One year into Opposition

There have been plenty of first Rudd anniversary stories in the media, which generally rate the government as politically successful. This is not surprising. It was the Liberals who risked serious trouble in Labor’s first year. Though I did not agree with those predicting the Liberal Party’s demise, I have been quite pessimistic about the party’s long-term prospects.

At 45-55 in the two-party preferred Newspoll, Coalition support is a little worse than the election result but better than where the polls had the party for much of 2007. Things haven’t gone dramatically backwards.

The Australian Election Survey found that the party base – the proportion of people who generally think of themselves as Liberals – was intact at about 36%. Apart from an increase to 40% in 2004, it has been around that level since the late 1970s. Though the AES sample of under-25s is too small to be reliable, it does suggest on-going problems there, with only 27% identifying with the Liberals.

In my view the defeat was partly due to the issue cycle moving against the Coalition, but now there are some signs it is turning back towards issues on which the Coalition has more credibility. If the key issues remained who could best spend the dividends of prosperity the political debate would have remained very much on Labor territory.

Labor remains the clearly preferred party on the environment, but the politics of an ETS – to begin in election year! – look very difficult, which may play into the Coalition’s hands.

Though there was leadership instability for much of the year, I don’t believe that this reflects fundamental divisions in the party room. There is no sign yet of the kind of destructive leadership rivalry that afflicted the Liberals in the 1980s.

I’m still pessimistic over the long term. But year one of opposition has not been as bad as I feared.

40 thoughts on “One year into Opposition

  1. “on which the Coalition has more credibility”

    What credibility are you talking about that the Liberals haven’t destroyed? Turnbull says anything on the economy for a vote (he’s lucky his main opposition is Wayne Swan) and they appear to have no new (and perhaps no) labour market policies at all. To top it all off, some of the top people like Julie Bishop are just an embarrassment, as are some of their policies on issues where Labor is ahead, like the environment.

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  2. Things certainly seem to be looking up for the Liberals at state level, in NSW at any rate. And about time – the ALP really did not deserve to win the last state election.

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  3. Conrad – The point about issue ownership theory is that people draw on general stereotypes about the parties rather than what politicians actually say or do. That Labor governments preside over dysfunctional health and education systems does not threaten their ownership of those issues. While the economy is a partial exception to the ownership theory (probably because performance is relatively easy to measure) the latest Newspoll had the LIberals slightly ahead of Labor as best to handle the economy. However, Rudd was ahead of Turnbull as the leader best able to handle the economy (though they were about even in the previous poll; Rudd may be getting a rally to the leader in a crisis effect).

    Because the Liberals have a history of successfully handling economic issues, they are better off if the economy is the issue than if spending money on health and education is the issue.

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  4. “Because the Liberals have a history of successfully handling economic issues” – What about when Howard was Treasurer under Fraser? Still, I don’t disagree that they have a brand there, but the Liberals didn’t have to steer Australia through a major global recession in their 11 years in power so in that sense they were also lucky!

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  5. Krystian – 1996-2007 is probably a stronger guide to likely future performance than 1981-83. True, the Coalition was lucky, but given the general incompetence of government just not stuffing up counts as an achievement. Indeed, no major stuff-ups is the main reason I would give the Rudd government a reasonable grade for its first year. As yet, they’ve had little substantive impact.

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  6. True, I know Howard as Treasurer was a long time ago! Still I would like to see how a Coalition or Conservative government in general would do a better job guiding an economy through a recession than a Labor one. Like the examples from the Reagan and Thatcher administrations aren’t too encouraging and no other Conservative government has been tested recently because we haven’t had a real recession since early 90s. Like, I’m really curious as to what secret weapons a Coalition has and would deploy that a Labor government wouldn’t have.

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  7. I would have hoped that a conservative government wouldn’t have blown $10.4 billion at the first sign of trouble. We’ll never know for sure, and I’m not totally confident on that point. A couple of other issues, you’re forgetting the east-Asian crisis (where NZ did go into recession and the dot.com collapse). The Howard government did avoid recession there.

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  8. Would you really hope that Sinclair? Then you’re in for a bunch more disapointments in your life. Howard never wasted an opportunity to waste money. And his mate Bush has managed to give away a couple of trillion.

    And the Howard government didn’t avoid a recession. The Australian people, coordinated through voluntary interaction and peaceful exchange, avoided a recession. They did this on the base of the micro-economic reform Australia had mostly in the 1980s.

