Tuesday, 9 December 2014

Tony Abbott needs to stop tinkering and show us a grand economic plan to save Australia

The Prime Minister Tony Abbott and the Treasurer Joe Hockey missed the opportunity in last week's statement on the National Accounts to spell out the need for more cuts.

And the weekend announcement to change the paid parental leave (PPL) is just tinkering: instead the government should drop the PPL, drop the company tax increase that goes with it and stop making claims such as saying the economy will be better next year.

The truth is that commodity prices are falling, unemployment and youth unemployment are going in the wrong direction, the latest GDP figures are not good and many families are feeling the pinch of falling living standards.

I doubt Abbott will ever see a budget surplus in his time as PM. It is not his fault that Labor in government went on a spending spree and commodity prices have tanked. But it is his job to manage the politics and put the economy back onto a sustainable course. Needless to say, the opposition are enthusiastic spoilers but the buck stops with the PM.

First and foremost, the Australian public voted for Tony Abbott to clean up Labor's economic mess. And if he does not give it his best shot then he will be putting his political future at risk. It is as simple as that and if his May 2015 budget is not right then the government is asking for trouble.

Abbott's election commitments to stop the boats and abolish the carbon and mining taxes were all good policies but they were never enough to build an economic platform for future political success, which can only ever be underpinned by a strong economy. As of today, the proposed white papers on tax, federal state relations and the Productivity Commission report on labour market reform could produce a way ahead but it's hard to see the government being bold enough on any of these issues.

Abbott does not have many options. He could claim he has done better than Labor and, given the reality of the most difficult Senate since 1975, now all he can do is soldier on; a recipe for slow political death. Another approach might be to accept Labor's claim that there is no problem: a recipe for a Labor win in 2016. The third option is to go harder and make fiscal reform his No. 1  priority and, if necessary, put the government's future on the line.

The third option is preferable because it is in the country's best interest. We cannot go on living beyond our means. The other two options will leave Australia weaker, poorer and vulnerable to recession; not a record any PM wants on his CV.

He should start by going much stronger on explaining the collapse in commodity prices and the risks of higher unemployment and falling family incomes if we don't get a grip on the budget.

Abbott should not be telling people that all is going to be rosy; many people are saving because they don't believe politicians anyway. Nor should the government in the upcoming mid-year economic and fiscal outlook (MYEFO) announce some Keynesian spending. The best way to boost confidence is to demonstrate that the government knows what needs to be done and it will pursue its objectives without flinching.

A fillip would be to use the MYEFO to finally dump spending commitments already announced by Abbott. He should scrap the $20 billion medical fund, the PPL and slash the $50 billion infrastructure spending, which is a state responsibility anyway.

He then needs a strategy based on good policy and an economic plan. He needs a plan that will put him a long way ahead of Bill Shorten. He needs to set the pace.  Abbott could mirror the policy contest at the tail end of the recession "we had to have" in 1991-93. Fightback unveiled such a comprehensive economic plan that then PM Paul Keating was forced to counter it with matching income tax cuts but no GST.

After the election, Keating's claim was revealed as a broken promise because the tax cuts could not be afforded. The saga was a huge blow to Keating's credibility and helped pave the way for Howard's win in 1996. The lesson for Abbott is that the Coalition's internal fortitude eventually played a key role in winning the battle of ideas even though we lost one election along the way.

Abbott has had a year of achievement in many endeavours but with the exception of the three trade deals, his economic management has been bogged down by an irresponsible Senate. To meet the challenges facing Australia today he needs a bigger plan, a clearer message and a willingness to take a punt based on the public interest.

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