Articles – Page 13

Malcolm Turnbull Should Avoid The Seductive Trap Of An Early Election

Early elections are not a good idea.

Yes, they look very democratic. Who could object to a government seeking the approval of the voters, even if not strictly necessary? But if there’s one lesson we’ve learned in the last few years, it’s that early elections are a seductive trap.

Julia Gillard held an early election in 2010. She wanted voter approval for Labor’s leadership change. But by doing so she squandered any hope of exploiting her status as the incumbent prime minister, and nearly lost her first term government.

Kevin Rudd called an election well before he had to in 2013, well before he had re-established himself as the rightful leader, and well before he had rebuilt any semblance of Labor’s economic credentials. Needless to say, Rudd lost.

So one wonders why on earth people are recommending the Turnbull Government go to an election sooner rather than later. In Monday’s Australian, Phillip Hudson had an extended piece saying that Turnbull was being urged to call a poll for Valentine’s Day 2016.

It’s true that with an early election Turnbull could take advantage of his current popularity. Just like Gillard and Rudd took advantage of theirs.

Over the weekend, News Limited papers revealed Treasury is actively considering a 15 per cent GST in return for significant income tax cuts.

It is widely believed that any major tax changes would have to be taken to an election first. It’s not clear to me why that is. It seems to assume that governments these days are incapable of explaining why what they want to do needs to be done.

In fact, the so-called reform ‘mandate’ provided by an election is ambiguous. We cannot know why elections are won or lost. Perhaps an election win means the public loves the policies of the winning party, or perhaps it just dislikes the leader of the losers.

Nevertheless, the idea that reform has to be taken to an election first is the received wisdom, and governments are governed by nothing but received wisdom.

This speculation of an early election illustrates one of the Turnbull Government’s biggest challenges. In the next 12 to 18 months, Malcolm Turnbull is going to have to navigate the politics of a budget, a general election, a plebiscite (same-sex marriage), and possibly a constitutional referendum (Indigenous recognition). In each, Turnbull will be fighting the shadows of decisions left to him by Tony Abbott.

Indeed, of all these, an election is probably the easiest to navigate, given Bill Shorten’s lacklustre poll performance. As things look now, a second term for the Coalition is almost certain.

Turnbull didn’t want a plebiscite on same-sex marriage. But he has some interesting options here. Turnbull could bring the plebiscite forward and hold it before the next election. Surely doing so would not be breaching faith with voters who voted the Coalition into government in 2013. After all, Turnbull would be asking for permission from those voters for the change in policy. That’s the beauty of a plebiscite. It’s hard to argue against on democratic grounds.

Tony Abbott thought he was being clever when he called for a gay marriage plebiscite. In fact, when he did so he threw away the conservatives’ strongest card: with the current make-up of the Parliament, a conscience vote might well have been unsuccessful. A lost parliamentary vote would have delayed the issue for at least a few more years.

Opinion polls show consistently high support for same-sex marriage. When the plebiscite date is announced, gay and lesbian couples might as well book their wedding venues.

The Indigenous recognition referendum is much more complicated. Turnbull is sending it off to yet another committee.

Phillip Hudson raised the possibility of a poll combining the gay marriage plebiscite, Indigenous recognition, and a half-Senate election, to be held perhaps in the second half of next year or early 2017.

But such an omnibus poll plan assumes this new committee will decide on a recognition question that is so uncontroversial it is guaranteed to be successful. Holding a controversial recognition question at the same time as the gay marriage plebiscite will risk both failing. Turnbull surely knows this. So far there is no sign of a consensus question. Don’t count on there ever being one.

The final electoral complexity is the May 2016 budget. It will be the first major test of Scott Morrison’s economic skills. It needs to symbolise a new approach to getting the budget back to surplus, while at the same time maintaining the Coalition’s mantra of “lower, simpler, fairer taxes”. It needs to bear the load of the Turnbull Government’s economic reform agenda. It can’t be the public relations disaster that was 2014.

With all this pressure, you can see why some in the Government would be eager to get an election out of the way before the budget was handed down. Budgets have winners and losers. But doing so would be a mistake. Governments are elected to govern. As the experiences of Kevin Rudd and Julia Gillard demonstrated, voters punish election timing cynicism.

Lego Can Avoid Ai Weiwei, But It Can’t Avoid Politics

On Friday the Chinese dissident artist Ai Weiwei revealed that Lego had refused a bulk order of bricks from his studio. The bricks were to be used for a piece that he was going to show at the National Gallery of Victoria.

Lego says it has a long-standing policy to not knowingly supply its bricks for political uses. Yet there might be something else going on here. In an Instagram post, Ai drew a connection between Lego’s action and the recent announcement of a new Legoland to be opened in Shanghai. He later described Lego’s actions as “an act of censorship and discrimination”.

On the one hand, this ban means nothing in practice. The company may not approve of using its product for political works but Ai does not need Lego’s approval. There’s nothing stopping him from buying new Lego kits from retailers, rather than from Lego directly, then doing whatever he likes. If that fails, there’s a thriving global second-hand market for individual Lego pieces. And the artist has apparently been “swamped” by offers of donations of Lego since Friday.

