Domestic politics: beyond 2010

The Rudd Labor Government’s level of rhetoric should not be entirely surprising. While Kevin Rudd told everyone he was both a fiscal conservative and social democrat in 2007, greater economic competition and a general commitment to freer trade by Western governments in recent decades has tempered the ability of Australian governments to address all old and new policy needs given the reality that Australia, too, has had to enhance its international economic competitiveness.

The end result is that Rudd, perhaps more so than any other Australian prime minister since 1983, has talked the talk but delivered much less. Readers would be aware of many broken promises; although the government’s decision to build just 38 of 270 promised childcare centres is perhaps the most severe backdown from a centre-left point of view.

While Rudd indicated that Australia should not simply be a quarry for Asia, the importance of mineral exports to that region remains evident. In 2009, of Australia’s total industry exports of $249.5 billion, China accounted for $42.4 billion, Japan $38.2 billion, the Republic of Korea $15.6 billion, India $14.5 billion, and the US $9.6 billion. Mining exports accounted for 37.6 per cent of total exports in 2009 (39.3 per cent in 2008). Further, while Australia’s manufacturing industry had already declined from 30 to 12 per cent of GDP from the 1960s to 2007, another 80,000 manufacturing jobs were lost in 2009, notwithstanding the impact of the global financial crisis.

The Rudd government also adopted stringent rules for social security recipients in line with the developments of recent decades. From July 2010, long-term welfare-dependent people (not just Aboriginal communities) will have half their payment quarantined to be spent on food and household essentials.

Rudd also relies on debt. Notwithstanding the increase in public debt in response to the global financial crisis, even ordinary people were encouraged to be part of the madness with his government from October 2008 trebling the first home owners’ grant to $21,000 for newly constructed homes and doubling it to $14,000 for established properties, although scaled back by the end of 2009.

It did not seem to matter that on July 27, 2007 the Labor opposition hosted a “housing affordability summit” with about 150 housing experts from all over the country, and agreed that increasing the first home owners grant would simply result in higher house prices. As Rudd told a community cabinet meeting at Elizabeth, South Australia (July 28, 2009), such assistance was essential to prevent retail sales from collapsing and to achieve positive economic growth. Recent first home buyers were left to confront higher interest rates in 2010, and Australia’s housing debt to disposable income ratio hit a record 138 per cent by the end of 2009 after being 135 per cent when Rudd was elected.

But are things about to get tougher, notwithstanding my hope that Rudd gets the flick, hopefully from his own party? Probably.

While I personally doubt whether Western nations are going to sit back and accept their demise in the longer term while communist China keeps on rising, they will come under greater pressure to address high debt levels (public and/or private), a reality that is likely to dampen world GDP growth for some time yet.

If Western consumption declines, this is likely to temper Chinese demand for Australian minerals. Already some economists suggest there is a Chinese real estate bubble, given the soaring prices in China’s coastal cities for luxury apartments and office space, which is outstripping demand; while not enough housing for the masses is being built. Although others note that the Chinese government is telling banks not to lend in cities already involved in excess development. Slower Chinese economic growth will have a greater impact upon those countries exporting their commodities (like Australia) more so than the developed economies of North America and Europe.

Hence, Australian governments may have to do much more than simply rely on mineral exports, or domestic consumption and a housing boom aided by more and more debt.

In other words, while the recent mining boom has helped Australia maintain its high standard of living, and to sustain the ability of major political parties to win popular support with public social spending increasing from 13.6 to 17.1 per cent of GDP between 1990 and 2005 (17.8 per cent in 2000 and 2003), such levels will prove difficult to sustain.

Growing pressure to meet a variety of social considerations will increase at a time when it is known that extra resources are needed to address the needs of an ageing population and for disability services, despite health spending in Australia rising from 3.9 to 6 per cent of GDP between 1980 and 2007. Others argue for more resources for education given that half of the working age population (4.7 million people) have poor literacy and numeracy skills, while a similar proportion (4.3 million employees) had no post-school qualification.