Labor must get real on the economy
Gillard's narrative was dishonest, incapable of coping with changing developments and denied Labor its best selling point.
Unveiled in the keynote address to the Committee for the Economic Development of Australia just days before the spill, it said the economy was "growing, stable and strong".
"Growing" is the only one of those three words that is demonstrably true. "Stable" is rubbish. Gillard herself acknowledged in the speech there were "some complex transitions under way". And the economy isn't "strong". If it was, demand wouldn't be shrinking in four of Australia's six states and the Reserve Bank wouldn't have cut interest rates seven times in 18 months and be weighing up the need to cut further.
Gillard's narrative went beyond the merely rosy. In last Monday's speech she came close to branding as a traitor anyone who thought differently.
Amid jokes about reporting journalists to the Australian Communications and Media Authority and attempts to belittle the growing number of forecasters who have pointed to the risk of a recession, she said low expectations could "themselves become an economic problem".
"The biggest mistake we could make would be to talk ourselves into unnecessary economic weakness," she said.
A much bigger mistake would be to shut down such talk. Smothering discussion builds distrust, in this case a feeling that the government doesn't know and doesn't care what's happening on the ground. It's the opposite of the exemplary approach Labor took during the financial crisis when it shared what it knew. And smothering discussion, insisting things are "growing, stable and strong", leaves Labor with no easy way out when the daily drip feed of economic news turns bad.
It could try to ignore the bad bits of news and ridiculously hype the good, as Gillard did in March when she latched on to a one-off blip in the employment numbers to boast to Parliament: "We have seen an increase in the number of jobs of 71,500 in the last month. For the information of the House this is the largest monthly increase in jobs since July 2000, the best monthly job creation result in 13 years."
The blip has since been revised away, as blips often are. Employment grew by a less remarkable 29,300 that month. It's now growing at just a third of that rate and trending down.
Or Labor could act surprised when the news turns bad. "We had no idea", "we've been blown off course" ... it's the approach Wayne Swan used just before Christmas when reality caught up with his assurances that he would be able to deliver a surplus.
Neither approach would play well during the campaign. The scrutiny will be even higher with the arrival of fact-checking units. Gillard had backed Labor into a corner. And she had robbed it of its strongest selling point.
It's Labor you would want on your side in a crisis. Just as John Howard happened to be in office during the Port Arthur massacre and became an international legend by flawlessly handling the guns buyback, Kevin Rudd happened to be in office during the global financial crisis.
Labor has been tried by fire. It is Labor - in particular Kevin Rudd - you would want on your side in an economic downturn. I am not saying the perception is fair. Tony Abbott and the Coalition may turn out to be just as good in a crisis. But I am saying the perception is reasonable. Labor has been tested. Abbott has not.
Playing down the economic risks facing Australia, insisting the economy is "growing, stable and strong" gives waverers a licence to vote for Abbott. The alternative strategy is to level with Australians. Resource investment has peaked, commodity prices are slipping and China's outlook is uncertain. Australia needs a safe pair of hands.
Rudd is already adopting it. Ending the week with a statement the polar opposite of Gillard's, he said Australia's biggest economic challenge was "the end of the China resources boom". "This will have a dramatic effect on our terms of trade, a dramatic effect on living standards, and a dramatic effect also potentially on unemployment unless we have an effective counter-strategy," he said.
It's a truthfulness likely to draw Australians close to the Prime Minister and to make them feel he has a handle on what's happening.
The opposition's Joe Hockey has already wised up. Back in January he was committed to a surplus "to the core of my bones". Now he is less certain, saying that in returning to surplus it is "important to be prudent".
"I would not be doing my job if I had not already given some thought as to how economic activity could be safeguarded should the downturn in the private sector become more protracted," he said last Monday.
Rudd and Hockey are embracing reality. It'll keep Labor in the game.
Peter Martin is economics correspondent.
Twitter: @1petermartin
Ross Gittins is on leave.
Frequently Asked Questions about this Article…
The article notes that strong political messaging — for example, claiming the economy is "growing, stable and strong" — can smother open discussion and build distrust when daily economic news turns negative. Conversely, leaders who level with the public about risks tend to draw confidence. Everyday investors should be aware that political narratives shape market perception and voter confidence, which can influence short‑term sentiment.
According to the article, the Reserve Bank cut interest rates seven times in 18 months and was weighing further cuts, which the author links to weakening demand (shrinking in four of six states). For investors, repeated rate cuts are a signal that policymakers see economic weakness and are attempting to stimulate activity — an important context when assessing income, growth expectations and risk exposure in portfolios.
The article highlights a recent example where a touted monthly jobs increase of 71,500 was later revised down to 29,300, and employment growth is now trending lower. It suggests treating one‑off employment blips with caution, because revisions are common and a single month’s number may not reflect the underlying labour market trend investors care about.
The article quotes Kevin Rudd calling the end of the China resources boom Australia’s biggest economic challenge. He warns it could have a dramatic effect on Australia’s terms of trade, living standards and potentially unemployment unless an effective counter‑strategy is adopted. The piece also notes resource investment has peaked, commodity prices are slipping and China’s outlook is uncertain — all factors investors should monitor.
The author argues that with resource investment peaking, slipping commodity prices and uncertainty about China, Australians may prefer leaders perceived as experienced in a crisis. For investors, the point is about policy stability and credible economic management: political credibility can affect confidence, policy responses to downturns and ultimately market conditions.
The article warns that the arrival of fact‑checking units raises scrutiny on political economic claims. Misleading or over‑optimistic statements can back parties into a corner and damage credibility. For investors, greater accountability during campaigns can change perceptions of policy risk and may influence short‑term market reactions to political statements.
The article reports that the end of the China resources boom could have a dramatic effect on Australia’s terms of trade — the relative price Australia gets for its exports versus what it pays for imports — and that this in turn can impact living standards. Changes in terms of trade affect national income and are therefore relevant to investors watching economic growth and consumption trends.
The article points to three linked risks: peak resource investment, slipping commodity prices and uncertainty in China. It suggests these developments increase the economic challenge for Australia and the need for an effective policy response. Everyday investors should be alert to how these themes affect sectors tied to resources, national economic indicators and policy announcements — all of which can influence investment outcomes.
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