Labor can relive its economic glory days

With Labor under Kevin Rudd currently enjoying a stratospheric lead in the opinion polls, there are no doubt many who think the election is done and dusted, even six months out from the likely date. To be sure, people seem to like the Rudd-Gillard leadership team, while on the other side John Howard and his ministers are looking shopworn and sounding shrill. Issues too, from Iraq to David Hicks to WorkChoices and even probity in office, seem to be running strongly in Labor’s favour.

Other people are more cautious. They know Labor has been ahead, sometimes well ahead, in the polls many times before, but Howard has an uncanny ability to jolt the electorate just at the critical juncture. Incumbency also provides a substantial electoral buffer – governments at national and state level of either persuasion rarely change in this country, particularly in recent years. (The NSW election at the end of this month will almost certainly follow this trend.)

Finally, those in the know look beyond the polls to the odds the bookies are offering or – what is much the same thing – who the voters expect to win. In these respects it’s still pretty much line ball.

In past campaigns, Howard has focused on issues – terrorism, border security, interest rates – that resonate with voters. This time, now that the Brian Burke smear campaign seems to have backfired badly, he’s almost certain to continue hammering the economy right up to election day. With over a decade of strong sustained growth, low unemployment, accumulated wealth and generally low interest rates – combined with some lingering voter suspicion of Labor’s economic credentials – he and his government are probably right to think this is their best chance of pulling Labor back, and perhaps even securing a fifth successive victory.

Indeed, according to a column last month by The Australian’s Glenn Milne, ‘Peter Costello is telling anyone who’ll listen, behind the back of his hand, that it might not be such a bad thing if the economy hits a few bumps. In the Treasurer’s eyes such a scenario would put some voter apprehension back in the mix’ (cited by Richard Farmer, Crikey.com, 13 March). The coalition sense that Labor is vulnerable on the economy in good times or bad. Without doubt, the ALP are fully aware of the danger.

So what should Labor do to negate the economy as an issue? There are three broad strategies they could adopt. The first is to do all they can to deflect the debate from the economy to issues that favour them (of which there are many). This is unlikely to work: voters and the media will draw the obvious conclusion – that the Labor Party is far from confident in its ability to sell its economic credentials.

The second – which seems to be the strategy they’re following – is to reassure the public that economic management under Prime Minister Rudd would be business as usual. As the Sydney Morning Herald’s Political Editor, Peter Hartcher, pointed out on 2 March, Howard’s sarcastic jibe that Labor seems to believe ‘that the economy can effectively run on autopilot’ is not far from the truth. With Rudd guaranteeing the independence of the Reserve Bank in setting monetary policy, while promising to keep the budget in surplus and not to allow taxes to increase as a proportion of gross domestic product, he’s effectively undertaking to maintain the macro-economic status quo.

This might be enough. When Howard was asked where, given these Rudd commitments, his party specifically differed from Labor on economic management, he could only nominate workplace relations and the WorkChoices legislation – which is, in Labor’s and many others’ view, one of the main contributing factors to the ALP’s huge poll lead. The danger, though, is that voters will look back on ten good years and say ‘Why take the risk?’ if there is so little to choose between the parties.

We favour a third strategy. The Labor economic record during most of its long period of ascendancy in the 1980s and early ’90s is nothing to be ashamed of. The Hawke Government established an enduring partnership with the labour movement and undertook necessary, long overdue reforms in banking and finance, tariffs and industry policy, the labour market, welfare, industrial relations and foreign exchange. It rode through the 1985 collapse in our terms of trade (the ‘banana republic’ crisis) by imposing strict and, most importantly, equitably shared spending restraint. It wound back middle class welfare and largely ignored the bleatings from the special interest groups. Most importantly, it carried the electorate along with it.

This much is all but conceded by, all of people, Miranda Devine in the Sydney Morning Herald on 15 March. She also has a good word for Bill Hayden who, as Gough Whitlam’s last Treasurer, restored sanity to public finances – or would have if his first budget had not been pre-empted by the Dismissal.

