An early election?

Last Friday’s column by Age political correspondent Michelle Grattan started as follows: “You would think the election was next month, rather than next year. The government is rushing out multibillion-dollar policies to tempt voters, while it also tries to sweep away problems”. Then on Saturday, Christopher Pearson wrote in The Australian “it is clear that in recent weeks that we are seeing a clearing of the decks in anticipation of a Kevin Rudd challenge”.

Other commentators are suggesting major political changes are imminent or have already occurred, both within the Labor Party and its policy approach. This despite the hitherto accepted view that the minority government led by Gillard would stick it out for as long as possible and there would be no breaking of ranks by independents or traitors because they would almost certainly lose their own seats in an early election.

Recent developments suggest a new assessment is required of the political game being played in Canberra. More than usual one has to ask what’s behind every move.

In part this relates to the questioning of Gillard’s acceptability as a leader – questions arising from her activities in the early 1990s when a partner at Slater & Gordon’s and an assistant and four-year partner of Bruce Wilson, a then-senior official of the Australian Workers Union. During this time Wilson obtained funds by threatening businesses with disruptive union action unless they paid up and he used those funds for his own purposes. When the AWU found out he was wrongly purporting to act on their behalf, they sacked him; and when Slater & Gordon discovered that, unbeknown to them Gillard had been closely involved with Wilson, they “persuaded” her to resign.

In an extraordinary press conference by a Prime Minister, held without warning and not attended by journalists investigating her past activities, Gillard provided some details of her liaison with Wilson but denied any personal knowledge of his behaviour – a kind of “I didn’t know what he was doing with the money” – or any personal benefit. But those researching what actually happened imply there are further details to come. For example, The Weekend Australian’s editorial on 25/26 August noted that “she still had not responded to careful and fair questions submitted in writing by our investigative reporter, Hedley Thomas” and other reports suggest Gillard well knew what Wilson was doing. While these activities occurred some time ago, the Parliamentary statement in June by sacked Attorney General Robert McClelland, together with Gillard’s own moves to stop media reporting them, and the almost certain further damaging revelations suggest it is highly unlikely that Labor could now fight an election with Gillard as leader.

This scenario does not necessitate an early election. Labor could simply change leaders and hold on until November next year. A successor to Gillard would drink from the poisoned chalice but he could make policy “adjustments”, claim he has dealt with major problems and present Labor’s adjusted policies as being for the future. After the election, he could also deny responsibility for the loss. Importantly, he would also personally benefit from the accoutrements and records accompanying a PM. Possible candidates would be Rudd, who has now started to emerge from his  waiting in the wings role, or Swan, who has recently been presenting himself (albeit unconvincingly) as having a wider, Springsteen-like perspective. Given the apparent extent of the “not Rudd again” group within the Labor Party, the more likely new Prime Minister seems to be Swan.

But why might a new PM think of calling an early election? The short answer is to avoid having to continue “selling” existing major policies, almost all of which have either fallen apart or are very likely to doing so over the next year. Of course, in an early election Labor would have to stick to the basis of existing policies, but it could still present them as having been “adjusted to lead the way into the future”. Indeed some such adjustments have already been made or are imminent. Arguably, such an approach would give Labor a better chance of winning than if it waited until next November.

Perhaps the most difficult policy to adjust is workplace relations. Detailed regulation is a vital part of Labor’s policies and alliance with the unions and the funding there-from.  But the enormous increase and uncertainty of interpretation of such regulation has put almost all the business sector offside and it is now clearly having adverse effects on investment and employment. This in circumstances where the Chinese gift to Labor (and the economy more generally) arising from the enormous post GFC surge in our mineral exports is diminishing and the non-mineral sector is struggling.

The inherent problems with this workplace relations policy, as drafted by Gillard, are exacerbated by the increasing exercise of union power and Gillard’s statement that the existing arrangements strike the “right balance”. Unsurprisingly, strong unions such as the CFMEU (which has developed close relations with three other major unions) are now operating on the assumption that the Gillard government will not take the action needed to deal with union thuggery and that nor will a Fair Work tribunal as it is led by a former unionist. Minister Bill Shorten even told Grollo the company should agree to a 14-day moratorium on illegal action by the CFMEU, as proposed by FWA head. In such circumstances business is being forced to resort to expensive legal action under the common law and a continuation of existing regulatory policy would create on-going serious political problems.

But a new PM could more easily accept the offer made on August 31 by the shadow minister for employment and workplace relations, Senator Eric Abetz, to consider some amendments based on the review of the Fair Work Act. According to Abetz, the Coalition (astonishingly) finds the review’s recommendations “overwhelmingly acceptable”, although he seeks a three-to-four year term for individual flexibility agreements (which are unusable at present). This provides an opportunity for Labor to run an early election where there would be only a limited dispute on workplace relations between the two major parties. Regrettably, it looks as though the Opposition has let the Government off the hook by conceding the continuation of a policy that has serious economic and individual freedom problems.

As noted, some “adjustments” to policies have already been made and can be interpreted as preparation for an early election. These include the decision that from 2015 the previously “essential” floor price of $15 a tonne for carbon would be abandoned and the likely much lower price set under the European trading scheme adopted. This still leaves our businesses paying $23 a tonne until 2015 but, with the compensation being provided to some, it reduces their concern that Australia’s carbon taxes are “leading the world” to no real purpose and, most importantly for Labor budget credibility, it retains the revenue until “another day” i.e., for a decision by the next government. It will more readily counter Abbott’s anti-carbon tax by saying it will not have one after 2015. Further, although Labor fails to give any acknowledgement to the now widely accepted faults in the scientific analysis, it knows that some acceptance of the science within the Opposition means Abbott will not do so in any early election and is stuck with the same (bad) policy of providing 20 per cent of energy from grossly inefficient renewables.

Another early election preparatory move is the decision to use Nauru and Manus Island for offshore processing of refugees and to guarantee that such refugees will only be a component in the queue and thus have to wait their turn. Even with the increase in refugee intake to 20,000, this change means the Opposition’s major refugee problem complaint has been met and border control policy should not be a major problem for Labor in an early election.

In addition to such policy changes the Gillard government has announced some major new expenditure programs. On top of that on the new refugees’ islands, these include the National Disability Insurance Scheme, the Dental care scheme, the (the made more generous) Gonski education scheme and the postponement of planned defence expenditure increases. Given the undertaking to maintain compensation for the carbon tax, there would also be additional spending in net terms once the existing tax is abandoned in 2015. On top of this there is potentially an increasing problem of shortfalls in revenue because of a slowing in growth in China and in mineral tax revenue. The question now commonly being asked is “where is the money coming from” to finance these needs and keep to the promised budget surpluses.which are already questionable because they rely on accounting rules allowing Labor to finance “off-budget” the massive spending on the National Broadband Network which has  not even been subjected to a cost-benefit analysis.

The answer to that question is that Labor is going to have an election before the next budget and before the mid-term Treasury review near end 2012. This will still pose a major. explanatory problem for Labor but will not mean any (more) broken promises.

Overall, the Canberra political scene is depressing but not only because of the policies adopted by Labor. The refusal of the Coalition so far to outline any coherent alternative set of policies leaves a vacuum in the political debate. If, as now seems likely, there is an early election, the Coalition would find it difficult to explain its policies adequately in a campaign flowing from such an election and, on what we know to date, even a Coalition victory would likely leave Australians well “short” in terms of having a government with liberal policies.  

Des Moore, a former Deputy Secretary of Treasury, is Director of the Institute for Private Enterprise