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AFRGA1 A062 AFR Thursday 17 September 2015 TheAustrali an Financ ialReview| www.af r.com 62 Editorial & Opinion FIN AN CIA L REV IE W T ur nbu ll mus t r eset the b u dg et A credible path back to budget balance is als o the chi ef mar k of gov ernment res olv e on th e economy: if it is not the re, it chills o ther refo rms. I f the core purpose of the Turnbull government will be to cre atea newmind setfor eco nomic gro wth , one of the most important tasks confronting the likely new Treasurer, Scott Morrison, will be to get the fed- eral budget back on the rails. It was the political fail- ure to convince Australians that leaving the public finances so entrenched in the red would both frus- trate a return to economic growth and leave them without any cushion from trouble ahead that killed the Abbott government and Treasurer Joe Hockey. After his Labor prede- cessor, Wayne Swan, unveiled what he promised to be a mere ‘‘te mp ora ry’ ’ bud getshor tfa ll, Can ber ra is nowwell on itsway to racking up a dozen years of deficits approaching $400 billion in total. While rightly press ing the emerg ency button on this before being elected, Tony Abbott and Mr Hockey failed to pre- pare Australians to reduce their resource boom-inflated expect- ations of what services and transfers the budget could sustain. After the poli tical disast er of Mr Hock ey’s first bud get, the Abbott government turned to budget retreat in an ultimately futile attempt to save its political bacon. As The Australian Fin- ancial Review repeatedly warned, a government without a cred- ible fisca l stra tegy will be alway s vulne rable to dest abili satio n. By the end, the Abbott government had settled on a barely credible strategy for the unambitious goal of returning to sur- plus by 2020, and that on the back of rosy economic growth assu mpti ons that the Rese rve Bank has right ly queri ed. A 30 per cent collapse in the terms of trade since its peak, much of it since the 2014 budget, removed a projected $25 bil- lion in iron ore tax revenues alone over four years – enough to wipe out all the savings in the 2014 budget that never made it past the Senate, and the best demonstration of how permanent spen ding bake d in by the Rudd and Gilla rd gove rnmen ts during a tempo rar y bo om hasrun outof con tro l. As RBAgovern or Glen n Stev ens poi ntedout in Februa ry, a fra - gile post-GFC world economy still full of potential shocks could blow out the deficit to 5 to 6 per cent of gross domestic product, or $40 billion to $100 billion, ‘‘in a heartbeat’’. Long before that point, as David Murray wrote in last year’s landmark review of the financial sector, Australia’s AAA rating would be in danger, threatening to trigger problems with the big four banks heavily expo sed to for eignborro wingand domesti c housin g. So, with the budget deep in the red, any serious economic downturn would not be cushioned by the budget surplus that the Howard government bequeathed to Labor. Just as import- antly, the budget shortfall itself drains business and consumer confi denc e and so unde rmine s the very economi c growth needed to ge nerat e therevenue recoveryrequired to na rrowthe fiscal deficit. A credible path back to budget balance is also the chief mark of government resolve on the economy: if it is not there, it chills other reforms – in tax and productivity incentives and workplace flexibility – which also work because the growth gai ns areworththe ini tia l pai n. This was the fate of the Abbott government, which in the end could rule only by ruling out the economic policy prescriptions that theco unt ry remains in urg entneed. Add the inexorable demographic pressures that are building from population ageing and the window for budget repair is rapid ly closing. This leads to only one conclus ion: amid the cheer generated by Mr Turnbull’s triumph, the new Prime Min- ister and his Treasurer must reset the budget process, combin- ing the necessary elements of fiscal austerity with bold policy reforms that embrace a new mindset for growth and opportun- ity. As Mr Stevens told last month’s National Reform Summit, the question of how to get a budget surplus might be better fra medas ‘‘h ow do we getmore gro wth ’’. An d the fai rne ss ques- tio n ‘‘migh t be better fra medas: howdo we gro w thepie?’ ’ F rom t heGall ery David Rowe N e w P M ’s ( J o h n) Ke y r o l e mode l Econo mic refo rm On bein g elect ed, Malco lm Turn bull sin gle d outNZ PM John Ke y forprais e. He isright to. Ke y hassust ained a reform agenda while retaining stratospheric popularity. Key is somet imes seen as the explai ner -in - chief. He fro nts the med ia sev en to 10 times a we ek. David Farrar Malco lmTurnbul l hasheldup New Zeal andcounte rpar t JohnKeyas a model for successfulcentre-rightgoverning and leadership. ‘‘Yo u havetobe abletobringpeoplewith you,respectin g thei r inte llig encein the manne r youexplai n thin gs,’’Turnb ullsaid afte r hetopple d TonyAbbo tt.