Abbott took on too much debt … and has gone bust

Tony Abbott's incompetence began in opposition, when he acquired a huge political debt that he could never repay. Now it's come back to haunt him.

Tony Abbott over-leveraged himself and the Coalition to the economy, in much the same way as a CEO takes on too much debt.

Everything needed to go right for his level of gearing to succeed, but it hasn’t gone right. The terms of trade have crashed and national income is in decline.

So, like Bondy after the stockmarket crash and the recession of '91, Coalition Holdings Ltd and its CEO Tony Abbott have gone bust under the weight of their debts.

But these weren’t financial debts to lenders; they were political debts to voters. Abbott in opposition promised not to raise any taxes and not cut government spending apart from removing waste, and at the same time to return the budget to permanent surplus -- to never be in deficit.

These were debts that could only be repaid if everything went right with the economy, but in fact everything has gone wrong: the terms of trade peaked in 2013, around the same time as the election.

During 2014 Australia’s most important price (iron ore) fell by half, coal by 20 per cent. Base metals prices started falling in mid year, and then oil crashed. The terms of trade have fallen by 25 per cent so far, gross national income has started declining and with it government tax revenue. Surplus budgets are now impossible, possibly for at least a decade.

So complete has the economic turnaround been that the Reserve Bank is widely expected to start cutting interest rates again, as early as next week.

It’s not just Tony Abbott and the Coalition that has got into this sort of predicament.

It used to be that parties in opposition were always in disarray and those in government enjoyed the serenity and unity of office. Now it seems to be the other way around.

The ALP in government, virtually from 2007 to 2013, was in a constant state of turmoil fighting a calm, unified and effectively focused opposition.

That, of course, was because GDP growth peaked virtually as the nation went to the polls in 2007 and although recession was avoided, the GFC did tremendous damage to the economy and to the government’s finances.

China came to the rescue with its colossal stimulus in 2009-2011, but that couldn’t last and its economy is now cooling, and with it the commodities markets.

Now the Coalition, having won government in 2013, is the party in turmoil and the ALP is calmly focused and well on top.

The modern political process of promising anything at all just to win doesn’t work very well when national output and/or income is in decline.

Of course, promising to raise taxes and cut spending goes against the grain somewhat, so no one does it, hoping things turn out OK. When they don’t: oh well, broken promises -- or rather core and non-core promises.

In the case of the Rudd-Gillard Labor Government and the Abbott Coalition Government, the natural difficulties presented by the economy were exacerbated by incompetence, which is usually described euphemistically as “not explaining”.

As Malcolm Turnbull explained in his excellent speech in Los Angeles over the weekend: “Leaders must be decision-makers, but they must also be, above all, explainers and advocates, unravelling complex issues in clear language that explains why things have to change and why the government cannot solve every problem.” 

Tony Abbott’s incompetence began in opposition, when he took on all those political debts that he was never going to be able to repay. There is also the small matter of ideological madness, on the part of both Tony Abbott and Campbell Newman in Queensland -- of convictions that are so firmly held that no alternatives are believed or considered.

The lesson of Queensland is that the middle ground of swinging, non-ideological voters is now very large.

When I was young, most people voted for one party all of their lives. You could call most people, ideologues I guess.

Now there are very few ideologues around; most voters simply want practical solutions and competent administration. Any politician who is ideologically driven is likely to be quickly exposed as out of step, as Campbell Newman was on Saturday night.

The ALP’s incompetence began in office, when it failed to notice that the world had changed with the GFC and that tax revenues had stopped growing. And of course there was also the small matter of madness there too. Not ideological madness, as with the Coalition, but megalomania, or perhaps just kangaroos loose in the top paddock.

Now shoulders will be slumping across the business community as it becomes clear that further reform -- especially industrial and tax reform -- is out of the question.

The Productivity Commission can recommend what it likes; there is now zero chance of penalty rates or awards being tampered with, or of the GST being raised.

Whoever ends up leading the Coalition, and therefore being Prime Minister for the next 18 months, will 'listen' to the electorate -- that is, not lead.