Turnbull and the national accounts
On the eve of his treasurer revealing that the government’s budget position was actually getting worse, Malcolm Turnbull went into happy emoji mode. That’s the smiling face icon provided for text messaging on mobile phones. “I can’t tell you how happy I am,” he said at a Lifeline event in Sydney. “I tell you: there has never been a better time to be prime minister.”
The next day Treasurer Scott Morrison spelt out that when it comes to economic management the sales pitch hasn’t delivered what the Liberals promised in opposition or the early days of the government. Imagine the embarrassment if it was Joe Hockey telling the nation that his May budget was drowning in more red ink than he forecast: a $37.4 billion deficit, instead of a $34 billion one. It may not sound much at face value, but it’s a long way from the surplus that in opposition he promised would be delivered by now.
If there was a budget emergency when government debt was at $400 billion, then the forecast $600 billion would be a catastrophe. It never was, of course, and isn’t now. Even the authors of the fiction had abandoned it before their party abandoned them in September. That hasn’t stopped Labor’s Bill Shorten rightly pointing out: “The deficit is up, debt is up, spending is up, growth is down. These are the results of the last two-and-a-half years of Abbott–Turnbull government.”
Liberal backbenchers in marginal seats are nervous about the impact of the $10.6 billion worth of savings announced by the treasurer, which are coming from cuts to health, welfare and the elderly. They are being received badly in many quarters. One MP says he’s already receiving emails of complaint.
Shadow treasurer Chris Bowen claims these savings are worse than those contemplated by Hockey. This means their chances of getting through the senate are about as poor as the billions of dollars’ worth still held up from the 2014 budget. Even so, economist Chris Richardson makes the sobering point that even if all the stalled measures were passed, the prospect of a return to surplus in the foreseeable future would still be remote. He told Channel Ten’s The Project, “There’s a better chance of the Kardashians becoming nuns, Donald Trump becoming president of Islamic State, or Clive Palmer becoming bachelor of the year than the budget returning to surplus in 2020-21.”
By the Coalition’s own yardstick, this is a failure in economic management. Tony Abbott repeatedly made the promise that within a decade the budget surplus would be 1 per cent of gross domestic product. Scott Morrison has put that in the never-never. He pledges only to achieving that goal “as soon as possible”.
However, according to the latest opinion polls, Turnbull and Morrison have much more political capital than their predecessors, both Liberal and Labor. Voters seem to believe that we have a brand new government. They are not visiting on the new leaders the sins of their fathers, as it were. Even though both the prime minister and his treasurer were senior players in the Abbott opposition and government, they are not seen as the architects or chief spruikers of that economic message. While Abbott allowed Gillard and Swan no excuse or explanation for treasury forecasts getting it wrong on commodity prices, revenue and growth, the Shorten opposition is not playing that dishonest game. But they are also demanding more than the old stand-bys of socking poorer Australians while leaving the wealthier untouched as a way of dealing with economic realities.
For his strategy, Morrison uses the analogy of the family Christmas holiday. Many Australians, he says, will jump in the car and they’ll head for their favourite holiday destination. “They know where they are going and they know how to get there,” he said after the release of the Mid-Year Economic and Fiscal Outlook. “There are no shortcuts ... but you know, our path back to budget balance is very similar to that.” Then he went on to claim that he would continue “patiently and responsibly on the path to budget balance”.
Sounds terrific, but Labor’s Bowen says there is no fiscal strategy other than cutting. The treasurer still insists he has a spending problem rather than a revenue problem. How he can say that while at the same time announcing that his numbers are wobbly precisely because he has suffered $34 billion in revenue write-downs is a mystery. Chris Richardson and fellow economist Saul Eslake say there is no credible path back to surplus without tax rises.
Denying this may work in the run-up to the election due next year, but it’s not sustainable. In fact, some Labor strategists believe Turnbull realises this and that is why he may want to go to an election before the May budget. The prime minister is giving no hints in that direction, though: at the news conference after the Council of Australian Governments meeting in Sydney he gave every indication he was getting ready for the budget.
Turnbull has asked the premiers to come back with concrete tax plans for their March meeting and it is there Canberra will also show more of its hand. “We will be exchanging ideas, as we have been to date,” he said, “but more developed ones and you’ve got to recognise that March is not very long before the federal budget, so whatever tax plans we take to the budget you would imagine would be highly… would be well-advanced by March.”
Shorten says the budget will be Turnbull’s moment of truth. That’s when voters will really see the colour of his money and the seriousness of his intent. Labor believes that Morrison is the weak link in the chain. The opposition says the treasurer is not on top of his brief and is in danger of magic-pudding thinking, especially on taxing and spending and service delivery. Morrison’s claim that he would not raise the GST simply to allow the states to spend the revenue is baffling. All revenue is raised so governments can spend it.
Just as John Howard risked all and had a near-death experience as a result back in the GST election of 1998, Turnbull needs a bold reform agenda. He will have to spend more of his enormous political capital to persuade the nation some tough decisions have to be made. Tax reform and not just tax changes will need to be in the mix. The ratings agencies, much like the voters, are cutting the government slack but they are looking for the touted “credible and responsible” path back to surplus. On the day he challenged Abbott, Turnbull said: “It is clear enough that the government is not successful in providing the economic leadership that we need.” After the spill vote, he promised: “We need to have in this country, and we will have now, an economic vision.”
But it’s not just the economy that needs Turnbull to be crazy brave; Labor need him to take some big gambles, and lose them, if they are to restore their electoral stocks. Research in a Labor-held seat in inner-city Sydney has picked up enormous goodwill towards Turnbull, with Greens voters deserting to the Liberals or at the very least preparing to give them their second preferences. One senior Labor MP is worried that this could mean Labor is travelling worse than the polls indicate. The usual methodology is to distribute second preferences according to the flow at the last election. But if the change holds until the election, it can only spell doom for the opposition.
The polls also suggest the electorate is far from impressed with Bill Shorten. He has released more detailed policies this year than any opposition leader in recent memory. Labor MPs report his poor “preferred prime minister” rating – just 15 per cent in the recent Newspoll – is reinforced to them anecdotally. But the leader is not for turning. He insists he is no quitter and will not be giving up. That means anyone who wants to relieve him of the job will have to blast him out. Difficult but not impossible under the rules.
Shorten’s backers in the party, the dominant Right, can see no alternative who they believe would do better against Turnbull. The fact that the most likely candidate, Anthony Albanese, is from the Left probably doesn’t help his cause.
Shorten, meantime, has embarked on a series of town hall meetings around the country. It was Mackay in Queensland’s turn this week. The idea is to stir interest in key electorates. Each meeting is preceded by local radio, TV and newspaper ads, and generates interviews and coverage broader than the 10-second news grabs on national or state bulletins each night.
But it’s a hard slog, especially as Turnbull goes into an election year with his authority in the government enhanced by the backing he received from the Queensland state executive of the LNP.
It thwarted a Nationals scheme to hog-tie him to a tight conservative agenda, denying Ian Macfarlane’s push to defect from the Libs and sit as a Nat, and picking up an extra ministry in the process. No wonder he’s happy.
This article was first published in the print edition of The Saturday Paper on Dec 19, 2015 as "Turnbull in the pink, budget in the red ". Subscribe here.