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Wednesday, September 14, 2016

Turnbull promised economic leadership. We're waiting

Unveiling his surprise strike against Tony Abbott a year ago, Malcolm Turnbull identified just one reason for rolling a sitting prime minister: "economic leadership".

"It is not the fault of individual ministers," he told a packed press conference in a Parliament House courtyard. "Ultimately, the Prime Minister has not been capable of providing the economic leadership our nation needs.

"We need a style of leadership that explains complex issues, sets out the course of action we believe we should take, and makes a case for it. We need advocacy, not slogans. We need to respect the intelligence of the Australian people."

Twelve months on it's easy enough to assess the economy. It's improved. The unemployment rate has slid from 6.1 to 5.7 per cent. The economic growth rate has climbed from 2.5 per cent to 3.3 per cent. We've got jobs and growth.

But as for leadership ("advocacy, not slogans") the jury's still out.

There's no doubt that Turnbull consults. Within weeks of taking office he gathered together in the Cabinet room 25 leading economic advocates who had spoken earlier at a Financial Review summit and went around the table asking each what they thought should be the highest priority. In a complete break with the Abbott era, the group included union and social service representatives. A month later amid debate over the best shape for superannuation tax concessions, he phoned Deloitte Access director Chris Richardson at home and asked him to walk him through the arguments.

Yet his actions after consulting widely have been timid. His much-vaunted innovation statement included nothing extraordinary. A Turnbull insider who was proud of the statement sold this as its chief virtue. It did little harm.

On tax, after seriously considering the case for a 15 per cent GST, Turnbull said "no" on the basis that treasury modelling found it would do next to nothing for economic growth and would require very big compensation payments. His treasurer Scott Morrison was slower to reach the conclusion, talking up the idea even as Turnbull killed it.

Turnbull and Morrison inherited a budget deficit set to hit $33.7 billion in 2016-17 then blew it out to $37 billion by boosting spending and cutting tax in a pre-election budget full of talk, but little action, about controlling spending.

Even their omnibus savings bill, due to finally go before Parliament on Wednesday, will save just $1.6 billion per year, about 0.4 per cent of budget spending. That cautious approach is the right one, but it's hard to reconcile with talk about budget repair.

Where they have been bold is in their approach to company tax and superannuation. Independent modelling conducted for Treasury finds the promised company tax cuts will eventually cost $8 billion per year. The Parliamentary Budget Office puts the figure at $14 billion. Neither Turnbull nor Morrison have said how they'll pay for them. They've placed a lot of faith in modelling that shows the tax cuts will boost growth, but none has them boosting it enough to become self funding.

The superannuation changes will make back just a fraction of what the company tax cuts will lose: $770 million per year. They too are based on Treasury advice and ought to be saleable if much of an attempt was made to sell them.

For all his talk about explaining complex issues and building a case, Turnbull has done it rarely – usually after rather than before making a decision. More often he hasn't needed to, because he has decided (perhaps wisely) to leave things as they are.

To a large extent the economy has been improving of its own accord as commodity prices rebound and the impact of the lower dollar settles in. Two Reserve Bank rate cuts have helped as well. Really bold decisions of the kind the Reserve Bank has been urging such as borrowing big for infrastructure, haven't yet been made. It's easy to get the feeling that we are not being taken into Turnbull's confidence as he promised.

But he hasn't been in office long, and a big chunk of the year was taken up with a marathon election campaign. He'd like us to think there's time. We're waiting.

In The Age and Sydney Morning Herald