PEP11 is probably dead andburied. Here’s why.

It seems tome that a lot of BPH diamond-handed holders are still in denial aboutthe ramifications of the Prime Minister’s press conferenceyesterday. I thought I’d clarify why, despite his answer beingvague and off-handed, PEP11 is likely dead, buried and cremated.

As you canprobably appreciate, this stock and its asset have been highlypoliticised over the past couple of months so naturally there will besome political opinion inthis post, though I will try to keep it to a minimum to bring you themost objective analysis I possibly can. Forthe purposes of analysis, I will be assuming Scott wasn’tconfused about the question, and truly does not support an extensionto PEP11.

Captain’sCalls

The biggestcope currently being used among holders is that the decision is notthe Prime Minister’s, but Keith Pitt’s. While this is true, itignores a fundamental reality about how Scott Morrison runs hiscabinet – that is, with an iron fist.

Followingthe fallout from the Turnbull leadership spill, it was important forMorrison to crush any and all dissent in both the Liberal party room,and from inside the ministry. To this end, he reshuffled cabinet tobring in politicians that are both loyal and obedient. Morrison’scabinet is more akin to Abbott’s than any other cabinet, withpolicy largely dictated by what the top dog wants at any given time.This, despite being antithetical to how Westminster democracies areintended to function, is the reality of the Morrison Government. Ittruly is his government.

Yes,ostensibly the decision is KP’s to make, however if Scott says hedoesn’t want PEP11 to go ahead, then I can almost guarantee that itwill not go ahead.

TheCoalition Agreement

While amore minor point, I think it necessary to touch on the dynamics of acoalition of political parties, especially one as strained as theLiberal-National Coalition.

Keith Pittis a Nationals senator. Scott Morrison is a Liberal PM. The Liberalsare unquestionably the dominant party in the Coalition, hence why allthe major positions of power are occupied by Liberals. Therelationship between the two parties has been increasingly strainedin recent years, especially with scandals like Barnaby Joyce’shorniness and Bridget McKenzie’s sports rorts. The Liberals andNationals have become increasingly politically separated from eachother in recent years too, as the Liberals have found themselvesbeing forced to temper their more extreme beliefs in the face ofchanging demographics in once-safe Liberal seats. The loss ofWarringah to Zali Steggall on environmental issues is testament tothis (and something we will come back to).

ScottMorrison has now come out and said (ostensibly) that he does notsupport the renewal or extension of PEP11. What do you think willhappen then, if a Nationals senator then approves such an extension?Liberals don’t like it when Nationals directly undermine theirauthority or threaten their public images. It would look reallybad for Morrison if Pitt were to basically ignore a direct commandfrom a Liberal Prime Minister,especially one who’s public image is based on authority and calmcontrol. While we have seen Scotty’s veneer wear thin in the pastweeks, I think most still believe that he has control over hiscabinet. Pitt authorising PEP11 would cast this into serious doubt.

IfKP were to approve, and then the resultant media coverage hingearound how the Prime Minister has no control over the Nationals orthe Cabinet, then I’m sure there would be more than one disgruntledLiberal in the party room. Keep in mind that the two parties keepseparate party rooms. There would be discussions in both on thefuture prospects of the current Coalition agreement, and whether ornot the two parties are compatible with each other going forward.Given the state of the two parties even now, it is my belief that adissenting Nat directly disobeying the PM would be the straw thatbreaks the camel’s back.

Themore important factor here is that neither party can actually survivein a vacuum at this stage. If the coalition agreement is torn up,then neither party will have (or likely ever will have again) thenumbers to form a majority government in their own right. Bothparties would prefer to stay in an uneasy relationship to keep Laborout of power, hence Keith Pitt is unlikely to approve PEP11 now thata captain’s call has been made on the issue.

