Iron lady finds her mettle in Canberra

Bill Leak 26 Feb

THIS week Julia Gillard and Tony Abbott burned their bridges. Gillard unveiled the strategy that will make or break her prime ministership - she wants a modest carbon tax with much compensation starting on July 1, 2012, long before the next election.

Consider Gillard's audacity. She is breaking an election promise, casting her integrity into doubt, planning a carbon price before either America or China, defiantly admitting her policy constitutes a new tax and is accentuating the cost-of-living pressures on Australian households, the single most toxic issue at present.

In the process she is ripping up Labor's focus group rule book. Gillard is either hurtling to political suicide or recasting herself in a Thatcherite mantle to prevail against the odds. Her plan is to crash through where Kevin Rudd retreated last year, partly on her own insistence.

She can triumph against such obstacles only by redefining her political persona as an iron lady reminiscent of Margaret Thatcher's strength and conviction. Nothing else will suffice. This climate change decision is driven by Gillard's belief strong leadership is Labor's only hope after the poll-driven equivocation of the Rudd era -- witness her fiery interviews yesterday with 2GB's Alan Jones and 3AW's Neil Mitchell.

She also knows that to prevail she must destroy Abbott's leadership, otherwise he will destroy her.

It is that elemental. The loser in this contest will be finished.

The battle began on the floor of parliament on Thursday afternoon when Gillard, replying to Abbott's onslaught, branded him a wrecker, "the ultimate hollow man" who clutches "to his old slogans like a dying man", who has cried wolf too many times and whose slogans "ring less and less true every time he says them".

Looking directly at Abbott, she said: "We will have this debate and we will win it every day." In response to complaints about broken promises and higher prices she has a simple answer: her policy is right. "I say we should get on the right side of history and we should act now," Gillard says.

This is her reply to every attack on her integrity and her policy: Australia must embrace carbon pricing and she is not for turning. Not any more.

Gillard's game plan is obvious: get the price in place, show the world the price impact is manageable, exhaust Abbott's scare campaign and then prosecute Abbott at the 2013 election as a climate change wrecker seeking to repeal Labor's courageous law.

If Gillard gets the upper hand the Liberal Party will disintegrate internally as Malcolm Turnbull offers an alternative climate change strategy to Abbott. In the interim, the Coalition is rallying. Here is the chance to unite against Gillard after nearly three weeks of woes. Since December 2009 climate change has been Abbott's trump card. Now Gillard puts herself directly in his firing line.

In his censure motion, Abbott condemned Gillard for another new tax, for hurting pensioners, carers and small business, alleged she would add an extra $300 to the average annual household power bill and attacked the idea of Australia moving before the world's major polluters.

But he enshrined the notion of broken trust. Abbott asked: "Was it Real Julia or Fake Julia who said 'there will be no carbon tax under the government I lead'. There has been no greater betrayal in recent Australian history. This is the greatest breach of faith with the Australian public since the L-A-W fake tax cuts of another Labor prime minister." Talkback radio ran on the "Gillard as liar" theme. Jones asked whether she understood people were saying: "We've got a liar running the country." Abbott branded her as a Lady Macbeth cursed by her betrayal of the people.

Indeed, Abbott has a limitless array of polemics to deploy -- that Labor is fixated on taxes, that it will hurt Australian industry competitiveness, that the nation cannot afford the Labor-Greens alliance and that John Howard, by contrast, sought an election mandate for his own new tax, the GST. Abbott has invoked a people's revolt and his ability to mobilise the conservative voting base should not be underestimated.

History, however, does not repeat itself. The new carbon price battle defies prediction but will not necessarily track the previous contest. If Gillard can legislate

the policy, her position becomes more powerful: at that point Abbott is reduced to promising a Kim Beazley-type rollback at

the great risk of inflaming business uncertainty.

Gillard has a two-stage strategy, devised with Climate Change Minister Greg Combet. This involves a small step now and a big step later. The small step is a fixed carbon price from mid-2012 for between three and five years. The price will be achieved via issue of fixed price units within an emissions trading scheme. Gillard admits this fixed carbon price is "effectively like a tax".

