Start paddling, Rudd

Over the New Year period I decided to set out the challenges for 2010 that are facing seven people – the American President and six Australians, Kevin Rudd, Tony Abbott, Glenn Stevens, Cameron Clyne , Marius Kloppers, and David Thodey.

For Kevin Rudd 2010 is an election year. Due to the fact that Australia has come through the global financial crisis better than almost any other developed country, the opinion polls have Kevin Rudd well ahead.

If the election is about the economy my guess is that Rudd will win easily. But the election is shaping up to be about carbon and contractor taxing. If a carbon election was held now there is no doubt who will win, and contracting is only just emerging on the radar.

But if the coalition can come up with a series of specific measures that meet government carbon reduction targets, the election will be much closer than anyone could currently contemplate.

If Rudd is forced to debate his carbon trading legislation with a Tony Abbott armed with a clear policy the Prime Minister will be in real trouble.

The environmental department's legislation is very clumsy and showed that the public servants had very little contact with industry and state governments. When Malcolm Turnbull had it amended he still left big holes. If the legislation is passed we are likely to see the Commonwealth government guaranteeing up to $7 billion dollars in brown-coal loans and a range of other nasties (The carbon horror show, November 27). The odds are that Abbott will come up with a flawed policy and will make major mistakes in the campaign which will get Rudd home easily. No one in the Rudd camp can be certain. It is always dangerous to fight an election on the basis of a policy that has not been properly thought out.

Also on the domestic front, taxation is always an issue. Assistant Treasurer Senator Nick Sherry has flagged that the government plans a major assault on private contractors via the taxation system (Tax rights under siege, December 22). While the attack has all the earmarks of industrial relations issue rather than taxation, it has the potential of being a major vote winner for Tony Abbott because swinging voters predominate among the two million contractors in Australia whom Sherry is targeting.

Assuming the ALP wins the election, Rudd will face some issues that will be very important in further shaping his time in government. The first is industrial relations, where Julia Gillard has taken us back to the years before Paul Keating. Maybe it will work, but we are beginning to see a rise in industrial disputes which is a warning sign. The Reserve Bank has begun to lift interest rates and the opposition claims that this is partly as a result of the over spending in the global financial crisis. Leaving out the rights and wrongs of this argument, higher interest rates are a danger point for the government because current Australian households are much more highly leveraged than any other generation so higher interest rates will hit the consumers and the economy much harder than they have in past.

During his first term Kevin Rudd fell out with the China leadership which was a great disappointment because if he had stayed close to China it might have been much easier for the US and China to come together. The breakdown in relationships between the Australian and Chinese leaders has not stopped active trade between the two countries and a series of major business deals. But longer term it is not good. Kevin Rudd believes that it is necessary to draw a line in the sand, and in time China will have a much greater respect for Australia.

The biggest long-term challenge the government has is that it is asking its public service to do things where it has very limited expertise.

We saw in the carbon debate that the public servants were not up to making good detailed policy. It is possible that similar disasters will happen in health and education. Canberra public servants are often remote from where the action is and this can cause enormous problems which will be a long-term threat to the government – although it is more likely to hit them in 2011 than in 2010.