When Lego declined his order the firm was no more engaged in censorship than was the Brisbane bookstore that refused to stock Campbell Newman’s biography as retaliation for cancelling the Queensland Premier’s Literary Awards.

On the other hand, what we’re seeing here is a toy company struggling with the political implications of its own enormous cultural profile. Lego is a very particular toy company.

The global toy industry is dominated by a few big players. Mattel and Hasbro are two of the largest umbrella firms. Almost every toy brand and product you can think of – Fisher-Price, Barbie, Power Wheels, GI Joe, Mr. Potato Head, Transformers, Jenga, Monopoly, Battleship, Cluedo – falls under one of those two, giant publicly listed companies.

But last year the privately held Lego trumped Mattel and Hasbro to became the biggest toy company in the world.

Unlike its rivals, Lego is based around a single, iconic product: the Lego brick. And unlike its rivals, it professes a peculiarly utopian ethic about the nature of play and creativity that very much reflects the era and place in which it was founded: 1950s Denmark. The firm is still based in the small Danish town of Billund. It is still very much animated by its founding myths.

For instance, Lego avoids making realistic military kits or weapons because its founder, Ole Kirk Christiansen, didn’t want to make war seem like child’s play. Star Wars branded Lego has been central to the firm’s recent success. But as David C Robertson points out in Brick by Brick: How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry, Lego nearly passed on the Star Wars license because “the very name … was anathema to the Lego concept”.

Robertson’s book leaves you with the impression of a company struggling to come to terms with the way Lego has been repurposed and reimagined by its own consumers.

In 2010 the firm reported that about 5 per cent of its sales come from adult consumers buying for themselves. This is certainly an understatement, given Lego’s growth since, the Lego Movie, and the fact that some parents are choosing Lego for their children partly for self-interested reasons.

Large scale Lego sculptures are a minor pop culture genre. Lego profits from this: the Architecture line, marketed to adults, taps into the ways consumers have been using the pieces unintended by Lego’s marketing team. That Ai Weiwei wants to use Lego for art is a reflection of its cultural symbolism. Ai is not a pioneer here. There are artists who work exclusively in Lego. Hobbyists make elaborate creations. There’s a rather incredible Battle of Waterloo.

Yet Lego is not a company well-geared for political controversy. At first glance their policy on controversial uses of their product is sound and clear. No politics, no religion, no military. Chinese democracy activists won’t get Lego’s approval, but then nor will Klu Klux Klan members. Lego wants to remain above the grubby material concerns of politics.

Such anti-political neutrality is obviously impossible. Whether they like it or not, Lego is a player in the cultural life of the human species, and in a way that any of Mattel and Hasbro’s competing brands are not. Lego profits handsomely from that status. Perhaps a truer form of political neutrality would mean paying no attention to the ultimate use of bulk Lego sales.

I suspect the refusal to fill Ai’s order is more a case of mindless adherence to their no-politics policy rather than a sop to the Chinese state. But if it is the latter, with this controversy they’ve found themselves in the invidious position shared by firms around the world who want to service markets in unfree countries like China.

Such relationships throw up serious ethical questions. Refuse to abide by the state’s rules and deny their oppressed citizens a product you believe will better their lives? Or obey and hope the benefits outweigh the harm of cooperation? You can imagine the tense meetings going on right now in Billund, as news of the Ai decision snakes around the world. They’re just a toy company after all.

Milton Friedman was correct when he said that the social responsibility of business is simply to increase its profits. But ours is a fallen world. Businesses are also participants in our political systems as much as our economies.

Sometimes that means toy companies have to take a stand on democracy in China. They have to choose between the Chinese state and its dissidents. Implicitly, inadvertently, perhaps even with the best of intentions, they already have.

Don’t Blame Voters For A Lack Of Competition Reform

Malcolm Turnbull should count himself lucky. Tony Abbott has handed his successor a remarkably fleshed out agenda for economic reform.

Shortly after the 2013 election, Abbott and Joe Hockey commissioned a series of reviews and inquiries. There was one on the financial sector, which reported in December last year. A federation inquiry and a tax inquiry are both working their way through the system.

And then there was the inquiry into competition policy, headed by the economist Ian Harper, which released its final report in March 2015.

The last major competition policy inquiry was the Hilmer Report under the Keating government in 1993. That report laid the groundwork for half a decade of competition policy reform. Hockey to his credit knew what he was doing when he commissioned a sequel to Hilmer.

It’s easy to forget all these reviews. The Abbott government was so policy shy in its last 12 months. The Harper review sunk like a stone almost as soon as it was released.

Only one of the Harper recommendations was seriously considered by the Abbott government – the so-called “effects test”, which would have made it easier to penalise firms for “lessening” competition.

The effects test divided the Abbott cabinet. It is the only major recommendation from the Harper review that would constitute an increase in regulatory interventionism. The free market right hated it. Small business minister Bruce Billson was the effects test’s biggest advocate. He was dropped from the ministry when Turnbull took over. We can speculate that this was not a total coincidence.

So when Scott Morrison announced on Friday that the Turnbull Government was going to look again at the Harper review, he was wading into a deep pool.

Morrison did not commit to the effects test either way. He did, however, specifically note the much more ambitious proposals in the Harper review: reforms to urban planning and zoning to open up the housing market, and subjecting social services to competition.