The Howard Government’s record is by comparison patchy at best. Taxation is higher than ever relative to GDP, except that the rich pay proportionately much less than under Labor. Spending is often hugely wasteful – for example, on the $2.2 billion a year private health insurance rebate (most of which is squandered in rewarding mostly well-off people for something they would have done anyway), on subsidising rich elite private schools, or on buying the vote of the former independent senator, Brian Harradine, with preposterous infrastructure investments in remote regions of Tasmania. And despite his rhetoric about ‘family values’, Howard has presided over a family income support system that sprays benefits at everyone, no matter how wealthy, whereas a better targeted approach would enable thousands of working women to spend more time with their pre-school-age children, a preference few can currently afford.

HSBC chief economist and former economic advisor to Treasurer cum Prime Minister Paul Keating, John Edwards, in an important paper for the Lowy Institute, says our ‘long expansion’ can be attributed to two broad factors: the reforms of the 1980s and early 1990s (particularly long-term wage moderation courtesy of the Accord), and ‘the contemporary configuration of the global economy [which] is more congenial for Australia than it has been for over a hundred years’. In other words, Howard has more or less from the moment he took office been (in the words of another prominent economist, Barry Hughes) running with a wet sail and a following wind. If anything, it’s the Howard Government that has been flying on autopilot.

Meanwhile, worrying signs are emerging of trouble ahead. Foremost is the rapid deterioration in our external position, with our current account deficit (CAD) at around 6 per cent of GDP roughly double the relative level when Howard took office, and our foreign indebtedness climbing from under 40 per cent to over 50 per cent of GDP. (Remember Howard’s 1996 ‘debt truck’?)

The CAD has two components: the trade balance and the income balance. The latter component reflects the cost of servicing our accumulated CADs from years past, so bringing the CAD back below 5 per cent of GDP – the maximum serviceable level, according to Edwards – requires a dramatic improvement in our trade balance, and this is nowhere in sight. Instead, we are witnessing under Howard a sharp deterioration in our annual trade deficit in ‘elaborately transformed manufactures’ – from around 7 per cent of GDP in Labor’s last two terms to nearly 10 per cent in the past two years. This factor alone is sufficient to account for our widening CAD.

The challenge is even more forbidding if we look beyond reducing the CAD to a serviceable level, and instead aim (as we should) to cut it to the level, estimated by Edwards at 3 per cent of GDP (roughly the level that Howard inherited on assuming office!), at which it does not compound automatically as the income balance deteriorates.

Another storm cloud is our ageing population. Two recent reports, by the Productivity Commission into the Economic Implications of an Ageing Australia (2005), and by the NSW Independent Pricing and Regulatory Tribunal into Up-skilling NSW (2006), together paint a picture (assuming no policy change) of slowing growth (to about half the current rate by 2020), lower labour force participation, worsening skill shortages and intense budgetary pressures (particularly from health care costs). Productivity growth (which has been sluggish throughout Howard’s period in office) and building workforce skills are the keys to tackling all these problems.

Labor has a positive message to deliver on both these scores. Its record on productivity was much better than Howard’s (in large part because of the Accord), while the Howard Government – its rhetoric on skills notwithstanding – has presided over a severe neglect of vocational education and training (TAFE) across Australia. WorkChoices, too, threatens skills formation by militating against stable workplace arrangements. (It is worth remembering that Australia’s robust apprenticeship system owes everything to the past strength of our unions.)

The ALP, we believe, should go on the offensive on the economy. The Howard Government talks big on reform but, despite prolonged benign economic circumstances, has done little to address enduring and emerging structural problems. By contrast, the Hawke Labor Government, particularly in its early terms, showed courage and imagination – and in so doing, laid the foundation of our long economic expansion.

It is a record Labor should be proud to put before the voters.

 TNC  18 March 2007                Like to respond ?                                   Top