The Liberal Party’s strong showing in the Western Australian State election puts the onus on the federal party to lift its game — and change its leader. Malcolm Turnbull brings more clout to the job of shadow Treasurer than anyone else available. He could bring much broader appeal to Liberal leadership than the current incumbent Brendan Nelson.
But Turnbull needs to recognise that last week’s Reserve Bank decision to cut interest rates by 0.25 percent gave Swan and Kevin Rudd a political bonus. A couple more cuts might follow in the next six months. When combined with the July 1 tax cuts, this might be enough to prevent a sharp rise in unemployment. If not, the budget can deliver further stimulus.
Turnbull is a talented parliamentarian who might make a good prime minister one day. But he won’t get there if doesn’t move beyond his tired complaint that Treasurer Wayne Swan has “talked the economy down ” since last November’s election. All Swan said was that the Rudd Labor government had inherited rising inflation from John Howard’s Treasurer, Peter Costello. The Consumer Price Index was saying the same thing.
The economic slow down revealed in last Wednesday’s national accounts is exactly what the Reserve wanted. If the economy had kept growing strongly, the Reserve would have found it much harder to justify its interest rate cut. The fall in growth to an annual rate of 2.7 percent at June 30, compared to 4.2 percent at December 31, had nothing to do with Swan “talking the economy down” and a lot to do with the Reserve’s long campaign of interest rate rises, aided and abetted by the global credit crunch.
But it was disingenuous of Swan and Rudd last week to criticise the 10 interest rate rises under Costello. Without those rises, and the two under Labor, the Reserve believes growth would not have slowed to the point where it felt that last week’s rate cut did not risk fuelling inflation.
However the national accounts contain politically unpleasant aspects for Labor, even if they were necessary to allow the rate cut to occur. The most obvious is that many voters were feeling the pressure as household consumption fell in the June quarter. Admittedly, the fall was by only by 0.1 percent. Nevertheless, this was the first quarterly decline since 1993. However, tax cuts subsequently boosted spending power and those with mortgages are finding some relief in the first interest rate cut since 2001.
Strong investment figures are helping put a floor under the drop in growth. The same applies to Australia’s highly favourable terms of trade reflected in strong export prices compared to import prices. While the gains will eventually flow on from miners and other immediate beneficiaries, many people facing cuts in real wages find it hard to get excited by the good news about the terms of trade.
Another reassuring message for the government is that the national accounts show that claims about Australia having a dual economy don’t add up. The common assumption is that Western Australia and Queensland are booming, while the other states are barely crawling along. But the figures show Tasmania is doing remarkably well, while Victoria and South Australia are in good shape. Only NSW is performing badly — despite the fact that it is a big exporter of high priced coal.
If growth doesn’t slow disastrously, Labor has a reasonable change of holding its own in the economic debate. The Coalition will need other issues to start working for it. Perhaps the gloss will go off Rudd if he doesn’t deliver genuine improvements in education, housing and health. If Rudd really believes, as he says, that climate change is the great moral, environmental and economic issue of our time, he has to make real headway on the policy front before the 2010 election. If not, it’s an area where Turnbull can make a substantive contribution.
Labor could also be caught off guard if the Liberals returned to their original philosophical commitment to defend individual freedom against abuses of power by agencies of the state. Nelson is a staunch defender of the Australian Federal Police Commissioner, Mick Keelty, who approved a terrorism related charge against Dr Mohamed Haneef in July last year, despite the complete lack of evidence which caused the case to collapse shortly afterwards. Keelty spent over $8 million on a stubborn pursuit of Haneef until finally conceding a week ago that he was no longer a suspect — something the Australian Security Intelligence Organisation established within a couple of days of his arrest.
A free society should emphatically reject the behaviour of senior police who charge people with a serious crime, when the available evidence points to their innocence. Yet the Attorney-General Robert McClelland said last Monday, "Commissioner Keelty has the faith and support of the government”. The Coalition’s shadow justice minister Christopher Pyne was also keen to defend Keelty, saying it was vital to have “confidence in the operations of our national security agencies." True! Which is why the first step towards restoring confidence in the AFP requires Keelty’s resignation.
If Turnbull followed his instincts, he would say so.