Climate and refugees Gillard's hurdle

DESPITE bullish upgrades of the resources boom and higher national income, Australia now faces a crisis of governance and reform in the areas where Tony Abbott has established his huge electoral lead - climate change and border protection policy.

These are two of three areas Julia Gillard pledged to fix in June last year within hours of deposing Kevin Rudd. Since August 2010 the carbon tax issue and boat arrivals have nearly crippled the Gillard government. They are the policies, along with the mining tax, where Rudd's failure cost him his job. And in the past 10 days West Australian Liberal Premier Colin Barnett, by hiking royalties, has challenged the basis of Wayne Swan's revised mining tax.

Gillard has no future as Prime Minister unless she can redeem the promise of her first week in office to resolve these challenges. They concern Australia's management of core 21st-century tests - climate change and people movements. For Labor, on both fronts, the showdown is at hand.

This week the Greens gave their strongest sign of compromise to legislate Labor's carbon price package. Deputy leader Christine Milne said the Greens would support an initially modest carbon price (Labor's position) to set the stage for a transformation down the track. While this suggests a welcome political maturity, Milne and party leader Bob Brown made clear this was no long-run Green concession. Just the reverse. Milne said: "The time for coal is over and the time for gas is extremely limited." She rejected any new coalmines; she wants the package to start building industrial solar plants. The aim, Milne said, is "to move to 100 per cent renewable energy as fast as possible". Brown attacked Resources Minister Martin Ferguson for backing an ongoing coal industry.

Meanwhile Labor is looking at a carbon bank to drive investment in renewables (as wanted by the Greens) - yet its financial integrity will be on the line, given the disasters that surround solar household schemes and the renewable energy target.

The politics are obvious. The initial carbon price won't be high enough to redirect investment. The Greens, aware they must retreat and compromise this time, unlike 2009, are preparing the ground by stressing a steep carbon price trajectory. This leads to a much bigger point - legislating the carbon scheme cannot deliver investment certainty. What it will deliver is a new political brawl.

Labor, Coalition and Greens have fundamentally different views on pricing carbon. Investment certainty cannot be delivered until there is certainty over the targets. Yet the design of the hybrid scheme - a fixed price for three to five years followed by a floating price - defers to the second stage the debate about targets precisely because Labor and the Greens disagree. Ironically, Labor and the Coalition back the 2020 emission reduction target of 5 per cent while the Greens want 25 per cent or more.

Because the Greens will share political ownership of any scheme, they will offer a different view from Labor of its longer-run destination and targets. Gillard's argument once any scheme is legislated - that it exposes Abbott as a scaremonger crying "wolf" too often - is undercut by the opposing reality that steep rises in the carbon price are essential to achieve its purpose.

Any hope that legislating the package will create a new political consensus is lost. At present the electricity generators and coal industry have differences with Labor that may not be bridgeable. The Australian Coal Association is assessing an anti-carbon tax campaign.

Heather Ridout's Australian Industry Group decided this week at its national executive to keep in the negotiating process after a serious debate about options. But the AI Group has asked Labor for a "third tier" of assistance for less intensive trade-exposed industry such as iron forging, sugar refining, food processing, chemicals and plastics. Given Abbott's huge focus on manufacturing, the government will access this seriously.

Legislating the carbon package offers Gillard a potential circuit-breaker, though Abbott will not retreat and the political differences will merely move to a new stage. For Labor, the real bull point from legislation is the focus it will throw on Abbott's "direct action" alternative. Climate Change Minister Greg Combet has been hammering Abbott's policy. More significant was the abject distaste for the policy displayed by Malcolm Turnbull 10 days ago on ABC1's Lateline program.

Indeed, Turnbull triggered an open season on Abbott's alternative and his interview may herald a turning point. If the media gets clean air to attack Abbott after Labor's legislation is passed, the Coalition will face an onslaught for which it seems unprepared. Moreover, if the scheme is legislated Turnbull's criticism becomes more lethal and poses risks on two fronts - to Coalition unity and to its climate change credibility.

