Whoever leads the Liberal Party needs to undo the damage to economic confidence from Abbott's style

We’ll know this morning if Prime Minister Tony Abbott retains the confidence of his Liberal Party colleagues.

Whatever the outcome, the leadership team needs to regain the confidence of Australian business and consumers.

Not just of voters but of the people who invest, spend and help build this economy.

We know the government Tony Abbott leads has lost the confidence of Australian consumers. This loss of confidence is a result of its own actions.

Confidence is a fragile thing but even under the previous government Australian consumer confidence was holding above its long-run average. The election of the coalition in September 2013 saw a spike back to the previous year’s highs. But this spike eroded as it became clear that some of the election promises were being jettisoned by the government.

But it was the budget, the sharp and unexpected changes to the medicare co-payment, higher education changes and other items seen as unfair which were the hammer blows to confidence.

The Government says these are necessary changes to ensure the sustainability of the nation’s fiscal position. But the mishandling of the narrative gave populist parties in the Senate the chutzpah to deny passage to these measures.

From the the of the first major leaks about budget measures in late April Australian consumer confidence collapsed.

Prior to the leaks, and the budget, consumers had been doing okay. Retail sales from September 2013 to March 2014 had been running at a growth rate of 0.6%. That’s more than 7% per annum. But, since April last year the average growth in retail sales is just 0.3% per month – and that is pulled higher by the 1.3% increase in sales during September when the iPhone 6 was released.

Where consumers go, so goes business. Australian business confidence remains weak enough and spending and investment plans weak enough that RBA Governor Glenn Stevens felt it necessary to call on business to loose its animal spirits on numerous occasions over the past nine months. He wants them to spend and invest to get the moribund domestic economy moving.

But so far his calls have fallen on deaf ears.

A large part of this lack of confidence – probably the most part – is a lack of certainty Australians feel about their economic future.

Australia and its people are faced with a much more difficult future than the immediate past. Whatever the outcome of today’s leadership spill, the “new” leadership of the Liberal Party – even if it’s under Abbott – needs to rebuild confidence in consumers and business.

Having done that they then need to have the important conversation about the nation’s economic future and the long run budgetary position.

There is no immediate budget emergency but, there is a problem, and it might be if confidence remains weak and they duck the conversation on dramatically falling revenue and costs that are slowly, but surely, starting to balloon.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.