    Though I do acknowledge Andrew’s point about the Howard government not causing a recession. And they did keep the budget balanced (even if they did it by increasing tax).

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  9. John H

    Will please stop bashing the conservatives at every opportunity. You seem to pretend for some strange reason that left and right are the same when it comes to spending. They’re not. The right are paupers in comparison.

    Take a look at what’s happening in the UK. The top marginal tax rate is now going to 62%.

    You honestly think a conservative government would eat that cheese?

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  10. Andrew,

    what usually happens is that the government of the day becomes the ‘better economic manager’.

    I see no reason why this will not continue. I fail to see how the present Government will be blamed for the Global Financial crisis.

    Sinkers obviously missed the change in attitude by both Treasury and the RBA following the Lehman bros debacle.

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  11. The Australian people, coordinated through voluntary interaction and peaceful exchange, avoided a recession.

    Actually Peter Costello avoided the recession when he talked the RBA into not raising rates during the east Asian crisis. I’m happy to believe that the micro-reforms of the 1980s were important – especially the floating of the dollar – but I’m not convinced that ‘voluntary interaction and peaceful exchange’ played a part in initiating those reforms. I notice the ‘voluntary interaction and peaceful exchange’ of the New Zealanders didn’t assist them in avoiding recession.

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  12. Homer – I think it would be more accurate to say that more than the other issues opinion the economy is objective performance-oriented, and that either party can do well if they are successful in government. For example, in the four Newspoll surveys over 1989-90 Labor was ahead as best to handle the economy. Unfortunately this question was not asked again until 2005.

    However, they did ask about inflation, interest rates and unemployment, and on all of these Keating Labor did badly due to the early 1990s recession. He was also behind Hewson and Howard as the leader most capable of handling the economy.

    We can also see that inflation and interest rates shift broadly affect performance ratings. Unemployment shifts too, but not as much as we might expect. Labor seems to have some strength there not accounted for by actual performance.

    At this point we have very little polling under economically successful Labor governments, but the narrowing of the gap with the Coalition plus Rudd leading Turnbull suggests that Labor can do well.

    My point above is more than the Coalition is regarded as credible on the issue in that they have frequently won surveys on economic performance, whereas they never win health and education, no matter how much they spend, or how many people Labor governments leave waiting for operations or let finish school without basic literacy.

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  13. JC — I don’t think the left and right are necessariliy the same. For instance, Hawke/Keating were clearly more capitalist than Howard/Costello. And Bill Clinton was clearly more capitalist than Geroge W. Bush.

    You prefer Howard & Bush. The logical conclusion is that you support big government. Though I think the more likely conclusion is that you have “battered voter syndrome” where you keeping supporting the bad guys because you have some vague memory of them being your friends.

    I’m reminded of Homer Simpson continually trying to pick up the donut despite getting electrocuted every time. The conservatives are the electrocuted donut, and JC (and Andrew, and Sinclair) wants to pick it up again.

    I wonder what the outcome will be?

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  14. Sinclair, you don’t seem to appreciate my “voluntary & peaceful” sentence, so I’ll use another term for the exact same thing. It’s called “the market”. Howard and Costello didn’t produce a thing. People in the market did. Howard and Costello only employed useless bureaucrats. The market employed all productive people in society.

    The government does not create growth. All they can do is get out of the way and let the market work. Politicians do NOT get credit for “making growth”. That’s an amazingly socialist way of thinking.

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  15. The ‘market’ browbeat the RBA into not raising rates and so avoiding a policy error that would have engufed us in the east-Asian crisis and NZ was? Hmmm, being smoking again? The market is not an anthropogenic entity John – you know that. You’re obviously trying to score some sort of cheap point but I’m not getting it.

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  16. Speaking of issue ownership, I would of thought the libs would have a much better chance of winning the next election if a certain ex treasuer led the party. After all Im assuming the economy esp growth (lack of), budget deficits (inc higher taxes/reneged tax cuts) & higher unemployment will be maor issues. The ex treasurer rightly or wrongly owns those issues with the public.

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  17. Sinclair “Peter Costello actually avoided the recession when he talked the RBA into not raising interest rates”

    The Keating initiated float of the $A over a decade earlier was of course the key to Oz absorbing the shock of the East Asian crisis. The RBA not raising the cash rate certainly assisted the adjustment – as did the ’96 budget.

    But does any real evidence exist that Costello ‘browbeat’ the RBA into making that decision on interest rates – apart from Costello’s selective memory?

