Turnbull’s new economic mandate and the big ‘ideas boom’

The parliamentary year has come to an end, with 2015 being remembered for its numerous controversies and yet another change in prime minister. Dissatisfaction with the Abbott Government culminated in September, when Malcolm Turnbull successfully challenged the leadership of the Liberal party and became the 29th Prime Minister of Australia. Turnbull, viewed by many as a more progressive and charismatic politician, expressed a need for better economic leadership and reform in his pursuit for the top job. The new Turnbull-led ministry undoubtedly faces a number of economic challenges such as a downturn in Chinese markets, declines in the resource sector and a sizeable budget deficit. What measures has the Turnbull Government taken so far to address such issues, and what types of policies are likely to be pursued up until the next election?


Followers of federal politics would be aware that many of Malcolm Turnbull’s views conflict with those of his predecessor Tony Abbott, having taken progressive stances on issues such as same-sex marriage and climate change in the past. While his willingness to address such issues may leave much to be desired, in the economic landscape Mr Turnbull has placed a strong emphasis on innovation and creativity to steer the economy. The Prime Minister has spoken of a need for Australian businesses to transform and adapt to changes happening around the world. This month, the Federal Government announced a comprehensive $1.1b innovation package, covering programs such as funding for research institutions and tax incentives for investing in startups[1]. Whilst some modeling on the benefits of these programs is needed, it is likely that the plan could have a positive effect on future economic growth due to further investment and efficiency though acquired knowledge. Many businesses have welcomed the announcement, and there is optimism that the industry commitments will eventually lead to more jobs in the digital economy.
In terms of other fiscal policies, there has been little mention of the tough austerity measures and reforms relentlessly pursued by the former Abbott Government in 2014. The controversial plan to deregulate Australian universities has been set aside until after the next election, and more modest cuts to social services are currently being negotiated[2]. The policy shifts suggest that the Coalition is still trying to exercise some fiscal responsibility and bring the budget on a path back to surplus, whilst adopting policies that avoid weakening confidence (as observed in 2014).


The debate over tax reform has also intensified in recent weeks, with the Turnbull Government signalling an intention to develop a tax system that ‘backs’ Australians and spreads the burden evenly. The one policy which has recently gained momentum is a potential increase in the Goods and Services Tax (GST) up to 15%. Modelling shows that a GST increase would increase annual government revenue substantially, however criticism over the idea has come from all across the political spectrum. Many of those opposed to the GST hike argue that (due to its regressive nature) low income earners will be hit the hardest, and adequate compensation would be necessary to mitigate the impacts[3]. At the time of writing, state and territory leaders are meeting with the Federal Government to discuss the options available in changing the GST.


In addition to these economic policies, the Prime Minister will face increased pressure over his perceived inaction in addressing climate change, in light of the recent Paris talks. After ascending to the leadership in September, Mr Turnbull opted to maintain the Direct Action plan introduced during the Abbott era. Direct Action, introduced as a replacement to the previous carbon pricing scheme, pays polluters to reduce their emissions though reverse auctions. The policy has been ridiculed by many supporters of climate action, due to the lack of penalties imposed on big polluters. Whilst effective policies to tackle climate change do come with an economic cost, the realised effects will have far greater economic consequences in the future and this is something the new Prime Minister will need to keep in mind.


So what’s in store for Australians and the economy in 2016? Tax policy will almost certainly dominate the political discussion throughout next year, as the two major parties take their ideas for reform to the next election. The prime minister has indicated small changes to tax could be outlined in the 2016 Budget, but any major reforms would not be implemented until after an election has occurred[4]. The mid-year budget review due this month is unlikely to deliver great news about the deficit, which may trigger modest cuts to public spending over the next year since the treasurer Scott Morrison has expressed a desire for lower expenditure levels[5].


With regards to economic performance, employment levels[6] and GDP[7] figures are starting to move in the right direction despite concerns held over the economy though most of 2015. To improve growth, it looks likely that the Prime Minister will continue to spruik his plan to innovate and modernise the economy. The transition to Malcolm Turnbull as prime minister appears to have improved economic confidence in the short run, however whether his ideas will translate into strong economic growth remains to be seen.
[1] Australian Government (2015) National Innovation and Science Agenda. Retrieved from http://www.innovation.gov.au/

[2] Treasury. (2015). Revised Family Tax Benefit measures to fund $3.5 billion child care investment [Media release]. Retrieved from http://sjm.ministers.treasury.gov.au/media-release/007-2015/

[3] ABC News. (2015, November 5). Lowest income earners would be worst hit by increase in GST, ACOSS modelling says. Retrieved from http://www.abc.net.au/news/

[4] SBS News. (2015, October 6). Some tax changes could be in the budget: PM. Retrieved from http://www.sbs.com.au/news

[5] ABC News. (2015, September 24). Treasurer Scott Morrison says Federal Government has ‘spending problem’; expenditure the same as during GFC. Retrieved from www.abc.net.au/news

[6] Australian Bureau of Statistics. (2015, November). Labour Force, Australia, Nov 2015 (Catalogue no. 6202.0). Retrieved from http://www.abs.gov.au/

[7] Australian Bureau of Statistics. (2015, September). Australian National Accounts: National Income, Expenditure and Product (Catalogue no. 5206.0). Retrieved from http://www.abs.gov.au/