PM Kevin Rudd used potentially rising inflation and interest rates as the excuse for the federal government's economic plan, announced on January 21. Those hoping that the ALP's pre-election promise of an "economically conservative" government was just election hype will be disappointed. It could be straight from the former Coalition government's economics bible.
While blaming the former government for rising inflation, the plan promises more of the same pro-big-business policies that have dictated economic strategy for the 11 years that the Coalition was in power.
At a January 21 press conference, Rudd declared that the plan would:
The policy of budget restraint has been pursued both by the federal Coalition government in its last term and by the ALP in all the states and territories. To enforce even stronger spending restraint, the federal government announced a special "razor gang" to go through federal and state budgets "line by line" to find areas where cuts can be made.
Rudd said that all pre-election promises will be protected from the cuts. But those looking for significantly greater funds dedicated to health, education or social services will not find much, as the ALP promised very little for these areas.
This policy of budget restraint has, however, been identified as a key cause of inflationary pressure. In order for production to be efficient, there needs to be public infrastructure in place that business can rely on. If infrastructure is old or inadequate, businesses must spend more time and money substituting for it, thus driving up prices. Because all levels of government have been committed to reducing spending, they have not spent money on upgrading or maintaining public infrastructure, and prices have increased as a result.
Instead of increasing the role of government in funding infrastructure, the ALP has formed a big-business-dominated committee, Infrastructure Australia, to provide a priority list for businesses seeking to invest. Infrastructure Minister Anthony Albanese told the January 24 Australian Financial Review: "The private sector keeps telling us that the capital is there for investment. But we have a significant infrastructure deficit. We want to work with the private sector to remove the impediments to get that investment flowing."
The Rudd government's preferred method for investing in infrastructure is Public-Private Partnerships (PPPs), in which government and corporations agree to co-invest in public infrastructure, and in exchange corporations receive a cut of the revenue. In New South Wales, such schemes have been responsible for the cross-city tunnel project and the airport rail-link. In both cases, the state government was required to guarantee profits for the companies involved, and in both cases the profits were less than what was advertised. As a result the state government was forced to pay huge damages to aggrieved corporations.
The NSW power grid is also slated for privatisation, with the state government bragging it would get $15 billion in extra revenue if the plan goes ahead. But the Australia Institute's Clive Hamilton claimed in a January 22 Sydney Morning Herald article that the cost paid by the government to insure any company involved in the PPP against losses due to carbon trading schemes would total $15.4 billion, consuming all the extra revenue.
If the pro-business aspects of the policy weren't explicit enough, Rudd also declared possible tax cuts and other incentives for businesses that invest in infrastructure.
For workers, it's all bad news. In a climate where even the beneficiaries of the resources boom are struggling under increased living costs, working people are encouraged to simply save money.
Radio National's January 24 AM program reported that Federal Treasurer Wayne Swan had called on unions to "show restraint" in pursuing wage claims. "What I would say to everybody, employers, employees or unions is that there will need to be some restraint to get us through this inflationary problem", Swan told AM.
ABC News online reported on January 24 that Australian Council of Trade Unions President Sharan Burrow, speaking at a World Economic Forum meeting in Switzerland, said: "You can't put the blame for an overheated economy at the door of working families struggling to pay their bills While it's important to get the balance right, while it's important that inflation is controlled, we would reject any notion that you'd have a real wage cut for working families. The critical piece is that the balance is there, and that working families maintain their capacity to pay their mortgages.
"We don't want to see the economy that the US has where more and more families are defaulting on mortgages, where credit institutions are absolutely at the brink of collapse."