First among equals

KEVIN Rudd never imagined a year like this. Australia's control-minded Prime Minister has been hit by an out-of-control financial hurricane that will define his first term, disrupt his plans and pose a challenge he never conceived.

In his reflective moments, Rudd now recalls former British PM Harold Macmillan's famous reply to the question about what worried him most: "Events, dear boy, events." It is a truism.

There has not been a first-year prime ministership like Rudd's in the postwar era. This is courtesy of events, notably the collapsing global economy. The assumptions on which Rudd devised policy are being destroyed. Almost before his prime ministership is well established, it must be remade in economic and political terms.

This task has just begun, yet, so far, Rudd's political skills have been supreme. This is the real message of the first year. Newspoll shows the Government leading the Opposition 55-45 in two-party-preferred terms, a stronger position than Rudd's November 24, 2007, election victory. Despite the Coalition switching leaders, the latest Newspoll shows Rudd leading Malcolm Turnbull 62-22 as preferred PM.

It is true that Rudd has scored a remarkable series of firsts: no PM has made so many overseas trips in his first year, worked such prodigious hours, made such absurd demands on close advisers, ranged so widely, so relentlessly over so many policy areas, defined himself by such ceaseless activity and movement, and confronted such a dramatic reversal in global and domestic economic forecasts.

There is no easy dissection of the Rudd phenomenon. He is a work in progress and riddled with contradictions.

Rudd's authority is complete; for many, too complete.

Bob Hawke, Labor's best postwar PM, has told him to give his ministers more "free rein". Yet his deputy, Julia Gillard, seems to have the rein she needs. When Rudd is overseas, Gillard is an excellent substitute, a reminder that they are a formidable team and that the Government's entire stability rests on their mutual trust.

In his first year Rudd has been a more successful politician than he has been policy reformer, cabinet chair or public administrator. He comes across as assured and reliable, pitching to Australia's conservative political culture. He is compulsive about media spin and sensitive about media coverage. Yet serious doubts remain about his ability to define priorities, take hard decisions and manage his team effectively.

The pivotal policy test for Rudd is deciding what to keep and what to ditch. Yes, he is ditching the surplus. But he intends to keep the emissions trading scheme that prices carbon, his labour market re-regulation, his federal-state reforms, his defence white paper timetable, his pension revamp pledge, and this follows his $6.2billion car industry package to back the manufacturing industry. Most of the existing furniture still stands.

Rudd is reminiscent of Gough Whitlam in his heroic insistence that election promises be implemented in full. Whitlam's attachment to his program, basic to his 1974 re-election, was ultimately an act of folly. While Whitlam was hit in his first year by OPEC's 1973 oil shock, the damage took time to erode his government, and the 2008 financial crisis afflicting Rudd is probably a more threatening event.

Like Hawke, Rudd believes in summits, consensus and presenting himself as the natural PM. Rudd had his own 2020 Summit to mobilise intellectual opinion and celebrity fashion. He is an astute defensive politician: unlike John Howard, he rarely gives offence. He tells audience after audience exactly what it wants to hear.

Rudd's first-year transition was smoother than Howard's. There are no Rudd haters in the way Howard haters erupted in year one over Hansonism. Rudd plays both sides of nearly every equation. But this cannot last forever and events are closing in on him.

Consider the scale of his re-invention. The fiscal conservative of 2007 has been forced to become a "whatever is required" champion of fiscal expansion. The PM who began warning about dire inflation pressures now fights desperately to stave off recession. The leader who believed rising interest rates were his worst problem now watches the Reserve Bank of Australia launch an interest rate-cutting orgy.

It has been a schizoid opening driven by events. Yet the crisis and Rudd's macro policy reversals have invested him with more authority. The atmospherics are transformed: the cautious, review-addicted Rudd has become the man for decisive action. Scarcely had Paul Keating warned Rudd that he needed a unifying narrative for his Government than the crisis provided that narrative: saving Australia from the ugly tsunami abroad.

