Identifier
Created
Classification
Origin
08CANBERRA53
2008-01-18 06:11:00
CONFIDENTIAL//NOFORN
Embassy Canberra
Cable title:  

THE CHALLENGES OF GOVERNING BEGIN FOR PM RUDD

Tags:  PGOV ELAB ECON AS 
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P 180611Z JAN 08
FM AMEMBASSY CANBERRA
TO SECSTATE WASHDC PRIORITY 8852
INFO AMCONSUL MELBOURNE PRIORITY 
AMCONSUL PERTH PRIORITY 
AMCONSUL SYDNEY PRIORITY 
NSC WASHINGTON DC PRIORITY
CDR USPACOM HONOLULU HI PRIORITY
C O N F I D E N T I A L CANBERRA 000053 

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NOFORN
SIPDIS

E.O. 12958: DECL: 01/17/2018
TAGS: PGOV ELAB ECON AS
SUBJECT: THE CHALLENGES OF GOVERNING BEGIN FOR PM RUDD

Classified By: Charge Daniel A Clune, for reasons 1.4 (b) and (d).

C O N F I D E N T I A L CANBERRA 000053

SIPDIS


NOFORN
SIPDIS

E.O. 12958: DECL: 01/17/2018
TAGS: PGOV ELAB ECON AS
SUBJECT: THE CHALLENGES OF GOVERNING BEGIN FOR PM RUDD

Classified By: Charge Daniel A Clune, for reasons 1.4 (b) and (d).


1. (SBU) SUMMARY: The new Rudd Government will face several
challenges during its first term, including rising inflation
and interest rates, a Senate without an Australian Labor
Party (ALP) majority, an assertive union movement and an ALP
left-wing eager to undermine the cultural and social legacy
of the Howard years. Desperate for an ALP victory, the ALP
Left and the unions kept quiet during the election campaign.
Since the November 24 election, however, they have become
more vocal, particularly the unions, which want a return on
the significant role they played in the ALP's victory. Rudd
- a social and economic conservative - will resist their
agenda in his attempt to retain ownership of the political
middle ground, but this could exacerbate Left-Right tensions
within the ALP. END SUMMARY.

"IT'S THE ECONOMY STUPID"


2. (SBU) The Coalition left office with a good economic
record - an independent Reserve Bank, virtual full
employment, a budget surplus, very low government debt, the
lowest level of industrial disputes on record, relatively low
inflation, and low interest rates. Although it lost the
election, voters told pollsters that the Coalition was a
better economic manager than the ALP. On macro-economic
policy the Coalition and ALP are virtually identical, but on
micro-economic policy, the general consensus among economists
was that the ALP's industrial relations policy would not put
as much downward pressure on unemployment as the Coalition's.
Since Rudd was elected, economic pressures have increased -
thru no fault of the brand-new ALP. The fallout from the
U.S. sub-prime collapse has continued; Australia's stock
market has declined significantly over the past two weeks, as
have the U.S. and international markets. Inflationary
pressures that had already begun to appear before the 2007
elections, caused by an economy operating at full capacity,
have continued to build in the past two months. To combat
inflation, Rudd has reaffirmed his determination to slash

government expenditure, and Treasurer Wayne Swan has tried -
unsuccessfully - to jawbone banks to limit hikes in mortgage
rates. While it is too early to predict Australia's economic
indicators for 2010, it is possible that Rudd will go into
the next election with worse economic conditions than he
inherited. Although many economic factors are beyond the
ALP's reach, the risk for Rudd is that some voters will
associate Howard's tenure with good economic performances and
may return to the Coalition.

WORDS THAT MAY HAUNT RUDD


3. (C/NF)) Rudd has promised extra funding to improve
services in public hospitals and has threatened to take over
public hospitals from the states if there is no improvement
by mid-2009. Rudd has regularly declared he will "stop the
blame game" between state and Federal governments, and that
"the buck will stop with me on hospitals." These words could
come back to haunt him at the next election if there is no
tangible improvement in hospital services and he meets
resistance from ALP State governments, most of whom will be
facing re-election during Rudd's term. A former staffer to
Prime Minister Howard noted that the biggest challenge facing
the Labor governments was on hospital services. The public
now expects them to improve the public hospitals in Australia
Qnow expects them to improve the public hospitals in Australia
and if they cannot deliver on what they have promised, they
will be blamed. On climate change and education, Rudd has
also raised expectations, particularly among young people,
and he may have troubling fulfilling these promises given
their high cost.

PROBLEMS IN THE SENATE?


4. (SBU) The new 76-seat Senate, to commence sitting in July,
will be made up of 37 Coalition Senators, 32 ALP, 5 Green
Party, one Family First and one Independent. If the Coalition
unanimously opposes an ALP bill, the ALP will have to rely on
the Left-wing Greens to guarantee its passage. The Greens
may use their leverage with the ALP to extract concessions.
After the election, the Green Party wasted no time in
claiming that its deal with the ALP on preference voting was
vital to the ALP winning several seats.

