Standing on the edge of a fiscal cliff - in a stiff breeze
Wayne Swan will be Johnny-on-the-spot on Tuesday, holding talks in Washington on the day Americans vote to decide who will be their president for the next four years.
Debate over economic policy dominated the campaign and will almost certainly be crucial in determining whether Barack Obama gets another term or is replaced by Republican Mitt Romney. Swan will obviously take a keen interest in the result.
But the Treasurer will be more concerned about a matter that - while it hardly got a mention in the campaign - could plunge the US into recession within months, with inevitable consequences for Australia. It is known as “the fiscal cliff”.
On Thursday night - only hours before boarding his overseas flight - Swan warned in a speech: “The global consequences could be grave indeed if action is not taken after next week’s election to address the looming fiscal cliff.”
He described it as “the sudden unwinding of tax cuts and the ending of expenditure programs” that will happen automatically unless Republicans and Democrats in the US congress come to their senses and agree to compromise on economic policy.
The impact, Swan said, would be catastrophic.
Swan’s meetings in the US capital, following a gloomy international finance ministers’ summit in Mexico over the weekend, will remind all Australian politicians that economic management is certain to be front and centre in our election next year too.
As if any of them need reminding. Julia Gillard and Swan have been forced by developments in Europe and concerns about the US economy to start hedging on their promise to deliver a Budget surplus this financial year.
That promise WAS central to the government’s election strategy. Failure to keep it will be a gift for the opposition. And Swan certainly looked uncomfortable when grilled about it in Question Time during the week.
Tony Abbott is also adjusting his approach. Suddenly shadow Treasurer Joe Hockey is everywhere, even at Abbott’s side during media events, to bolster the coalition’s economic credibility.
Part of the reason is probably explained by some poll findings that came into my hands yesterday—-an extract from a report prepared within the last week by UMR Research, the company that does polling for Labor.
People in the survey were asked: “Do you have confidence in Tony Abbott’s ability to handle Australia’s economy?” In a result that will worry the Liberals if it is reflected in their own polling, 55% said “No”, 32% said “Yes” and 13% were unsure.
According to the UMR document, when those in the 55% were then asked why they did not have confidence in Abbott as an economic manager, replies included: “He is out of touch with regular Australians.”
“He hasn’t revealed, or doesn’t have, any discernible economic policies.”
“He has no understanding of economics.”
“He is untrustworthy.”
“He’s just another politician - they’re all the same.”
Even though the gap between the parties is narrowing in published opinion polls, Labor still has a primary vote of just 36%. It needs to improve further to be competitive in an election.
But Gillard and those advising her will be buoyed by evidence of deep unease in the electorate about Abbott’s competence in an area as crucial as economic management. They will see it as telling at least part of the story of why Abbott’s personal support has declined in published polls.
If the coalition’s own poll findings are similar, giving Hockey greater prominence makes a lot of sense.
But back to the “fiscal cliff”….
It is a problem US politicians have inflicted on themselves, the result of a piece of legislation called “the Budget Control Act of 2011”.
Republicans and Democrats could not agree on a plan to tackle America’s gaping deficit.
As part of the deadlock, the Republicans were blocking an increase in America’s borrowing ceiling, necessary so the country could pay its debts.
So a deal was done. If the two sides failed to reach a compromise by the end of 2012, radical tax and spending measures to slash US$1.2 trillion over 10 years would be triggered automatically.
According to the IMF: “At the extreme, the fiscal cliff could result in a fiscal withdrawal of more than 4% of GDP in 2013.” Disastrous indeed.
The hope is that, with the presidential election out of the way, ideological differences can be set aside and a compromise reached. But it is also possible the two sides will dig in.
All of which will be the main subject matter in Swan’s election day discussions with Ben Bernanke, chairman of the US Federal Reserve, Christine Lagarde, managing director of the IMF, and Doug Elmendorf, director of the Congressional Budget Office.
At Swan’s side for the last time at these meetings, incidentally, will be his closest adviser, Jim Chalmers, who - after five years in the Treasurer’s office and another five working for Labor in opposition before that - is heading back to Brisbane and life as a civilian.
Comments on this post will close at 8pm AEST.
Read all about it
Up to the minute Twitter chatter
The latest and greatest
Good morning Punchers. After four years of excellent fun and great conversation, this is the final post…
I have had some close calls, one that involved what looked to me like an AK47 pointed my way, followed…
In a world in which there are still people who subscribe to the vile notion that certain victims of sexual…