CANBERRA OBSERVED: News Weekly
Australia should brace itself for worse to come
, February 7, 2009
It is likely that the coming budget will see cutbacks in defence spending, medical research and incentives for superannuation saving, to name just a few items.The arrival of the 2009 parliamentary year brings with it greater political uncertainty than any year in living memory.
The economic climate, the various government and private responses to it, and the high expectations and limitations of new US President Barack Obama, mean emphatic predictions could be wildly inaccurate.
It is conceivable that, by the year's end, Kevin Rudd could be looking toward increasing his majority over a confused and divided Opposition as voters flock toward an incumbent government in a time of crisis.
Mr Rudd's popularity has lifted from the arrival of the "GFC", or global financial crisis, and his showering of pensioners and other welfare recipients with money is not likely to be forgotten.Hard time
Opposition leader Malcolm Turnbull will have a hard time pressing the case that Mr Rudd is responsible for the problem and will have to choose between sniping and backing the government.
If his popularity with voters does not increase over the next six months, his hold on the leadership will also start to crumble.
But it is just as conceivable that, by this time next year, Labor could be bracing itself for possible defeat as that same economic crisis sends hundreds of thousands to the dole queues, further strips away the wealth of the masses in the form of their houses and superannuation nest-eggs, and forces too many families to hand their house keys and their dreams back to their money-lenders.
And while Kevin Rudd has consistently warned of "tough times ahead", the $10 billion cash handouts late last year merely delayed the inevitable day of reckoning, while lulling people into a false sense of security.
Early data from the Australian Bureau of Statistics suggest that the fiscal stimulus worked. People spent their money during the Christmas and post-Christmas sales period.
But many voters now believe (wrongly) that the Rudd Government has saved Australia from a recession. In fact, it has merely tried to keep the party going for a few more months.
Plan A has been deployed, but what is Mr Rudd's Plan B?
As outgoing ANZ chief executive Mike Smith told The Australian
late last year (December 20), Australians are living in a "fool's paradise", largely unaware of the fate that awaits them.
More ominously, Mr Smith let the cat out of the bag, however obliquely, on an issue which News Weekly
has frequently warned about — Australia's foreign debt and the nation's ability to continue funding it, month by month.
"I still think the current account deficit being funded by the banks is just ludicrous; it is not sustainable," Mr Smith told The Australian
"And I do not think anyone has thought through the effects of global deleveraging.
"That means not just the banks but also the hedge funds, investment vehicles and the private equity business, and then there is consumer deleveraging, which is going to be very painful."
Mr Rudd came to power boasting that he was a "fiscal conservative". In other words, he would keep a tight lid on government spending, and prove that Labor governments were just as good at running economies as conservative governments.
But managing the economy from here on is going to be enormously difficult. Deputy PM Julia Gillard has spent the Christmas period softening the public up for sharply higher unemployment — 6 per cent at least.
But some in the Government fear 9 per cent unemployment in 2010 as possible, while there are quiet mutterings that the deficit could reach a gut-wrenching $40 billion in worst-case economic scenarios.
This would tear at the heart of Mr Rudd's credibility as a competent economic manager.
In one of his rare forays into public debate since his defeat, former Prime Minister John Howard said: "The story of deficits and surpluses is that you go into deficit like going down in a lift, and you get out of it by climbing up the stairs." (The Australian
, January 1, 2009).First-hand experience
Mr Howard can talk from first-hand experience from his five years as Treasurer in the Fraser Government, and later as PM with Peter Costello as Treasurer when they had to rebuild the budget back into surplus in 1996.
And while it is simplistic to say that it is far easier to spend taxpayers' money than it is to scrimp and save it, Mr Rudd and his economic team of Gillard, Finance Minister Lindsay Tanner and Treasurer Wayne Swan, have some hard decisions to make.
It is likely that the coming budget will see cutbacks in defence spending, medical research and incentives for superannuation saving, to name just a few items.
Whereas 2008 was a year of drama and unprecedented economic events, 2009 will be a year when the reality of the crisis sets in as the more predictable after-shocks eventuate.
Mr Rudd's mettle as Prime Minister will finally be tested because voters will see through attempts at glib responses and stunts.