‘‘JohnKey hasbeenableto achi eveverysignific ant econ omicrefor msin NewZealan dby doin g justthat– byexplain ingcomple x issue s and thenmakin g thecasefor them.’’ Hesaidit wasa lead ersh ipqualityhe plan nedto takeonboard. Turn bullisnot alon ein seei ngKey asa succe ssfulrolemode l.Last year,Key assumedthe chai rmans hipof the Internation al DemocraticUnion, a federationof 80 centre-rightpartiesaround theglobe.Hewas askedbythe prime minis tersof Cana da,Britai n andAustra lia totakeuptherole–thefirsttimeithasbeen chair edby a smallcoun try’slead er. Butwhyis Keyheldin suchhighregard ? Partofit issimplypoliti calsuccess.Hehas wonthreeelect ionsin arow. Thatisnot unhe ardof butwhatis unus ualis thathis Nati onalPartyincre aseditsnumberof seatseachtime.Normal ly,you loseseatsin gove rnme nt.WhileKeygovernsmorefrom thecentrethantheright,his gove rnmen t hasbalance d thebudge tand achi eved severalsignificant economicreforms, such aspartialpriva tisat ionsof thre e powe r companiesand thenational airline. NewZealand hadwidespread priv atis atio nsin the1980sand earl y 1990 s. Theywereeconomical lynecessar y butvery unpo pula r.Sincethen,it hasbeenregarde d aspolitic alsuicide . Inde ed,in 2008 , Key promisednofirst-ter massetsales . Hekept hisword,whichwas vita l.BothJuliaGillard andTonyAbbottpaidfortheirbroken promises.Butin earl y 2011,Keyannounc ed thatif re-e lect ed,Nation alwouldsella mino rity49per centstakeinthe thre e stat e- owne dpowercompani es,Air NewZealan d anda larg e coalminin gbusiness . LikeNSWLabor’sLukeFoleyinthe recen tNSWelec tion , theNewZealand Labo urPartytriedto turnthe2011 campa ignintoa refe rend umon the prop osedsales. Poll s showe dthe saleshad litt lesuppor t.But Nati onal ’svoterose and Labo ur’sdropp edto arecordlow.How coul dthis be?Theansweris thatthepublic trus tedbothKey andhismotives . Theydid notagreewiththe assetsale s buthe spent 10monthsexplai ningwhythey were impo rtan t:to freeupcapitalto inve stin schools,hospitals and broadband , while retainingultimate statecontrol. Thismodel iswhatthe Bair dgovernme nthas since called‘‘asset recycling’’. Keyis some time s seenas theexplai ner- in-c hief . Hefrontsthemediasevento 10 timesa wee k.Hespend s th reeda ysa weekgoingaround thecount rytalkingto NewZealanders, oftenanswering ques tion s.He eve n hold s town hall meetingschaired by newspapereditors, wher epunterscanquestio n himon pret ty muchanytopic.Noteveryoneleaveshappy butthe majorityappreciate himexplaining whyhe isdoinga part icul arthing. Anothersignificant economicreform wasa taxswitchpackag e– inco metax rate s weredrop pedandGST incr eased . Thiswas notannou ncedbefor e anelectio n butstill ende d upbroadl y supp orte d.Ratherthan anno unceitout ofthe blu e,the gove rnmen t hadan expe rttax work inggrouplookat howto improvethetax syste m,release d thei rrecommen dati onsand deb ateditin publ icfor manymonthsbefo rethe governmentadoptedthem. Thepublic don’ tlike surp risepolic iesany morethan busi nessdoes.Keyhas beenNati onalPart y lead erfor nineyearsandPrimeMiniste r for seve n.Duringthattime,Austra liahas had sixprimeminist ersand seve nopposit ion lead ers.Notby coin cide nce,pollshave shown themajori tyof NewZealanders thin k thecount ryis head ingin theright dire ctio n.Key’spersonalratin gshave also beenhigh. Thelatestpubl icNew Zeal andpollto measu rethemhad hisapprov alrating 39 percenthigherthanhis disa ppro val rati ng.By compa rison , Abbotthad a net appr ovalofnegativ e 33per cent,Cana da’s Step henHarpernegat ive32 percent,the UK’sDavidCame ronwas atpositi ve7 per centandBarackObamaat nega tive6 per cent . Malco lmTurnbu llwillbe hopi ngif he emul atesJohnKey,his pollrati ngswilldo thesame. Davi dFarraris thedirec torof Curi aMarket Research , aleadingNZ opin ionpollin g company , thatinclu destheNZ Natio nalParty asa clie nt.He alsoblogsatkiwiblog .co .nz Rea d mor e opin ionandletter s,and seemoreof DavidRowe’s award- winni ng cartoo ns at afr.com/opinion Edited by Kevin Chinnery: kchinnery@fairf axmedia.com.au
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Australian Financial review Op Ed
Transcript of DPF Oped
7/17/2019 DPF Oped
http://slidepdf.com/reader/full/dpf-oped 1/1 AFRGA1 A062
AFRThursday 17 September 2015
TheAustralianFinancialReview| www.afr.com62 Editorial&Opinion
FINANCIAL REVIEW
Turnbullmust
reset the budget
A credible path back to budget balanceis also the chief mark of government resolve on the economy: if it is not there,it chills other reforms.
