Monday 31 December 2012

PVO: Swan's got gold medal form for policy backflips



Swan's got gold medal form for policy backflips



Eric Lobbecke

Illustration: Eric Lobbecke Source: The Australian
WAYNE Swan retreated from his surplus promise for this financial year with a low-key announcement just before Christmas, presumably in the hope the festive season would quickly overtake people's interests, thus reducing the amount of attention devoted to his humiliating backdown.
I therefore thought it only appropriate that my first post-Christmas column take a fresh look at the broken promise, how it came about, what it says about Swan and the way he treats his colleagues. And, importantly, why no one should have been surprised by the backdown.
Swan has form when it comes to over-promising and under-delivering. No one in modern political history in this country does it better.
He did it with the original mining tax, the resources super profits tax. After telling anyone who would listen that he was "not for turning" during the heady debates with the mining sector over the tax, Swan retreated.
Despite Swan being personally responsible for the botched negotiations process over the RSPT, he let Julia Gillard use the impasse with stakeholders as a key ingredient in removing Kevin Rudd. The hapless Swan was rewarded for his treachery with a promotion to the deputy prime ministership.
That fact will feature prominently in the history of this Labor government.
Swan then over-promised the amount of revenue the new mining tax, negotiated only with the big three miners, would generate. So far it has raised zero revenue in its first quarter of operation, with predictions that it is unlikely to achieve much more than that in coming quarters. This helps account for the budget shortfall Swan is now trying to explain.
Yet despite this form, for many of Swan's colleagues his announcement on the failed surplus target came as a surprise. Seriously. That's because the leadership group continued issuing daily talking points, right up until the day before Swan's backdown, that included reference to the surplus.
In other words, Swan was prepared to let his parliamentary team shred their credibility by promising something that he must have known was a risky possibility. When some MPs started to break ranks, such as chief government whip Joel Fitzgibbon, who the week before Swan's announcement told Sky News the surplus commitment should be dumped, they were internally condemned.
That's how Swan treats his colleagues. Again he has form. This is the man who spent three years serving Rudd as Treasurer and opposition Treasury spokesman, not to mention operating as a member of the gang of four, yet in February described Rudd (in a media release, no less) as never having had "Labor values". One wonders if Swan understands how that statement reflects on him, given that he campaigned on behalf of the Labor Party to make Rudd prime minister.
In my job I get to speak directly to many senior politicians and power brokers on both sides of the partisan divide. With one or two exceptions (individuals who have only risen in stature in recent days) to the last they exclaimed that Swan would do "whatever it takes" to achieve his promised surplus and they were certain that he would get there. The faithful claimed it was because he had charted a credible return to surplus path. The more cynical believed that Swan would fiddle the figures as required because of the political capital he had invested in the promise.
But despite playing politics with the budget for years now, cooking the books has its limits, and the politics of doing so has rebounded on the Treasurer and the government.
Swan's shame is less about not achieving the surplus on economic grounds. Experts have lined up to explain why the robust Australian economy can withstand another deficit, so long as the size of deficits is reduced, with a surplus on the not too distant horizon. In other words helping overcome the structural deficit.
Swan's shame is his rolled-gold commitment to a surplus made years ago, tying his credibility to getting there, and tying the government's economic credibility to achieving the target.
Now both have been comprehensively shredded, on the eve of an election year.
The government now wants you to believe that the eroding budget bottom line is to blame for the surplus promise not being met. No fault of the Treasurer. Swan and Finance Minister Penny Wong claim they won't risk jobs and economic growth with potentially stifling cuts just to stick to the surplus promise.
But that should have been their position years ago when instead they were attempting to accumulate political capital to help win the last election. And as recently as the Mid Year Economic and Fiscal Outlook, released a few short months ago, Labor was sticking to the bogus line.
Like so much that has gone wrong for the government, the surplus failure is best explained by the decision to remove Rudd from the leadership. In doing so Labor has been limited in the extent to which it can run on its record from the global financial crisis. That's because the strategy which got Australia through the crisis unscathed - avoiding recession and leading this newspaper to declare Rudd its Australian of the Year - was concocted out of Rudd's office, not Swan's.
After removing Rudd, the government could hardly focus on its crisis management during the GFC to justify its standing on economic matters. Looking back at its track record would invite questioning as to why Rudd was removed (especially considering Swan's role in the mining tax debacle and Gillard and Swan's roles in convincing Rudd to defer his commitment to the emissions trading scheme).
So Labor was forced to look forwards to justify its economic credentials, which meant talking up its pledge to get the budget back into surplus. Days out from the last election Swan said "come hell or high water" the surplus would be achieved in three years' time. On that same day Gillard told a community forum in Brisbane "failure is not an option here and we won't fail".
Swan initially charted a course which included reducing deficits year-on-year before a surplus for 2013-14, but two unfortunate things happened. First, he tried to lift Labor's economic credibility by shifting the surplus one year forward for political reasons, so that Labor could achieve the surplus before the 2013 election. That backfired.
Second, the continuing effort to fudge the figures so that this financial year returned a surplus saw the previous financial year's deficit of $12bn blow out to nearly $50bn as borrowings were pushed forward, so to achieve a surplus this year would have required the greatest fiscal contraction in our national history.
In the present global economic environment that was never a good economic strategy.
Finally, it's worth noting that the government has not only been crowing about its plans to return the budget to surplus, the PM even started taking credit for it in 2012, before delivering on the pledge. Addressing the McKell Institute on July 4 Gillard said: "We saved jobs, stayed out of recession and got back to surplus".
Insert facts into that statement it should read like this: Rudd as PM saved jobs and kept Australia out of a recession during the GFC; Gillard has failed in her commitment to return the budget to surplus. It was a promise which never should have been made in the first place.
Peter van Onselen is a professor at the University of Western Australia.

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