What does the squid think of Turnbull?

From Tim Toohey at Goldman Sachs:

The Prime Minister elect is promising a “thoroughly liberal government” promoting freedom of “individuals and markets” and promising to consult and explain the case policy change. It is clear that the Prime Minister-elect is targeting business confidence and individual freedom, in a step to reinvigorate the prominence of the ‘small L liberals’ within the party. Initial indication from Mr Turnbull is that the government will seek to serve its full term rather than move for an early election.

There are a number of uncertainties that will need to be resolved in coming days;

– Liberal Party will now have to re-negotiate its coalition agreement with the National Party, with the National Party announcing a party meeting tomorrow to defer any automatic agreement renewal. We view this as largely a formality.

– The Liberal Party will need to negotiate its position with the cross bench; the government needs 6 of the 8 cross bench representatives to vote for any prospective Coalition legislation.

– New portfolio allocations will be made in coming days in key portfolios such as Treasury, with government ministers indicating after the vote that Scott Morrison is likely to assume the position. Ms Bishop has indicated she intends to remain in the Foreign Affairs portfolio.

– It is unclear which policies will be subject to change under a new leader. Financial markets will be keen to gauge attitudes to the proposed policies such as taxation reform, including an increase in the GST, climate change policy, commitments to free trade agreements, deficit reduction strategy and whether a Turnbull government will support a more active role for counter cyclical government policy (including the use of infrastructure bonds and social bonds).

– It is also unclear whether Prime Minister Abbott plans on remaining in parliament and if there will be attempts from within the Liberal Party to destabilise the new leadership over time.

– The ALP will need to decide whether their leader will be best placed to counter a Turnbull/Bishop government into next year’s election.

We suspect that the business community will view Mr Turnbull as more business friendly and this has been reflected in the A$ rising upon the news of the leadership change.

Should the change in leadership result in a tangible lift in consumer and business confidence or a material shift in the nature of fiscal stimulus, there may well be significant implications for monetary policy direction. As we warned on prior changes in leadership, fillips in confidence due to change in leadership will prove transitory without a sustained improvement in the underlying economy. In this respect the Prime Minister-elect is closer to the end in the decline in the terms of trade and hence the erosion of the government’s taxation base, and is inheriting a much lower exchange rate and record low interest rates.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.


  1. “We suspect that the business community will view Mr Turnbull as more business friendly and this has been reflected in the A$ rising”

    In other words, he will allow selling off Australian assets to overseas buyers which results in increasing demand for AUD?

    • Abbott was pro-coal which is not good for business.

      Renewables are the immediate future and generating billions world wide – Abbott simply shut that down for money losing ventures – he was very anti-business.

    • Coming we argue but you nailed that! Exactly the problem with MT I have been trying to explain elsewhere today.

      • Fl, you are on the right track, keep up the good work.
        I have more than a strong feeling that Big Clive ( x national party) will have his nose in this, the Liberals may get a real wake up call. If they were worried about their future prior to the spill, Clive is not the man to allay their fears.
        This spill wont change the Canning outcome in 4 days time, Labor will win, then what next?

      • WW I was thinking libs might now scrape in Canning – but I really don’t have a clue!

        I run an overwhelming sense of dread – so I dunno….maybe best to not pay attention to me. It’s been 50 years of conscious economic araeness in the making! I just see everything spiralling into the Marc Faber scenario except I think I might have been in that thought train before he arrived there! So I’m probably worse!

  2. The speed with which he revealed his enthusiasm for FTAs was telling. He seemed to catch himself that it wasn’t yet the appropriate time and fumbled for a few moments.

    • truthisfashionable

      If he negotiates them in an Australian centric way so that we actually benefit rather than continue to get the wrong end of the stick. I guess that a plus.

      I think most peoples concerns are that we don’t understand what he really believes in. Sure he is a self-made millionaire, but does he remember what it was like before having a life of such means? How does he plan to control the COAL in the COALition? Same sex marriage, do a bunch of ill-representative politicians get to decide or does he want the people to?

      I get the sense he sees the incoming economic trouble, but what are his ideas (that he can realistically implement) to help Australia? or is he going to be saddled with the existing policies and have to polish them?