RUDD GOVERNMENT REPORT CARD 2009

C O N F I D E N T I A L SECTION 01 OF 03 CANBERRA 001123

SIPDIS

E.O. 12958: DECL: 12/23/2019
TAGS: PGOV AS
SUBJECT: RUDD GOVERNMENT REPORT CARD 2009

Classified By: Acting Political/Economic Counselor Forest Yang. Reason
s 1.4 (b/d)


1. (C) SUMMARY: The Rudd government remained politically
dominant in 2009, largely on the back of better than expected
economic conditions, Rudd's enduring high popularity,
government unity, and a dysfunctional opposition. Foreign
Minister Smith stepped out of Rudd's shadow and the
resignation of Joel Fitzgibbon as Defense Minister proved to
be a blessing for the government. Support for the U.S.
Alliance, and the mission in Afghanistan, remained strong.
The relationship with China is recovering from tensions
present earlier in the year. Rudd continued his enthusiastic
approach to "middle power diplomacy;" possibly his proudest
achievement was the elevation of the role of the G20.
However, Rudd's big first term reform - legislating for an
Emissions Trading Scheme (ETS) - is in trouble. END SUMMARY.

"IT'S THE ECONOMY, STUPID"
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2. (C) Underpinning the government's popularity was the
resilience of the economy due to continuing global demand for
Australian resources and expansionary fiscal and monetary
policies. Inheriting a strong fiscal position, the Rudd
government in 2009 continued its "stimulus" to firewall the
economy against the global recession. The Opposition was
scathing of the government's second stimulus package,
announced in February, pointing to rising government debt and
questioning whether it would work. The government's
disciplined messaging focused on jobs and nation building.
In June, the government could barely contain its glee when
the March quarter National Accounts showed Australia had
avoided a technical recession. The Australian Labour Party
(ALP)'s most senior strategist - ALP national Secretary Karl
Bitar - told us this was extremely significant given the
political importance of economic management; he said it was a
devastating blow to the Opposition's critique.

TREASURER SWAN'S STOCKS RISE
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3. (C) Sidestepping a recession was a triumph for Treasurer
Wayne Swan, who strongly argued for the stimulus in Cabinet.
Throughout 2008, Swan appeared uncertain in his portfolio,
was ridiculed by the Opposition and labeled a weak link by
much of the press gallery. He was unfavorably compared to
Deputy Prime Minister Julia Gillard and Finance Minister
Lindsay Tanner. However, Swan,s confidence and performance
improved in 2009, largely due to better than expected key
economic indicators. Of the "gang of four" - Rudd, Gillard,
Tanner and Swan - involved in major economic decision making,
Rudd has the most affinity with Swan.

SMITH THE QUIET ACHIEVER
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4. (C) Foreign Minister Stephen Smith in 2008 was widely
regarded as having little power because of Rudd's interest in
the portfolio and centralizing style. However, Smith has
carefully avoided mistakes and has gradually stepped out of
Rudd's shadow, indicating Rudd's growing confidence in his
judgment. Arguably, the defining point of Smith's year was
on August 19 when he counter-attacked Opposition claims the
Rudd government had bungled the China relationship. This
followed China's failed bid to increase its stake in mining
giant Rio Tinto; the detention of an Australian mining
executive; the Defense White Paper that took a hawkish
approach to China; the granting of a visa to a Uighur
activist; and China pulling out of the Pacific Islands Forum.


5. (C) Armed with the massive Gorgon LNG deal signed with
Q5. (C) Armed with the massive Gorgon LNG deal signed with
China the previous day, the phlegmatic Smith strongly
debunked the Opposition's arguments, undermining the
credibility of the Shadow Foreign Minister Julie Bishop, who
was leading the charge against him. Since then Australia's
relationship with China has improved, in no small part due to
Smith's quiet, patient style. Similarly, in October, Smith
effectively defended the government's border protection
changes during the stand-off with Indonesia over 78 asylum
seekers. On both issues, Smith made more coherent and
persuasive cases than the Prime Minister.

FITZGIBBON DUMPED
--------------


6. (SBU) The Rudd government's first ministerial casualty
occurred on June 4, when Defence Minister Joel Fitzgibbon
resigned for breaching the Prime Minister's code of conduct.
This turned out to be a blessing for the government as the
experienced John Faulkner - who Rudd persuaded to take the

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portfolio - has mended fences with the Defense Department and
is generally regarded as more competent than Fitzgibbon. The
Fitzgibbon "scandal" had no impact the government's
popularity. Government contacts are pleasantly surprised at
the lack of Ministerial sackings, comparing this to the first
term of the Howard government when several ministers were
forced to resign.

RISING STARS
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7. (C) Fitzgibbon's departure enabled Rudd to appoint rising
stars Mark Butler, Richard Marles and Jason Clare as
parliamentary secretaries. Another rising star, Chris Bowen,
was promoted into the Cabinet despite overseeing the
much-ridiculed "Fuelwatch" and "Grocerywatch" schemes. Labor
Right factional powerbroker Mark Arbib - close to the Prime
Minister - was rewarded with a ministry despite his
inexperience. Government contacts told us Faulkner made
taking the job conditional on the impressive Greg Combet
being appointed his junior minister.

