The onset of the Easter break provides a possible circuit breaker for a national political debate dominated by problems confronting Julia Gillard’s two ‘taxes ‘ – the mining tax and the proposed carbon tax. Of these two reforms, the carbon tax is causing Gillard and her colleagues the greatest grief. The polls monitor a persistent down-ward trend in voter support for Labor and its proposed panacea for climate change.
Labor’s primary vote has fallen to a critically low level and, were an election to be held next week, federal Labor would probably experience a defeat not dissimilar to that endured by the NSW branch. With the break upon us, the government has an opportunity to shift the focus of the national debate away from climate change for a moment.
The next budget, currently being worked on by treasurer Wayne Swan with assistance from finance minister Penny Wong and Cabinet’s Expenditure Review Committee (ERC), can help re-set the national debate. The problem for Swan is that the prevailing economic conditions in Australia are seriously constraining the government’s approach.
The problem confronting the government is not one of recession, for the Australian economy continuous to grow and some promising employment figures have also suggested stability in the labour market. Of more immediate concern is the value of the Australian dollar particularly when compared with the US dollar.
While the US is but one of a number of trading partners that are important to Australia, the dominance of the $US as the currency of trade means that any problem in the relationship that exists in the relationship between the American and Australian dollar will affect out trading transactions even with China and Japan. The bottom line in the currency issue is that the strength of the Australian dollar relative to its US counterpart is affecting Australian exporters.
With every appreciation of the value of the Australian dollar (and the Australian dollar has gone beyond parity and is now worth more than the US dollar) export income falls. This decline in export income manifests itself in two ways: in those export sectors where Australian goods are competing with goods from other nations, the rising value of the Australian dollar makes the Australian goods more expensive and this, in turn, leads to a loss of market share.
This is the problem affecting Australian manufacturing exports. Meanwhile, in those sectors where the dominance of Australian output in the market is such that importers have little choice other than to buy Australian commodities, the problem with the rising value of the dollar is that exporters earn less than they would have earned had the Australian dollar been less valuable.
This is the problem that the mining industry that sells minerals and energy especially to China is experiencing, and sections of the Australian agricultural sector that export meat and wheat are also experiencing reduced revenue despite increased production. It has been the decline in export commodity revenue from the mining sector in particular that poses the biggest challenge for treasurer Swan as he tries to find a way to meet his government’s expenditure liabilities yet still appear to be tracking towards a budget surplus.
A decline in export earnings leads to declines in company profits, and declining company tax revenue. This will affect the mining industry in particular, and this is the reason why Swan has been so anxious in recent days to declare to anyone who listens that there will be no ‘rivers of revenue’ from the mining industry that, for all intents and purposes, looks as if it is still enjoying a boom.
This change in the economic landscape will also influence the carbon tax debate. Last week voters were treated to the spectacle of nearly every business sector interest imaginable expressing concerns about the impact of a carbon tax on their sustainability, and cuing up to seek promises of assistance and concessions from the government. If the government doesn’t acquiesce to some of these demands, it will end up having some very powerful enemies lined up against it in the run-up to the next election.
Truly the most spectacular development on this front last week was the declaration of the Australian Workers Union, through its national secretary (and Gillard supporter) Paul Howes, that it would not tolerate one job loss from the carbon tax. Howes might have been saying this through gritted teeth, as the rumour is that he was pushed in to taking this stand at the behest of his members.
The political effect remains the same, however, with voters now seeing opposition to the government’s carbon tax coming from deep within its own organisation. Julia Gillard will be on an overseas trip during Easter, meeting with a number of Australia’s Asian trading partners.
Gillard could do with a policy triumph on her travels such as a free trade agreement or anything that might deflect attention from morass her government has got itself in to over climate change and the prospects of a horror budget. Perhaps more realistically she should just enjoy herself, because, if the polls are any guide, she won’t be making too many more trips overseas as Australian prime minister in the future.