The aim is to convert the fixed price down the track into a flexible price within an ETS. This is Labor's desired result.

But the intention is not guaranteed and depends on domestic and international events. Australia's decision will be shaped by global progress but Gillard said it was not contingent on a binding global agreement on emission reductions.

A prolonged de facto carbon tax cannot be ruled out. On the other hand, if the transition is made to a flexible price, the earliest start date is mid-2015. So Gillard's pivotal task now becomes to legislate her scheme in the second half of next year with the support of the Greens and enough independents. For Gillard, a carbon price law is a victory she will parade to the nation and world.

The extent of in-principle agreement between Labor and the Greens unveiled this week constitutes modest yet distinct progress. Greens leader Bob Brown said: "We have a lot of work to do but we're very pleased. This huge project is on track."

Labor and the Greens agree on the start date and the fixed-flexible hybrid model. Critically, the debate about targets is deferred until the later decision about a flexible price.

Labor's policy of reducing emissions by 5 per cent at 2020 remains in place. So does the Greens policy of seeking a 25 per cent reduction. But targets will not become a deal-breaker this year. The final target for 2020 will be set at the transition point from fixed to flexible three to five years down the track.

The position of Gillard and Combet should not be misunderstood. They want the deal with the Greens but they will not compromise Australia's economic competitiveness. This means the Greens will still be required to surrender much ground in the negotiations in coming months. The effort to legislate a carbon price now looks likelier but could still fail.

As Combet says, the big decisions still lie ahead. Labor and the Greens have not yet discussed the fixed price, the level of household compensation or the extent of support for trade exposed industry. While the Multi-Party Climate Change Committee communique envisages a carbon price covering the energy, transport and industry sectors with the option for phase-in arrangements, Combet said conclusive decisions were not taken.

The truth is that phasing in sector by sector makes no political sense and is akin to a series of incremental blows. Agriculture and forestry, however, will be excluded. Labor will surely not expose itself to a backlash on petrol and offsets are likely in this area. Gillard has been careful to leave open her options on petrol.

Industry expectations are for an initial price between $20 and $30 a tonne adjusted annually on a predetermined basis.

Household compensation is sure to be generous. Gillard wants to ensure most households will not be disadvantaged.

Significantly, Brown signalled the Greens would support household compensation. But the differences over support for industry will become the potential breaking point in the Labor-Greens talks.

The future of the Labor-Greens alliance rests on this negotiation.

At Thursday's joint media

conference, Gillard and Combet

stood with Brown, Greens deputy leader Christine Milne and the two Labor-supporting independents, Tony Windsor and Rob Oakeshott. "Majority government wouldn't have delivered this outcome," Milne boasted.

Later in the week, she said: "We certainly have ownership of this scheme because it's the one that we put on the table ourselves. We argued for it in the election campaign. And it's because of Greens in the balance of power that we've got it."

Milne's remarks are a propaganda coup for Abbott. Who has ownership of the policy? Why, the Greens. Any such image is a disaster for Gillard. Her problem is that she cannot insult her potential partners so she must live with Greens hubris.

Yet Greens hubris plays direct to Abbott's grand theme: that the Greens call the shots in Gillard's minority government. Within the conservative heartland and the mainstream, Abbott's message is that Gillard will appease the Greens to win her carbon price, that she will sell out ordinary people for Greens ideology.

Make no mistake, however, Gillard and Combet will not legislate any Greens wish list. As a hard-headed negotiator, Combet is the last person to become fall guy for the Greens.

The real question is how many concessions the Greens will make to strike a deal with Labor.

The answer will determine whether the Labor-Greens alliance holds or disintegrates amid a new political war and blame game.

The motivation in Gillard's strategy is learning from Rudd's mistakes. This exerts a profound influence on her thinking.

She knows this scheme requires a personal sales commitment from the Prime Minister. She knows she cannot hide the price impact. She cannot spin herself out of this problem.

Above all, Gillard has decided to operate from strength. Labor has shifted from last year's strategy of retreat to this year's strategy of crashing through. The encounter has begun that will lead to the demise of either Gillard or Abbott.