For Gillard it will all be about the tough decisions
With Parliament set to wind up in the coming week and the ructions of an explosive year beginning to fade, the reality of a more featureless landscape in the next two years is becoming clearer.
Such apparent predictability seems almost foreign after 2010 which kicked off with the game-changing retreat on emissions trading and then lurched from one crisis to the next - think the rise and fall of the mining super-profits tax, various boat controversies, the spectacular Rudd / Gillard coup, and of course the closest election in history.
Nonetheless, barring the disappearance of the Government’s numbers in some unforseen crisis of confidence, 2011 and 2012 should by rights be years of sound governance - unaffected by elections. The country needs it and in their own ways, both leaders are depending on it too.
Tony Abbott for example wants no home-grown excitement as he defies history to become the first Liberal to survive long enough after a loss to contest the next election. He needs to perform but must guard against over-reach of the typed that effectively killed off his predecessor, Malcolm Turnbull.
Julia Gillard wants no excitement either. Her aim consolidation via the delivery of stable, yet rigorous government. As one indsider said, ``now we have to under-promise and over-deliver’‘. For both, it’s all about line and length.
But the absence of major attention-stealing events will bring its own dangers for a government that has shown little stomach for the hard grind and for a polity now accustomed to a high sugar diet.
In essence, the task for Labor now is to recast its understanding of the journey. Instead of falling for the past vanity that it must win every evening’s TV news bulletins and never do anything that threatens its polling supremacy, it should steel itself for the opposite path. This involves viewing the electoral term as a whole - being prepared to take tough decisions and be unpopular for them, possibly for an extended period, while cementing in place serious reforms likely to get a tick from voters down the track.
This begins with the May budget. Now that it is clear of the global financial crisis, the Government should be considering how to set itself up in its middle and final year. A more rapid re-building of the country’s fiscal position after the pump-priming of recent years is the priority.
The recent Mid-Year Economic and Fiscal Outlook (MYEFO) showed that despite declinig revenue, the promised 2012/13 surplus of $3.5 billion, is safe although dropping fractionally to around $3.0 billion. Wayne Swan called it ``the fastest fiscal consolidation since the 1960s”. That’s not bad considering the depths of the crisis, the extent of protective spending, and the comparative state of other economies.
But voters will sense that it is too easy - a function not of serious fiscal restraint but of Australia’s extraordinary good luck in being a major supplier to the Chinese economic behemoth. Let’s be frank, this is what is pushing growth trends well above the international average. An OECD report released yesterday projected 3.3 per cent growth for Australia in 2010 and 3.6 per cent in 2011, compared to the OECD area as a whole with rates of 2.8 and 2.3 per cent respectively. It forecasts our jobless rate at just 4.9 per cent in 2011 compared to 8.1 per cent expected for the OECD.
Much of this is due to China’s insatiable appetite for our resources but it is also, to be fair, a solid vindication of the Government’s stimulus spending. Yet even here, there is a political downside.
While the Opposition won’t agree, it actually took some guts to splash out tens of billions on stimulus payments fresh from winning an election by claiming to be economic conservatives. Yes the big spending ate into the Budget big-time, but it also cost Labor some of its new-found economic management cred with voters. And as the 2010 election showed, they were not minded to reward the Government for its success.
The task facing Ms Gillard, Mr Swan and new Finance Minister, Penny Wong is to rebuild this credibility. And there is no time like the first budget after an election to do it. Just as they had to overspend in the crisis to jump-start confidence and buoy the mood, they may now need to go the other way by seriously cutting to entrench a new sense of fiscal discipline.
Access Economics Director, Chris Richardson is one urging them on. He says cuts could put downward pressure on interest rates, but warns they would need to be big and fast because fiscal policy is not that good at relieving interest rate pressure. There would be other benefits though.
``The best reason for doing something in the Budget is we’re wasting money,’’ he says.
He nominates industry welfare such as the Green Car Fund and the proposed ``cash for clunkers’’ scheme as candidates for the chop.
He also pins middle-class welfare arguing many payments cut out only when the family income is over $150,000.
``That’s just not tough enough, if you want to restrict the wealth payments to those who need it then you have to be tougher than that.’‘
Finally, he says tax breaks for high income individuals including generous treatment of superannuation, and FBT, is another ``a target-rich environment for saving money’‘.
John Howard ordered swingeing spending cuts in 1996. Indeed they were so severe the Canberra property market took a dive because so many public services jobs were cut. The austerity drive almost cost John Howard the 1998 election but even now he credits those tough decisions with setting him up both politically and economically in the longer term.
Julia Gillard take heed: even though the Budget is trending back to surplus, you need to show some extra grit economically - particularly as the Opposition will continue with its debt/deficit/waste campaigns.
On this front, Labor remains vulnerable first because its main initiative this term is the gargantuan $43 billion national broadband network (about which public doubts appear to be increasing). The Opposition strategy is based on re-positioning the NBN as the next school halls/ pink batts debacle and with that much money involved and Labor’s recent record, why not?
Second, as MYEFO and the OECD show, the economy is now nudging against full capacity - in other words, the risks have now swung to the upside: high inflation requiring ever higher interests rates. We know how voters will view that in 2012/13.
In short, the Government’s success in driving its political and economic bank accounts into credit in 2013, depend to a large degree on the courage it shows in its first Budget.
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