VZCZCXRO3612
PP RUEHPT
DE RUEHBY #1123/01 3570611
ZNY CCCCC ZZH
P 230611Z DEC 09
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC PRIORITY 2460
INFO RUEHBN/AMCONSUL MELBOURNE PRIORITY 6860
RUEHPT/AMCONSUL PERTH PRIORITY 5124
RUEHDN/AMCONSUL SYDNEY PRIORITY 5129

C O N F I D E N T I A L SECTION 01 OF 03 CANBERRA 001123 
 
SIPDIS 
 
E.O. 12958: DECL: 12/23/2019 
TAGS: PGOV AS
SUBJECT: RUDD GOVERNMENT REPORT CARD 2009 
 
Classified By: Acting Political/Economic Counselor Forest Yang.  Reason 
s 1.4 (b/d) 
 
¶1.  (C) SUMMARY:  The Rudd government remained politically 
dominant in 2009, largely on the back of better than expected 
economic conditions, Rudd's enduring high popularity, 
government unity, and a dysfunctional opposition.  Foreign 
Minister Smith stepped out of Rudd's shadow and the 
resignation of Joel Fitzgibbon as Defense Minister proved to 
be a blessing for the government.  Support for the U.S. 
Alliance, and the mission in Afghanistan, remained strong. 
The relationship with China is recovering from tensions 
present earlier in the year.  Rudd continued his enthusiastic 
approach to "middle power diplomacy;" possibly his proudest 
achievement was the elevation of the role of the G20. 
However, Rudd's big first term reform - legislating for an 
Emissions Trading Scheme (ETS) - is in trouble.  END SUMMARY. 
 
"IT'S THE ECONOMY, STUPID" 
-------------------------- 
 
¶2.  (C) Underpinning the government's popularity was the 
resilience of the economy due to continuing global demand for 
Australian resources and expansionary fiscal and monetary 
policies.  Inheriting a strong fiscal position, the Rudd 
government in 2009 continued its "stimulus" to firewall the 
economy against the global recession.  The Opposition was 
scathing of the government's second stimulus package, 
announced in February, pointing to rising government debt and 
questioning whether it would work.  The government's 
disciplined messaging focused on jobs and nation building. 
In June, the government could barely contain its glee when 
the March quarter National Accounts showed Australia had 
avoided a technical recession.  The Australian Labour Party 
(ALP)'s most senior strategist - ALP national Secretary Karl 
Bitar - told us this was extremely significant given the 
political importance of economic management; he said it was a 
devastating blow to the Opposition's critique. 
 
TREASURER SWAN'S STOCKS RISE 
---------------------------- 
 
¶3.  (C) Sidestepping a recession was a triumph for Treasurer 
Wayne Swan, who strongly argued for the stimulus in Cabinet. 
Throughout 2008, Swan appeared uncertain in his portfolio, 
was ridiculed by the Opposition and labeled a weak link by 
much of the press gallery.  He was unfavorably compared to 
Deputy Prime Minister Julia Gillard and Finance Minister 
Lindsay Tanner.  However, Swan,s confidence and performance 
improved in 2009, largely due to better than expected key 
economic indicators.  Of the "gang of four" - Rudd, Gillard, 
Tanner and Swan - involved in major economic decision making, 
Rudd has the most affinity with Swan. 
 
SMITH THE QUIET ACHIEVER 
------------------------ 
 
¶4.  (C) Foreign Minister Stephen Smith in 2008 was widely 
regarded as having little power because of Rudd's interest in 
the portfolio and centralizing style.  However, Smith has 
carefully avoided mistakes and has gradually stepped out of 
Rudd's shadow, indicating Rudd's growing confidence in his 
judgment.  Arguably, the defining point of Smith's year was 
on August 19 when he counter-attacked Opposition claims the 
Rudd government had bungled the China relationship.  This 
followed China's failed bid to increase its stake in mining 
giant Rio Tinto; the detention of an Australian mining 
executive; the Defense White Paper that took a hawkish 
approach to China; the granting of a visa to a Uighur 
activist; and China pulling out of the Pacific Islands Forum. 
 