All good stuff. But it will be a hell of a challenge to implement any of these proposals. It’s true that the Coalition now has a minister for cities. But all functional power in planning and urban policy lies with state governments, who created the disastrous land supply restrictions that caused the housing mess in the first place.

Likewise, the Commonwealth can cajole and bully all it likes but the ultimate responsibility for most service delivery is in the hands of the states. Very little marketisation of social services is going to go ahead unless state governments buy in.

Last week we had an even more glaring illustration of the institutional barriers to competition reform. The Harper Review put particular emphasis on taxi deregulation and removing barriers to the ride-sharing firm Uber. But on Monday the Commonwealth’s independent competition regulator the ACCC provisionally denied the taxi industry authorisation to launch a smartphone app, iHail.

The iHail app would have allowed users to book the closest taxi from participating taxi networks. The ACCC thought that this would reduce competition in the taxi sector because it was a joint venture between a number of taxi networks. You can read their draft determination.

The ACCC’s arguments don’t even pass the laugh test. There is virtually no competition between taxi providers right now. Indeed, we’ve had a century of regulation with the express purpose of eliminating competition between taxis. The only real competition that is exists is between taxis and ride-sharing services like Uber.

But the ACCC has decided that, because the legality of Uber is still unclear, for the purposes of competition law taxis do not compete with Uber. (You can see this rather astonishing claim on page 21 of the draft determination.)

Therefore the ACCC believes that taxi companies collaborating on an app endangers the taxi market – rather than being an example of how competition from Uber is encouraging taxis to offer a better service.

Malcolm Turnbull and Scott Morrison should be looking at this draft decision closely. Not because its specifics are particularly important. The ACCC might well change its mind on the scope of taxi competition before it releases a final determination. And as the Harper review noted, even a completely deregulated taxi market reform would do little to boost total Australian productivity.

But Harper thought taxi deregulation was important because failure to do so symbolised a lack of seriousness in competition policy. The ACCC draft determination is important. It’s a warning. We now have a legal framework where firms have to request permission from the government to innovate.

In an influential short book, the American technology scholar Adam Thierer argued for “permissionless innovation”. Thierer argues that if we want take advantage of technological progress, we must remove the approvals, authorisations and clearances that innovators and entrepreneurs need from government before they bring ideas to market.

For years commentators have complained that the era of economic reform is over. In the most common version of this story, any attempt to restructure the Australian economy will be scuttled by a hostile Australian public. This is really just blaming voters for the failures of the political class.

In fact, what is more likely to hold back economic reform is government itself: the network of interests and institutions that believe their job is to supervise the innovation economy.

Alcohol And The Nanny State Inquiry: This Isn’t Just About Money

It’s one of the most cited numbers in Australian politics: alcohol costs Australia $36 billion every year in preventable death, illness, inquiry and lost productivity.

Unsurprisingly it has become a centrepiece of the Senate inquiry into personal choice and community impacts – you might know it as the “nanny state” inquiry – which began its hearings last month.

In their submissions to the inquiry, the Australian Medical Association, the Alcohol Policy Coalition, the Foundation for Alcohol Research and Education, the Public Health Association of Australia, the Royal Australasian College of Physicians, and the Australasian College for Emergency Medicine all cite the $36 billion figure to variously justify higher taxes on alcohol, or more controls over alcohol supply, marketing and licensed venues.

The media loves this number, mainly because they love big numbers.

Public health activists and academics love this number too, because they hate being called nanny staters and wowsers. The $36 billion figure is useful because it purports to take the question of whether government should regulate people’s personal choices out of the domain of morality and philosophy and into the domain of economics and rationality.

But it is absolutely meaningless in any policy-relevant way.

And it ironically reveals how philosophical questions cannot be separated from the debate over paternalistic restrictions on alcohol.

The figure comes from a 2010 study conducted by the Alcohol Education and Rehabilitation Foundation.

The 13 authors of the paper came to $36 billion by piling on as many “costs” of alcohol as they could imagine. They took the full kitchen sink approach. They included everything from the lost productivity of workers affected by alcohol, to the cost of hospitalisation of children who have been abused by adults believed to be affected by alcohol.

Even where the connection to alcohol is tenuous – the fact that some crimes are committed by people who have alcohol in their system does not mean that alcohol causes those crimes – they derived costs and added them into the big headline number.

It is a credit to their creativity that the authors managed to add a further $20 billion to the $15 billion social cost of alcohol found by a study published by the Commonwealth government in 2008.

But the policy question is not whether alcohol consumption has costs. All choices have costs. The question is whether those costs outweigh the benefits from alcohol consumption. Costs are meaningless if they are not paired against benefits.

And as the economists Eric Crampton, Matt Burgess and Brad Taylor point out in an important paper, these sorts of social cost studies dismiss the benefits of alcohol by leaning heavily on an assumption that drinkers are uninformed or irrational, and therefore do not really “benefit” from drinking.

It’s a revealing move, because it shows how even this most rationalistic and economistic argument for alcohol regulation ultimately comes down to an assertion that people just don’t know what’s good for them – and that others do.

In fact, as the 2008 study found, the direct costs to the public healthcare system of alcohol consumption are much more modest: about $2 billion a year. This might still seem like a lot. But the government received more than twice that from the excise on alcohol sales: $5.2 billion.

