The federal Labor party is acutely aware that voters are convinced that social democratic political parties are poor managers of the economy. Such views tend to be based on the axiomatic understanding that labour parties are in politics to secure more from the economy for their core constituents – welfare recipients, those dependent on the public sector for their employment, and trade unions. Perceptions of how Labor governments of the past have dealt with the economy play their part too, although here something curious is at work.
For some reason, voters do not acknowledge the impact of the Hawke government which deregulated the financial services sector, floated the Australian dollar, deregulated large swathes of the economy, and made the first steps towards putting wage outcomes on a productivity-based footing. Rather, voters seem to prefer to hark back to the troubled days of the Whitlam government. Whatever its strengths, it is widely acknowledged that the Whitlam government was very poor at managing the economy. It was with this in mind that the then Labor leader, Kevin Rudd, in his appeal to voters ahead of the 2007 election, sought to cast himself and any government he would lead as ‘fiscal conservatives’.
The implication was that a Rudd government would not spend beyond its means. Like the state Labor governments that were in office at the time, high political value would be placed on returning budget surpluses. The Rudd government’s commitment to returning surpluses didn’t last long as the onset of the Global Financial Crisis necessitated a change of policy direction and government began pumping money into the economy in a bid to maintain demand, employment and growth. Rudd hinted at a commitment to returning to a budget surplus as quickly as possible just before he was deposed as leader. His successor, Julia Gillard, took up the theme and government policy is now committed to returning to surplus by the next budget. The problem here is that Ms Gillard may have committed herself to a difficult objective too soon.
The international economic situation is giving signs that it might slip back into a financial crisis at any moment, with debt crises threatening to overwhelm both Italy and France, and with the United States seemingly unable to get any period of sustained growth under way. In short, the world’s two biggest consumer markets – the United States and Europe – are in the doldrums. The conventional wisdom in Australia is that regional considerations help differentiate the Asian region from the northern hemisphere.
The argument is that the Chinese economy is strong, and that Australia (which supplies a lot of the energy and some of the raw materials) is being shielded from the problems confronting the northern hemisphere. If this is the case, then Australia might muddle through the latest round of financial shock-waves. If, however, the Chinese economy proves to be inextricably linked with the world economy, then the collapse in demand in the Northern Hemisphere will affect Chinese exports to Europe and the US. Once that happens, demand for Australian commodities will slump, and the so-called ‘two speed’ economy will have one speed – and that speed will be ‘slow’.
There isn’t actually a great deal Julia Gillard can do about these international economic problems, although sticking dogmatically to her budget surplus promise may be akin to making a rod for her own back. It’s interesting to note that some of Labor’s cross-bench colleagues in the lower house, clearly nervous about what another international crisis would do to the vulnerable economies of the regions that they represent, have been sending signals to the government that they would be quite sanguine about future budgets not coming in to surplus.
The problem for Gillard is that she has sort of given a promise about a budget surplus next year, and she is already struggling to cope with her last broken promise on carbon taxes. In the meantime, the opinion polls continue to be resolutely poor for the government. The Labor vote isn’t going up – but then, by the same token, it isn’t going down either. The government’s new tactic is to talk about anything other than the impending carbon tax, and from this approach comes the very laudable idea of reforming disability services provision with a national disability insurance scheme.
As this is being debated, remember this interesting point: the Labor luminary who did a lot of the preparatory work on this matter was none other than Bill Shorten. One wonders if this issue might somehow link in with another leadership manoeuvre in the currently desperately unpopular Gillard government.
Dr Nick Economou is a Senior Lecturer in the School of Political and Social Inquiry at Monash University, Melbourne.