TheNorthern Beaches

As touchedon, the Liberals are having a bit of an ideological crisis right nowin regards to environmental issues. Tree Tories are socially andeconomically conservative, but want to see action on climate changeand oppose government investment in fossil fuels. Most Tree Toriesare moderately wealthy Liberal voters, and nowhere exemplifies thisdemographic better than Sydney’s Northern Beaches.

Tony Abbottlost Warringah to Zali Steggall at the last federal election for onesimple reason – he’s a climate change denier and the Tree Toriesof Warringah are not. Other seats in the area are similar, mostnotably for this discussion Wentworth and Mackellar.

Dave Sharmaand Jason Falinksi occupy seats in which Tree Tories are becomingincreasingly dissatisfied with the Liberal Party’s perceivedinaction on climate change. Twice Turnbull was toppled as leaderover the issue, and theparty’s recalcitrance to admitting the gravity of the issue (eitherdue to factional infighting or financial pressure from benefactors)is testing the patience of one-loyal voters.

BothSharma and Falinski are popular MPs in their own right. The voters inWentworth and Mackellar are easily able to identify with their‘socially progressive but economically conservative’ outwardappearances. Both MPs havebeen very vocal recently about their objection to any renewal orextension of Advent’s permit.

CraigKelly’s departure from the party leaves Scott Morrison with only asingle-seat majority in the Lower House. Both Sharma and Falinskiknow this, and I have no doubt in my mind that they have met with thePM and discussed their future membership in the Liberal party. Theyare both personally popular in their respective electorates, andseeing how Zali Steggall was able to so easily dispatch a titan ofthe party has likely emboldened them to start using their influencein the party room. If either of them were to quit the party, thatwould leave the Morrison Government with no clear majority in theLower House, and completely eradicate whatever shred of an illusionof stability and unison is left after the last couple of months.

Irefer you to that dreaded article from yesterday that by now we areall familiar with, in which Falinksi voiced his approval for ScottMorrison’s decision to oppose PEP11. Make no mistake, this is avery deliberate move intended to signal to the PM that Falinski’scontinued support is subject to PEP11 being denied. Morrison cannotafford to lose either Wentworth or Mackellar, and so will ensure thatPitt denies the application.

Marketing-BasedPolicy

Here’swhere my political opinion starts to creep in. ScoMostands for absolutely nothing other than self preservation. Heis a marketer who spent most of his professional life obsessing overengagement metrics, polling and approval rates. That doesn’t simplygo away because you’re now a politician.

Hisgovernment’s policy direction is evidently almost entirely drivenby how well a piece of policy passes the pub test, not on itseconomic or social merits. Theproblem with running a government like this is that it leaves youbeholden to the whim and fancy of every A Current Affair-watchingNIMBY and overly opinionated talking head, most of whom are comicallyuninformed and have no idea what they’re talking about. Imagine ifGreg Hunt, when deciding whether or not to roll out a vaccine forCOVID-19 in northern NSW allowed the opinions of anti-vaxxers inByron or Nimbin to influence his decision. This is essentially howmost of Scott Morrison’s decisions are made.

SinceScotty’s Mandate of Heaven is his approval rating, he cannot let itslip down too far lest his party room colleagues start losing faithin his leadership. What’s the easiest way to increase your approvalrating? Cancel some policies that have mild public opposition so thatthose people stop talking about it.

Conclusion

In the mindof a survivalist political hack, nothing matters more thanguaranteeing your own success. In the current political climate,nothing threatens Scott Morrison’s continued success more thanPEP11 being approved. His government would be thrown into turmoil,his air of authority and control over his cabinet would be left intatters, and the entire Liberal-National Coalition might just see itsfuture ripped to shreds.

I’m sorryto say but there’s almost no chance in Hell that PEP11 is approvedafter the events of the last few weeks.

Fulldisclosure: I held about 110,000 units until yesterday, which I soldfor a $5,000 loss. As always DYOR and I’m not responsible for anyfinancial decision you make based on the analysis I have providedwhich is for informational and entertainment purposes only.