A decade on, there are valuable lessons from the Gillard years

Ten years ago, the government of Kevin Rudd imploded and Julia Gillard secured the numbers to replace him as Labor leader. The following day, she became prime minister when Rudd declined to contest the leadership. Instead, Rudd went to the backbench and began plotting to destabilise Gillard, and came within an ace of wrecking Labor’s 2010 election campaign until he forced Gillard to agree to return him to cabinet.

As history shows, of course, Rudd’s wrecking was only just beginning. The Gillard minority government became a byword for indiscipline, dysfunction and infighting, with moments of outright sleaze, courtesy of disgraced Labor MP Craig Thomson, and speaker Peter Slipper — elevated to that position to secure a precious extra number in the House of Reps and welsh on a deal for gambling reform with independent Andrew Wilkie.

The Gillard government, and the incessant sniping by Rudd and his cronies, transformed Parliament House into the setting of a soap opera, with occasional touches of Benny Hill when Tony Abbott fled the chamber to avoid voting on the same side as Thomson.

Even after Rudd engineered his return to the prime ministership in 2013, voters were simply waiting to turn to Tony Abbott with relief that something approaching normality might be returned. Little did they know.

But despite the chaos, Gillard presided over an extraordinary period in the Australia economy. In the aftermath of the financial crisis, US and UK unemployment was above 8%, and often above 9%, for much of 2010-13; Euro area unemployment was above 10%. In Australia it averaged 5.2% through Gillard’s prime ministership. Wages growth averaged 3.6% annually. Private sector labour productivity averaged 0.6% growth a quarter — three times the rate of the last five years. GDP growth averaged 0.73% per quarter, including a negative quarter due to Cyclone Yasi in 2011.

The biggest challenge facing Gillard and her treasurer Wayne Swan was the impact of the mining investment boom, which had already doubled as a proportion of GDP before the financial crisis to 4%, but then doubled again to nearly 8% of GDP between 2011 and 2013.

This drove the Australian dollar over parity with the US dollar in November 2010, and it spent most of 2011 at or above parity, peaking at US$1.09. It went back above parity in 2012 and remained above it until May 2013.

Every complaint about an overpriced currency since then — including now, with people whingeing about US$0.68 — looks trivial. The high dollar smashed export-exposed sectors like manufacturing and agriculture, with manufacturing shrinking to its lowest ever level of employment, just above 900,000.

The mining sector had the opposite problem — mining and resources companies tripped over themselves to lure workers with giant pay packets. Every single mining boom in Australian history before this one had ended with an explosion of inflation. Gillard and Swan achieved the unprecedented feat — helped by the surging dollar — of reducing inflation during a boom, principally through the flexibility of the Fair Work Act and a strict fiscal policy, with Swan more than halving the deficit as a proportion of GDP in 2012.

As weak investment in the non-mining economy undermined growth, however, and articles about Australia’s “two-speed economy” proliferated, Gillard and Swan were forced to take their foot off the fiscal brake and — to their humiliation — abandon the return to surplus in order to avoid growth stalling.

As it turned out, the same fate would befall Tony Abbott and Joe Hockey — they, too, abandoned the surplus and ramped up deficit spending (while also increasing taxes: Gillard was the lowest-taxing prime minister since Fraser, based on tax:GDP). Growth still fell and unemployment rose above 6% in 2014 — but it would have been much worse if the much-maligned 2014 budget had actually been the horror show of austerity everyone, including the Liberals themselves, painted it as.

The Gillard-Swan era of low unemployment, high wages growth, strong investment and GDP growth and high productivity, achieved in spite of a punitively high Australian dollar, stands in stark contrast to the Australian economy on the eve of COVID-19, marked by stagnation, productivity declines, falling growth and low investment. And, despite the vilification of the Gillard government (much of it deserved for its appalling antics), there are key lessons for the COVID recovery.

First, fiscal policy is needed if private investment isn’t there and households aren’t spending — a fact that simply can’t be avoided, no matter how often you’ve committed to a budget surplus. Gillard and Swan had promised a return to surplus hundreds of times, “come hell or high water”.

Second, strong wages growth is crucial to Australia’s economic growth. The Gillard government was the last time Australian workers saw decent wages growth. It’s no coincidence that’s also the last time they saw regular trend economic growth.

Third, you don’t achieve labour productivity gains by deregulating industrial relations laws and demonising unions. The contrasting experience of productivity under WorkChoices and the Fair Work Act demonstrates how a more cooperative industrial relations approach generates greater gains for business and workers.

And fourth, the headlines and news bulletins rarely give you the proper picture of whether a government is delivering. Only time provides that. News coverage of the Gillard years was characterised by scandal, misogyny, stunts, hyper-partisanship and relentless media campaigns personally attacking Gillard (News Corp’s smear campaign over her pre-political legal career remains a low point even for Murdoch and co). But in the real world, the economic picture was very different — and one that none of her successors have come close to matching.