You often hear in debates about paternalism that the government wouldn’t care about what we ate or drank if it weren’t for the fact that taxpayers pay for the consequences of those choices through the public health system. Hence we need to regulate alcohol and reduce alcohol consumption for the budget’s sake.

Even if the excise on alcohol didn’t more than recover the direct healthcare costs of alcohol, this would still be one of the most counterproductive arguments in politics.

First, the argument suggests that a public health system is incapable of handling the freely-made health choices of its customers. Second, it suggests that the corollary of public health provision is state control over our bodies and what we choose to put in our bodies. And third, it suggests that there is no “right” to public health care – rather that access to health care is contingent on making the correct health decisions.

Far from being a defence of the nanny state, this argument looks like a rather powerful attack on the notion of a publicly funded and universal health care system. I’m guessing this is not the intention.

Helping launch the nanny state inquiry last month Sam Dastyari told the ABC that “ideology has just been dead in Australia for too long. Let’s actually have some big debates, let’s have some different views”.

Like it or not, the debate about restricting what we drink, eat and otherwise consume cannot avoid ultimately considering deeper philosophical questions about the relationship between individual and government.

Tax Reform A False Start In Pursuit Of Economic Growth

The new Turnbull government should stop talking about tax reform.

Tax reform is a poor use of its political capital. It is a waste of the goodwill Malcolm Turnbull brings to the prime ministership. The challenge Turnbull faces is not to make our tax system slightly more efficient. The challenge he faces is how to make the economy grow.

When he became Treasurer, Scott Morrison stated that the Commonwealth has a spending problem, not a revenue problem. That is, the government wants to focus on spending cuts rather than tax increases.

This is excellent, as far as it goes. But in truth our real problem is growth.

The International Monetary Fund estimates that the Australian economy is going to grow just 2.5 per cent this year. Back in the Howard years, growth averaged 3.7 per cent a year. The Reserve Bank governor has publicly speculated that our lower growth might be the new normal.

If you want to blame the stubborn budget deficit on anything, blame it on this. John Howard, Kevin Rudd, Julia Gillard, Tony Abbott, Malcolm Turnbull: they’ve all been riding the waves of our growth figures.

Some governments have made the problem better and some have made it worse, but the simple fact is that policymakers can no longer rely on the same level of growth that once delivered windfalls to the Commonwealth budget.

The focus on tax is a distraction. Ever since Kevin Rudd commissioned his own Treasury Secretary to conduct a “root and branch” investigation of Australia’s tax system in 2008, tax reform has been an obsession of governments. Joe Hockey was only following Labor’s lead when he launched the Coalition’s tax reform process.

It is true that the tax system could be made more economically efficient. It would be more efficient for taxes on income to be further replaced by taxes on consumption. This is why many economists have said that the GST should be raised and personal and company tax reduced. Morrison has been talking about this possible trade-off already.

But it’s hard to see why this is a national priority. Efficiency isn’t the only thing we want from a tax system. Indeed, a theoretical insistence on efficiency was what gave us the Rudd government’s mining tax; a tax which was understood by a tiny fraction of the population but was the inexplicable and unhappy centrepiece of Labor’s economic agenda.

And while efficiency makes it easier for governments to extract more money out of us, is that really such a virtue? We ought to know when we are being taxed. Voters need to know what their government is doing. They need to know how taxes are raising the prices of the goods they buy and reducing the money they have to buy those goods.

A budget emergency is the worst time to conduct tax reform. There’s not a person in the country who believes the economy will escape this round of tax reform with a lower total tax burden.

Every incentive in the Treasury department is to edge taxes up. That’s why Joe Hockey cracked down on so-called corporate tax “avoidance”. That’s why the GST is now to be levied on online purchases. And anybody who thinks eliminating superannuation “concessions” will help the economy has rocks in their head.

It’s all incredibly counterproductive because the fixation on revenue and tax increases actually holds back the growth we need to encourage. Taxes take money out of the productive parts of the economy. Perhaps the government thinks it might be able to use its revenue to lay the foundations of growth – by investing in infrastructure and private education. In practice, too much of this investment goes to white elephants and degree mills.

Governments – directed as they are by professional politicians with their eyes on marginal seats and swinging voters – aren’t that good at spending our money wisely. Turnbull needs to be careful his interest in innovation doesn’t become a stream of taxpayer-funded boondoggles. Much better to revitalise the Coalition’s flagging deregulation agenda, refocus on industrial relations, and eliminate any regulatory burdens holding back employment and production.

Even the constant drumbeat of tax reform is likely to be harming growth. We’ve been talking about tax reform for nearly a decade. Uncertainty about Australia’s future tax regime makes companies less eager to invest. They know the tax system is probably going to change. They don’t know when, or how.

But there’s a deeper reason Turnbull should fixate on growth rather than taxes. Higher growth means increased living standards. Higher growth means a more prosperous Australia and more prosperous Australians. This – not spending, not revenue – should be what keeps Malcolm Turnbull and Scott Morrison awake at night.

The Tide Is Turning On Penalty Rates, But How Far Will Turnbull Go?

All the ducks are lining up for changes to penalty rates under the Turnbull Government.

