After the indignity of having its then leader declare himself an ideological social democrat in a culture magazine, it’s the idea that dare not speak its name. Lost in the wilderness for so many years, the Gillard government might finally be accepting its inheritance as the party of economic rationalism and reform.
But it’s early days and Labor might just be teasing.
Labor’s decision to fundamentally change its trade policy is its most promising economic policy in a generation. In a recent address to the Lowy Institute, Trade Minister Craig Emerson indicated that the government will unilaterally cut Australia’s remaining industry tariffs, separate trade policy from international politics and only pursue trade agreements that have an economic upside.
Trade policy and tariffs aren’t the first order economic issue they once were because of unilateral tariff reductions in the 1980s. However, the intent is clear. “I want to reconnect with the Hawke-Keating governments’ first guiding principle in economic reform - that competition is good - and dispense with the bargaining-chip approach to the remaining Australian tariffs,” Dr Emerson said.
His emphasis on competition and liberalisation in trade policy might signal a new approach by the Gillard government on the wider political economy.
Last month, Gillard also lauded the economic reforms of the Hawke and Keating governments, which set up a generation of prosperity. She acknowledged an “historic reform project which spans the political divide” and promised that her government would “walk the reform road every day”.
These were impressive words bereft of credibility because of the underwhelming economic policies of her government.
However, the new trade policy, coupled with Gillard’s affection for Labor’s glory years, suggests that economic rationalism and reform might be at the centre of the government’s future economic policies. It’s not a revolution as they were the twin pillars of the successful Hawke and Keating era, but if true, the approach will turbo-charge the party’s reelection prospects and liven up the dull new political paradigm.
It’s certainly possible that the trade reforms are a cruel aberration and Labor is mocking us with an isolated example of good economic policy. After all, this is the same government which rejected the vast majority of the Henry tax review recommendations and gave up on an ETS when the politics got tough.
However, if the trade policy changes point to a wider embrace of economic rationalism and reform, three key policy areas will stand out in the coming year.
First, the government must do some serious tax reform, including cutting the company tax rate and both increasing the GST and broadening its base to include food.
Second, immigration should be re-set according to the economic cycle and not by the prejudices of a Western Sydney layman, who thinks that a skilled brown immigrant will steal his job, annex his house and plunder his neighbourhood for food and water.
Third, the government must put a price on carbon, which would be a major structural reform to the economy.
Action on these three policy areas will give a good indication as to whether a new era for Labor has dawned.
Economic policies based on economic rationalism and reform would also be game-changing politics. By outflanking the Coalition to the right on the economy, Labor could set itself up for a long stretch in government by exploiting the Coalition’s weakest link: Tony Abbott and his flaky economic convictions.
Abbott would be faced with two choices if Labor were to occupy centre-ground on the economy.
He could stake out a position to the right of Labor, such as John Hewson’s Fightback policies in the early 1990s. But Abbott lacks the ideological conviction and economic sophistication of Hewson and would be more inclined towards the second option, to occupy territory to Labor’s left.
Big spending policies come naturally to Abbott. His Whitlam-esque maternity leave plan slugged big business with a new tax to fund an absurdly generous social policy.
Even more damaging was the opposition’s climate change policy - a slush fund for businesses that voluntarily cut their greenhouse emissions - which made a mockery of the Coalition’s commitment to the free market.
Abbott gives every indication that he is entirely comfortable to the left of Labor on the economy.
The Coalition would be economically confused, socially conservative and environmentally irresponsible and would have little appeal beyond old fogeys and young fogeys.
If the Labor Party were to occupy the economic centre ground, it would be in a position of strength to win back the fickle Labor-Greens swingers.
Australia might be a centre-left country - the ALP’s and Greens combined primary vote of 49.8 per cent trumped the Coalition’s 43.6 per cent in the 2010 election - but few lean left because of a genuine commitment to discredited left-wing economic policies.
Instead, trendy inner-city bicycle riders have a seemingly higher purpose in life, such as thwarting climate change. A price on carbon, which is good economic policy in any event, and perhaps a bit of decency towards asylum seekers, would lure these swingers back to Labor like flies to honey.
Such a honey trap would be a disaster for the Greens, who, with any luck, would collapse under the weight of their own irrelevance.
There are a number of obstacles to Labor adopting economic rationalism and economic reform as its new economic model, including its slender majority that might curtail bold policy.
Labor must also deal with the age-old task of domesticating a trouble-making union movement, and in the case of trade policy, protectionist Labor dinosaurs like Kim Carr and Doug Cameron are sure to make life difficult.
Perhaps the biggest obstacle would be Wayne Swan. Although not as ideologically loud as Kevin Rudd, the Treasurer has little time for economic rationalism or reform, and it’s unlikely that he would prosecute such an agenda with any enthusiasm. Unless there is a coup for the Treasury portfolio from Dr Emerson or Chris Bowen, the Prime Minister will have to carry the load.
The planets would have to align for the Gillard government to remake itself in the mold of its Hawke and Keating predecessors.
But for someone who believes that Labor has been a shadow of its former self since its been in government (and realistically since 1996), a new Labor based on economic rationalism and reform is a genuinely exciting prospect.
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