Tax reform needed from Malcolm Turnbull's leadership: ANZ's Cherelle Murphy

Tax reform needed from Malcolm Turnbull's leadership: ANZ's Cherelle Murphy
Tax reform needed from Malcolm Turnbull's leadership: ANZ's Cherelle Murphy
GUEST OBSERVER

Malcolm Turnbull has been sworn in as the 29th Prime Minister of Australia and has said he will lead a “thoroughly Liberal Government”, alluding to the outgoing Prime Minister’s conservative approach.

Turnbull, with Julie Bishop as deputy, won an unexpected Liberal party leadership ballot against Tony Abbott yesterday which was instigated by Turnbull’s challenge.

While there is speculation that Joe Hockey will be replaced in the Treasury portfolio by Minister for Social Services, Scott Morrison, a cabinet reshuffle is not expected until after the parliamentary sitting week, which ends on Thursday.

The firmness of the vote (Turnbull won 54 votes to Abbott’s 44), Turnbull’s standing in opinion polls (Figure 1), and his perceived centrist policies provide him with a good base to meet business approval.

Turnbull has the opportunity to positively influence business and consumer confidence in the short term. There has been a general lack of optimism around government for some time (Figure 4). When the Coalition came to government, business confidence surged to a three year high, but has been unable to maintain that level, and is currently below average (Figure 2).

But to sustain any elevation in confidence, Turnbull’s leadership will need to triumph over populism and he will need to provide a credible strategy to lift the productive capacity and competiveness of the Australian economy.

Turnbull said he intends to improve the government’s communication of its economic agenda to voters. Last night he pointed to New Zealand Prime Minister, John Key as an example of a leader that has been able to implement significant economic reforms by bringing people with him.

Turnbull has clear space to reset the party’s policy priorities ahead of the next election, which will likely be sometime next year. Turnbull said he will do this in a collaborative manner in a ”thoroughly traditional cabinet government”.

There are two particularly important White Papers currently being drafted that could provide the basis for substantial and needed reform in the Australian economy, including one on tax and one on federation. How far Turnbull is willing to take these will in part determine his government’s ability to expand the economy’s potential. 
 
Tax reform needed from Malcolm Turnbull's leadership: ANZ's Cherelle Murphy
But the current economic upswing remains lacklustre and levels of confidence in the Australian economy are currently well below where they were when the Abbott Government came into power in September 2013. At that point, expectations of success were at their highest (Figure 2).

Turnbull is likely to face a hard task at this starting point. The ANZ-Roy Morgan confidence survey shows that consumers are fragile and worried about the outlook. The subindex on ‘economic conditions in the next five years’ fell 6.0% in today’s survey following a 5.2% fall in the previous week (Figure 3). This is the lowest level since the weekly survey began in October 2008. 
 
Tax reform needed from Malcolm Turnbull's leadership: ANZ's Cherelle Murphy
 
Turnbull commented last night that he would bring economic vision to the Prime Ministership and he said this was lacking under his predecessor.

Turnbull’s past statements and his more liberal approach suggest he will have some policy differences to Abbott, although we do not expect a significant shift of policy in the short term. 
 
Turnbull’s policy positions should not be assumed from his past comments. For example, although in 2009 Turnbull crossed the floor to support the then-government’s Carbon Pollution Reduction Scheme, last night he said the “policy on climate change that Greg Hunt and Julie in fact prepared, is one that I supported as a Minister in the Abbott Government and it’s one that I support today”.

Turnbull is a strong advocate of marriage equality and allowing a conscious vote within the party on the issue, but he has stated that he will retain the government’s commitment to a plebiscite on the issue.

Turnbull, as the 29th Australian Prime Minister after four changes in just over five years, may suffer from the perception that Australian Prime Ministers do not enjoy longevity in office.
A former journalist, lawyer and businessman, Turnbull was elected to the Commonwealth Parliament in 2004 in the inner metropolitan Sydney seat of Wentworth.

Turnbull is also a former Australian Republican Movement chairman. 
 
Tax reform needed from Malcolm Turnbull's leadership: ANZ's Cherelle Murphy
 

Cherelle Murphy is co-head of Australian Economics, ANZ Research and can be contacted here.

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