First, there’s political momentum: the employment minister Michaelia Cash is open to changing to penalty rates. The Energy and Resources Minister Josh Frydenberg supports changes.

Warren Entsch, Dan Tehan, Russell Broadbent, Wyatt Roy, Sean Edwards, Craig Laundy, Alex Hawke, George Christensen, Dennis Jensen, Zed Seselja and Andrew Nikolic support changes.

Obviously aware of this drum beat, Malcolm Turnbull has signalled he is open to penalty rate reform.

Second: penalty rate reform is backed by analysis that looks both independent and authoritative. The Productivity Commission’s draft report into Australia’s Workplace Relations Framework, released in August, recommended that penalty rates for Sundays be reduced to the same rates as those on Saturday for hospitality and retail workers. The PC argues this would boost both employment and consumer choice on Sundays. (The PC’s final report will appear in November.)

Third: penalty rate reform might not be that challenging a contest. Bill Shorten is hardly up to the task of a debate on minor industrial relations changes. Yesterday he claimed penalty rates were the difference between parents sending their children to a public school or a private school.

Clearly, WorkChoices hyperbole infects both sides.

It’s been a decade since the Howard government announced WorkChoices in May 2005. The penalty rates debate is deeply symbolic. Being able to move, even in a small way, on penalty rates would be a major arrow in Malcolm Turnbull’s quiver. Industrial relations has always been the high ground of economic policy in this country.

In fact, reducing Sunday penalty rates would be a very minor reform. The Productivity Commission is usually parodied as a bunch of dry-as-dust economic rationalists. But their penalty rates recommendation is hardly revolutionary. They have rejected any change to penalty rates for long hours or night work. And workers not employed in the entertainment, retail and hospitality industries would keep their Sunday rates.

Indeed, their whole workplace relations report is cloyingly moderate.

Take, for instance, the PC’s conclusions on the minimum wage. Back in January the PC wanted to prove once and for all whether minimum wages cost employment. (I wrote about this ambition in The Drum at the time.) Yet the draft report concludes “it is not possible to pinpoint the impacts of minimum wages on employment”. And despite admitting that the minimum wage mainly favours middle income households and there are better anti-poverty devices than the minimum wage, it believes that the minimum wage is good policy.

More generally, the PC report holds firmly to the idea that there is unequal bargaining power between employers and employees thanks to labour market “frictions” – things like how hard it is to find new work. (Without those frictions employees would play firms off against each other for higher wages.)

The PC does nothing to challenge the popular belief that unregulated labour markets are unfair to workers. Quite the opposite: the PC implicitly agrees with the union movement that the world of employment is characterised by exploitation and inequality.

The PC should have challenged that belief.

Labour economists often say that labour is unlike any other commodity because many low wage labour markets are characterised by “monopsonistic competition”. This refers to situations where buyers have quasi-monopoly power and can effectively set wages in their favour.

But every commodity is unlike any other commodity. While the idea of monopsonistic competition is an interesting theory, it is hard to see how such competition would be sustained in the real world, where every market imperfection is an opportunity for entrepreneurial disruption.

To be fair to the PC, they’re reflecting a stream of economic scholarship published in the last two decades that seems to suggest labour markets function in this strange way.

But that scholarship is the centre of an extremely active debate. Nor is there any consensus on what the strange behaviour of this market might mean for labour market law.

After all, regulation can create monopsony effects. In this sense, labour market regulation is a self-fulfilling prophecy. When you make it harder to hire and fire workers, you might create the frictions that reduce workers’ bargaining power. That lesser bargaining power means we need to regulate hiring and firing even more. And round it goes.

Nobody expects the Turnbull Government to push radical labour market deregulation right now. We’re having a penalty rates debate precisely because it is such a small area of dispute.

After all, the PC only called for aligning Sunday penalty rates for entertainment, hospitality and retail workers with the Saturday rate.

Under Tony Abbott the Coalition government wasn’t even game to consider that. Abbott and his industrial relations minister Eric Abetz ran a mile when the PC released its draft report.

If Turnbull can’t bring in this small change, then the possibilities for more substantial labour market reform in the future are slim indeed.

Turnbull Can Learn From Gillard’s Transition

It feels like a new Government, so different is the changed tone from Tony Abbott to Malcolm Turnbull. Yet tone counts for little in any policy sense.

The new Prime Minister may brag about a boost in business confidence but markets don’t run on tone. Optimism can dissipate quickly.

Turnbull’s challenge right now is in many ways a lot harder than that faced by a newly formed government. Just ask Julia Gillard.

A new government carries into office a folder full of election promises. A new government is free to discover the disastrous state of the books, to uncover the horrifying truth about major programs, and just generally remind voters they made the right electoral choice.

Turnbull can do none of that. He both inherits the accumulated decisions of his predecessor and is unable to disinherit them – even if he wanted to. First, half his cabinet signed off on those decisions, including himself. Second, maintaining the decisions of the Abbott government was one of his promises to get into power.

Yet despite limiting his criticism of Abbott before the spill to Abbott’s failure to communicate on economic matters, it is clear that Turnbull wants to alter policy. Hence his recent lines that all policy is subject to scrutiny.

It has been blindingly obvious for months that Turnbull’s issues with Abbott were not limited to his communication style. Take Turnbull’s anti-“death cult” speech from July – while couched in a criticism of the government’s language, it was as clear a signal of policy dissent from a cabinet minister we’ve seen.

