd’s plot failed, costing Bowen his cabinet position. But by June that year, Rudd had ousted Gillard, and he rewarded Bowen with the post of treasurer. The job proved short-lived as voters vented their disgust at Labor in an election.

There has often been a direct route from treasurer to The Lodge, the prime minister’s official residence in Canberra, particularly on the conservative side. The current prime minister, Scott Morrison, was treasurer for almost three years under Malcolm Turnbull.

Liberal party heroes such as Sir Robert Menzies and John Howard both served as treasurer before becoming prime minister, as did Harold Holt and William McMahon. On the left, Keating, who hailed from Labor’s right wing, was treasurer before becoming prime minister.

Will Frydenberg be next to make that leap? It’s a job he seems to have been working toward, steadily building experience and close connections in politics, business and the media. The Melbourne-born son of a Hungarian holocaust refugee, he’s an honours graduate in law and economics from the city’s Monash University.

In his teens, he was a national-rated tennis player and a contemporary of Mark Philippoussis and Pat Rafter, and he contemplated a career as a tennis professional.

“But my ambitions were far greater than my talents,” he says.

He worked briefly at the elite Melbourne law firm Mallesons, and later graduated with a masters in international relations at Oxford University, and a masters in public administration from Harvard’s Kennedy School of Government. Before joining Deutsche, he was an adviser to prime minister Howard, who he regards as a mentor.

A popular parliamentarian on both sides of the aisle, Frydenberg has been the member for the Melbourne seat of Kooyong since 2010: it is one of the safest seats in the country and was the establishment fief of the late Sir Robert Menzies, Australia’s longest-serving prime minister and the ideological standard-bearer of Australian conservatism.

Frydenberg became the Liberals’ deputy leader after the Turnbull coup in August and is a strong contender to succeed Morrison as leader should the coalition government fall next year.

Frydenberg says his political philosophy is classic Australian Liberalism: “smaller government, lower taxes, hand up not a handout, but it’s important to have a safety net. I’m focusing on the power of the individual and their enterprise, allowing them to be the best that they can.”

So what does the next six months hold for these two mid-career rivals?

Frydenberg says: “We will continue to remind Australians of the big risk that a union-dominated Labor government will be to the growth and the jobs that we’ve seen in the Australian economy. You can’t risk the Australian economy with the big tax-and-spend approach of our political opponents, their $200 billion-worth of new taxes, their five-point plan for increasing taxes on income, business, savings, property and electricity.”

And for Bowen, with government in sniffing distance? “As I always say to my number two when I’m leaving the country: ‘Don’t f**k it up.’”