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  18. My own memory*, and that of a close colleague working with Costello at the time – I haven’t read Costello’s memoir so I don’t know what he says about that. (I’ll buy it for $15 or less). I totally agree that the floating exchange rate was vital in avoiding the east-Asian crisis – but policy mistakes could still be made, and were avoided. (That’s doesn’t condone subsequent over-spending and over-taxing). The 96 budget was good, but unfortunately the Howard government wasn’t disciplined for very long.

    Happy to concede that’s not real evidence.

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  19. sinkers is living in sinkers Land.

    The RBA was browbeat!!

    It was a deliberate policy and clearly different to the NZRB.

    They thought the $A should cop most of the responsibility.

    Those of us who have actually read about it as well as being there will remember Costello boasting that it was all about budget surpluses

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  20. I don’t accept that Costello had a big influence on the RBA. They are independent and they pride themselves on their independence. If they thought they were being brow-beaten then they would have an instinct to do the opposite to prove their independence.

    And I agree (as I already said) that Howard/Costello deserve credit for not making more mistakes and screwing up our growth… but they didn’t cause the growth. Despite the rhetoric, politicians don’t “manage” the economy, like a pilot in a plane. They only have the option of (1) screwing it up a little; or (2) screwing it up a lot.

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  21. it isn’t whatever.
    Costello either browbeat them or he didn’t.

    After the famous phone-call with Bernie Fraser that was out of the question.

    The independence of the RBA which Fraser had already attained was recognised in legislation together with the inflation target they had since 1993.

    The Central Banks of Australia and NZ had diametrically opposed policies to deal with the Asian crisis.

    The RBA proved correct.

    People at the RBA would laugh in your face at the assertion that the RBA was browbeaten by Costello.

    I agree with JH on the howard years

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  22. There was an interesting exchange on this issue with Maxine McKew in the ABC Sunday Profile soon after MacFarlane retired in 2006.

    MacFarlane
    ” We sat down with the Treasurer and the PM, and we all agreed on various things that should be said and not said”

    McKew
    ” After the Charter of Independence was signed?”

    MacFarlane
    ” Yes, but we weren’t talking about what we should do about interest rates, we were talking about ..the form of words to be used in a public statement” (my summary)

    McKew did not follow up this exchange any further.

    One can only speculate!

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  23. but they didn’t cause the growth.

    … and who said that they did?

    People at the RBA would laugh in your face at the assertion that the RBA was browbeaten by Costello.

    That they may well do. I would have thought after their recent performance that the RBA types would be very, very somber. The bottom line is this – Costello ran a public argument not to raise to rates and the RBA didn’t. It may well be true they wouldn’t have anyway, but given their recent performance who can really say? Given that the NZ Reserve Bank did raise rates, I’m inclined to think ours would have too.

    Adding to that Costello’s comments about fireproofing the economy were overblown, and his idea of ‘stand fast’ rules simply dumb.

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  24. Sinclair is actually right to imply that the RBA is politically influenced, although he’s wrong that low interest rates and the organs of government prevented a recession. In fact, I’m surprised John disagrees with the independence issue. Isn’t this obvious from recent events? They have been working very closely with the government to mess up the economy and guarantee a recession. And is not the RBA subjected, every single election, to political pressure to keep interest rates low? And did they not, because of the politicians, try and bully the big banks into passing on rate cuts? Furthermore, did anyone notice how the RBA recently came out and ENDORSED deficit spending?

    Nothing funded by the government is truly independent. It is just an illusion to prevent the masses from questioning destructive inflationary policies. Someone should write an article about the Myth of Central Bank Independence (this has already been done in the American context by the economists at the Mises Institute).

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  25. Let me go further than Sukrit – the RBA is not just funded by government, the RBA is a wholly owned agency of government. Any ‘independence’ is a convention only (see section 11 of the RBA Act). Not to say that more central bank independence isn’t better than less – but that ‘independence’ has a very specific meaning.

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  26. Sinclair, can we extend your analysis to the law courts and the public prosecutors? Being wholly-owned agencies of government, is their independence too only nominal?

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  27. The independence of the law courts is written into the constitution. So courts and judges are creatures of the constituton. I’m not sure of the mechanism that controls public prosecutors.

    Bear in mind though that there are reputational costs associated with over-ruling even nominally independent agents – for example no Australian government has ever made use of s11 of the RBA Act, nor any Treasurer dismissed an RBA governor.