¶5.  (C) Armed with the massive Gorgon LNG deal signed with 
Q5.  (C) Armed with the massive Gorgon LNG deal signed with 
China the previous day, the phlegmatic Smith strongly 
debunked the Opposition's arguments, undermining the 
credibility of the Shadow Foreign Minister Julie Bishop, who 
was leading the charge against him.  Since then Australia's 
relationship with China has improved, in no small part due to 
Smith's quiet, patient style.  Similarly, in October, Smith 
effectively defended the government's border protection 
changes during the stand-off with Indonesia over 78 asylum 
seekers.  On both issues, Smith made more coherent and 
persuasive cases than the Prime Minister. 
 
FITZGIBBON DUMPED 
----------------- 
 
¶6.  (SBU) The Rudd government's first ministerial casualty 
occurred on June 4, when Defence Minister Joel Fitzgibbon 
resigned for breaching the Prime Minister's code of conduct. 
This turned out to be a blessing for the government as the 
experienced John Faulkner - who Rudd persuaded to take the 
 
CANBERRA 00001123  002 OF 003 
 
 
portfolio - has mended fences with the Defense Department and 
is generally regarded as more competent than Fitzgibbon.  The 
Fitzgibbon "scandal" had no impact the government's 
popularity.  Government contacts are pleasantly surprised at 
the lack of Ministerial sackings, comparing this to the first 
term of the Howard government when several ministers were 
forced to resign. 
 
RISING STARS 
------------ 
 
¶7.  (C) Fitzgibbon's departure enabled Rudd to appoint rising 
stars Mark Butler, Richard Marles and Jason Clare as 
parliamentary secretaries.  Another rising star, Chris Bowen, 
was promoted into the Cabinet despite overseeing the 
much-ridiculed "Fuelwatch" and "Grocerywatch" schemes.  Labor 
Right factional powerbroker Mark Arbib - close to the Prime 
Minister - was rewarded with a ministry despite his 
inexperience.  Government contacts told us Faulkner made 
taking the job conditional on the impressive Greg Combet 
being appointed his junior minister. 
 
GILLARD'S STAR FALLS SLIGHTLY 
----------------------------- 
 
¶8.  (C) Deputy Prime Minister Julia Gillard was a media 
darling in 2008, however the rose-colored glasses were 
lowered in 2009.  Gillard was under increasing scrutiny in 
her mega-portfolio which includes employment, workplace 
relations and education.  There was a budget blowout in the 
cost of the school infrastructure funding, and some unions 
are using her industrial relations changes to pursue 
excessive demands.  Nevertheless, she remains Rudd's clear 
heir apparent.  Colleagues continue to be in awe of her 
mastery of detail and confident performances. 
 
RUDD POWERFUL, BUT COURTS FACTIONS 
---------------------------------- 
 
¶9.  (C) Rudd has unprecedented power for a Labor leader; one 
MP told us he had never seen a Labor Caucus as subservient to 
its leader, noting Rudd's control over promotions.  Another 
told us she was surprised at marginal seat holders' 
acquiescence on the ETS.  However, powerbrokers confide the 
factions will assert themselves when Rudd's popularity wanes. 
 Possibly aware of this, Rudd in 2009 further courted New 
South Wales factional heavyweights Anthony Albanese (New 
South Wales Left) and Mark Arbib (New South Wales Right) and 
elevated Senator Joe Ludwig (Queensland Right - Swan's 
faction) to a more senior position in Cabinet.  Ludwig is the 
son of powerful Queensland Right union official Bill Ludwig. 
One theory is that Rudd is developing a "praetorian guard" 
based on the historically powerful New South Wales Right to 
head off any challenge from Gillard; that it was no accident 
that Rudd promoted Arbib, Bowen and Clare (all from the New 
South Wales Right).  Bitar, who is close to Arbib and 
succeeded him as New South Wales General Secretary, became 
ALP National Secretary in late 2008. 
 
