08 May 2015
Malcolm Turnbull didn't wait long before pointing across the Tasman to John Key for a model Prime Minister to copy as soon as he won Australia's top job last month. Key, after all, has achieved the extraordinary in winning three elections with increasing majorities.
"Turnbull shares Key's history as the child of a single parent who became a high-powered investment banker and was able to build a personal fortune before entering politics."
Bernard Hickey, Publisher Hive News
"My firm belief is that to be a successful leader you have to be able to bring people with you by respecting their intelligence in the manner you explain things," Turnbull said in his first comments after ousting Tony Abbott in a party room vote.
The two PMs even crossed paths in their previous lives. "I knew him a little bit," Key said the morning after Turnbull's party room win. "He was at Goldman Sachs and I was at Merrill Lynch."
Contrasting his more inclusive and centrist style with that of Abbott, the former journalist, lawyer and investment banker Turnbull pointed to New Zealand's Prime Minister as someone to emulate.
"John Key has been able to achieve very significant economic reforms in New Zealand by doing just that, by taking on and explaining complex issues and then making the case for them," he said.
"That is certainly something that I believe we should do, and Julie (Bishop) and I are very keen to do that again."
However, political clout is one thing. Even New Zealand's finance minister Bill English, often called Robin to Key's Batman, is cautious of too much emulation.
English is also cautious about New Zealand blowing its trumpet about have a better economic framework than Australia, or that it somehow has the magic formula, given Australian wages are still 30 per cent above New Zealand's.
"It's nice to have acknowledgement that we have a pretty cohesive team here that works together pretty well," he said. “But we've still got a lot of work to do to close up the gap with Australia.
"They've got higher incomes and while I think we've made some gains there, I think it's going to be pretty important that we build on the relative success and stability we've had in recent years."
One secret of Key's success is his ability to gather information and then weigh up the risks, benefits and costs of an action before making a decision that ensures his re-election. A former foreign-exchange trader, he is the master of the political backflip if he finds the tide of political opinion turning against him or the facts of the situation change.
NZ's Labour Opposition Leader Andrew Little summed up Key's approach with a criticism which some would see as a back-handed compliment: "He's what I call a transactional politician - here is the issue today, where are the trade-offs, how can I get through it - then boom, do it."
Admittedly, that sort of 'transactional' political approach may be much tougher for Malcolm Turnbull to pull off in an Australian political system where he has to keep a myriad of competing forces and players at bay, both in other parties in state and federal governments, and on his own feral back-bench.
Turnbull shares Key's history as the child of a single parent who became a high-powered investment banker and was able to build a personal fortune before entering politics.
They also share a socially liberal and more pragmatic approach to some issues dear to the conservative wings of their parties, which gives them broader appeal to a wide base of voters.
Key voted in favour of a bill legalising gay marriage and surprised many on his own side of politics when backing a then Labour Government move in 2007 to ban smacking of children when he was Opposition Leader. Turnbull also supports same sex marriage, pitting him against many of his Liberal colleagues.
Yet Key is also an economic reformer. He flattened income taxes and increased the GST rate from 12.5 per cent to 15 per cent in his first term, and then sold down stakes in state assets in his second term.
That combination of economic reform and electoral success is naturally catnip for the Australian Liberal-led Coalition and a business community hungry for both better tax settings and stable government.
New Zealand's leaders were just as naturally chuffed by Turnbull's comments but also cautious about preaching a 'Kiwi' solution to some very Australian problems.
"Let's wait and see," was the classic Key response on hearing of Turnbull's ambitions to mimic his success.
Key has complete dominance of his own party and his leadership has never been questioned publicly by any backbencher, whereas Turnbull has already been kicked out of the top job once before and has far from unanimous support within his own party.
Key also has locked in agreements with minor parties holding the balance of power so he can pass whatever Budget he wants.
New Zealand's Parliament does not have a Senate and, unlike in Australia, its local governments are docile and powerless.
That's because the central Government in New Zealand controls all income and GST tax receipts and controls all spending on education, health, justice and social welfare, along with most transport spending. Local Governments are limited to collecting property rates to pay for rubbish collection, water, local roads and footpaths.
These two factors – Key's dominance of his own party and New Zealand's simple unicameral and non-Federal political system – are the major differences that make Turnbull's task of comprehensive tax reform, for example, infinitely more difficult.
Key was successfully able to 'sell' income tax reform from 2008 to 2010 because he controlled both the GST lever and all the spending. He pitched the 'big tax switch' of a higher GST rate to pay for lower income taxes as fiscally and distributionally neutral because he controlled both the revenue and spending levers. He didn't have to negotiate any revenue fallout with a plethora of state governments or a restive back-bench or hostile cross benches.
Australian federal governments do control how revenues raised by GST are spent as they are shuffled on to state governments under the deal John Howard did in 1999 to bring in Australia's 10 per cent GST rate to replace a range of state sales taxes.
That means any grand bargain involving a switch between a higher GST rate and lower income taxes would also require a grand bargain between the Federal and State Governments if it was to be fiscally neutral.
And that's before Turnbull negotiates with his own back-benchers, let alone the minor parties in Senate, and the much more powerful interest groups outside the Federal and State Parliaments – many of whom are very opposed to the GST hike and pension subsidy cuts needed to pay for lower income taxes.
Even a transactional politician as gifted as Key would find that morass difficult to navigate.
The economic challenges on the two sides of the Tasman are also very different.
Key was able to argue at the 2008 and 2011 elections that economic reforms were needed for New Zealand to close the income gap with Australia and staunch the leakage of New Zealanders leaving to live in Australia.
He also had a couple of good crises that he didn't waste. The Global Financial Crisis forced many to accept that change was needed in 2008 and the Christchurch earthquakes shocked and pulled the nation together before the 2011 election.
New Zealand's economy contracted 11.5 per cent over a year and a half from March 2008 to June 2009 and its second largest city was massively damaged in earthquakes through late 2010 and 2011. Australia, meanwhile, avoided a recession altogether and benefited from a massive mining investment boom.
English pointed to the contrasting economic contexts when asked if Australia could learn from New Zealand's reform template.
"One of the important differences in recent years is that in New Zealand we had some decisive events which made it clear to all politicians and the public that we needed to make some changes," English said.
"Australia hasn't had those challenges. It's had continued growth right through and it's always a bit harder in that environment to make change. Australians underestimate the impact that the recession had here in New Zealand because it did mean there was a lot of agreement around significant changes, and it's harder to get that in Australia when things are going so well."
And not everyone agrees that Key and English have done a great job. Unemployment is edging up again and the wage gap with Australia is no smaller.
Labour and Opposition Leader Andrew Little was dismissive of Turnbull's aspirations to 'be like Key'.
"We've got a Prime Minister who's presided over seven deficits, a growing public debt and an economy that doesn't have much to show for seven years of a National Government," Little said.
"If that's Malcolm Turnbull's ambitions, then I pity Australia."
Even Bill English is wary of claiming victory or suggesting that Australia's politicians follow the New Zealand example.
"You don't try and give Australians advice if you are a New Zealander - it could be counter-productive."
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
08 May 2015
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