This is now Rudd's mantra. Note, however, the issue on which Rudd became decisive: it was spending the surplus. This is classic counter-cyclical economics, but it is not economic reform in any shape or form. The words of Treasury chief Ken Henry that most resonated with Rudd this year were "Go early, go hard and go households", over the weekend of October 11-12, leading to the $10.4 billion stimulus package. But this is not the only advice Treasury has given this year and Rudd's ability to integrate a reform agenda into managing the crisis remains unknown.

His first year finishes in an artificial political bubble. The impact of the downturn on Australia has hardly been felt. In the US, the financial deterioration gets worse. America faces a severe downturn. Europe and Japan are in recession and China is slowing. Rudd confronts the prospect of being a first-term recession PM, a cruel cast of fate. In this situation his first-term mission would become preventing Labor's political liquidation after the 17-year growth cycle that spanned the Keating-Howard eras.

What are Rudd's enduring first-year decisions? The formal apology to indigenous Australians was a landmark. This was easily his finest speech and came from his own hand. This opening parliamentary event will enshrine Rudd's prime ministership. He presented the apology not just as about the past, but about the future.

He rejected demands for compensation, repudiated the false trail of inter-generational guilt, dismissed any lurch into sentimentality and demanded instead the apology be judged according to Australia's ability to tackle the crisis of health, housing, education and violence in Aboriginal communities. Rudd and Indigenous Affairs Minister Jenny Macklin reject any reversion to old-fashioned failed welfarism.

Climate change pledges are basic to Rudd's first year. His orchestration at Bali of the Government's decision to ratify the Kyoto Protocol was brilliant. The Garnaut report, commissioned by Labor, is a path-breaking analysis of how the world should tackle this challenge. Despite the financial crisis, Rudd is determined to introduce a carbon price in 2010 with an emissions trading scheme, a structural reform with considerable political risks.

Rudd's judgment at the end of his first year is that the Australian people expect him to honour his election pledges on climate change and that the political risk lies in retreat rather than delivery.

The personal priority Rudd invests in foreign policy is a hallmark of his Government. It is greater than people realise, because Rudd spends so much time lobbying foreign leaders, as well as visiting them: US President George W. Bush, China's Premier Wen Jiabao and Britain's PM Gordon Brown are merely the better known.

His foreign policy is initiative-prone. Witness Rudd's campaign for an Asia-Pacific regional architecture, his campaign against nuclear proliferation, his sustained and successful effort to have the G20 become the main global body to review the financial crisis, his preparatory diplomacy for next year's climate change conference in Copenhagen and, as it unfolds, his strategy to establish a rapport with US president-elect Barack Obama.

For Rudd, Obama is the pivotal figure that underpins most of his foreign policy aspirations. Rudd hopes that in Obama he finds a leader of similar outlook and values, leading to a new era in ties between the US and Australia.

The early, decisive test of the Government's character was the May budget, the first for Treasurer Wayne Swan. At this point the senior ministers, Rudd, Swan, Gillard and Lindsay Tanner, kept their nerve. They brought down a higher surplus with more spending restraint than they inherited from the Howard government. It fitted the fiscal conservative model but it took cognisance of mounting overseas financial turmoil.

The budget got the balance right. It was the most important economic decision before the onset of the crisis that began with the September15 bankruptcy of Lehman Brothers, one of America's largest investment banks. The turning point in domestic terms was the Reserve Bank's October 7 decision to cut the cash rate by 100 basis points, a decision that sent an electric jolt through the Government. Its message was that averting recession had become the imperative. Rudd's senior ministers followed with their October 11-12 decisions to guarantee bank deposits and then launch the $10.4 billion fiscal stimulus.

Rudd's first year ends with his Government at the crossroads. He declared the financial event "the economic equivalent of a national security crisis". History suggests that a first-term crisis will normally assist a competent incumbent. Predictions that any downturn or recession would terminate Rudd's Government are unwise and premature. The public might easily decide Rudd rather than Malcolm Turnbull is better equipped to manage the crisis. But the more serious the downturn, the more it will throw politics open.

The policy dilemma Rudd faces is acute. He needs to keep alive his commitment to economic reform, yet try to save Australia from the worst of the global recession. This will be branded Rudd's downturn, not because his policies are responsible but because his policies will define its meaning for Australia.