Anyway, the policy direction of the Government would have had to change regardless of who is leader. The 2015 budget was a purposeless document unsuited to the times. The Abbott government had been in constant policy retreat ever since the failed spill attempt in February. This was unsustainable.

So right now we’re in a peculiar limbo.

A number of critics of Turnbull have pointed out that his much-praised communications skills can often devolve into waffle – something that was most obvious in his interview with Leigh Sales on 7.30 last week. Policy uncertainty is why Turnbull waffles.

When Turnbull has something to say he is sharp and clear. But the Government hasn’t settled on what to say yet. Indeed, policy change can’t happen quickly if everything has to go to cabinet along with formal submissions.

So when asked about – say – his foreign policy priorities, the Prime Minister fills the air, trying to be interesting rather than decisive. When he defends positions against his better judgment – like the gay marriage plebiscite – he looks unconvinced and unconvincing.

It’s a fine rope to walk, to distance yourself from the prime minister you rolled and still defend their legacy.

How this is done can make or break a government. To say that in 2010 Gillard handled the transition poorly would be an understatement. Voters were never offered any explanation for why Kevin Rudd had to be removed. We were told a “good government had lost its way” but we were not told where the government was supposed to be heading. We were supposed to “move forward” because asking questions about the leadership change would be crass.

Eventually we found out that Rudd had been rolled because his office was disorganised. Politics is a tough business.

Gillard kept policy change to a minimum. She renegotiated the mining tax. She promised to rearticulate the case for Labor’s moribund climate change policy. Keeping Rudd’s cabinet exactly in place underscored a sense of continuity, giving the impression that toppling the prime minister was simply a minor adjustment to the status quo. When she called an election without affecting any substantial policy change, the sense of surrealism was enhanced.

Gillard scraped through 2010 but never recovered from the impression she made in her first days as prime minister.

Turnbull should be studying the Gillard years closely for what not to do. Not only does a new prime minister need to accumulate the power of incumbency – to be prime minister and be seen being prime minister – but they need time to shape the government in their own image.

More importantly, Turnbull needs to bed down all those questions about where his government will differ from Abbott’s. That means working out all those awkward questions about how and whether asylum policy will change, whether climate policy will change, where the government stands on tax reform, the deficit and spending cuts. Those changes will tell an implicit story of why the spill had to occur when it did.

We’re still in a transition period, as one government turns into another government. But as Gillard discovered, this is one of the most dangerous places to be.

Our New ‘Innovation PM’ Needs Policies To Match

While it’s wonderful to hear the new Prime Minister wax lyrical about disruption and productivity, the real test will be putting some policy flesh on those rhetorical bones.

The recently ousted treasurer, Joe Hockey, used to talk a lot about innovation and disruption, and in much the same language as Prime Minister Malcolm Turnbull did announcing his new ministry.

Innovation was Hockey’s theme addressing the National Reform Summit in August. At a small business summit in July he declared that “global disruption is the new black”. When he addressed the Institute of Public Affairs in March, he marvelled at the possibilities and challenges of Uber, Airbnb and ASOS.

But for all that oratory, Hockey’s policy for these new firms was simply to bring them into the GST net, as happened with Uber and all online purchases.

And it’s not immediately obvious what the ideal role for government in innovation is.

We already sponsor, support and subsidise science, engineering, technology, invention and innovation in many different ways. The research and development tax incentive offsets R&D costs against corporate taxation. The patent system is meant to give inventors an incentive to invent things. In 2001 the government introduced an “innovation patent” for incremental changes to business practice.

The Commonwealth Scientific and Industrial Research Organisation (CSIRO) receives $750 million a year to conduct scientific research for the good of industry and encourage commercialisation. Then there’s all the money we give to universities for research – which Ian MacFarlane, the now-former industry minister, wanted to tie to commercialisation.

Innovation policy can easily become as much a boondoggle as any Alice to Darwin railway. State governments have been burning money on wasteful “innovation” policies for decades. Every new premier wants their capital to become Silicon Valley. But who now remembers ComTechPort?

We actually know very little about why economies innovate, let alone how we might encourage them to innovate more.

Take the oldest innovation policy on the books – the patent system. Patents might in fact discourage innovation as much as they encourage innovation. In the classical model of innovation market failure, inventors won’t invest in inventing unless they are protected from free-riders copying their invention for a period of time. Hence patents offer a temporary monopoly.

But if that monopoly is too long or too strict it could prevent new inventions leap-frogging old ones, or prevent inventions being adopted across the economy. We have no reason to believe governments have struck the correct balance here.

Last month the Productivity Commission launched an inquiry into intellectual property. Hopefully under the Turnbull Government this inquiry might be able to make a difference.

My colleague Sinclair Davidson has challenged the idea that there is a market failure even in basic scientific research. The assumptions underpinning the standard blackboard arguments for market failure in science do not hold up. He finds that government spending on science is probably a net drain on the economy – despite the fantastic claims of supporters of science spending.

Whether you accept this or not, the fact remains that while we know that technology and innovation is at the heart of economic growth, there’s no off-the-shelf policy to suit.

