13 December 2019
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Malcolm must step up or step off!

This week I got into a bit of an intellectual battle with my Sky News and 2GB colleague, Andrew Bolt, after I suggested knifing and recycling Prime Ministers is not a great idea. Sure, there could be better political consequences, after all, Labor did lose better under Kevin Rudd Mk II than they might have under Julia Gillard, if we can believe polls. However, Rudd still led Labor to a loss.

Andrew pointed to the success of Paul Keating knifing Bob Hawke, with the 1993 “sweetest victory of all” election win. But let’s face it, my old Head of School and employer at UNSW — Dr. John Hewson — gave Keating the election by running with a 15% GST. Even John admits that.

Keating was a great reformist Treasurer, despite mistakes on interest rates. Anyone who endured 17% home loan interest rates would agree. However as a Prime Minister, he was as popular as a brown snake at a bush picnic.

But making political guesses on what we want out of PMs is not my expertise, though I have been commenting on economics and politics in Australian major media outlets since 1984. 

Where I’m prepared to back myself is on what the economy needs and there is plenty of evidence that strong leadership in Canberra is good for the economy.

It’s not an accident that big economic runs were put on the board with the tag teams of Bob Hawke plus Paul Keating, and again with the Budget deficit destroyers of John Howard and Peter Costello.

Under the latter duo, we ended up with a budget surplus, zero federal government debt, unemployment below 4% and confidence. Have a look at the chart below: 

Source: Trading Economics, Westpac Banking Corporation, Melbourne Institute 

You can see from the period of 1996 to the GFC slump in 2008, confidence during the Howard era was closer to 120 slumping to around 80 but then has been anchored around 100 or below.

Malcolm Turnbull’s knifing of Tony Abbott was well received by Aussie consumers but the warm and fuzzy feeling didn’t last. Why? The mining boom petering out didn’t help but largely Malcolm has under-delivered, at least for consumers.

But his efforts haven’t been all under-appreciated, with business conditions and confidence really looking good enough for us to keep giving the PM some time to lift his overall leadership game.

In case you missed it, the latest NAB business conditions index reading, delivered on Budget day, rose from +12.3 points to +14.3 points in April. That’s a 9-year high! The business confidence index rose from +6.5 points to +12.9 points – a 7-year high! 

Let’s look at business confidence in recent times and compare it to the Howard era.

Clearly it was higher, in the 10-20 band, rather than the zero to 10 band we’ve seen since 2010. The period of negative confidence coincides with the GFC effects and only recently have we broken above the 10-level.

To my way of thinking, Malcolm’s positive influence on business is the best case for not reverting back to Tony Abbott, despite Tony once giving business a short-term burst of excitement, as the chart shows. But it didn’t last.

This chart shows a spike in business confidence, with the 2013 Abbott victory. Over time, however, his magic wore off and confidence fell. Sure, there were other factors but Tony’s greatest failing as a PM was his poor communication and, worse still, his connection factor.

Malcolm connects badly to everyday Aussies and that’s not helping consumer confidence. However, he’s comfortable with business and it’s showing. On the other hand, Tony is more comfortable with the common man but it’s only at a personal level. He can’t pull it off on the public stage. He looks wooden. He repeats himself for effect. And he’s not the guy I’ve met one-on-one.

Business people like him but they’re not convinced he can pull off the leadership play that this country needs.

And Bill Shorten with his anti-company tax stance, his hate session on millionaires and his campaign against the banks, means if business had to rate our possible leaders, it would be Malcolm followed by Tony followed by Bill.

My argument is simple: we need and want a leader who can excite both business and consumers. Right now, the economic doomsday merchants are wringing their hands about wage rises, which are disappointing. However, it all should be kept in perspective.

Craig James of CommSec did that this week, when the wage price index rose by 0.5% in the March quarter to be up 1.9% over the year. 

He made the point that annual underlying inflation remains below wages at 1.7%, so, in real wages terms or what your wages buy, the wage rise isn’t as disastrous as it has been portrayed.

And with interest rates so low and bound to stay so for some time, he summed it up this way: “Wages grew by around 2 per cent over the past year with underlying inflation up around 1.7 per cent. And while wage growth is modest, it still is running faster than inflation and thus representing real wage growth.

“However there is no doubt there are risks to household consumption the longer that wage growth remains subdued – particularly in light of the fact that household debt continues to rise at a faster pace that household incomes.”

So where will wage rises come from?

The best bet is from businesses being confident and then raising investment levels, which means they demand resources, including labour, which will push down unemployment and make it easier for wage rises to be paid.

The last thing we need now is another leadership crisis that kills off the comeback in business confidence. I want Malcolm to learn to talk to the country as he might to Lucy. And when he masters that, he could become the leader we need.

He needs to step up in this department or he might have to step off before the next election, though Bill is making his life a lot easier than it should be.

In the interim, I’m prepared to support Malcolm for business confidence and economics reasons.

As I said to my old mate Mr. Bolt this week, it’s the economy, Andrew.

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