Swan's long, sad budget song

The most powerful person in Australia has faced more serious economic challenges than any since the Asian financial crisis. But it's possible a landslide Labor defeat would see his legacy obliterated.

The Power Index

Wayne Swan holds the fate of the economy, the Labor Party and the prime minister in his hands, making the Treasurer Canberra's, and Australia's, most powerful person.

As Treasurer he has accumulated a record of economic management that is the envy of the world. And as deputy prime minister and one of the most respected members of caucus, he can determine the parliamentary party's immediate future. With growing speculation about how Julia Gillard can't rescue Labor from the catastrophic circumstances it faces, it is Swan who will determine when a post-Gillard future arrives, and, partly, what it will look like. Any other scenario will see Labor tearing itself apart.

That is why, with his fifth and most personally-driven budget due next week, Swan now has more power than his beleaguered prime minister.

It helps that Swan's stepped up on the communications front. His assault on mining billionaires Andrew Forrest and Clive Palmer was a rare example of an effective communications campaign, with the billionaires reacting almost as scripted – weeks later, Forrest is still swinging at Swan, while Palmer is threatening to stand against him in Lilley, to collective eye-rolling in the LNP. This was a defiantly Labor campaign from Swan. It may not have reversed Labor's abysmal polling, but it sent a clear signal that the government still possessed traditional Labor values.

His now infamous assault on Kevin Rudd in the lead up to the ballot also showed his new-found communication skills.

Wayne Swan has, remarkably, held only two portfolios since he came into federal parliament in 1993: family and community services, and Treasury. He entered the shadow ministry in 1998 and, apart from a brief stint on the sidelines while allegations about breaches of the Electoral Act were investigated, he stayed in family and community services until 2004, when he became shadow Treasurer after Mark Latham's defeat.

It may be coincidental but it reflects a certain, almost boring, steadiness about Swan that he's brought to the Treasury portfolio.

Swan initially was an unlikely candidate for the gong he won last year, Euromoney's Finance Minister of the Year. His early period as Treasurer was nervous. There was constant chatter about whether Julia Gillard or Lindsay Tanner would handle the role better; stories circulated in the private sector that he wasn't across the basics. The Coalition peppered Swan with questions in parliament, although in the political equivalent of "whatever doesn't kill me makes me stronger", this hostile fire only served to harden him as a parliamentary performer.

But he deserved the award, and deserved it more than Paul Keating when he won it in 1984 (Keating's best years were ahead of him at that point). Swan has endured a series of major economic challenges and so far handled them all. On his watch, we have an economy with low unemployment, low inflation, low interest rates, low debt, low bond rates and a triple-A credit rating from international agencies who specifically cite the government's stewardship, an economy so well-regarded internationally that it currency appears bulletproof, to the chagrin of our trade-exposed sectors like manufacturing. All that plus a range of substantial reforms on carbon pricing, a mining tax, superannuation and workforce participation.

As other western countries increasingly track growth paths similar to or worse than the 1930s, it's an achievement apparently unnoticed by angry voters but one envied by policymakers overseas.

And Swan has maintained fiscal discipline. The Australian political benchmark is three or four budgets of rectitude before spending starts to get out of control. He goes into his fifth budget hell-bent on delivering his commitment to a surplus. He's the only Treasurer in the modern era to be criticised by business for being too disciplined.

No matter how long it lasts, Swan's period as Treasurer will be dominated by the financial crisis and its aftermath. And his personal political history is relevant here. Lurking deep within Labor's DNA is the experience of another economic crisis – the early 1990s recession, a global recession exacerbated in Australia by mishandled monetary policy, state bank collapses, the Hawke government's tariff reforms and a slow fiscal response from the Keating government.

There was a fierce determination on the part of policymakers in 2008 not to make the same mistakes again and see another generation of workers written off. Swan saw the political consequences of that recession first hand, as a first-term MP who arrived in Canberra in 1993. Swan had been a Brisbane academic who alternated stints as a lecturer with adviser roles to senior ALP figures Bill Hayden, Mick Young and later Kim Beazley, with whom he'd work again after he lost Lilley in 1996. A loyal deputy of the powerful AWU, he became Queensland party secretary in 1991 after overseeing Labor's return to power in 1989.