Refashioning 1970s-style industry policy with a technology and science focus isn’t going to cut it. Christopher Pyne should be cautious with his new role as Minister for Industry, Innovation and Science. The position could easily become a useless financial black hole.

What’s more prospective is Turnbull’s focus on the “rapidly changing, disruptive environment”.

Ever since he launched his challenge, you get the impression he’s been restraining himself from blurting out “Uber” at every press conference. Over the last year both sides of politics have been trying to grab the future-y high ground of the sharing economy (like Labor’s Andrew Leigh, Clare O’Neil and Tim Watts).

But the lesson of sharing economy firms like Uber is that innovation comes from below. The political battle we’re seeing now between Uber and the taxi industry is a peek at a future where technology butts up against regulation – and the wealthy economic interests that regulation supports.

At the very least a focus on disruption and change is a base on which Turnbull can revitalise the Government’s lagging deregulation agenda. Not just because deregulation will save firms money, as the Abbott government argued, but because it will unleash their potential.

But it’s also a firm intellectual base on which Turnbull can pursue his broader innovation agenda.

Rather than looking to pour more money into government commercialisation and science programs, the new Prime Minister should be looking at this issue from the other side of the glass. What does the Government do right now that prevents industry from innovating itself?

Turnbull opened his bid for leadership with an argument: “Our values of free enterprise, of individual initiative, of freedom, this is what you need to be a successful, agile economy in 2015”.

Fine, heartening words. But it will be quite a trick to turn those words into a reform agenda, let alone a productivity boost.

Without Economic Nous, Abbott Was Doomed

Tony Abbott has never had a taste for economics, and that ultimately was his downfall.

It wasn’t the gaffes, or the self-indulgences, or his loyalty to Bronwyn Bishop, or the aimlessness of the Government since the last budget that led to yesterday’s drama. Each of these could be survived.

It was that his attempts to reset the agenda on “jobs and growth” were empty. It was the right message – finally the right message after so much flailing about. But it was a message without any substance. People don’t want to hear politicians talk about “jobs and growth”. They want actual jobs and actual growth. At the very least they want a credible story about how those jobs and growth will be achieved.

By people here, I mean both the voters and the parliamentary Liberal Party. There is no one in the party room, apart from Joe Hockey apparently, who has really believed for the last six months that the Abbott Government has a jobs plan and that plan is working.

In the back of their mind, this economic vacuum was laying the foundation for a devastating election loss.

For any other government the China-Australia free trade deal would be a minor diplomatic success. For the Abbott Government it became, by necessity, the great lynchpin of Australia’s future posterity.

The Government announced in August that its plan for South Australian jobs was to build ship after ship after ship for the Navy. This is the sort of big government industry policy that would make Labor traditionalists like Kim Carr proud. Government funded ship building is not a plan for growth.

Here so much of the blame for Abbott’s fall has to be laid on his loyalty to his Treasurer. The 2014 budget needed a story and an advocate. But it had no one who could explain the budget’s rationale – outside the old opposition cry of Labor’s debt and deficits – or how it fit into the big economic picture. Abbott wasn’t interested in it. Hockey seemed embarrassed by it.

Liberal parliamentarians knew when they voted last night against Abbott they were casting a proxy vote against Hockey. Abbott has goodwill in the party room. He was an incredibly strong opposition leader. He is an incredibly strong campaigner. Hockey has no such goodwill. An Abbott without his Hockey might have survived.

For the last six months I’ve been reading that Abbott’s parliamentary support was entirely resting on the “right”. This is probably how it has looked from the press gallery, as conservative positions on national security and gay marriage became central to the party room numbers.

But the right wasn’t a very stable platform. Abbott’s relationship with the right has been complicated at best.

Yes, Abbott’s rise to the leadership was on the back of Malcolm Turnbull’s support for Kevin Rudd’s emissions trading scheme, and it was the right that resigned in protest, sparking the leadership challenge.

But this support was first tested early on by the paid parental leave scheme – Abbott’s first exercise of the leader’s prerogative. When he abandoned this policy in February to protect himself, it showed he was willing to Year Zero his own leadership in the same way Rudd did with the emissions trading scheme in 2010.

The most devastating blow for his support among the right was abandoning the promise to repeal section 18C of the Racial Discrimination Act in August 2014. The press gallery has never understood how significant this original promise was to Abbott’s prime ministership. Abandoning it – and describing free speech as a “needless complication” no less – was very damaging. Abbott came to realise this. Hence his strong words in the wake of the Charlie Hebdo massacre.

The final test of his relationship with the right was yet to come. His personal support for Indigenous recognition in the Australian Constitution – deliberate constitutional amendment for an uncertain and entirely symbolic end – would have torn his base apart.

Without a credible economic story, without a credible treasurer, and without stable support from the right, Abbott was going to go. Whether this week or next month or next year.

So what does this assessment mean for the new Prime Minister? Obviously Turnbull’s message before and after the spill was that he would bring a renewed focus on the economy. But two phrases stuck out in his press conferences last night. Turnbull chooses his words carefully.

The first was the declarative emphasis on “freedom” as a key to economic growth. The echo of the language of George Brandis and Tony Abbott’s “freedom agenda” in opposition was surely not accidental – and all the more powerful for now being used in the service of economics.

