The year of two elections

It’s partly coincidence, but as terms of trade fell so did Julia Gillard’s popularity. Of course there were also horrible mistakes that made 2013 a year of historic political tumult.

It turns out that 2013 will effectively be a year of two elections, the first in our history, with all of the upheaval that goes with them. Needless to say, this is not ideal for a commodity exporting nation whose biggest customer is undergoing a simultaneous economic slowdown and credit squeeze.
The Gillard front bench had two oppositions: one behind them and one in front of them. They were defeated by the one behind them last night and will now take their place on the backbenches and in the smaller parliamentary offices.
We will have a new prime minister, deputy prime minister and treasurer as well as new ministers for trade, communications, climate change, industry, agriculture and education – at least. What’s more, in an attempt to distance themselves from their unsuccessful predecessors, this new group will try to bring a different approach to government, as if they were a different party.
And then in a few short months there will probably be another change of government (still) with a whole new mob moving into the big offices, and a whole new approach. This time laws will be repealed and policies really changed.
Can Kevin Rudd win, as he says he believes? Possibly, but only if Tony Abbott makes a big mistake, as John Hewson did in 1993 after Paul Keating successfully challenged Bob Hawke for the leadership.
It’s partly coincidence, but the ALP’s polling has more or less followed the Reserve Bank’s index of commodity prices and the terms of trade.
Rudd was popular at first as commodity prices soared in 2007-08, but then was turfed out by his party for poor management after the terms of trade collapsed during the credit crisis. (Bad chief executives never survive revenue downturns.)
The conventional wisdom is that Rudd and Wayne Swan handled the crisis well and saved Australia from recession, but it was mainly Treasury secretary Ken Henry and Reserve Bank Governor Glenn Stevens who did that. Rudd and Swan were bumblers, messing up the implementation of important tax reform, and fiscal policy more generally.
As the terms of trade started to fall a year into Julia Gillard’s leadership, so did her popularity. I’m not suggesting this was direct cause and effect, but a key reason for the failure of the Gillard-Swan government was their crazy commitment to producing a surplus in 2013, which had to be abandoned last December – because of the decline in the terms of trade.
More broadly the Australian economy has been hit by the double whammy of falling terms of trade and a stubbornly high exchange rate. It did not follow commodity prices down in 2012, as it should have, but stayed above parity with the US dollar and a trade-weighted index of 75 until May this year because of the global hunt for AAA-rated yield and because of the big devaluation of the yen.
This has been a crushing combination: the China slowdown bringing the resources boom to an end, but domestic industries still struggling with a high currency; Dutch disease without the palliative of booming commodity exports.
Very few governments could weather such a thing, but Julia Gillard’s task was made much harder by the failure of Treasury to accurately predict what was happening, with the result that tax revenue forecasts have consistently been too high, which has had them constantly on the back foot with fiscal policy, and promising a return to budget surplus too early.
They mucked up in other ways as well.
Imposing a fixed price carbon tax as a halfway house to emissions trading was both a sop to the Greens and a bureaucratic convenience designed to give the appearance of certainty to revenue forecasts in Treasury’s model, so that lavish compensation payments to households could be announced at the same time.
Gillard’s blunder was to give in to the Treasury's and Greens' pressure for a high fixed price for three years, and try to use the predicted revenue for big cash giveaways and tax cuts to buy votes. The revenue naturally turned out to be a ghost. It would have been better just to introduce emissions trading with no household compensation – only free permits for emitters.
The mining tax was a hopeless mess – unpopular without raising any money.
And perhaps the Labor Party’s biggest mistake of all has been to reinstate union power in the legislature at a time when the rest of society was swinging the other way.
The union factions led the coup against Rudd in 2010 and installed Julia Gillard. Rudd was, and is, an anti-union ALP leader determined to reduce their influence.
His removal can be portrayed as a last desperate stand by the key unions against their political demise, on top of their waning influence in workplaces and in superannuation fund boardrooms.
Julia Gillard paid the invoice for her elevation by tightening the Fair Work Act in favour of unions, making life more difficult for contractors and campaigning against 457 visas.
All of which might have been OK if Australia were still a unionised, pensioned workforce, but it’s not.
This has become a nation of small businesses and small investors. In many ways it is a vibrant, competitive culture of business enterprise and self-directed saving for retirement and we are intolerant of any attempt to push us back to institutionalised frameworks and control by vested interests.
So the Gillard paradox is that even though she appeared to be a modern Australian woman – a strong feminist, relatively young, unmarried, career focused – she was actually out of touch in many ways.
And while the problem of reconciling modern Australia with its unionist roots has broken the ALP’s brain, the problem of refugees has broken its heart. At least the Coalition doesn’t have to appear compassionate, but if it’s to defend against the leftward challenge from the Greens, Labor must reconcile compassion with the toughness required to “stop the boats”.
It’s impossible, and therefore Labor has failed at it.
Kevin Rudd won’t be able to succeed at that either, but he might be able to slap a new coat of paint on the economic and fiscal policies and perhaps even declare his opposition to the carbon tax to neutralise that bit of the Coalition’s campaign.
He’ll lose, of course, but there’ll be some fresh optimism in the ranks and in the media, so it might be just a two-term loss now instead of four – perhaps even one term, given the slowdown in China and the rising probability of recession here. Either way, the unions were the big losers last night.
The big winner might be the Greens, as disenfranchised women turn out for Christine Milne.

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