The year in KGB: Politics edition

The Coalition’s triumph at this year’s federal election put an end to six years of Labor rule, marred by some of the most dramatic political upheavals in Australia’s political history. Labor may have navigated the economy through the global financial crisis and into its 22^nd year of uninterrupted growth, but it found managing the internecine warfare within its own ranks a much more difficult task.

In April, two months before Kevin Rudd emerged victorious from a final leadership spill, then Prime Minister Julia Gillard remained buoyant about the outlook for the resources sector, telling the KGB that:

There may be some adjustments in volume but it’s still going to be a very large volume. I mean one of the things that I think gets instated in our domestic dialogue about the economy with China and its demand is people see Chinese growth rates coming off a bit and that sort of starts a negative cycle of talk in Australia. But you know with the growth rates we’re seeing now, even with them coming off a bit – and you’ve got such a huge economy still growing at very strong rates – that’s still very strong growth. I think overwhelmingly the prospects are good for resources. There is nothing to fear here. The absolute peak of the price cycle has probably passed, but we will still be doing good business in resources. It will be supporting jobs.

Gillard also outlined where future opportunities might lie for Australian business. Satisfying the desires of China’s burgeoning middle-class figured heavily.

I think the next big opportunity for us to add productivity is in our food processing sector, so I can see a future for us which is all on the upside, where we would be exporting China and other countries in our region. As their middle class consumers rise they will want the kind of foodstuffs that we have: the wines that we have, the Australian beers, the list goes on. So, there are many ways that we can work together. We’ve got to make sure that we’re continuing to welcome investment from China and we will. And I think we can see a happy coincidence of productive farmers, investment in food processing, better food processing and that going into a Chinese middle class market.

Later that month, BCA President Tony Shepherd issued a somewhat pertinent warning about political bloodletting and its effects on the business community.

That’s bred a certain amount of nervousness about reform. And when I talk about reform I mean reforms which really take the country forward. Reforms can in effect impact on the consumer. Reforms can impact on business, you know, in the shorter term. So, I’m talking more about those real reforms of Hawke and Keating, Howard and Costello with the GST, those tough reforms where you’d say boy we’re going out on a limb on bringing in some of this stuff; this is really going to cost us political capital but we think it’s in the best interests of the country in the longer term, so we’re prepared to take the chance and sell it to the community. Now, you must bring the community with you and I think that’s even more important.

Leadership squabbles weren’t the only stumbling block to reform. The relationship between the federal and state governments could also be a source of dysfunction, as the parties seemed more inclined to fight against each other instead of working as a team.  Shepherd argued that as an institutional framework, the Council of Australian Governments was a hindrance rather than a help:

I just don’t think it’s working. I’ve been in business and dealing with politics for fifty years, in the public service and what have you, and I just think the relationship between the feds and the states and territories at the moment is at probably an all-time low. And that’s just not sustainable.

It’s not just the structure, it’s the underlying philosophy. It’s the attitude that this actually is, or should be, a partnership. And I’m not saying they all sit around the table and link arms and sing Kumbayah, but I’m saying they really should be looking at what’s best for the country as a whole.

Perhaps Shepherd’s concerns resonated with then shadow treasurer Joe Hockey, who flagged to the KGB that a significant review of COAG could be on the cards.

I’m one of the only people that has ever attended a premiers’ conference on the other side of the table with a premier when I worked in New South Wales government for Nick Greiner and John Fahey. Then, hopefully being on the other side of the table working with the premiers, I can see both sides and the challenges that both have.

But the thing is we’ve only got one taxpayer. And whether you’ve got federal government or state government imposing taxes on them or imposing regulations on them, it’s the same human being, an Australian out there that is copping it. And from our perspective – and it’s very, very important – Tony Abbott has announced that we will redefine the modern view of federalism. And we’ll do that in consultation with the states and we’ll take it to the electorate, if we are to be re-elected.

I am very mindful that consumer confidence is fragile, that business confidence is fragile. I am very mindful of that and that’s weighing heavily on our thinking and that’s one of the reasons why we were determined to maintain the current personal tax rates rather than withdrawing them back to the pre-carbon tax package levels; the same with the pension. We are determined to make sure people aren’t going to receive less in their pockets. But at the same time the flipside is we’re going to have to change government expenditure in other areas and accept the Labor Party savings. So, it’s a balancing act. And I think what people are crying out for is stability and certainty and predictability, and that’s what we’re endeavouring to give. Now, that’s very hard from Opposition. And even our worst critics would say Tony Abbott released more information last night than any Opposition leader has ever done in a budget in reply speech in the parliament. But we’re on track.

Whether the Coalition was on track to deliver a surplus was another matter. Assistant Treasurer Arthur Sinodinos revealed more detail about how the Coalition interpreted Treasury revenue forecasts in October.

One of the things that Peter Costello always did was he’d take the Treasury projection and he discounted a bit when it came to revenue. If you were surprised on the upside, that was fantastic. It was like a bonus at Christmas time.  That’s great.  But you didn’t want to be too surprised on the downside, so better to be a bit conservative.

