A cloud over Labor's festival of light

Julia Gillard will take a prosperous economy to the polls. But her scant attention to future risks means the winner may be stuck with empty coffers, falling revenues and increasing business demands.

Having named a date, Prime Minister Gillard is beginning a very unusual run-up to a federal election – an extended celebration of remarkable economic figures, with nary a peek over the horizon to the post-election dawn.

Just as investment brochures must carry the warning 'past performance is not a guarantee of future returns', this Labor government should have stamped all over its publicity material 'past performance was a giant stroke of luck'.

Well, that's a little unfair. Labor has made some of its own luck. The GFC stimulus spending decisions made by Kevin Rudd's 'gang of four' – Rudd himself, Julia Gillard, Wayne Swan and Lindsay Tanner – saved our bacon. Cash-splashes and rapidly deployed infrastructure spending, despite being badly managed (pink-batts-related fatalities being the most tragic symptom), were the right responses to the crisis.

That does not mean Labor was right to carry on stimulus spending for so long. But the Labor team deserve credit for a historically important role in setting up our current prosperity. Had thousands of small businesses folded in 2009, Australia would not have been as well placed to capitalise on the opportunities flowing from China's own giant stimulus splurge, which sent demand for our commodities soaring. But history will record that we were ready, and the current beautiful set of numbers bear that out.

If only they could continue.

The run-up to the next election is, for Julia Gillard, like sitting on a giant child's swing – September 14 will be that delicious moment when the forward arc is complete and a laughing Julia will be, for an instant, perfectly weightless. (Let's not dwell on how the downward arc will feel, because the person swinging backwards will most likely be that nice young boy Tony from the up the street.)

As Manager of Opposition Business Christophe Pyne has pointed out, the election date is a couple of weeks ahead of Treasury's release of the final budget outcome for 2012/13. We won't get to see the size of the budget deficit until after we've voted.

That's not the only thing making the forward-swing so much fun. Record low interest rates are still likely, in September, to be seen as a good thing – a sign of fiscal restraint, rather than an early warning of business failures to come. But industry groups and unions continue to warn of businesses full of under-utilised staff, waiting, hoping that orders will pick and get them back on track. That's the real cause of the interest-rate 'joy'.

But again, this is election year – spin every 'good' bit of data for all it's worth. Flowing from those low interest rates, today there's more good news. The Australian Property Monitors' December Quarterly House Price Report shows that house prices have increased in all capital cities for the first time since March 2010. That is highly significant for an incumbent government trying to convince voters they've never had it so good.

And let's not forget the resources boom, and the mixed blessing of the high dollar that flows from it. Labor will claim credit for not shafting the miners with the RSPT, and instead gently encouraging them with the revenue-free MRRT (oh yes, there are no limits to how far logic can be twisted in election year!).

This high dollar gives Aussies cheaper cars, cheaper Bali getaways, cheaper everything, and also justifies a complex myriad of Labor giveaways to industries such as steel and auto manufacturing.

In her speech to the National Press Club yesterday, Gillard explained how the economy can still succeed despite the high dollar. Labor's 'five pillars' will take care of that.

The PM said in her speech: "... we can and must focus on increasing skills, building a national culture of innovation, rolling out the national broadband network, investing in infrastructure, improving regulation and leveraging our proximity to and knowledge of a rising Asia into a competitive advantage."

Labor has already put a lot of work into those pillars, and they are overall quite laudable objectives. But they also take time. The sins of this government are ignoring some of the short-term objectives that could have buttressed us better against any sudden shocks in the next couple of years.

Unwinding stimulus spending early is one. Addressing middle-class welfare is another – one the PM has finally said she'll look at to make savings necessary to fund the NDIS and Gonski education reforms.

These two options could have brought the budget into balance more quickly and perhaps have chipped a good deal from our still-growing national debt. Labor's greatest stroke of luck under Kevin Rudd was the $20 billion or so of spare cash it inherited from John Howard, and zero federal debt. That helped fund the GFC response in a way that will be closed to Tony Abbott, if it is he who is leading the country through an uncertain 2014.

And let me reiterate a point I've made in several recent columns – 2014 is uncertain, with one of the major wild cards being a sudden carry trade reversal that pushes up government borrowing costs, imports inflation and, though making life easier for exporters, plays havoc with importers (and every consumer is one of those). I am a good deal more bearish on this point than my colleague Stephen Bartholomeusz (At last the dollar debate has arrived, January 30), but news today does nothing to make me take off the fuzzy ears.

A Wall Street Journal article today explains how worried Asian economies are becoming over 'hot money' flows emanating from the desperately stimulatory monetary policies in the US and Europe. South Korea is even looking at taxing capital inflows to stop the won doing what the Australian dollar has already done.

And as Business Spectator reported yesterday, government bond prices are slightly lower – something Nomura's head of fixed income, John Linton, sees as part of a broader shift away from safe haven assets as US and European data start to brighten. (The US GDP data overnight was terrible, though most pundits are sanguine about the contraction, which they see as flowing mainly from a historic cut to the defense budget.)

Nobody knows what 2014 will hold. But what Labor should be reminded of over during the next 7.5 months, is how little they've done in the area of risk mitigation if things turn sour.

And so will Tony Abbott be the one to get that message across? Possibly, though his own electoral platform, at this stage, looks just as devil-may-care. Dramatic spending cuts going into 2014 might not ravage the economy. And his enterprise manifesto, as explained by Robert Gottliebsen, might unlock enough new wealth to repair the revenue side of the federal budget (Abbott's enterprise masterplan, January 30).

But that is two 'mights' too many for Abbott to take the moral high ground and lecture Gillard on risk mitigation. The danger is that Abbott finds himself swinging backwards into 2014 with the coffers empty, revenues falling and all kinds of assistance being demanded by business and consumers alike.

Come to think of it, perhaps Julia Gillard secretly hopes she won't win on September 14 after all.