The Debate

Australia’s Gillard Gets Poll Bounce After Austere Budget

Julia Gillard enjoys a solid increase in personal polls, although election prospects for her party remain grim.

So who said pre-election budgets were for handouts? Very shortly after her treasurer released a remarkably austere budget, with bad news on the surplus front to boot, Australian Prime Minister Julia Gillard awoke to a robust 8-point bounce in her standing as preferred prime minister, to put her level with Opposition Leader Tony Abbott just over three months out from the election.

Both leaders sit on 46 percent, according to the Age/Nielson poll, which for Gillard is just 4 points shy of her peak.

Unfortunately for Gillard’s Labor Party, its election prospects remain dire, with just 32 percent of the primary vote, up 3 percent from its embarrassing low in the April result, which came after the party once again aired its dirty laundry with an aborted Rudd challenge. Once preferences are distributed, the poll shows 54-46, in favor of Abbott’s Coalition.

That is still not good news for Labor, and there is a strong argument to make that the poll bump isn’t meaningful, but simply a return to trend (or, in more technical terms, a “dead cat bounce”).

Still, it does give Gillard a slight window of opportunity. After again missing its surplus, Labor has been hammered in recent days as the party of profligacy. This is a little unfair. Government spending did, after all, help Australia navigate the global financial crisis with relative aplomb. But in the leadup to the election (an unusually long one by Australian standards), Labor can now tout at least a modicum of budget responsibility, and a willingness to take political risky decisions, such as ending the baby bonus introduced under John Howard.

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In terms of actually governing, though, whoever is in power is likely to face a conundrum. While it is expedient to blame excessive spending for the budget deficit, a slide in tax revenues weighs heavily, with projected tax revenues now down AUD60 billion. (For the headaches posed by lower tax revenues, see exhibit A, Japan.) Now that the commodities supercycle seems to be running out of steam, the next Australian government may have to do with less.

To some extent, moderating Chinese demand may be offset by a weaker Australian dollar, which has notably fallen below parity with the U.S. dollar in recent days. That helps make Australian manufacturers more competitive. But any expectations that this will keep the good times rolling is tempered by movements within the region, which is increasingly looking like it’s in a game of currency musical chairs.  In short, any gain from an Australian dollar slide may well be short lived.

Still, for now Gillard may feel she’s put the party squabbling behind her. Labor is still very likely to face defeat in September, but the legacy of Australia’s first woman prime minister will look a lot healthier if she can turn a rout into a competitive election.

James Pach is editor of The Diplomat.