The 2012 budget came at a particularly challenging time for Labor. The government has sought to achieve two distinct (if related) political goals: bolster Labor’s “economic management” credentials and to appeal to imagined swinging voters. It is unlikely to be successful on either.
It has been an overwhelming source of frustration for Labor that despite a strong economy, voters continue to regard the Coalition as better economic managers. The experience of the Rudd-Gillard administration contrasts with the experience of the Hawke government.
In its first years, this government established Labor as superior economic managers in the eyes of the public and this perception enabled Labor to win elections despite falling living standards. Contemporary Labor sympathisers have been bewildered by the failure of voters to give the party credit for the (relatively) strong economy; some have blamed the communication skills of Wayne Swan, others the Murdoch press.
More significant is the political conjuncture. Labor came to power in 1983 at a time of widespread pessimism about Australia’s economic future, and as consequence voters cut the government slack. Labor’s 2007 victory was at a time of national complacency and celebration, as in the early 1970s voters expected the good times to continue unchanged. To some, the Chinese economic boom provided an alternative explanation for Australia’s prosperity.
Frustrated by voter discontent, Labor has sought to bolster its economic policy credentials by defining a budget surplus as the test of budgetary credibility. The government has also pursued a rhetorical strategy of concern and understanding.
Wayne Swan declared on budget night that “we understand the pressures Australians face”. Ministers imagine themselves as Bill Clinton-style empathisers, who feel voters’ pain.
Labor’s current management of discontent differs from that of the 1980s. Then Labor espoused a modest cultural leftism, expressed in environmentalism and defence of multiculturalism; modern Labor, spooked by an image of suburban conservatism, has eschewed this appeal, but it has ramped up egalitarian rhetoric.
The object of Labor’s “fair go” appeal is not the truly disadvantaged. Labor has accepted the folk wisdom that the electorate consists of segmented groups to whom targeted appeals, usually to direct economic interest, can be made and, who vote as blocs.
In fact this is not the case. Electoral swings are usually fairly uniform, and when they are not, it makes little difference to the outcome. Labor’s imagined political target are the suburban battlers beloved of pop electoral analysis: blue-collar, with children, actual or aspirant small businesspeople and socially conservative.
The budget contained initiatives such as concessions to small business (including a $5000 grant to encourage tradespeople to develop business skills), and increases to family payments. These initiatives left little for the real battlers who depend on direct government benefits (rather than concealed tax concessions).
These voters are assumed to be solid Labor regardless and mostly live in Labor’s rotten suburban boroughs or safe National Party electorates.
The love affair with small business in Australia is tri-partisan. It includes the Greens. The inconvenient fact that large businesses are better employers and invest more in innovation is ignored. But there is a more fundamental problem with Labor’s appeal to small business; their viability is dependent on consumer demand.
No amount of tax code tinkering or a “Small Business Commissioner” will benefit the sector more than a growing economy. In the early 1990s, policymakers underestimated the sensitivity of the economy to high interest rates and the result was a severe recession. We can only hope that the government is not similarly underestimating the impact of fiscal consolidation.
Labor’s dogged pursuit of a surplus has been criticised by many commentators as a doomed attempt to appease conservative critics, but there is another, more significant, political strategy at work here.
Labor hopes that fiscal consolidation will encourage lower interest rates and spark a revival in housing prices. This is a risky strategy; lower interest rates are not in themselves a sign of economic health. The best way to reduce interest rates would be to induce a severe recession. The political class seems to assume that median voters are more concerned about the value of their main asset (their house) than the overall health of the economy, and in particular unemployment levels.
Both Labor and Coalition governments have championed workforce participation as the solution to poverty, and the budget’s reforms to supporting parents payments conform with this approach. The fiscal strategy of both Labor and the Coalition calls into doubt the sincerity of their commitment to lower unemployment.
Federal Labor’s political fortunes are at low ebb. The Gillard government seems on track to a defeat of 1996 proportions. Voters across the social scale, perhaps unfairly, have judged Labor’s overall performance harshly. Labor’s attempt to target imagined suburban battlers is unlikely to be successful.