Abbott must walk away from economic populism

Nicholson

AT a time of exacting economic challenge for Australia the issue for Tony Abbott is not the carbon tax - it is whether Abbott has the policy agenda and convictions to duplicate the economic success of the Howard-Costello era.

For the nation, the major unknown about Abbott is his economic beliefs. Yes, he is a protege of John Howard. But before Howard, the spectre of B. A. Santamaria's regulatory economics hangs over Abbott's history. Indeed, among Abbott's frontbench colleagues there is real uncertainty about his economic philosophy, notably whether his faith in pro-market policy outweighs his instinct for government intervention. It is a subject of wide and growing contention. If Abbott's colleagues are unsure about his economic mettle, is it any surprise the public are unconvinced?

Witness Abbott's considered speech this week when he took two lines on manufacturing industry - he was a champion of market forces and attacked "picking winners", yet he left open the option for intervention on grounds of national security, economic diversity and avoiding closing down industry that might later get an economic reprieve. This was Abbott playing both sides of the fence and making appeals to opposing constituencies.

The irony is that Abbott's political success in ruining Gillard Labor over the carbon tax and stealing the Labor base vote, notably in manufacturing, only intensifies doubts about his economic policy. He risks being a victim of his own success. Having declared that if Ben Chifley were alive today he would be voting Liberal, Abbott must perform a long stretch to back pro-market policies now in the firing line from the trade union movement desperate to save manufacturing jobs.

The conundrum of Abbott's leadership is easily stated - he must present within the Howard-Costello economic tradition yet his political success derives from a stunning economic populism that suggests another direction.

Consider the narrative. Abbott has repudiated the principle of carbon pricing, the policy Howard took to the 2007 election. Abbott rejects in principle any new mining tax when, with BHP-Billiton recording a $22.5 billion profit,

the case for a new national profits tax replacing state royalties is overwhelming in both political and economic terms given the productivity-enhancing potential of such revenue.

To this point Abbott has sensibly played down industrial relations reform, aware Labor seeks to revive its WorkChoices scare - but business and industry leaders increasingly have signalled their demands for changes to the Fair Work laws and the Coalition, sooner or later, must offer a more substantive response. This decision, again, will become a test of Abbott's economic mettle.

In recent weeks there has been tension within shadow cabinet over Abbott's protectionist instincts - both in relation to the importation of New Zealand apples after a World Trade Organisation ruling and palm oil labelling that the Gillard government says is in breach of our WTO obligations. Deputy leader Julie Bishop famously told Abbott that "I am not going to support any bill not WTO-compliant", a principle Abbott has openly upheld. One Coalition veteran privately has drawn a parallel between Abbott and former Liberal leader Malcolm Fraser, notorious for his National Party ties and protectionist bias. In today's Liberal Party that is the ultimate insult.

Abbott's ability to abolish both the carbon tax and the mining tax yet deliver a stronger surplus than Labor means a huge fiscal adjustment on a Coalition government and its economic ministers, Joe Hockey and Andrew Robb, with spending restraint in the $50bn to $70bn range nominated. At the next campaign Labor will seek to nail and destroy Abbott on the costings that must justify his fiscal program.

The entire logic of Abbott's position is obvious - he now confronts the prime ministership and must adjust his tactics. That doesn't mean the abandonment of his anti-carbon tax campaign. But it does mean consolidating and projecting his economic credentials in readiness for the assault that Labor will launch against him. It was said correctly of Howard before the 1996 election that the public knew him and trusted him on the economy. That claim cannot be made of Abbott. It is his flaw and it should be addressed. Howard had been treasurer for five years and then, in opposition from 1983, he advocated the "dry" agenda of tax reform, de-regulation of the industrial system and privatisation.

By contrast, Abbott has been neither treasurer nor conspicuous as a pro-market champion though his achievements in office should not be overlooked - entrenching the Job Network to replace the old Commonwealth Employment Service, establishing the Cole Royal Commission leading to the most important productivity gains in the building industry and expanding work-for-the-dole.

Interviewed by The Australian yesterday, Abbott said: "There's no way we are going to be a highly interventionist government if we get to office. But we'll only get a freer economy by engaging painfully in a frank dialogue with the public."

Abbott insisted that Howard was his economic model. The longer Labor governed, he said, the better Howard's economic performance looked. The point is that Abbott desperately needs the Howard-Costello brand for his economic credibility. Beyond this, he says that Howard never patronised the public and only sought to negotiate the road to economic reform.

The reality is that Abbott's economic mettle is a work under construction. The profile he has built as leader is more economic populist than economic liberal. Does Abbott really intend to change this before the election? It is a vital question - vital because the nation is nervous about the present economic outlook, unsure about policy solutions, divided about how to manage the terms of trade boom and the winners and losers being created by its structural changes.

In a sense Abbott captures and reflects the nation's ambivalence. The bigger question is whether he aspires to offer economic leadership or merely exploit the flaws and difficulties of Gillard Labor. The answer should be obvious: no Liberal leader can duck the obligation of economic leadership. This is embedded in the Liberal Party's DNA.

Moreover Abbott, if he wins, needs to bring expectations and reality into some consistency. Winning only as a populist dooms Abbott PM to loads of problems from dashed expectations. While invoking Howard is smart, it cannot suffice. The caravan has moved on. Abbott's task is to devise a policy agenda that integrates the terms of trade boom, the productivity challenge and the need to address climate change.