Ahead of today’s decision, the market is pricing in a 100% chance of a 25 basis point cut from 4.1% to 3.85% and a 50% chance of a 50 basis point cut to 2.65%. Because of my love of easy numbers to remember I would actually appreciate the RBA cutting the rate by 35 basis points to 2.75% so that we can get back to the old .25%, .50%, .75% rate figures (this would also make life easier for politicians getting gotcha questions from journalists!)

Essentially the market expectations for rates cuts are where they were after the last meeting at the beginning of April. In between then and now we have had Donald Trump’s tariff insanity which had economists and investors worrying about a global recession and the need to cut rate even more drastically – for a while, some investors were betting there would need to be 4 rates cuts by the end of the year and maybe 5 by this time next year. Those fears have subsided for now, but the market still anticipates 3 rate cuts by December.

When Ali Moore asked me onto ABC Drive earlier this month to make the case for the Coalition splitting up, it was framed as a hypothetical.

You can listen to that interview here, where political analyst Dr Gregory Melleuish made the contrary case for the Coalition to stay together.

Some thoughts on the Coalition split now it is reality:

The Coalition Agreement has always been somewhat mutable. In Western Australia, the Nationals are not in formal coalition with the Liberals. They used that to great effect during the Barnett Government, when they won the Royalties for Regions scheme.

In South Australia, a National became a minister in the Labor Government. That would not be possible under a Liberal–National Coalition. And while the Albanese Government is not short of Labor MPs in this term, it leaves an opportunity for next term if a power-sharing parliament is elected.

The Nationals’ strength relative to the Liberals has grown since the Howard Government. Historically, the non-Labor parties have suffered when the junior partner has dominated – look at the damage done by the 1987 “Joh for Canberra” campaign, or in 1943 when the Country Party led the Coalition’s election campaign. Their disastrous performance in 1943 led to the United Australia Party’s dissolution and the rise of the Liberal Party.

Regional and rural voters have lost out from the Coalition.

When the Liberal–National government cut taxes mostly for the rich, the top 10 electorates who got a tax cut were mostly Liberal electorates. The bottom 10? Mostly Nationals electorates. The Coalition Agreement forced Nationals to vote for and defend tax cuts that benefited people in Liberal seats the most and people in National seats the least. And when Labor got into power and changed those tax cuts, it wasn’t people in Labor seats who benefited the most – it was people in Nationals seats.

With the Nationals outside the Coalition, they could argue more forcefully for greater government spending on health, education, public transport and infrastructure – all of which would benefit the regions.

Leaving the Coalition gives the Nationals some Senate influence this term.

The Albanese Government is heading into a Senate with just two options: work with the Liberal Party or work with the Greens. But now, with the Nationals quitting the Coalition, a third option opens up: the Nationals senators plus independent and minor party crossbenchers like One Nation, Jacqui Lambie, Tammie Tyrell and David Pocock. It will be a difficult route, but the Nationals may have dealt themselves into Senate relevancy in this term.

Leaving the Coalition could also go poorly for the Nationals.

The Nationals have enjoyed a quota system, receiving a set number of ministries regardless of merit. That’s something never afforded Liberal and National women in the Cabinet. There is no guarantee that if or when the Coalition reforms, the Nationals will receive as many Cabinet positions.

The Coalition has also ensured that the Nationals are treated as a major party despite having the vote share of a minor party. Will the media be able to justify featuring Nationals’ talking heads on as often as they do, relative to movements like the Greens, community independents and micro parties that have had electoral success federally and in the states?

Ultimately, if the Nationals reorient around meeting the needs of workers and residents in the regions, this split could be very good not just for the party but for the people they represent. But are National politicians interested in taking that opportunity?  

So the question for Labor now is – who do they legitimise? Who does the government do the deals with in the senate?

At the moment, they just need the Greens. But they could go to the Liberals legitimising the party Australia rejected, as the ‘centre’ or they could go to an unholy alliance of Nationals and breakaways/minors like One Nation and Alex Antic.

So what Labor does is even more important now.

People always forget, but the Coalition is actually four minor parties.

It’s the Liberals, the Nationals, the LNP and the Country Liberal Party.

So the Liberals have 28 seats in the House of Representatives. The Nationals have 15. (And four in the senate after June)

The senate numbers are still being worked out, but it basically means the government can negotiate with the Greens, or the Liberals, or the Nationals.

WHAT COULD GO WRONG.

We have been talking a bit about this in the Institute quite a bit and Bill Browne spoke to the ABC’s ALi Moore about this when it was a ‘hypothetical’.

You can listen to his thoughts, here.

If you want to read more on how the Coalition didn’t celebrate their anniversary, here is something Bill Browne wrote at the time:

David Littleproud says this is not personal, it is on principle.

The main issue is over net zero, nuclear and climate.

Is it possible the Coalition never reforms?

Littleproud:

Everything is possible. When you have commitment and leadership from both Susan and I committed to one another, about how we can move forward and how we can get to a position where we come back together. That commitment is the foundation stone for us to rebuild from. This will give the air to the space the Liberals need. If they don’t have that, if they don’t identify who they are, none of us went. This is a great thing for our democracy we can do this. This is not anything personal. This is on principle.

David Littleproud says the Nationals will be leaving and the Liberals can build without them:

What we have done before is respect the institutions. Why wouldn’t we respect that? We have been pragmatic. This is a principled position. It may be foreign to some of you but we are making this on principles about how we actually deliver for the people you represent and allow the Liberal Party to be able to create an environment for them to get to the junction of the people they want to represent.

The unhappiness among the Coalition has been there for awhile. The first agreement was in 1923, but the two parties were very different then (the Nationalists and the Country Party).

Both parties celebrated their own anniversaries, but did nothing to mark the 100 years of the Coalition in 2023.

There have been other splits – Joh for Canberra was one – and in WA, there is no agreement. And the Nationals have won the royalties for regions package which has distributed $7bn. So they can work apart.

But still. This break is coming just as the parties are trying to rebuild electoral relevancy – both were bruised by the last election (the Nats lost a senator in NSW, but held their lower house seats).

The Nats are feeling bolshy because they have more lower house seats now than they did in the Howard years. Which is better than the Liberals.

We said this might happen – and it has. The Nationals are leaving the Coalition.

Deputy leader Kevin Hogan announced in an interview with Stephanie Dalzell on Afternoon Briefing yesterday that the Nationals may pull out of the Coalition agreement.

And they have done it. David Littleproud said the Nationals have not been able to come to an agreement with the Liberals under Sussan Ley – so they are ‘having a break’.

Littleproud:

We have got to a position that the National Party will sit alone on a principle basis,” he said.

So 80 years of Coalition agreements are DONE. For now.