The journey towards a carbon price in the Rudd and Gillard governments was highly problematic. The Rudd government adopted the policy of a fixed price for one year, followed by a floating price. The Greens rejected this as being a sellout because the higher, fixed-price period was too brief. They joined with the Liberals, who had themselves rejected the carbon price by removing their pro-change leader Malcolm Turnbull, to rebuff the legislation in the Senate. New opposition leader Tony Abbott then developed a robust campaign against a carbon price, warning of economic catastrophe if it was adopted, though with little evidence to support his claims. Abbott’s campaign proved politically effective, and Swan advised Rudd to drop the policy, which the prime minister did, at great cost to his own credibility.
Gillard returned to the policy of a carbon price after the 2010 election. The Greens, who had given their support to Gillard to form a government in the hung parliament, insisted on a three-year period of a fixed and high carbon price before moving to a floating price. This was the element of the package that drew the most criticism, given that the price of $23 per ton of carbon was way in excess of the prevailing price in other carbon markets, most notably Europe, whose carbon price fell as low as the equivalent of $6 a ton. Business, particularly carbon-intensive and trade-exposed businesses, complained that the high price was making them uncompetitive.
The carbon price was a very significant factor in the 2013 federal election. New prime minister Kevin Rudd, together with myself as treasurer and climate change minister Mark Butler, promised to bring forward a floating price, one that was much lower, twelve months earlier than legislated. Abbott, as leader of the opposition, promised to repeal the carbon price completely, while paying subsidies to companies to reduce carbon pollution. The new Abbott government succeeded in doing this in 2014.
Afterwards
Swan was re-elected to the House of Representatives in the 2013 election. The switch to Rudd had not been enough for the Labor government to avoid defeat, but it had undoubtedly saved a significant number of Labor seats, including, perhaps, Swan’s seat of Lilley.
Swan remains on Labor’s backbench, making occasional speeches in the House of Representatives, but mainly contributing to the national debate through tweets relating to Treasurer Joe Hockey. In 2014 he published The Good Fight, which deals mainly with the travails of the GFC. Swan freely shares credit for the GFC’s management with Rudd, noting how effectively they had worked together. However, he also uses his book to outline his frustration with what he saw as Rudd’s dysfunction in the latter period of the government, and to justify his support for Gillard in 2010.
An Evaluation
Competent treasurers who govern during periods of economic calm can struggle to be regarded in the top ranks of those who have held the position, because they have not been able to show their mettle. On the other hand, treasurers cannot choose to be tested by a global economic downturn. Swan certainly could not have predicted that his tenure would coincide with such a difficult period. Still, if Swan did nothing else during his six years as treasurer, his management of the GFC entitles his tenure to be regarded as a success. It was nonsensical to expect a flawless response in those circumstances. But when you contemplate what mistakes could have been made in that period, the success of the GFC response is more than striking.
Swan will be remembered by his admirers for helping Australia to be one of only three advanced economies to avoid a recession during the GFC. It seemed inevitable to most people, including Rudd and Swan, that Australia would, like all comparable countries, go into a downturn. The pair took considerable risks in engaging in large-scale stimulus before a negative quarter of growth had been experienced. They also left themselves open to the criticism of being too keen to intervene in the economy and being too happy to risk taxpayers’ money by providing bank guarantees. However, both interventions were right and played a key role in avoiding a recession.
Swan’s detractors will concentrate on the budget deficits he brought down, and their seemingly permanent presence since his departure from the Treasury. Yet the Budget would have sunk into deficit regardless of who was in power during the GFC. The revenue writedowns that accompanied reductions in the terms of trade were out of the control of the government. Accordingly, the decision to go into a deeper deficit to stimulate the economy was correct.
The Liberal opposition admitted the need to stimulate, but said it would have spent about $20 billion less, a very substantial amount. However, that $20 billion pales into insignificance compared with the reductions in the forecast revenue confronted not only by Swan himself, but also by me and by Joe Hockey. That Australia attained three triple-A ratings from the three major ratings agencies during Swan’s tenure has been pointed out by him with some justification as testament to the state of the books he bequeathed. Many countries, including the United States and the United Kingdom, lost their triple-A ratings during the GFC. In fact, during Swan’s tenure, the number of countries that held such a rating with a stable outlook fell from eighteen to eight.
According to the current government’s projections, Australia’s net debt-to-GDP ratio will peak at 17 per cent of GDP.