That’s the attitude we’re going to be taking and hopefully it means that commodity price forecasts and everything else will be a bit more believable in the future.  One of the really incompetent things that Labor did recently was in the May budget, they didn’t upgrade their commodity price forecast from where they were in March.  Then the big upgrade occurred in the economic statement on the eve of the election and you had this $33 billion dollar reduction in revenue. Then off the back of that you had FBT on cars, you had the bank levy, you had the increases in tobacco tax, all on the eve of the election. 

We want to avoid those sorts of surprises. And the other thing we’re going to do is we’re going to restrain spending and also put in place through the commissioner board those drivers that actually reduce the urge to spend over time.  This is not about scores on the turf, but the big lesson I learned from my time in the corporate sector is that you have to keep benchmarking your own enterprise against other enterprises in the same field and elsewhere.  For the federal government, you benchmark yourself against comparative jurisdictions, whether it’s the states or overseas or comparative services provided in the private sector because the other thing we want to do in Canberra is we want to instil this mentality that every dollar has to be earned.  It’s not a free dollar, right.  It doesn’t come from the sky.  It’s generated somewhere and therefore how it’s used is very important.

On the subject of competitiveness, colleague Industry Minister Ian Macfarlane outlined his vision for the ailing manufacturing industry, which has long been beset by a high dollar, high costs of labour and cheaper products from foreign competitors.

I’m setting out to put in place a plan for the car industry which will sustain the industry into the next decade and that plan needs to include – as I’ve said repeatedly before – not only a sound economic model, it needs to see the car producers in Australia exporting at least 30 per cent of their production. It needs to ensure that some of the issues that the industry currently faces, that make it uncompetitive, are addressed.

So the first of those of course is the carbon tax. We need to get rid of that. It adds hundreds of dollars to the cost of producing a vehicle in Australia. We need to ensure, as I’ve already discussed with some of the union representatives in the Australian Manufacturing Workers Union, it needs a realistic approach on conditions. Wages I think need to be maintained. In reality what we’ve got to do is lift production and productivity, so those issues will have to be addressed. Companies will have to address issues. There is a whole range of issues about government buying Australian cars.

When I get that all together, I’ll be dealing with a plan based around making the industry sustainable, not dealing with some scenario, which you’ve painted fairly graphically but which is yet to be borne out. Yes, there are challenges in terms of unemployment. Yes, there will be job losses in the resource industry as the construction phases finish. But as I was discussing with the deputy premier Peter Ryan from Victoria the other day, while people tend to highlight jobs being lost – let’s pick an example in Geelong – let’s talk about the number of jobs being created in Cotton On, for instance, a company down there that deals in cotton clothing, has created 300 jobs in Geelong. And that gets very little highlighting.

The electricity industry also received some scrutiny, with Macfarlane suggesting that privatisation could smooth out any regulatory messes, and sort out the inefficiencies in transmission and generation.  

We need to do to make the electricity industry a competitive industry and also ensure that some of this so-called gold plating – and I’m not going to argue whether it exists or not, I’m just going to say to ensure that work is done in the electricity industry when it is needed to be done – so capital investment, I’m saying.

So, the first step in that is making an effective body, the Australian Energy Regulator. The states are arguing that that needs to be separated away from the Australian Competition and Consumer Commission, and the ACCC retains the consumer protection component of the AER, but the AER – who’s turned into a standalone body – has the resources, has the wherewithal, has the expertise to ensure that its decisions are upheld, are not challenged in court as they have been, to ensure that it is able to regulate the industry in a proper way. So, that’s the first step.

The second step is to ensure that, where possible, the industry is privatised and becomes a competitive industry and we’re seeing that happening in NSW with generation and ultimately I think with transmission. I believe that’ll happen in Queensland and so that brings some competition to that part of the market. We need to also ensure that there are network management systems, so to use the jargon, a smart grid is established so that we’re not building extra poles and wires for a demand that only occurs for a couple of hours a day, five days a year. So we need to ensure that we have good technology in that area and innovation is going to play a role in that.

People across the political spectrum can probably agree that investing in innovation is crucial for all sectors of the economy. One can guess what ACTU chief Ged Kearney made of Holden’s December announcement of its exit from Australian manufacturing in 2017 after the Coalition refused to write the industry another blank cheque. Back in May, she told the KGB:

It is about having industry plans. It’s about looking to the future to see where we can value-add. 

You know, if certain industries we have right now might not be viable in the future, how can we help a transition? Let’s not just shut things down. Let’s look at what we can do. It’s what we did in the Button era. You know, we had industry plans. We invested in change and transition and we thought about the future. And I just get so frustrated with short termism. I mean let’s have that long-term conversation. Where do we fit in the future?  Where do we fit in the Asian economy? And how we’re going to invest and keep people in jobs. Let’s take the high road.

You know, the high road is much better than the absolute slash and burn of the low road and I’m prepared to have that conversation. I think we need to. The prime minister, the new prime minister is actually talking about having that. He’s talking about businesses or business sitting down with him and sitting down with government and I think we should even bring in the social and community sector as well to have that conversation, so that we can hear the impact that policies on everyday working lives. How is it going to impact a community like Geelong? How is it going to impact a small metropolitan city like Adelaide? Let’s talk about that. You know, we don’t seem to plan like that anymore.