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What is Rudd's real position on economic reform?

By Mikayla Novak - posted Monday, 1 July 2013

The return of Kevin Rudd to the prime ministership raises more questions than answers with regard to numerous aspects of policy.

Chief among these is whether the Rudd has learned from the economic policy errors committed during his first tenure as Prime Minister from 2007 to 2010?

Casting our minds back prior to the November 2007 election campaign, then Opposition Leader Kevin Rudd sought to reassure voters that post-Hawke, Keating Labor would not pose as a risk to the largely bipartisan economic policy settings maintained from the early 1980s.


These settings could, for simplicity, be represented as a combination of fiscal and monetary macroeconomic policies emphasising consistency and stability for the benefit of private sector decision makers, and microeconomic policies focussed upon reform of labour, capital and product markets for the sake of more efficient resources allocation.

Although business cycle fluctuations remained, most notably in the form of the horrendous 1990/91 recession, Australia's real GDP per capita rose from about $43,300 to $61,000 over the subsequent fifteen years with minimal macroeconomic disruption.

With most economic commentators in late 2007 conceiving that this 'Great Moderation' would continue unabated, the obvious political task for Rudd at the time was to convey the perception he would not upset the prevailing economic policy apple cart.

Accordingly, Rudd described himself as a 'fiscal conservative' and, at federal Labor's official campaign launch, lambasted the Howard government for excessive spending and promised to apply a 'meat axe' to an overgrown Canberra bureaucracy.

However, the seeds of subsequent policy contradiction were also sown by Rudd during this period, particularly in the guise of promised labour market reregulation that would empower Labor's union paymasters, and a suite of promises to act on climate change which would further distort energy markets.

After an initial twelve months in office laying down the basis of its committed retreat from microeconomic reform of product and factor markets, the Rudd government found itself compelled to react to a synchronised global economic downturn borne by policy-induced dislocations in US financial and housing markets.


Confirming the far greater economic risks posed by a political class beset by policy panic, the Rudd government conducted an entirely disproportionate response to the 'global financial crisis,' which continues to this very day as a weight upon Australia's economic saddlebags.

In a definitive account of the haphazard political process besetting Rudd and his inner circle of ministers and advisors, Lenore Taylor and David Uren, in their book Shitstorm, estimated that almost $80 billion in expenditure was committed from October 2008 to May 2009 on Keynesian-style 'fiscal stimulus' measures.

The spending programs put in place, such as overpriced school halls and flammable home insulation installations, were highly controversial even at the time they were being delivered, but undeterred Rudd sought to justify his actions in a weighty 7,000 word tome which appeared in The Monthly magazine.

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About the Author

Mikayla Novak is a Research Fellow with the Institute of Public Affairs. She has previously worked for Commonwealth and State public sector agencies, including the Commonwealth Treasury and Productivity Commission. Mikayla was also previously advisor to the Queensland Chamber of Commerce and Industry. Her opinion pieces have been published in The Australian, Australian Financial Review, The Age, and The Courier-Mail, on issues ranging from state public finances to social services reform.

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