Labor will pay for the PM's surplus of stubbornness

THE Gillard government is projecting that commonwealth net debt will be $107 billion this financial year, a record figure. So it's not surprising that since Kevin Rudd's removal, the Prime Minister and Wayne Swan, her Treasurer, should have been anxious to try to restore some semblance of fiscal credibility by undertaking that they would deliver a surplus in 2012-13, come what may.

During the election campaign last August, we saw Julia Gillard nailing her colours to the mast with the line that "the budget is coming back to surplus -- no ifs, no buts: it will happen".

When questioned by Sky News political editor David Speers as to who would take responsibility if the surplus failed to materialise, she said: "It's happening, David. Failure is not an option."

She was even more emphatic at the National Press Club. "I will bring the budget to surplus in 2013, three years ahead of schedule. And I offer this with certainty because, as committed to you on this very stage five weeks ago, not a single cent has been added to the budget bottom line in this campaign."

There was a shameless quality to these assurances because it was clear there was virtually no cushion against the contingencies that regularly confront governments. It's worth bearing in mind that contingencies in May saw the government revise up its estimates for the deficits in 2010-11 and 2011-12 by about $20bn, compared with what it had projected six months earlier. That amount is more than five times the total surplus Swan has been projecting for 2012-13 and serves as a reminder of how shambolic it was.

In November last year, and again at budget time this year, Gillard repeatedly declared that the budget would be back in surplus in 2012-13. As recently as August 6 she claimed: "The budget's returning to surplus in 2012-13 exactly as promised." Students of rhetoric will note the use of the historic continuous tense here, deployed to suggest the surplus was somehow already a fait accompli. Nor will the first signs of backtracking have been lost on them when early this month they heard the Treasurer announcing: "I believe we will attain those forecasts, coming back to surplus in 2012-13."

Now that the world economy is again looking fragile, these categorical commitments have suddenly started to be watered down. What 10 days ago was an unequivocal promise has morphed into an "objective" for Swan and a "plan" for Finance Minister Penny Wong, while for Gillard it's now just an "expectation".

Clearly, the government is in the process of walking away from yet another firm guarantee, in the same way it jettisoned its commitment that there would be no carbon tax. It attributed the carbon backflip to the composition of the new parliament and the necessity of reaching a deal with the Greens, despite Adam Bandt's assurances he would never use his vote to install an Abbott government. This time it is trying to attribute all the blame for its vanishing surplus on external shocks.

Of course Gillard can reasonably argue that "we're not immune from what's happening in the globe". But our terms of trade are still at their highest level in more than 100 years and Australia wouldn't be in a position where the budget could so easily be knocked out of surplus if it weren't for the government's profligacy, with the commonwealth running up deficits of more than $100bn in just the past two financial years.

Back in mid-April, when the European meltdown was looming, Gillard told the Sydney Institute: "My commitment to a surplus in 2012-13 was a promise made and it will be honoured." Statements like that are all of a piece with her stubborn streak and leave her a hostage to fortune.

Even at the risk of sounding as though he were choosing his words with an excess of lawyerly care, it's not a mistake John Howard would have made, especially about something that wasn't entirely within his power to deliver. He always left himself an out clause -- "barring unforeseen circumstances" was a favourite. At the time the commentariat criticised him for it ad nauseam, but I think most voters didn't mind because they thought he was just being prudent and that's what they expect of prime ministers.

If Gillard wanted to show she's capable of prudence in the face of external shocks, she would ditch not just the promised surplus but her uncovenanted carbon tax. It's a measure that, according to Newspoll, attracts only 30 per cent of popular support. I expect, as the debate drags on until the end of the parliamentary year, that figure will fall steadily.

From her several changes of position on the tax, it's hard to imagine she's a true believer or sees herself as an agent of manifest destiny. So the question arises: what price stubbornness? Is she really prepared to see the ALP go into opposition for at least two terms and forfeit, perhaps for good, its role as a party that can govern in its own right?

Is she prepared to bear the responsibility, as deputy and then Prime Minister, of leading our most extravagant and wasteful government and presiding over the needless loss of many thousands of jobs, the failure of a great many small businesses and the erosion of Australia's competitive advantages? Does her inner circle of advisers really imagine the carbon impost -- an unprecedented tax-and-spend churning exercise -- is likely to look like world's best practice or even plausible policy in 10 years?

The vagaries of the world economy give Labor a chance to drop the tax before it does much harm. If Gillard isn't capable of doing so, caucus should get behind a candidate who can.

• Christopher Pearson
• From: The Australian
• August 20, 2011 12:00AM