RISE OF ABBOTT; RUDD'S MAJOR REFORMS STALLED 
------------------------------------------- 
 
¶10.  (C) Tony Abbott's victory over Malcolm Turnbull for the 
Liberal leadership on December 1 shattered the likelihood of 
an emissions trading scheme being legislated by the end of 
the year, and probably for the remainder of this parliament. 
Prior to the coup against Turnbull, conventional wisdom was 
that Turnbull would survive long enough to ensure sufficient 
Liberal support for the passage of Rudd's signature first 
term reform.  Turnbull believed in an ETS and warned his 
colleagues an early election trigger on this issue would be 
"catastrophic."  The media's focus over the year on dissent 
in Coalition ranks, and widespread confidence the ETS would 
Qin Coalition ranks, and widespread confidence the ETS would 
pass, took pressure off Rudd to sell the scheme to the 
public.  With Abbott intent on running a scare campaign on 
the issue, Rudd now has go back to the public to build 
support for a renewed ETS early in 2010.  Rudd will seriously 
contemplate calling a Double Dissolution election (for only 
the seventh time in Australia's history) if the deal he 
offered Turnbull on emissions trading is rejected in February 
and possibly again in May. (Note: a Double Dissolution 
election can be held as late as October and a "normal 
election" is expected September-November 2010.) 
 
¶11.  (C) Another area Abbott, a former health minister, will 
push the government on is the Rudd,s perceived lack of 
progress in reforming state-run hospitals.  Rudd pledged 
during the last election that the "buck will stop with me" 
and threatened a federal take over of hospitals if the states 
did not upgrade their performance.  Abbott, who is 
sympathetic to greater federal control, is portraying Rudd as 
 
CANBERRA 00001123  003 OF 003 
 
 
obsessed with bureaucracy and process, and lacking the will 
to confront state Labor governments. 
 
SUPPORT FOR U.S. REMAINS STRONG 
------------------------------- 
 
¶12.  (C) Support for U.S. foreign policy, including the 
mission in Afghanistan, remained strong within the Labor 
caucus.  Historically, foreign policy symbolized the divide 
between Labor's Left and Right factions.  However, since the 
end of the Cold War distinctions have blurred, evidenced by 
the right leaning Rudd's cultivation of Faulkner and Combet, 
both from the Left.  There were no grumblings in Caucus over 
the decision in April to boost the number of troops in 
Afghanistan by 40 percent.  The unanimous view is that the 
U.S. Alliance remains the foundation of Australia's security. 
 
RUDD THE FOREIGN POLICY WONK 
---------------------------- 
 
¶13.  (C) In 2009, Rudd zealously pursued his "creative middle 
power diplomacy," assiduously engaging with international 
leaders in pursuit of new global architectures.  Possibly his 
proudest moment as Prime Minister came in September when the 
role the G20 was elevated.  Rudd devoted significant energy 
to this, particularly in getting the United States on board. 
Ironically, the former diplomat Rudd has not boosted 
resources for the Department of Foreign Affairs and Trade 
(despite complaining while in Opposition) and has downgraded 
its influence in decision making.  Former Ambassador to the 
U.S. Dennis Richardson has returned to take up leadership of 
DFAT, and is expected to push strongly for more resources. 
 
¶14.  (C) COMMENT:  After two years in office, questions are 
being asked about the Rudd government's appetite for making 
tough decisions.  Rudd will be scrutinized in 2010, accused 
by some of over-promising and under-delivering, particularly 
on health care issues.  The Opposition will highlight Rudd's 
penchant for lengthy reviews and overseas trips and portray 
the election as a contest between "process man" Rudd versus 
"act))ylain 
the ETS and undermine Abbott's credibility on several fronts, 
while reducing voter backlash over an "early election."  END 
COMMENT.