In Canberra, the apparatchik from Queensland made a name for himself immediately by successfully (and ironically, given his current surplus determination) demanding John Dawkins' 1993 budget be loosened. Swan later wrote:

"...politicians and economists of all shades, including official bodies like the Treasury and the Reserve Bank, struggled to cope with the transition to a deregulated economy and its consequences. I sat on the back bench at the time. I saw the Australian people get out their baseball bats and wait quietly for the 1996 election so they could get even. And I was one of the casualties... Tragically, we also failed to do enough quickly enough to help those displaced by economic reform... by 1995, it was already too late to rescue many from the employment scrapheap..."

In 2009, the response of policymakers to the crisis worked. More than a 100,000 jobs were saved in Australia, while unemployment surged, sometimes to Depression-era levels, across western economies. Few of those workers are aware of what would have happened without the government's stimulus programs and the RBA's rapid intervention, but they will remain an enduring legacy of the Rudd government, and Swan's Treasurership.

How much of that was Swan's doing? His department, after all, has the best and the brightest in Canberra and the independent Reserve Bank played a key role. And Labor's critics insist the Chinese-driven mining boom was the sole reason we avoided recession, despite that sector shedding jobs at a furious rate in 2008 and 2009.

The government did indeed cling close to Ken Henry throughout 2008 and 2009, to the point where Henry himself began copping opposition flak for being a political shield. But Swan did more than follow the bureaucrats' lead. In a little-noticed account of the government's response to the financial crisis, Swan's former chief of staff, Chris Barrett, recounts a key moment in the government's response to the financial crisis, when Swan travelled to the US in April 2008 and heard first hand from counterparts, officials and investors about the sheer scale of the crisis unfolding in the US. Together with what Treasury was hearing and seeing of the carnage unfolding offshore, it prompted Swan to abandon the substantial spending cuts the government planned for the budget just weeks away.

Swan wore the criticism at the time that he'd overpromised and underdelivered on the fiscal pain, but his judgment was vindicated as the world economy nosedived in the second half of 2008.

That set a pattern for Swan's budgets – they rarely draw rave reviews at the time, but in hindsight each of them looked appropriate given the economic conditions that subsequently developed – although some of that credit necessarily goes to Treasury forecasters.

Which brings us to that issue about Wayne Swan: the apparent gulf between his excellent economic management record, and Labor's dire economic reputation with voters. Polling shows that on economic management, the gap between voters' trust of Labor and their trust of the Coalition is significantly greater than in areas like health, education or the environment, and it's grown worse over the last 12 months.

How much of it is Swan's fault?

The Labor line as to why it has struggled to sell its economic story has a number of parts: because of a hostile media, because the central message of the financial crisis – that Australia was able to avoid disaster – was inherently complex. And around the world, governments have fallen like dominoes as a result of the financial crisis and the ensuing economic slump, with Nicolas Sarkozy looking like the next casualty. Here, in contrast, Labor managed, barely, to hang on in 2010 – because, some government figures say, voters recognised that Labor had averted a recession.

It's also true that Swan has been confronted with more serious policy challenges than at any time since Peter Costello faced the Asian financial crisis. In particular, the mining boom is imposing as significant a restructuring of the economy as any of the Hawke-Keating years, in a way that few people see the benefits of. Unlike his predecessor, it has not been Swan's lot as Treasurer to sit back and count the extra revenue that Treasury failed to anticipate.

But it's Swan who now has the standing within caucus and the authority within the government to determine how Labor resolves its leadership problem. When he makes a decision on what Labor should do next, he will carry a large segment of Caucus with him. Despite the win in February, Julia Gillard can't recover the party's disastrous position. Swan himself has no realistic interest in her position (which may well be one of the reasons for his success as Treasurer), but if Gillard leads to the party to the next election, the baseball bat metaphor will be wholly inadequate.

For Swan it will not merely be a question of a landslide defeat, it's the possibility that his economic legacy, and the reforms of the government he helped lead for six years, will be obliterated.

This article first appeared on The Power Index on May 3. Republished with permission.

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