If the core purpose of the Turnbull government willbe to createa newmindsetfor economic growth, oneof the most important tasks confronting the likely new Treasurer, Scott Morrison, will be to get the fed-eral budget back on the rails. It was the political fail-ure to convince Australians that leaving the publicfinances so entrenched in the red would both frus-trate a return to economic growth and leave them
without any cushion from trouble ahead that killed the Abbottgovernment and Treasurer Joe Hockey. After his Labor prede-cessor, Wayne Swan, unveiled what he promised to be a mere‘‘temporary’’ budgetshortfall, Canberra is nowwell on itsway toracking up a dozen years of deficits approaching $400 billion intotal. While rightly pressing the emergency button on this
before being elected, Tony Abbott and Mr Hockey failed to pre-pare Australians to reduce their resource boom-inflated expect-ations of what services and transfers the budget could sustain.After the political disaster of Mr Hockey’s first budget, theAbbott government turned to budget retreat in an ultimately futile attempt to save its political bacon. As The Australian Fin-ancial Review repeatedly warned, a government without a cred-ible fiscal strategy will be always vulnerable to destabilisation.
By the end, the Abbott government had settled on a barely credible strategy for the unambitious goal of returning to sur-plus by 2020, and that on the back of rosy economic growthassumptions that the Reserve Bank has rightly queried.
A 30 per cent collapse in the terms of trade since its peak,much of it since the 2014 budget, removed a projected $25 bil-lion in iron ore tax revenues alone over four years – enough towipe out all the savings in the 2014 budget that never made itpast the Senate, and the best demonstration of how permanentspending baked in by the Rudd and Gillard governments duringa temporary boom hasrun outof control.
As RBAgovernor Glenn Stevens pointedout in February, a fra-gile post-GFC world economy still full of potential shocks couldblow out the deficit to 5 to 6 per cent of gross domestic product,or $40 billion to $100 billion, ‘‘in a heartbeat’’. Long before thatpoint, as David Murray wrote in last year’s landmark review of
the financial sector, Australia’s AAA rating would be in danger,threatening to trigger problems with the big four banks heavily exposed to foreignborrowingand domestic housing.
So, with the budget deep in the red, any serious economicdownturn would not be cushioned by the budget surplus thatthe Howard government bequeathed to Labor. Just as import-antly, the budget shortfall itself drains business and consumerconfidence and so undermines the very economic growthneeded to generate the revenue recoveryrequired to narrow thefiscal deficit. A credible path back to budget balance is also thechief mark of government resolve on the economy: if it is notthere, it chills other reforms – in tax and productivity incentivesand workplace flexibility – which also work because the growthgains areworththe initial pain.
This was the fate of the Abbott government, which in the endcould rule only by ruling out the economic policy prescriptionsthat the country remains in urgentneed.
Add the inexorable demographic pressures that are buildingfrom population ageing and the window for budget repair israpidly closing. This leads to only one conclusion: amid thecheer generated by Mr Turnbull’s triumph, the new Prime Min-ister and his Treasurer must reset the budget process, combin-
ing the necessary elements of fiscal austerity with bold policy reforms that embrace a new mindset for growth and opportun-ity. As Mr Stevens told last month’s National Reform Summit,the question of how to get a budget surplus might be betterframedas ‘‘how do we getmore growth’’. And the fairness ques-tion ‘‘might be better framedas: howdo we grow thepie?’’
From the Gallery David Rowe
NewPM’s (John)Key rolemodel● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Economic reformOnbeing elected,MalcolmTurnbullsingled outNZ PMJohnKey forpraise.He is rightto. Key hassustainedareformagendawhileretaining stratosphericpopularity.
Key is sometimes seenas the explainer-in-chief. He fronts themedia seven to 10 timesa week.
● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
DavidFarrar
MalcolmTurnbull hasheldup NewZealandcounterpart JohnKeyas a modelfor successfulcentre-rightgoverning andleadership.
