RUDD GOVERNMENT - ONE YEAR REPORT

C O N F I D E N T I A L CANBERRA 001196 NOFORN SIPDIS STATE FOR EAP AND P E.O. 12958: DECL: 11/20/2018 TAGS: PREL PINR PGOV ECON AS SUBJECT: RUDD GOVERNMENT - ONE YEAR REPORT Classified By: Ambassador Robert D. McCallum for reasons 1.4 (b) and (d). SUMMARY -------------- ¶1. (C/NF) The Rudd government has generally been competent and centrist during its first 12 months, notwithstanding some significant foreign policy blunders, and criticism over Rudd's media-focused management style. The Government is unified, has avoided scandal, kept its major election promises and has generally placated the unions and the factions with the Australian Labor Party (ALP). While it has held a consistent and comfortable lead over the Opposition in opinion polls, the Government's greatest first-term challenges are likely in front of it. It has to reconcile a slowing economy and rising unemployment with its commitment to addressing climate change. So far, the public appears well-satisfied with Rudd's handling of the global economic crisis, as evidenced by his near-record approval ratings. Due to his popularity, Rudd currently has immense authority within the ALP. Rudd is focused on developing good relations with the incoming U.S. Administration, and is eager to be seen as a major global player. END SUMMARY RUDD KEEPS HIS PROMISES -------------- ¶2. (SBU) Rudd has paid careful attention to delivering on his election promises. He signed the Kyoto protocol, withdrew combat troops from Iraq, delivered tax cuts, apologized to indigenous Australians, wound back the previous government's labor laws, initiated his "education revolution" and health reform, and has committed to implementing an emissions trading scheme in 2010. One blemish on his record is that while Rudd went to the election empathizing with the cost of living pressures facing "working families," his "Fuelwatch" and "Grocerywatch" price-monitoring initiatives have been widely ridiculed as ineffective. NO SCANDAL, NO SACKINGS -------------- ¶3. (C/NF) Unlike former PM John Howard's first term, in which five ministers and three parliamentary secretaries were sacked (as well as Howard's Chief of Staff),there have been no changes to Rudd's cabinet and ministry since it was sworn in almost one year ago. Even Opposition contacts have admitted surprise that a new government with largely inexperienced ministers has avoided scandals. After an unconvincing start, Treasurer Wayne Swan has improved. Deputy Prime Minister Julia Gillard, Finance Minister Lindsay Tanner and Climate Change Minister Penny Wong have been the star performers. ALP contacts often boast about the Government's depth, with ministers-in-waiting like Parliamentary Secretaries Bill Shorten, Maxine McKew and Greg Combet, and backbenchers like Mark Dreyfus and Mark Butler. RUDD'S FOREIGN POLICY MISTAKES -------------- ¶4. (C/NF) Rudd, a former foreign service officer, has made a number of missteps on foreign policy. Repeatedly, Rudd has made snap announcements without consulting other countries or within the Australian government. Though these missteps loom large within the Canberra policy community, they have had little impact on Rudd's popularity with the Australian public. Significant blunders have have included: -- Foreign Minister Stephen Smith's February announcement that Australia would not support possible quadrilateral discussions between Australia, the United States, Japan and India out of deference to China. This was done without advance consultation and at a joint press availability with visiting Chinese Foreign Minister Yang Jiechi. -- Rudd's June speech announcing that he would push for the creation of an "Asia-Pacific Community" loosely based on the EU. This was done without advance consultation with either other countries (including Southeast Asian nations, leading Singaporean officials to label the idea dead on arrival) or within the the Australian Government (including with his proposed special envoy to promote the concept, veteran diplomat Richard Woolcott.) -- The PM's June announcement that Australia would set up an international commission on nuclear nonproliferation and disarmament intended to influence the Nuclear Nonproliferation Treaty (NPT) Review Conference. Rudd rolled out this proposal in Hiroshima during a photo-op heavy trip to Japan. His Japanese hosts were given insufficient advance notice and refused a request for a joint announcement. He did not consult in advance with any of the P5 countries. (An adviser gave Embassy Canberra a few hours advance notice of the announcement but without details.) Russia formally protested the lack of advance consultation. -- In September, the PM's Office asked for a meeting with the President while Rudd was in the United States for the UN General Assembly. After making an aggressive and ultimately successful push for a meeting, the PM's Office abruptly cancelled the meeting course two days later, saying that Rudd could not come to Washington. -- In October, the self-serving and inaccurate leaking of details of a phone call between the President and Rudd cast further doubt on Rudd's foreign policy judgment. Rudd's refusal to deny that his office was the source of the leak has confirmed to most Canberra observers that he showed exceptionally poor judgment in trying to aggrandize himself at the expense of Australia's most important relationship. RUDD THE CONTROL FREAK -------------- ¶5. (C/NF) There has been persistent criticism from senior civil servants, journalists and parliamentarians that Rudd is a micro-manager obsessed with managing the media cycle rather than engaging in collaborative decision-making. Rudd has centralized DECISION making on many key issues in his office, contributing to "policy paralysis." A recent press report referred to jokes that "ministers rush to get a Gillard signature on proposals when Rudd is overseas so they can avoid delay." Former ALP Prime Minister Bob Hawke told the press recently that Rudd needed to give his ministers more freedom, and an ALP insider told us that he expected ministers to try to create some "elbow room" in the next year. Some ministerial staff and public servants have complained about the workload and hours expected by Rudd and there has been substantial turnover in Rudd's office (including his Chief of Staff, David Epstein.) We have heard recurring complaints from contacts through the GOA that Rudd's office is disorganized and inexperienced -- his Chief of Staff and Press Secretary both in their late 20s -- with few willing to disagree with their boss. Centralized control and long working hours, however, are