Garry Shilson-Josling, AAP Economist
(Australian Associated Press)
Malcolm Turnbull and his treasurer, whoever that may be, will face some tough economic challenges but are also beneficiaries of some good luck.
The big challenge is an economy that since mid 2012 has been growing below a pace that’s usually needed to stop unemployment from rising.
Since the Abbott government was elected in 2013 the unemployment rate has risen from 5.6 per cent to 6.2 per cent.
This is where luck comes in.
For one thing, the exchange rate has finally fallen far enough to be helping, rather than hindering the economy’s withdrawal from dependence on the mining investment boom.
Growth is now focused where the jobs are.
For a given value of goods and services produced, coffee shops, builders and hotels employ many more people than a mine or offshore gas rig.
And they are more likely to be owned by Australians, meaning more of the income stays here.
So slow growth, which looks to have set in for a while, won’t necessarily mean correspondingly slow growth in jobs.
The unemployment rate may already have peaked just in time for Mr Turnbull’s swearing in.
The second big challenge is the budget.
After frightening the wits out of voters with tales of unmanageable debt and ballooning deficits, the government has failed to deliver on its promise to whip the budget into shape.
Even projections for a balanced budget in 2019/20 depend mainly on bracket creep – the rise in average wages taking ordinary workers into ever-higher tax brackets – rather than genuine reform.
But the economy’s transition – or “rebalancing” as economists optimistically call it – will help.
By delivering more jobs for a given volume of GDP growth, the “rebalancing” will boost income tax receipts.
And by switching growth to non-mining businesses, which pay a much higher proportion of their gross profits in tax than mining firms, the transition will mean faster growth in company tax revenue.
Even so, reform of the tax system will probably be needed – tightening of loopholes, rebates and deductions, caps on the incentives built into superannuation, and maybe even widening the GST net.
That will be tough, especially with a Senate in no mood to grant favours.
Another challenge will be climate change, with the new prime minister caught between his support for Mr Abbott’s Direct Action plan and the more efficient (and easier on the budget) carbon pricing model he had championed before being deposed.
The task will be to come up with a credible policy approach ahead of the United Nations Climate Change Conference in Paris, beginning on November 30.
Even then, Mr Turnbull may have another stroke of luck – if it can be called that – the El Nino climate pattern currently building in the Pacific Ocean.
If you want to introduce a different approach to climate policy, a background of tumbling temperature records, high fire danger and widespread drought will do a lot to bolster your argument.