The second was his statement that his would be a “thoroughly liberal government” (assuming he meant “liberal” as opposed to “Liberal”). It’s indicative Turnbull said this publicly after the vote, not before. Abbott’s was an intentionally conservative government. Abbott sought to remake the party into a conservative party.

What these statements mean for government policy is anyone’s guess. Turnbull has promised not to pursue higher climate targets, and he has apparently reaffirmed the plebiscite plan for gay marriage. Turnbull proposes a new tone, but has no agenda that we are aware of. It’s going to be a long road from here.

At the very least, his choice of language is an unsubtle reminder that Turnbull will have to navigate the Liberal Party with far more skill and diplomacy than he did when he was opposition leader.

The Abbott Government’s Real Problem Is That It’s Not Ideological Enough

The Abbott Government is getting bad reviews. This week’s two year anniversary offers a neat little hook for members of the press gallery to take stock of the Government’s performance.

Among the unforced errors and stumbles, we read that the Abbott Government is far too “ideological”. In an encyclopaedic piece, the Guardian’s Lenore Taylor bemoans their “ideological overreach”. This is indeed an old complaint. This time last year Liberal Party strategists were counselling the government “no more ideology”.

But if the Abbott Government is too ideological, then its ideology is of a new species hitherto unknown to political taxonomists.

It’s an ideology that prioritises convenience over consistency, and refuses to spell out the principles which guide its decision-making. That is, the Abbott Government appears to have no distinct “ideology” at all.

One should not be too critical of a government for failing to hem to abstract doctrine – democratic government functions through compromise and conciliation. Political philosophy has to give way to practicality.

Yet even on these forgiving standards, it’s hard to see what picture of the world – or vision of the future – animates the Coalition.

The Government’s apparent “war” on the ABC is often used as Exhibit A for its ideological fervour. This began very early in their term. It seems to have reached its zenith with the prolonged Zaky Mallah affair.

Yet consider the absence of any consideration in this “war” of the role of public broadcasting in an age of media diversity, any critique of the media as a public good, or even a simple comment on the trade-off between ABC funding and lower taxes.

Rather, the Government’s critique of the ABC seems to be nothing more complex than that the public broadcaster has too many left-wing journalists and is insufficiently pro-Australia. Perhaps fair enough. But if this counts as “ideology”, then it is a superficial and empty ideology.

The irony of the Zaky Mallah affair was that it trivialised the substance and intractability of the modern terror threat by making it about the internal organisational structure of the ABC.

A keener focus on the principles at stake – that is, a more ideological approach – might have left the Abbott Government looking less like it was defeated by a chat show.

Taking a more ideological approach in each of these cases would have made the Government seem less obviously self-interested.

Nor has the criticism of the Human Rights Commission chief Gillian Triggs been obviously connected to any ideological perspective on human rights or the Human Rights Commission. The early promise of a debate from the top about the nature of human rights that was the appointment of Tim Wilson to the commission and the establishment of the Law Reform Commission’s inquiry into “traditional rights and freedoms” has gone unfulfilled.

Likewise, any pretence of a serious industrial relations agenda has been abandoned to focus on the Trade Union Royal Commission. The royal commission has revealed some serious wrong-doing in the union movement, and continues to highlight the Labor Party’s relationship with unions. But it is hardly a substitute for a debate about how much the state should be involved in workplace contracts.

Taking a more ideological approach in each of these cases would have made the Government seem less obviously self-interested.

Exhibit B for too-much-ideology is the 2014 budget. Here we have to distinguish between the Commission of Audit – which reported just before the budget was released – and the budget itself.

At the time, the two blurred into one. And it is certainly the case that the Commission of Audit was deeply ideological, in the sense that it applied philosophical principles to policy questions, and did so in a way hopeless ideologues like myself could admire.

But there was little trace of that ideology in the budget.

If Christopher Pyne’s legislative agenda is too ideological for the Australian public to forgive, then the scope of future reform is truly limited.

The two standouts in the budget were the $7 co-payment and the higher education reforms. Only the latter was really ambitious. The Government made the former seem more ideological than it was. For all their banging on about a “price signal”, the co-payment revenue was to be funnelled into a research fund. This hardly counts as devolving health provision to the market mechanism. Neoliberal Friedmanism it ain’t.

Credit where credit is due for higher education. This was – or still is to be – a significant change to the way higher education is funded.

Yet it’s hard to see how the reforms being proposed are really of an order of magnitude greater than previous market-based reforms to tertiary education under past Coalition and Labor governments.

If Christopher Pyne’s legislative agenda is too ideological for the Australian public to forgive, then the scope of future reform – from any side of politics, on any philosophical grounds – is truly limited.

Ideology is of course endemic to all human thought. We all have our frames through which we understand the world. A non-ideological person is a conceptual impossibility.

Yet it is not ideological overreach which plagues the Abbott Government. The Coalition lacks exactly what a clearly ideological approach would give them: not just consistency or narrative, but purpose.

I know nobody who manned polling booths for the Coalition in 2013 in order for Joe Hockey to introduce first a deficit levy, then (as is now being seriously proposed) swap a higher GST for lower income taxes.

Two years into their three-year term, voters must be scratching their heads wondering what this Government is for. That is not a sign of too much ideology. It’s a sign of too little.