Understanding the Turnbull government's winning strategy

Source: 1990-91 budget papers.

reliance on social security given that the number of underemployed as a proportion of the workforce has increased from around 4 per cent during the late 1980s to be 8.5 per cent by 2015.

In addition, it is going to be much harder in coming years to achieve budget surpluses given that national economic growth projections offered by the Turnbull government are optimistic at best, even if major cutbacks to welfare spending occur.

As indicated by 2015 financial market analysis, with the ratio of debt to global GDP increasing from 269 per cent at the end of 2007 to 286 per cent by mid-2014 (around US$200 billion), it is government debt that has driven economic growth most since the GFC.

Compound annual growth percentage rates related to global debt

In addition, any hope that Australia will be saved by authoritarian and mercantile China is problematic given that China's debt, after increasing from US$7 trillion to US$28 trillion, reached 282 per cent of GDP by 2014 (higher than Germany and the US). As observed during May 2016, the Chinese government during the past year chose to spend nearly $200 billion to boost the stockmarket, yet $65 billion of bank loans went bad, financial frauds cost investors over $20 billion, and $600 billion of capital left China. In 2014, it is estimated that around 16 per cent of the 1,000 biggest Chinese firms in 2014 owed more in interest than they earned before tax.

Indeed the Australian economy remains extremely vulnerable, also relying on low interest rates to push up house prices and increase consumption, at a time when Australia already has a very high household debt level to income ratio (a record 187 per cent by March 2016 after being 63 per cent as of June 1988). Australia's total net foreign liabilities is just over one trillion dollars.

Hence, while greater pressure will emerge upon Australia's AAA rating if corrective action does not occur with Australia's budget situation, with possible greater pressure for higher interest rates if foreign creditors see Australian banks as riskier investment propositions, the quest towards balanced budgets may inevitably demand higher levels of taxation if further alienation of the electorate is to be avoided.

While a higher taxation level to GDP will annoy many centre-right supporters committed to smaller government, the key taxation policy tool remains how to offset lower corporate and income tax rates with taxation increases elsewhere.

Second, to make appeal to the wider electorate and fulfil its role as the most competent economic manager and a party committed to societal fairness, the Coalition must commit to policies that promotes means-testing for all forms of welfare given that budgetary savings are most likely to come from this major policy area (including health and education).