The other big policy game-changer is Immigration Minister Chris Bowen's proposed bilateral agreement with Malaysia which seeks to stem the boats and break the business model of the people-smugglers. This is the single most important initiative in asylum-seeker policy since John Howard's 2001-02 hardline Tampa framework. It is the most important step Labor has taken on boat arrivals since it returned to office in 2007 and constitutes a pivotal transition for Labor. In spirit, if not detail, it recalls Howard's commitment to a tough border protection framework. Within Labor it represents a new realism driven by sheer political desperation to halt boat arrivals. For Gillard and Bowen, the Malaysian deal is the literal game-breaker. If it works then Labor is back in the political game. If it fails then Labor's hopes of a credible, coherent border protection policy are finished along with its political fortunes.

The grasp of this issue in Australia's debate is pathetic. The real issue here penetrates to one of the great challenges of the 21st century - how to manage people movements from the developing to developed nations. The task for Australia is to regulate and manage one of the highest per capita immigration programs among the rich nations. This is the context for stopping the boats. Any idea that Australia should welcome and encourage, by abstaining from tough measures, refugees and economic migrants who self-select this country by boat only undermines our capacity to run a large-scale authorised immigration intake that retains political support.

In technical terms the best result for Bowen is for Malaysia to take no asylum-seekers from Australia and Australia to take 4000 refugees from Malaysia. That would actually define success. It would mean there were no boat arrivals and no asylum-seekers put on a plane to fly to Malaysia. Of course, it won't happen like that.

The heart of Bowen's strategy provides for 800 asylum-seekers to be sent to Malaysia for processing. They will be put on a plane and will never return to Australia. It is a ruthless disincentive. Their $15,000 payment to settle in Australia is guaranteed lost money. In this sense Bowen's Malaysian solution is tougher than Abbott's Nauru solution because people processed at Nauru can still finish in Australia. This is what happened under Howard. The only sure way to stop the boats is a regional agreement with Indonesia and Malaysia and this deal begins that march.

Immigration Department head Andrew Metcalfe told Senate estimates this week the government estimates boat arrivals next financial year at 750, a steep fall. The reason, he said, was because "the government believes its policy will work". The 750 figure is the number of boat arrivals in 2002 after Howard's Tampa laws.

Bowen's policy will be tested by the people-smugglers and challenged in the High Court. The key for the smugglers is getting beyond the first 800 slated for Malaysia and Bowen may find this figure is insufficient. The principle, however, is a landmark - those involved will not be processed in Australia and will not settle in Australia. It is a critical step for Labor. It is this principle the High Court will be asked to address: in short, whether the people through their government have the right to safeguard their own borders.

While Bowen's policy is under attack by the Greens and the human rights lobby, the Labor Party is fairly quiet. One reason is the UN High Commissioner for Refugees is part of the deal and will gain, as a result, a bigger role in Malaysia, a nation that refuses to ratify the 1951 Refugee Convention. The humanitarian dividend is obvious, with Australia taking 4000 offshore refugees from Malaysia.

Bowen went for the Malaysian deal long ago after he saw the East Timor option was futile. In truth, there are only three ways to stop the boats: they can be turned back on the water (with Jakarta's tolerance and that is no longer being extended); people can be prevented from leaving Malaysia or Indonesia; or asylum-seekers can be returned to the region for processing.

This week Bowen released figures showing that in the first quarter of this year the approval rate for asylum-seekers at the end of the determination process but before court appeals was only 48 per cent. That is, our system finds most boat arrivals are not refugees.

Why does this not receive more media attention? Is it not a story that more than half the boatpeople, on latest figures, are not refugees? Among Iranians the present approval rate is 22 per cent. The story, again, is that genuine refugees from Iran are being followed by economic migrants. The detention centre troubles at Christmas Island and Villawood heavily involved Iranians who had been rejected as refugees.

Gillard faces a daunting task to reduce asylum-seekers' numbers. Labor is correct to embark on a new policy. It is a test not just for Labor but whether Australia as a country can manage this challenge.