not uncommon in even the best run prime ministerial offices, and the fact remains that the Government appears to be functioning effectively, at least in the eyes of the electorate. AN "ECONOMIC CONSERVATIVE" -------------- ¶6. (C/NF) During the election campaign, Rudd managed to convince voters they could switch leaders despite the incumbent's strong record of economic growth because Rudd was an "economic conservative." For the first half of the year, Rudd defined the government's core economic challenge as fighting inflation. Since the global financial meltdown, it Qfighting inflation. Since the global financial meltdown, it has been the "war on unemployment." Calling the financial crisis the "economic equivalent of a rolling national security crisis," Rudd announced an economic stimulus package which will bring forward infrastructure spending, boost grants to first-time homebuyers, and provide one-off payments to families and pensioners. Due to the slowing economy, the Reserve Bank has lowered its cash rate 2 percent since September. Unemployment, virtually unchanged from a year ago, is projected to increase. His claims to being an "economic conservative" have not prevented Rudd from supporting an interventionist "industry policy" to prop up Australian manufacturers, particularly the automotive sector. This tendency was foreshadowed in Rudd's first press conference after unseating Kim Beazley as Opposition Leader in December 2006, when he said he "didn't want to be the prime minister of a country that didn't make things." CLIMATE CHANGE -------------- ¶7. (C/NF) One of Rudd's central campaign strategies was to tap the growing public concern about climate change and perception that the HOWARD government was not serious about the threat. Rudd gained an important electoral advantage by promising rapid action to sign the Kyoto Protocol, the creation of a national emissions trading scheme with a target of reducing Australia's 2050 emissions by 60 percent over 2000 levels, and the development of clean coal and greater renewable energy sources. In the first year, Rudd has kept to the form, if not the substance, of his promises. While the overwhelming majority of Australians still view Rudd and the ALP as the best party to deal with climate change, he has quietly broadened the decision-making process in Canberra and backed away from the most aggressive steps some have recommended on climate change. Where the debate was dominated early in the year by calls for tough action by Climate Minister Penny Wong and ANU economist Ross Garnaut, Rudd has listened to concerns from industry and economic modelers and relied increasingly on Industry Minister Carr, Energy Minister Ferguson, and Treasurer Swan to moderate cabinet policy debate. Rudd has lost some shine with the Australian climate lobby by heavily investing in support for the coal industry through clean coal research, and tacked to the middle on including high emissions intensity (and export earning) industries like LNG in support programs to soften the blow of the emissions trading regime. He has resisted, however, the urge to back down on the timeline for emissions trading and will introduce a less-costly emissions trading system next year. UNIONS BEHAVING -------------- ¶8. (SBU) Despite the absence of an agreement with the unions on restraining wage growth (the last ALP Government under Bob Hawke and Paul Keating had used a national "Accord" to promote stability),there have been no major strikes and wages growth has remained moderate. Unions are pleased the Rudd Government abolished new statutory individual contracts, but they believe other aspects of its workplace reforms do not go far enough. Rudd is retaining secret ballots for strikes, tough penalties for illegal industrial action, keeping the building industry watchdog, not fully restoring unfair dismissal rights for small business employees, and is only re-establishing compulsory arbitration in rare cases. It appears the Australian Council of Trade Unions and most union leaders, despite not getting everything they want, will not disrupt the economy to achieve their aims, but rather work behind the scenes with Gillard to make changes at the margins. ALP and union contacts believe Rudd has unprecedented authority for an ALP leader and only when his popularity declines will the unions and the factions within the ALP be able to assert themselves. RUDD MAINTAINS BIG POLL LEAD DESPITE NEW LIBERAL LEADERSHIP -------------- -------------- ¶9. (SBU) In the 2007 election, the ALP won 52.7 percent of the vote to the ruling Coalitions's 47.3 percent. Since then, Newspoll, the most influential and regularly conducted Qthen, Newspoll, the most influential and regularly conducted opinion poll, has consistently shown the Rudd Government with a large lead. Only once has the ALP's lead fallen below 55-45 (54-46 in October). When Malcolm Turnbull deposed Brendan Nelson as Coalition leader in September, the ALP still led 55-45. Despite Turnbull slightly closing Rudd's huge lead as preferred Prime Minister, the latest Newspoll has the ALP continuing to hold a 10 point lead. Rudd's satisfaction rating is an extremely high 65 percent. COMMENT -------------- ¶10. (C/NF) Overall, the Rudd government has made a solid start, particularly on its domestic agenda, but its first term will largely be defined by its response to the global economic crisis. PM Rudd's foreign policy miscues should not obscure his strong interest in maintaining excellent relations with the United States and promoting a strong U.S. role in Asia. Before the financial meltdown, the Rudd Government had been criticized for lacking a central message, but the economic crisis has given the government a sense of direction. Rudd reacted swiftly to the start of the financial crisis in Australia with a widely-praised $A10.4 billion stimulus package. The danger for the PM is that the political debate has shifted to what traditionally has been the Coalition's strong suit - the economy. Although Australia's economy is largely at the mercy of international forces, the Coalition will ruthlessly exploit every piece of bad economic news while claiming the HOWARD government steered Australia through similar economic challenges. Rudd's standing in the polls reflects the Australian public's view that he is reasonable, diligent and acting in the national interest. While the Rudd government is on track to win a second term, ALP strategists are keenly aware that the ALP's margin of victory last year was only 2.7 percent and that there has been a voting swing against almost every first term government in Australia. MCCALLUM