Malcolm Turnbull's stocks remain high, but his coffers are increasingly empty

Extract from The Guardian

The PM has no room for financial generosity before the election, so must rely on clever politics and his initial burst of popularity to carry him through

Malcolm Turnbull faces an unusual mix of political popularity and economic downturn. Photograph: Mick Tsikas/AAP

Lenore Taylor Political editor

@lenoretaylor

Tuesday 15 December 2015 13.55 AEDT

This budget statement shows how fundamentally Malcolm Turnbull is going to have to try to turn politics on its head.

Governments usually spend political capital in the first half of the term and money in the second. But the timing and circumstances of Turnbull’s ascent to the prime ministership mean he is in the highly awkward position of having to do the reverse.

He has no money to spend, in fact the budget deficit has blown out by $26bn over the forward estimates in the seven months since May – it’s up to $37.4bn this year – and net debt stays higher for longer.

Even accepting that the “debt ’n’ deficit disaster” hyped by Turnbull’s predecessor was always a hyperbolic overstatement, these numbers show clearly that two years into Coalition rule, the economy is not yet headed in the direction they promised and the end of the commodity boom remains a problem for which they have not yet found a solution.

And since Turnbull justified the leadership coup with the argument that the country needed new economic leadership and an end to intelligence-insulting slogans and spin, he is going to have to come up with some potentially unpopular decisions in next year’s budget to provide a convincing explanation about how he intends to turn things around.

The savings in the midyear statement are carefully calibrated to avoid too many negative headlines – another $1.3bn from welfare fraud because of data matching between Centrelink and the tax office, on top of the $1.6bn in welfare compliance savings already booked last May, $534m from payments to aged care providers and $650m from ending incentives for bulk-billing pathology, diagnostic imaging and MRIs.

But those savings were needed to offset what the government has spent since May – almost $1bn to pay for the special intake of refugees from Syria, $1.1bn for the innovation statement and some extra money for roads and asylum seekers waiting in Australia for processing.

And the government has acknowledged the cost of the “delays” in many budget 2014 measures blocked by the Senate, but has still not acknowledged political reality and taken them out of the budget.

To make good on the promise of turning the economy around, Turnbull needs to do much more than that by May, crashing straight into the political cycle of an election year.

Even taking into account treasurer Scott Morrison’s slightly tortured holiday road trip metaphor to explain the patient road back to surplus (the careful route of restraining expenditure and trying to boost growth, rather than the potentially destructive shortcut of slashing spending – and voters should not get impatient and start asking “are we there yet?” from the back seat) the government knows it has to explain how it will speed things up in the budget next May and its pre-election manifesto.

But Tony Abbott already did a pre-election budget last May – a desperate attempt to climb out from underneath the political disaster of his first budget and get ready for a possible national-security focused election early next year.

The good news for Turnbull is that the change of prime ministership has given the Coalition the political capital to spend. The latest Newspoll shows the Coalition ahead 53% to 47% on two-party-preferred terms and Turnbull the preferred prime minister of 60% of the nation.

His big judgment now is how to balance those political numbers against the worsening economic ones in the budget.