Australian Boomerang: Another big spending center-left party loses its majority

Frontier Centre, Role of Government, Taxation, Uncategorized, Worth A Look

Three months ago, Britain’s Labour Party was drummed out of office. This weekend, Australians woke up to a hung parliament as their Labor government lost its majority. America’s ruling Democrats may detect a pattern here.

Australia now faces a period of uncertainty as Ms. Gillard and Mr. Abbott scramble to assemble what in either case would be a narrow majority. This may mean a period of more cautious policy, at least in the short term, which Australians may prefer after the tumult of the last three years. The bigger picture is that, in Australia as in the U.K., voters have stopped the revival of big government dead in its tracks.

The Liberal revival was led by Tony Abbott, a cabinet member in earlier governments, who tried to make the election a referendum on Labor’s spending and willy-nilly expansion of government. He was especially pointed on cap and trade, which he helped to stop, and the miner’s tax, which he has pledged to drop.

In both English-speaking countries, the center-left governments reacted to the financial panic and recession by supercharging government spending in the name of Keynesian stimulus. In both countries, the result has been new debt and higher taxes but less than advertised economic growth. The voters chose to render a harsh verdict.

The result is especially striking in Australia, where Labor has held power for only three years after a long period in the wilderness and a few months ago held a double-digit lead in the polls. Now it appears that the opposition Liberals (the main conservative party) have won a majority of the first-preference vote, Labor looked set to fall a few seats short of a majority, and both parties were angling to form a government with the help of independents and smaller parties. Political falls are rarely as rapid as Labor’s.

Labor charged to power in 2007 as charismatic leader Kevin Rudd campaigned as a centrist who posed no great ideological threat. Once in office, however, he followed the Rahm Emanuel advice that a crisis is a terrible thing for a party of the left to waste.

His spending boom turned an A$19.7 billion surplus in 2007-2008 into an A$32.1 billion deficit the following fiscal year, though Australia was hurt far less than most countries by the global recession. Mr. Rudd staked his personal prestige on cap-and-trade legislation that the Liberals repeatedly stopped in the Senate while exposing it to the public as a huge tax hike disguised as an act of environmental virtue. Then in the name of closing a deficit of his own creation, Mr. Rudd sought to impose a 40% "super-profits tax" on Australia’s mining industry, a mainstay of its economy. As the party’s popularity fell, Labor grandees panicked, deposed Mr. Rudd and installed his deputy, Julia Gillard, as prime minister.

Ms. Gillard understood Mr. Rudd’s mistake and tried to tack back to the center. She compromised with big mining companies on the windfall tax, pledged to balance the budget, backed away from climate change legislation and talked about work-for-welfare schemes.

However, her honeymoon bump in the polls was short-lived. The party suffered from the internal bickering that usually follows a leader’s overthrow, and her long years in the union movement made her an implausible moderate. The centerpiece of her campaign, an A$43 billion national broadband network, revealed her big government instincts.

The Liberal revival was led by Tony Abbott, a cabinet member in earlier governments, who tried to make the election a referendum on Labor’s spending and willy-nilly expansion of government. He was especially pointed on cap and trade, which he helped to stop, and the miner’s tax, which he has pledged to drop.

Australia now faces a period of uncertainty as Ms. Gillard and Mr. Abbott scramble to assemble what in either case would be a narrow majority. This may mean a period of more cautious policy, at least in the short term, which Australians may prefer after the tumult of the last three years. The bigger picture is that, in Australia as in the U.K., voters have stopped the revival of big government dead in its tracks.