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Malcolm Turnbull Bumps Up Against Political Realities
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Malcolm Turnbull Bumps Up Against Political Realities

The Australian prime minister’s cautious policy approach is backfiring.

By James Pach

For some months after he ousted his predecessor Tony Abbott in a well-executed party-room coup, Australian Prime Minister Malcolm Turnbull enjoyed a political honeymoon of remarkably heady proportions. After the gaffe-prone tenure of Abbott, a right-wing leader widely seen as out of step with the Australian electorate, voters appeared to see the much more moderate Turnbull as a steady hand who would restore a sense of competence and bring a welcome change in policy direction as he steered the government back to the center.

From the beginning, though, Turnbull faced a conundrum. Abbott may have been deeply unpopular with the Australian people, but he had a strong core of support among his party, a substantial wing of conservative politicians not at all happy that their leader had been removed. To the extent that the Liberal Party’s right even bought the argument that Abbott had to go if the party wanted to stay in power, it did so with reluctance, and Turnbull – never especially beloved by his colleagues – was left in no doubt that any sort of wholesale repudiation of Abbott’s policies, on asylum seekers, say, or climate change would leave him open to attacks from within his own party.

That left Turnbull with a somewhat narrow agenda open to him before the next election, due this year. For the first few months, it didn’t seem to matter. Just by not being Tony Abbott, he seemed able to maintain his impressively high public support. Facing a weak opposition Labor Party, he may have been feeling that steering clear of trouble would be enough to take him into the election, from which his personal popularity with voters might enable him to emerge with the kind of mandate that would enable him to unshackle the policy restraints.

The last month has probably dashed that hope. The problem is the economy. This is one area where Turnbull did have some leeway to act, and given his successful career in the private sector as an investment banker and IT chief, public expectations were high that he would prove adept at economic management. Unfortunately, he has chosen caution when voters wanted bold action.

The Fiscal Challenge

One of the cudgels that the Liberal Party had used to beat the Labor government with when the Liberals were in opposition was profligate spending. Much like the Republican Party in the United States, the Liberals had always put themselves forward as the better stewards of the economy. While in opposition, Tony Abbott was able to benefit from his insistence that Labor extravagance under Kevin Rudd and Julia Gillard had run up deficits that had severely weakened Australia’s fiscal situation.

These claims were always overstated. Australia’s net government debt in 2014, the year after Abbott took office, was just 17 percent of GDP, far below the likes of Japan and the United States. What was true was that the budget had gone from a surplus under the earlier Coalition government of John Howard, to a fairly sharp deficit under Rudd and Gillard. As such, government debt was climbing rapidly, albeit from low levels.

However, much of that deficit spending was a sensible reaction to the Global Financial Crisis of 2008 and 2009. It was one reason why Australia escaped a recession in those years. The other reason was China’s voracious demand for commodities, which presented an unprecedented boon for Australia’s primary industries.

Therein lies Turnbull’s dilemma. Normally, with the crisis having passed, a government ought to be able to naturally return to fiscal surplus, eliminating its budget deficits and halting or reversing its debt growth. But after navigating through the global financial crisis, Australia faces another problem: China’s economic slowdown, which is having major repercussions for Australia’s economy, reducing tax revenues and complicating the budget process for the Australian government.

Tony Abbott certainly didn’t help with a deeply unpopular first budget in 2014, which focused austerity measures on the working and middle classes, leaving the rich relatively untouched. Cuts to education and healthcare combined with a slew of broken promises dealt a blow to the Abbott government, which never really recovered.

It’s nearing budget time again and this is Malcolm Turnbull’s chance to make his policy mark. But he  has not repudiated Abbott’s fiscal scare stories, instead allowing the public narrative to continue favoring austerity. That has left Turnbull flirting with various tax reforms options, including a possible increase in the goods and services tax (Australia’s consumption tax). That in turn created an opening for the Labor Party, which it has been quick to exploit, condemning the government for the possible GST hike while presenting its own fairly bold proposals for tax reform. Rather than entering into a high-minded policy debate, Turnbull has backed away from a GST hike and is now said to be considering other, more modest tax reforms, while reverting to old school scare tactics that seek to paint Labor as the party of high taxes.

All of that has left Turnbull looking somewhat diminished, while his Treasurer Scott Morrison is seen as being in over his head. A risk-averse approach designed to protect Turnbull’s personal popularity is now increasingly viewed as a government in drift. This has been reflected in the polls, with the once healthy lead enjoyed by the Liberals over Labor now narrowing, a worrying sign for a man who challenged for the prime ministership on the basis of the direction of his predecessor’s polling. The election is still very much Turnbull’s to lose, but election victory – let alone a convincing mandate – is now no longer such a sure thing.

The government has responded by indicating that a major tax reform announcement will be made in early April, ahead of the May budget. Speculation is meanwhile mounting that the prime minister will call a rare double dissolution, and hold elections for both houses of parliament in early July.

Will Turnbull dare to be bold in the run-up to the election? He may have no choice.

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The Authors

James Pach is editor of The Diplomat.

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