The coming non-event

Thursday, 1 May 2008 

There is starting to be some fairly tortured analysis doing the rounds in the press in the run up to next Tuesday’s Budget.

The basic argument seems to be the same: Swan faces some tough decisions in the Budget and will have to do some careful juggling if he is to balance the highly complex demands of Australia’s current economic position.

All of this is based on the same premise, namely that the Budget is a major political/economic event. It is not. Nor is the economic situation that complicated. As the Reserve Bank keeps saying, Australia does have mild inflationary pressures, mainly due to capacity constraints from strong growth, which is naturally enough most felt in the parts of the country where the economy is growing the strongest. In the long term this should be alleviated by ‘labour flexibility’ i.e. wages take the strain, something Labor is committed to preserving. In the shorter term, the slowing global economy will also help ease the pressure, causing the RBA to hold off from the latest rate hike.

However, political necessity has meant this fairly straightforward scenario has been turned into something else. The Rudd leadership banged on about an inflation crisis even as it was coming to office, partly to discredit the last party in power, but mainly to clamp down on the spending plans of the current one. The Tanner razor gang was the political axe used against those in the ALP, who might have thought the huge budget surplus they inherited was theirs to spend. Unfortunately, the US slowdown did the work for the government leadership and eased those inflationary pressures, as the RBA Governor keeps on blurting out. The government has tried to cover this up by making the US slowdown something that makes things even ‘more complicated’ but it is the political message that has become more the complication than the economy.

This doesn’t really matter for the government as things have now moved on. The speed with which the ALP has caved in, especially as Rudd’s (Howard’s) tax cuts remain untouched, show that the death of the factions has really symbolised the death of the ALP’s political agenda and its funeral has now been held. With the passing of this brief period of political manoeuvring, we are now back on the more familiar grounds of Rudd’s style of economic policy that was rolled out last year.

The first step in Rudd’s economic policy is to accept, in contrast to the charade of the former government (and especially its hammy Treasurer), that there is little the government can do these days anyway. Rudd motivated his trip overseas as a response to the fact that it was the global economy that determined the Australian one. Swan dutifully parroted the same message a couple of weeks later talking about the upcoming Budget while standing on the pavement in front of the White House, with all the other tourists.

Having being absolved of any responsibility for the economy, the government now moves to the second stage – showing empathy. The government’s job is to apply band-aids to working families knocked about in the economic turbulence over which it has no control. This is something Rudd perfected to a fine art against Howard last year, and the Liberals are still struggling to get to grips with it. Even after their defeat, the Liberals can’t grasp the anti-politics content of Rudd’s attack, and why it worked so well at a time when the electorate was generally feeling very comfortable economically. Probably the one who has caught on best is Nelson, especially over his response to the carers’ bonus. The trouble is that, unlike Rudd against Howard and Costello last year, Nelson is not facing an opponent unaware of what game is being played and the government has not given Nelson another opportunity since.

The Budget then will not be about addressing any serious economic policy, but showing that the government cares. As Swan gets into his stride, who knows, it may even help his political standing. Until now he has had a difficult time handling a political message that became increasingly incoherent in the face of economic reality. Now that those manoeuvres are over and he needs to relate to people struggling with events out of their control, he might be on firmer ground. It would also suggest that Turnbull may not start to look so good (to the relief of the Liberal leadership). Up to now he has benefited from the government’s strategy but, as usual, has been blind to the politics behind it and regarded it all as a bit silly. Turnbull can do enthusiasm, self belief and obliviousness, but empathy? Unlikely.

Posted by The Piping Shrike on Thursday, 1 May 2008.

Filed under Tactics

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