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  28. The RBA is not, and should not be, ‘independent’ in the sense of setting its own goals. These are set out in its Act and in its agreement with the Treasurer. But it has operational independence in deciding how to meet these goals, avoiding manipulation of monetary policy to suit the electoral cycle.

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  29. Well we do know Sinkers wasn’t reading anything coming out of the RBA during that period.

    The RBA made a quite deliberate decision not to raise rates as the NZRB did.
    They were quite explicit about it.

    Sinkers is also having a bob each way on the RBA’s recent performance.

    I do not recall him or anyone else saying there should be rate cuts before September. Indeed I seem to recall Sinkers agreeing with me the ALP’s first budget had not created a large enough surplus.

    At least the RBA’s performance is more consistent than Sinkers.

    Andrew’s comment on Independence is merely what has happened since 1993.

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  30. Homer – I had a piece in the Age in November last year saying interest rates were too high. I argued that spending was too high in May – I had a letter in the Fin Review saying so. Where you and I have been in agreement is on spending* – but I have also always argued for a budget surplus (as a mechanism to ensure balanced budgets). I also have always argued for tax cuts. Specifically for decreases in the tax rates.

    *spending is too high – even Kevin Rudd said so in his campaign launch last year.

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  31. The point that I am trying to make is that an agency of government, or an agency of the state if you like, can be government funded, have the boundaries of its authority set by the government, and have its personnel chosen by the government, and yet exercise real, not nominal, independence from that government. I think this is the case with the Reserve Bank, and I haven`t yet seen any convincing evidence to the contrary.

    At risk of being accused of pedantry, my recollections of the Reserve Bank`s approach to the Asian monetary crisis come from Adrian Pagan, who was at the time a board member. As best I can remember, Pagan told a conference of public service economsts in late 1999 that, at the time of the crisis, the Reserve Bank decided to bet that any rise in imports prices caused by the depreciation of the dollar would not be significant, possibly because of the deflationary effects of the excess capacity emerging in Asia (does anyone remember the plague of $12,000 Hyundai Excels which hit our cities?). As it turned out, they were right. I cannot remember any pressure from Costello on the bank not to raise rates.

    The bank was certainly very proud of its success. One record I saw of an interview with bank management described them as doing the equivalent of `high fives` when discussing their response to the crisis. Success has a thousand fathers while failure is a bastard child. I suspect that the reason why the bank personnel were very pleased was that their intuition had proven correct, rather than that they had been bested in intellectual economic argument by a (very gifted but untutored) industrial relations lawyer.

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  32. I think the RBA has done a good job, and they deserve much of the credit for why Australia doesn’t have the same mess that America has.

    I would even defend their early-year interest rate increases as understandable.

    Of course nobody is saying that the RBA is independent in the setting of their goals or their funding. That’s a red herring. In monetary economics “independence” refers to their ability to make interest rate (or money base) decisions without having to consider the political fortunes of those in Canberra. The people making decisions in the RBA believe this to be the case and act accordingly.

    I note that in Australia the RBA has the goal of managing inflation. In the USA the fed also is commissioned to manage growth and employment. That should NOT be the role of the reserve bank.

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  33. Jeremy – I agree with most of what you say – the RBA exercises independence – raising rates durind an election was very independent, but only because the government of the day chooses not to intervene. The fact that the government of the day can reverse any RBA decision indicates that it is not independent. The practical consequences of this are historically zero (it has never happened) and, hopefully, will be zero in future. (So actually I’m being more pedantic than you are). I told the Senate in March this year that the level of RBA independence was best practice.

    I think the RBA should be very proud of their conduct during the east-Asian crisis – for whatever reason they avoided a policy error. That’s not nothing. Unlike the current situation where they were making a policy error right up until August of this year.

    John – the RBA has three objectives “(a) the stability of the currency of Australia; (b) the maintenance of full employment in Australia; and (c) the economic prosperity and welfare of the people of Australia.”

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  34. Jeremy your memory is entirely correct!

    a person wanting lower interest rates last September when both inflation and retail trade was increasing is certainly different

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  35. Sinclair I suspect that we`re almost entirely in furious agreement. And thankyou Homer, I`m glad that my memory is accurate on this point.

    For me, the government`s ability to reverse a bank decision is like the reserve powers of the Crown: always there, and not to be ignored, but for reasons of convention to be exercised only in extreme situations. To the extent that the elected government acts independently of the Crown, we can say that the bank acts independently of the government.

    Here`s to the strengthening of respect for those conventions, and the continued primacy of `mind warping folderol` in the setting of monetary policy!

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