Understanding the Turnbull government's winning strategy

It all sound so easy if only the Coalition did this and that. For example, Andrew Bolt, calls on Turnbull to resign because he "assassinated a Liberal Prime Minister … who'd won an election by a huge margin"; "treated the Liberal base like dirt, smashing it with a huge super tax"; refused "to speak to conservative journalists", "referred to the colonial settlement of Australia as an "invasion" and held "an end-of-Ramadan meal with known Muslim bigots"; and had gone to an "to the election with basically only one policy to sell - a pathetic 10-year promise to cut company tax".

However, from a political analysis point of view, common sense indicates that maintaining widespread electoral support is extremely difficult in this post-global financial crisis (GFC) era. Any suggestion otherwise, especially after the Abbott government reneged on a number of electoral promises with regard to social welfare, is the stuff of fantasy.

While Turnbull was immensely popular with the electorate when he replaced Abbott, and received clear Liberal Party support, the government was always going to struggle to produce an economic and social policy mix that could satisfy both traditional supporters and the public. It certainly was not going to win by listening to Bolt at a time when many Australians were still seeking a more agreeable economic-social policy mix.

The Coalition faced several electoral realities that no sensible party could ignore, at least one that wanted to stay in government.

There was no way that the Coalition could win by dramatically cutting budgetary spending. In terms of public opinion alone, as indicated by one Essential Report poll (26 Nov. 2013), when asking whether returning to budget surplus was more important than maintaining services and infrastructure investment, just 26 per cent of Coalition voters agreed with 61 per cent preferring the latter.

While most Australians recognise the need to curtail budgetary spending, many were indeed reluctant to easily give up their social welfare services and support measures that could erode business and public confidence. With Social security, health and education spending alone comprising around 58 per cent of Commonwealth government outlays since 2008-09, with that level only supported by debt, Australia is one of many OECD nations with a worsening net government financial liabilities position.

Although the previous reasons promote a view that policy development demands greater bipartisan support, the pluralist nature of Australia's liberal democracy demands political party leadership which can make the greatest appeal. I, for one, still have faith that liberal democratic politics can still produce a sensible economic-social policy mix.

So how does the Coalition make greater policy appeal while supporting substantial economic reform?

The answer is simple; it has to remain pragmatic to achieve change, albeit major taxation and industrial relations reform should be encouraged sooner rather than later.

First, for those calling for more extensive budget cuts, it is difficult to compare the current situation confronting governments today with past successful governments that produced budget surpluses. While both Labor and Coalition governments promoted lower taxation rates which aided economic growth (1983-2007), both sides of politics also used substantial social welfare spending to offset the impact of economic reform which included the privatisation of considerable public assets and even greater labour market deregulation.

Social security and welfare spending, which had already increased from 20 per cent of Commonwealth outlays in 1972-73 to 26 per cent in 1982-83, rose to 35 per cent by the end of the Keating government before reaching 40 per cent by the Howard government's 2007-8 budget. Of health, with spending around 8 per cent of Commonwealth outlays in 1972-73 and 7 per cent in 1982-83, this increased to 15 per cent by 1995-96 and 18 per cent in 2007-08.

While the following table indicates that a number of Keating budgets stopped the growth of social security and education spending in real terms, it is worth noting that Australia now has a greater reliance on social security given that the number of underemployed as a proportion of the workforce has increased from around 4 per cent during the late 1980s to be 8.5 per cent by 2015.

Source: 1990-91 budget papers.

reliance on social security given that the number of underemployed as a proportion of the workforce has increased from around 4 per cent during the late 1980s to be 8.5 per cent by 2015.

In addition, it is going to be much harder in coming years to achieve budget surpluses given that national economic growth projections offered by the Turnbull government are optimistic at best, even if major cutbacks to welfare spending occur.

As indicated by 2015 financial market analysis, with the ratio of debt to global GDP increasing from 269 per cent at the end of 2007 to 286 per cent by mid-2014 (around US$200 billion), it is government debt that has driven economic growth most since the GFC.