‘‘You havetobe abletobringpeoplewith you,respecting their intelligencein themanner youexplain things,’’Turnbullsaidafter hetoppled TonyAbbott.‘‘JohnKey hasbeenableto achieveverysignificanteconomicreformsin NewZealandby doing
justthat– byexplainingcomplex issues andthenmaking thecasefor them.’’
Hesaidit wasa leadershipqualityheplannedto takeonboard.
Turnbullisnot alonein seeingKey asasuccessfulrolemodel.Last year,Key assumedthe chairmanshipof theInternational DemocraticUnion, afederationof 80 centre-rightpartiesaroundtheglobe.Hewas askedbythe primeministersof Canada,Britain andAustraliatotakeuptherole–thefirsttimeithasbeenchairedby a smallcountry’sleader.
Butwhyis Keyheldin suchhighregard?Partofit issimplypoliticalsuccess.Hehaswonthreeelectionsin arow. Thatisnotunheardof butwhatis unusualis thathisNationalPartyincreaseditsnumberof seatseachtime.Normally,you loseseatsingovernment.WhileKeygovernsmorefromthecentrethantheright,his governmenthasbalanced thebudgetand achieved
severalsignificant economicreforms, suchaspartialprivatisationsof three powercompaniesand thenational airline.
NewZealand hadwidespreadprivatisationsin the1980sand early 1990s.Theywereeconomicallynecessary butvery unpopular.Sincethen,it hasbeenregardedaspoliticalsuicide. Indeed,in 2008, Key promisednofirst-term assetsales. Hekepthisword,whichwas vital.BothJuliaGillardandTonyAbbottpaidfortheirbrokenpromises.Butin early 2011,Keyannouncedthatif re-elected,Nationalwouldsellaminority49per centstakeinthe three state-ownedpowercompanies,Air NewZealandanda large coalminingbusiness.
LikeNSWLabor’sLukeFoleyintherecentNSW election, theNewZealandLabourPartytriedto turnthe2011campaignintoa referendumon theproposedsales. Polls showedthe saleshadlittlesupport.But National’svoterose andLabour’sdroppedto arecordlow.Howcouldthis be?Theansweris thatthepublictrustedbothKey andhismotives. Theydidnotagreewiththe assetsales buthe spent10monthsexplainingwhythey wereimportant:to freeupcapitalto investinschools,hospitals and broadband, whileretainingultimate statecontrol. Thismodel
iswhatthe Bairdgovernmenthas sincecalled‘‘asset recycling’’.
Keyis sometimes seenas theexplainer-in-chief. Hefrontsthemediasevento10 timesa week.Hespends threedaysaweekgoingaround thecountrytalkingtoNewZealanders, oftenansweringquestions.He even holds town hallmeetingschaired by newspapereditors,wherepunterscanquestion himon pretty
muchanytopic.Noteveryoneleaveshappy butthe majorityappreciate himexplainingwhyhe isdoinga particularthing.
Anothersignificant economicreformwasa taxswitchpackage– incometax ratesweredroppedandGST increased. Thiswasnotannouncedbefore anelection butstillended upbroadly supported.Ratherthanannounceitout ofthe blue,the governmenthadan experttax workinggrouplookathowto improvethetax system,releasedtheirrecommendationsand debateditin
publicfor manymonthsbeforethegovernmentadoptedthem. Thepublicdon’tlike surprisepoliciesany morethanbusinessdoes.Keyhas beenNationalParty leaderfor nineyearsandPrimeMinister forseven.Duringthattime,Australiahas hadsixprimeministersand sevenoppositionleaders.Notby coincidence,pollshaveshown themajorityof NewZealandersthink thecountryis headingin therightdirection.Key’spersonalratingshave alsobeenhigh.
ThelatestpublicNew Zealandpolltomeasurethemhad hisapprovalrating39 percenthigherthanhis disapprovalrating.By comparison, Abbotthad a netapprovalofnegative 33per cent,Canada’sStephenHarpernegative32 percent,theUK’sDavidCameronwas atpositive7 percentandBarackObamaat negative6 percent. MalcolmTurnbullwillbe hopingif heemulatesJohnKey,his pollratingswilldothesame.
● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
DavidFarraris thedirectorof CuriaMarket Research, aleadingNZ opinionpolling company, thatincludestheNZ NationalPartyasa client.He alsoblogsatkiwiblog.co.nz
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Readmoreopinionandletters,and seemoreof DavidRowe’saward-winningcartoonsatafr.com/opinion Edited by Kevin Chinnery: [email protected]
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