"ONE WE GET IN, WE'LL JUST CHANGE IT ALL"


5. (SBU) During the campaign, the Coalition attempted to make
political mileage out of this throwaway line from Environment
Minister Peter Garrett. No doubt, many on the Left are
hoping this statement is true and that Rudd's adoption of

many of the Howard government's policies during the campaign
was simply a facade to get elected. The ALP Left has already
begun to pressure the Rudd government to adopt more left-wing
positions on a number of issues, particularly those on the
front-line of the "culture wars" such as Aboriginal rights,
gay rights, the debate over an Australian republic,
immigration policy, and education standards. However, as he
demonstrated when Opposition Leader, Rudd will not stray far
from the middle ground on these issues. He will find it more
difficult, however, to resist the demands of the unions.

UNIONS HAVE POWER IN THE ALP


6. (SBU) Since he became leader, Rudd has attempted to create
the impression that he would not be beholden to the union
movement and would govern in "the national interest." The
unions, on the other hand, which founded the ALP, have
institutional power in the party. The ALP Constitution
stipulates that members of the Party are encouraged to be
members of a union and that state and territory Branch rules
should require members of the Party to be members of a union
or to employ union labor to the maximum extent permitted by
law. Unions are entitled to 50 percent of the votes at the
biennial ALP National Conference - the ALP's supreme policy
making body. The Conference elects the ALP National
Executive - which acts as a final arbiter of organizational
disputes, such as pre-selections. Almost every ALP MP and
Senator owes his/her pre-selection to a union-dominated
faction. The unions essentially funded the ALP when it was
in Opposition, and the Australian Council of Trade Unions
spent an estimated AUD $20 million in 2007 on its campaign
against the Coalition's "WorkChoices" legislation and the
Howard Government.

UNIONS WANT A RETURN ON THEIR INVESTMENT


7. (SBU) Although Rudd campaigned heavily on "abolishing
WorkChoices," the ALP's industrial relations policy is not a
return to the pre-Howard past. The most notable differences
are a greater emphasis on collective bargaining and a winding
back of exemptions from unfair dismissal laws (currently
applied to businesses with fewer than 100 employees which the
ALP proposes to change to 15 employees). The unions were
unhappy with several aspects of the ALP's policy, including
the maintaining of restrictions on union entry into
workplaces, the retention of the building industry's
industrial watchdog until 2010, and the exemption of workers
earning over $A100,000. With the election over, the unions
now want Rudd to go further. Two days after the election,
Unions NSW Secretary John Robertson called on the ALP to
abolish all Australian Workplace Agreements (AWAs) signed
before the election. Deputy Prime Minister and Employment
Relations Minister Julia Gillard rejected this demand, as not
part of the industrial relations policy the ALP had promised
the voters. Manufacturing, textile, and footwear unions will
be pushing for a slowdown in planned tariff reductions, and
have reservations about a proposed Australia-China free trade
agreement. The Community and Public Sector Union, which
affiliated with the ALP in July, feels betrayed that the Rudd
Government is cutting public service jobs. With the
viability of unions fundamentally dependent on their
membership base, they will want rules that make it easier for
them to sign up new members. Union coverage is currently 20
Qthem to sign up new members. Union coverage is currently 20
percent of the workforce, down from 50 percent two decades
ago. It will also be interesting to see how Rudd handles the
entry into Parliament of the powerful ex-union official Bill
Shorten.

COMMENT: RUDD HONEYMOON COULD QUICKLY END


8. COMMENT: (C/NF) Some Labor MPs (in particular in the Left)
and the unions don't particularly like Rudd, but they have
grudgingly given him unprecedented authority due to his
victory. Keeping this authority will largely depend on Rudd
maintaining his high standing in the electorate and, to a
lesser extent, striking the right balance between appeasing
and resisting the demands of the unions and the Left. While
Rudd remains popular, his colleagues - hungry for a long
stint in power after more than a decade in the wilderness -
will generally let him have his way. Should his popularity
with the electorate collapse, however, the factions within
the ALP may reassert themselves. A big factor determining
whether Rudd can be reelected will be the support of Rudd's
"working families" (i.e. the "Howard Battlers"). Rudd won
their votes largely due to the perception that Howard was out
of touch on cost of living issues such as grocery and petrol
prices, and interest rates. Although the ALP did not
actually promise to reduce these costs, many working families
will expect Labor to hold down the cost of living. Some
voters - accustomed to the Howard Government's budget
handouts and tax cuts over the last decade - may also tire of
Rudd's fiscal rectitude.

CLUNE