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Julia Gillard is in deficit on the resource of trust

7 April 2012 No Comment

BY ignoring the opinion pollsters and seeing off Kevin Rudd, Julia Gillard might have believed she had finally bought the time she needed to reconstruct her reputation and, more importantly, her government’s re-election hopes.

Labor’s Queensland massacre – where a maxi cab would be more than sufficient to carry what’s left of the entire state party – only brings the daunting challenge ahead into sharper focus.

The Prime Minister needs to push back her own election date to as late as possible next year, to give her the time and space to continue throwing darts at the opposition, hoping she can burst the Tony Abbott bubble that seems set to overwhelm the ALP.

The question now is whether she will be given the time. Already many in the party view her as a liability and mutterings of an alternative are again being canvassed as the only hope of electoral salvation.

The outcome in Queensland has the Coalition at fever pitch. Minority government in Canberra has already frustrated the opposition for 18 months. They cannot only smell victory; many can almost taste it. The remarkable result in the Sunshine State will only reinforce the sense in the Coalition that victory is deservedly theirs.

Waiting another 18 months for the opportunity to put his case to the Australian people will require more stamina than the Opposition Leader, a noted marathoner, has yet displayed. But that race can’t be run successfully without discipline from and by his team, some of whom have a habit of speaking across each others’ portfolios and offering unguarded advice on any range of topics.

The recent troika of speeches by Abbott, his Treasury spokesman Joe Hockey and finance spokesman Andrew Robb demonstrates that senior Liberals are singing from the same song sheet and are determined to put their economic credentials on line.

Summarising the Coalition’s essential economic and fiscal policy, Hockey said: “Our goal is to live within our means and to ease upward pressure on interest rates and the exchange rate.”

It’s interesting to note the growing push within the federal Coalition to gain traction on another of its long-held markers of fiscal performance, a structural budget position.

Following warnings by Treasury secretary Martin Parkinson that “surpluses are likely to remain razor-thin without deliberate efforts to significantly increase revenue or reduce expenditure”, this newspaper editorialised on March 12 that “the bigger challenge is to repair the structural deficit”.

It is little more than a year ago since Andrew Robb somewhat grandiloquently called it “Labor’s dead cat on the table”.

Simply put, the structural budget position is the overall position of the budget, adjusted for the economic cycle. A largely unexplained factor in any Gillard government presentation of the state of its budget is the blow-out of the underlying structural deficit.

In the context of the massive revenue stream from the mining boom, Robb explained that when the boom subsided, “the spending commitments remain, and huge budget deficits and greater debt reappear. In other words, structural deficits result from unwise overspending in the good times.”

In 2010, Treasury officials worked up a comprehensive paper on structural deficits highlighting that once the current forward estimate period concluded and GFC fiscal stimulus was unwound, the federal budget would still be in structural deficit.

It was advice apparently not welcomed by the federal ALP. With the generally sound and hardworking Treasurer, Wayne Swan, determined to report a surplus in 2012-13, the findings, say the opposition, could undermine whatever numbers are forecast in the May budget. A year ago Hockey told the National Press Club: “In government we will commit to publishing estimates of the structural position in the budget papers every year.”

He noted that Chile had used a structural budget position for 12 years and Britain had followed suit in the past two years.

According to the opposition Treasury spokesman, not only were we lagging behind world-best practice in our measurement and assessment of fiscal performance but, should commodity prices and the terms of trade unexpectedly decline, Australia could be very exposed.

“In the current very favourable circumstances of generational highs in the terms of trade and close to full employment,” he said, “Australia should ideally be running very large budget surpluses. This would allow money to be put aside for a rainy day.”

At the forthcoming federal election, trust will be a key factor in the minds of voters. Gillard and senior members of caucus say: “Trust us on our economic record.” They also point to the Coalition’s growing list of promises, which they claim are uncosted and are economically exorbitant.

But trust is a two-edged sword for Labor, and there is little cut-through, with voters still white hot with anger over Gillard’s pre-election no-carbon-tax promise.

While the Treasurer is likely to live up to his promise and deliver a relatively small surplus next month, senior members of the Coalition may well respond with the mantra, “deficits-surpluses: it’s all in the structure “.

One of the main challenges as we approach next year’s federal election is for Labor and the Coalition to sell to the Australian citizenry their own versions of what is the most appropriate overall economic and fiscal direction, as we face what could still be a turbulent economic future.

Given that we now have a presidential style of political leadership, this will almost certainly be decided by the general perception of whether the Labor Prime Minister or the Leader of the Opposition is the stronger and more capable political and economic leader. This decision, in its turn, may well be determined by whether Gillard (or whoever is then PM) or Abbott is thought to be willing and able to look beyond the three-year election cycle.

Ross Fitzgerald’s most recent book is the co-authored political satire Fools’ Paradise, set in a fictitious Mangoland.

The Weekend Australian, April 7-8, 2012

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