Australia's New Prime Minister Takes Over Divided Party

CANBERRA, Australia—Malcolm Turnbull, Australia's new prime minister, inherits a conservative party split over climate change, same-sex marriage and his own elevation, on top of an economy in danger of sliding into recession.

To avoid the fate of his predecessor, Tony Abbott, the 60-year-old former investment banker needs to convince voters he can turn around an economy struggling with stalling productivity, rising unemployment and a world-wide commodity bust that is shrinking government tax revenues. What's more, he has less than a year to achieve it ahead of federal elections due by September 2016.

"Hopes had been high on the Abbott government's election that productivity boosting reforms, tax reforms and important infrastructure spending to assist in the decline in mining investment would be forthcoming. The business community has largely been disappointed," said Angus Nicholson, a Melbourne-based analyst with brokerage IG Markets Ltd.

Mr. Turnbull was sworn in Tuesday as Australia's 29th prime minister after a rebellion over Mr. Abbott's drift right on issues like climate and gay marriage, satisfying some party backers but taking him even further from the political middle ground on which Australian elections turn.

Mr. Turnbull is more centrist than Mr. Abbott and his past suggests a less polarizing stance that Mr. Abbott on issues such as border security and renewable energy, though to keep support he will need to keep many of his own beliefs in check to mollify his party's more hardline conservatives.

Mr. Turnbull had a successful business and legal career before entering politics in 2004. He has much stronger ties with the business community than Mr. Abbott, and is likely to take steps to balance the shrinking budget, analysts said, with his main priority likely to be broadening taxation.

Mr. Abbott's first budget mixed tax increases with spending cuts, undermining him with voters.

"Turnbull's appointment should mean the risk of an economic recession in Australia has diminished," said Hasan Tevfik, an equities strategist at Credit Suisse in Sydney, adding that the steepest drop in Mr. Abbott's popularity came after his first budget. "We anticipate the next leader will come in with more of a stimulus mandate."

Australia's economy expanded just 0.2% in the second quarter from the first, the slowest pace in four years, as China's slowing economy translates into less construction of skyscrapers, bridges and railways—hurting demand for raw materials like iron ore. Some economists have warned a recession may be imminent after Australia has avoided one for 24 years.

Critics of Mr. Abbott's leadership style were also angered by his so-called "captain's picks"—decisions made without consulting senior lawmakers. Mr. Turnbull on Tuesday promised a more conciliatory approach to decision-making. He also delayed a reshuffle of government posts until later in the week to avoid further inflaming rifts within his own party.

Mr. Turnbull's caution reflects the fact that more than a third of the ruling Liberal Party sided with Mr. Abbott in Monday's leadership ballot. He will also be mindful that his own tenure as leader of the Liberal Party in opposition was cut short in 2009 after he riled conservative colleagues over his support for an emissions-trading program proposed by the then center-left Labor government.

Mr. Abbott pledged not to undermine Mr. Turnbull's authority Tuesday, a move that could help neutralize those in the party incensed by the leadership change. Already, Mr. Turnbull has signaled a policy break with Mr. Abbott on social issues such as same-sex marriage, which polls show has overwhelming support among Australian voters. He said a referendum was a good example of democracy, whereas Mr. Abbott had ruled out holding such a vote.

Mr. Turnbull has already said he won't shift course on climate policies agreed ahead of global climate talks in Paris in December, seeking to sidestep any internal divisions. Still, experts said it would be difficult to unite a party that drifted a long way to the right under Mr. Abbott.

Mr. Turnbull—a staunch backer of women's rights—is expected to bring more women to the 19-member cabinet than the two appointed by Mr. Abbott.

"I personally can hardly believe that a party that has become quite as socially conservative as the Liberal Party under Mr. Abbott has now come up with a leader like Mr. Turnbull," said Nick Economou, a political scientist at Melbourne's Monash University.

A mobile phone opinion poll by Morgan on Tuesday showed Mr. Turnbull was preferred as prime minister by 70% of voters, compared with only 24% for Bill Shorten, leader of the opposition Labor Party.

Mr. Turnbull signaled that neighboring New Zealand and its conservative Prime Minister John Key would be the model for how best to build consensus for complex economic reforms demanded by Australian business, including tax cuts and more flexible labor laws.

"A culture of engagement, of consultation, of collaboration is so absolutely necessary," he said.

Write to Rob Taylor at [e-mail]

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(END) Dow Jones Newswires

September 15, 2015 08:05 ET (12:05 GMT)

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