GILLARD'S STAR FALLS SLIGHTLY
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8. (C) Deputy Prime Minister Julia Gillard was a media
darling in 2008, however the rose-colored glasses were
lowered in 2009. Gillard was under increasing scrutiny in
her mega-portfolio which includes employment, workplace
relations and education. There was a budget blowout in the
cost of the school infrastructure funding, and some unions
are using her industrial relations changes to pursue
excessive demands. Nevertheless, she remains Rudd's clear
heir apparent. Colleagues continue to be in awe of her
mastery of detail and confident performances.

RUDD POWERFUL, BUT COURTS FACTIONS
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9. (C) Rudd has unprecedented power for a Labor leader; one
MP told us he had never seen a Labor Caucus as subservient to
its leader, noting Rudd's control over promotions. Another
told us she was surprised at marginal seat holders'
acquiescence on the ETS. However, powerbrokers confide the
factions will assert themselves when Rudd's popularity wanes.
Possibly aware of this, Rudd in 2009 further courted New
South Wales factional heavyweights Anthony Albanese (New
South Wales Left) and Mark Arbib (New South Wales Right) and
elevated Senator Joe Ludwig (Queensland Right - Swan's
faction) to a more senior position in Cabinet. Ludwig is the
son of powerful Queensland Right union official Bill Ludwig.
One theory is that Rudd is developing a "praetorian guard"
based on the historically powerful New South Wales Right to
head off any challenge from Gillard; that it was no accident
that Rudd promoted Arbib, Bowen and Clare (all from the New
South Wales Right). Bitar, who is close to Arbib and
succeeded him as New South Wales General Secretary, became
ALP National Secretary in late 2008.

RISE OF ABBOTT; RUDD'S MAJOR REFORMS STALLED
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10. (C) Tony Abbott's victory over Malcolm Turnbull for the
Liberal leadership on December 1 shattered the likelihood of
an emissions trading scheme being legislated by the end of
the year, and probably for the remainder of this parliament.
Prior to the coup against Turnbull, conventional wisdom was
that Turnbull would survive long enough to ensure sufficient
Liberal support for the passage of Rudd's signature first
term reform. Turnbull believed in an ETS and warned his
colleagues an early election trigger on this issue would be
"catastrophic." The media's focus over the year on dissent
in Coalition ranks, and widespread confidence the ETS would
Qin Coalition ranks, and widespread confidence the ETS would
pass, took pressure off Rudd to sell the scheme to the
public. With Abbott intent on running a scare campaign on
the issue, Rudd now has go back to the public to build
support for a renewed ETS early in 2010. Rudd will seriously
contemplate calling a Double Dissolution election (for only
the seventh time in Australia's history) if the deal he
offered Turnbull on emissions trading is rejected in February
and possibly again in May. (Note: a Double Dissolution
election can be held as late as October and a "normal
election" is expected September-November 2010.)


11. (C) Another area Abbott, a former health minister, will
push the government on is the Rudd,s perceived lack of
progress in reforming state-run hospitals. Rudd pledged
during the last election that the "buck will stop with me"
and threatened a federal take over of hospitals if the states
did not upgrade their performance. Abbott, who is
sympathetic to greater federal control, is portraying Rudd as

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obsessed with bureaucracy and process, and lacking the will
to confront state Labor governments.

SUPPORT FOR U.S. REMAINS STRONG
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12. (C) Support for U.S. foreign policy, including the
mission in Afghanistan, remained strong within the Labor
caucus. Historically, foreign policy symbolized the divide
between Labor's Left and Right factions. However, since the
end of the Cold War distinctions have blurred, evidenced by
the right leaning Rudd's cultivation of Faulkner and Combet,
both from the Left. There were no grumblings in Caucus over
the decision in April to boost the number of troops in
Afghanistan by 40 percent. The unanimous view is that the
U.S. Alliance remains the foundation of Australia's security.

RUDD THE FOREIGN POLICY WONK
--------------


13. (C) In 2009, Rudd zealously pursued his "creative middle
power diplomacy," assiduously engaging with international
leaders in pursuit of new global architectures. Possibly his
proudest moment as Prime Minister came in September when the
role the G20 was elevated. Rudd devoted significant energy
to this, particularly in getting the United States on board.
Ironically, the former diplomat Rudd has not boosted
resources for the Department of Foreign Affairs and Trade
(despite complaining while in Opposition) and has downgraded
its influence in decision making. Former Ambassador to the
U.S. Dennis Richardson has returned to take up leadership of
DFAT, and is expected to push strongly for more resources.


14. (C) COMMENT: After two years in office, questions are
being asked about the Rudd government's appetite for making
tough decisions. Rudd will be scrutinized in 2010, accused
by some of over-promising and under-delivering, particularly
on health care issues. The Opposition will highlight Rudd's
penchant for lengthy reviews and overseas trips and portray
the election as a contest between "process man" Rudd versus
"act))ylain
the ETS and undermine Abbott's credibility on several fronts,
while reducing voter backlash over an "early election." END
COMMENT.