Grattan on Friday: Boats done – the economy’s next on Rudd’s agenda

Chris Bowen and Kevin Rudd are facing the challenge of paying for their new policies while minimising political “nasties”. AAP/Lori Neilsen-Carr

Now Kevin Rudd has ticked off emissions trading and unveiled his PNG solution on boat arrivals, he’s turning his full attention to trying to neutralise the “debt and deficit” issue.

In other words, he’s saying he knows the economy is the main game and he can be trusted with the ball.

Expect that there won’t be an announcement of an election in the next few days. Expect there will be an economic statement next week.

The government has to square the numbers before Treasury and Finance produce their official budget update in the campaign proper’s early days. Best to get the bad news out first.

Rudd must shift the debate onto the economy because he needs to convince voters Labor is competent in economic management and has a good story to tell. He needs to reframe his former government’s economic record, to emphasise saving jobs and counter criticism of the stimulus spending (epitomised by the pink batts experience).

Labor has struggled with its economic message, more than it should have. Former treasurer Wayne Swan got much criticism over his salesmanship. In Chris Bowen, Swan’s successor, Rudd has a man who can carry the lines.

The expenditure review committee meets today, as it searches for billions of dollars in savings. The economic statement will provide costs and offsets for the PNG plan. It will also reveal the extent of a further decline in revenue projections since the May budget. (It seems extraordinary Treasury is having to revise these figures so soon.)

The government can either cover all its spending on the PNG solution by savings or let the bottom line take some of the hit. For its economic credibility, it would prefer to do the former.

But finding the required cuts will be difficult, and potentially will carry political costs. Labor has already felt a backlash from the crackdown on car fringe benefit provisions which was an offset for bringing forward the ETS.

Rudd will seek to use the statement to turn the heat on to Tony Abbott, challenging him to say where he would find savings and raising the spectre of a Campbell Newman style slash-and-burn approach.

It is hard to see how Rudd can give this statement, with its cuts and worse budget numbers, a positive spin, unless he uses it to flesh out some parts of his agenda to make Australia more competitive (on which he’s had extensive talks with the Business Council of Australia and the ACTU).

The economic statement is vital politically. For all the noise about boats and carbon, Labor strategists believe that economic management (“debt and deficit”) is a bigger issue.

This is born out by Essential Research’s poll this week. When people were asked the three most important issues in how they would vote, 45% said management of the economy, followed by ensuring the quality of Australia’s health system (42%); jobs and protection of local industries (39%), and ensuring a quality education for all children (25%).

Asked which party they trusted most to handle various issues, 44% said they would trust the Liberals on managing the economy; only 29% trusted Labor most.

Once the economic statement is done, there are no more big items for Rudd to clear away before calling the election. His choice will then be between going to the polls quickly or taking a while to try to bed things down.

Labor strategists mull over whether Rudd has peaked. This week’s Newspoll had the Coalition leading Labor 52-48% on a two party basis (it was 50-50 in the previous Newspoll).

Rudd has Labor competitive. Ideally he would like to be in a stronger position before calling the election, but getting ahead of the Coalition before the formal campaign may be impossible. The Labor vote (37% primary vote in Newspoll, compared with 38% at the 2010 election) may have stabilised.

Rudd’s strategy is to try to get Abbott directly engaged with him – hence the repeated challenge to a debate - but this will only be achieved once the campaign begins.

Despite the huge practical problems that have opened up, Labor appears satisfied with the politics of its PNG solution announced a week ago.

The opposition has run into some snags in its response. PNG PM Peter O'Neill attacked it for allegedly misrepresenting his position, so the Coalition now has arguments with both PNG and Indonesia.

Yesterday Abbott announced a Coalition government would establish a “military-led response to combat people smuggling,” strengthening “the organisation and operational capacity” to respond to this “national emergency”. (Abbott is big on emergencies – remember we had a “budget emergency”.)

Operation Sovereign Borders would be led by “a senior military commander of three star ranking”.

The politics of this is about convincing voters the Coalition would run a competent operation, especially in relation to turning back boasts (where the Opposition is most vulnerable). The Coalition rolled out retired major general Jim Molan to argue for its plan.

But the policy sparked a debate about whether this an appropriate use of the military, with the Australia Defence Association very critical.

Abbott, who initially seemed near frozen after Labor’s leadership change, has appeared less uncomfortable this week, despite his problems on the asylum seeker issue. He performed competently at a people’s forum in Tasmania last night (where there were no questions on boat arrivals).

Liberals are still worried about their situation, although there is less panic in some quarters than a couple of weeks ago.

In Queensland, where the Coalition has a swag of seats vulnerable to a popular Queensland PM, senior Coalition sources sound calmer than at first. They believe the PNG solution will play to their advantage there – it becomes a “border” issue of another kind because of the proximity of north Queensland to PNG.

“We’ve turned the corner,” says one source. “The initial feedback is the gloss is wearing off [Rudd].” Even with a slight tarnish, however, Rudd could do the Coalition damage in that state, which was headed for a Labor wipeout under Gillard.

One Coalition MP from Queensland says “I don’t think [the result] will vary more than one or two seats either way”.

The truth is that we are still in the relatively early after-shock stage of the late June transformation of federal politics. As they plan their coming moves and try to discern where the land lies, both sides are waiting… for more polling, of course.