Compound annual growth percentage rates related to global debt

In addition, any hope that Australia will be saved by authoritarian and mercantile China is problematic given that China's debt, after increasing from US$7 trillion to US$28 trillion, reached 282 per cent of GDP by 2014 (higher than Germany and the US). As observed during May 2016, the Chinese government during the past year chose to spend nearly $200 billion to boost the stockmarket, yet $65 billion of bank loans went bad, financial frauds cost investors over $20 billion, and $600 billion of capital left China. In 2014, it is estimated that around 16 per cent of the 1,000 biggest Chinese firms in 2014 owed more in interest than they earned before tax.

Indeed the Australian economy remains extremely vulnerable, also relying on low interest rates to push up house prices and increase consumption, at a time when Australia already has a very high household debt level to income ratio (a record 187 per cent by March 2016 after being 63 per cent as of June 1988). Australia's total net foreign liabilities is just over one trillion dollars.

Hence, while greater pressure will emerge upon Australia's AAA rating if corrective action does not occur with Australia's budget situation, with possible greater pressure for higher interest rates if foreign creditors see Australian banks as riskier investment propositions, the quest towards balanced budgets may inevitably demand higher levels of taxation if further alienation of the electorate is to be avoided.

While a higher taxation level to GDP will annoy many centre-right supporters committed to smaller government, the key taxation policy tool remains how to offset lower corporate and income tax rates with taxation increases elsewhere.

Second, to make appeal to the wider electorate and fulfil its role as the most competent economic manager and a party committed to societal fairness, the Coalition must commit to policies that promotes means-testing for all forms of welfare given that budgetary savings are most likely to come from this major policy area (including health and education).

As argued by David Leyonhjelm, the NSW Liberal Democrat Senator, "nobody wants to see anyone starving or children missing out on health care or an education through no fault of their own". Therefore, he urges the greater use of assets and income testing with regard to child care assistance, FTB assistance, student loans, and pensioners.

Third, negotiation for crucial legislation to gain Senate support, which does not receive bipartisan support from Labor, will come down to the power of the Turnbull government's policy ideas and ability to persuade.

As the Coalition achieved under Abbott and Turnbull, as also evident under previous Labor governments from 2009-10 through savings made to Family Tax Benefits (FTB) indexation, savings can be achieved to encourage Australia to live within its means. This included decreasing the income of the primary income earner from $150,000 to $100,000 to qualify for FTB-B, with such payments ending once the youngest child turns 13 (although single parents and grandparents with children over the age of 13 will receive an FTB-B payment of $1,000 a year); phasing out Labor's Schoolkids Bonus payments during 2016; increased the qualifying age for the aged pension from 65 to 67; and offsetting an increase in assets that can be owned to qualify for the full pension as of 2017 by doubling the taper rate which reduced the pension from $1.50 to $3 for every $1,000 of assessable assets above the asset-free area.

Good government must be astute when devising sensible policy proposals. For example, while the Abbott government in 2014 was right to assist the 200,000 Australians aged over 50 now receiving unemployment benefits, its failed proposal to make the younger unemployed apply for 40 jobs a month to qualify for benefits was ridiculous with the Business Council of Australia also indicating that people should apply for jobs where they have a greater chance of winning.

At the end of the day, many Australians look to the Coalition for policy leadership. At the 2016 federal election, with the Coalition winning around 42 per cent of the primary vote, Labor received just 35 per cent, its second lowest level ever (33.4 per cent in 2013).

But the Coalition's ability to persuade voters will be limited if it does not continue to reflect a policy mix that appeals to people of all walks of life including liberals, conservatives, and people like myself looking for a more viable economic-social policy mix. With many concerned about housing affordability and employment opportunities (and the environment), the need for a pragmatic but purposeful government role comes at a time when the non-major party primary vote has reached a post-1945 high of near 23 per cent.

In contrast to Andrew Bolt, I understand the Turnbull government's past policy approach, but I also hope for a better economic-social policy mix in these uncertain economic times.