Malcolm Turnbull was sworn in as Australia’s 29th prime minister today, taking the mantle from Tony Abbott.
One of the chief platforms Turnbull took the Liberal Party room was a focus on need to communicate effectively on the “challenges and opportunities” presented by the economy, something that in time will assist in rebuilding business confidence, he argues.
“Ultimately the Prime Minister has not been capable of providing the economic leadership our nation needs; he has not been capable of providing the economic confidence that business needs,” said Turnbull, before last night’s leadership vote.
After setting the tone, he’s had no shortage of advice on how to deliver a boost to confidence.
Morgan Stanley’s Australia economic team – consisting of Daniel Blake, Chris Nicol, Antony Conte and Steven Ye – have presented a simple three-point plan to help boost economic activity, suggesting the new PM needs to reboot the infrastructure initiative, foster productivity and innovation and deliver on tax reform.
The quartet lament a lack of follow-through on infrastructure investment, something promised before the 2013 election.
“Before winning government back in 2013, the Liberal Party promised an infrastructure stimulus, but delivery has fallen well short of expectations. In fact, rather than supporting the transition from resources capex, public investment has been declining, stripping -0.4ppt from GDP to 1Q15”, they note.
“Clarity and vision on the infrastructure agenda is critical, and we reiterate our call for fiscal policy. With net debt at just 14% of GDP, we see the scope for up to A$80bn (5% of GDP) worth of stimulus whilst likely retaining the AAA-rating.”
Beyond increased infrastructure investment, Morgan’s believe “Australia is still lacking a clear narrative on growth beyond the housing boom that has been pivotal in absorbing the headwinds from the resources sector”.
Pointing to a declining mining sector capital spending – something they estimate will subtract around 1.6 percentage points from GDP growth out to 2016 – and increased macroprudential measures to rein in Australia’s housing sector, they believe the focus on the government to unlock productivity reforms has increased.
“We think a valid starting point would be the former Productivity Commissioner’s ‘To Do List’ released in 2012”, they note.
The third area of focus for Turnbull is effective tax reform, something that has, for some, been unpalatable to put to the electorate in recent years.
“Australia’s tax system can be made more efficient and the distortions it creates can be mitigated”, state Morgan’s.
“Many of the concerns made out in the Henry Tax Review of 2007 have reappeared in some form in the Financial System Inquiry of 2014 and the Tax Reform Issues Paper 2015. We would hope that policy areas previously ‘ruled-out’ of potential change, including negative gearing and superannuation/retirement incomes, are allowed back into a genuine debate”.
Although a small list, it’s certainly a challenging one. And reform has claimed many a political scalp in recent electoral cycles. A little under a year remains for the current parliament, yet there’s plenty of time for Turnbull to build a mandate before the next election.
Effective communication on the economy is one area he is looking to improve upon. His leadership depends on it.
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