text: Challenges for new cabinet | afr.com
  Sep 13 2010 at 12:10 AM
  Updated Sep 13 2010 at 12:10 AM
  Challenges for new cabinet
  If Julia Gillard had wanted to make a statement about the new minority government's courage on productivity and economic reform in week one, it would have been simple. She would have removed Kim Carr from the Industry and Innovation portfolio, replaced him with someone who understands that globally competitive industries do not grow from a featherbed of state patronage, and called a stop to the latest bribe to keep car makers here.
  Friday's decision to offer Toyota an additional $73 million (including $10 million from the Victorian government) to produce old-fashioned four-cylinder engines and some hybrid ­petrol-electric engines for the Camry, had been in the works for some time. But, just like the original $35 million bribe to ­convince Toyota to assemble the hybrid Camry in Australia, it is not in the interests of the wider economy.
  Neither will it do anything to cut fuel consumption and ­ emissions – far more fuel-efficient vehicles are avail­able from overseas – or to help build a globally competitive car industry. Senator Carr presided over the car industry inquiry that ignored all-electric cars, which are expected to make big inroads once battery change and charge stations are in place.
  Senator Carr also convinced cabinet to continue to block parallel imports of books, despite evidence that this penalises low-income households and students more than it fosters local industry, and set up a "digital books" taskforce after digital readers such as Amazon's Kindle became widespread.
  He apparently believes innovation will spring up under a government-issue blanket of "nurturing" and "networks" that only seems to have produced uniformity and mediocrity .
  Now that Ms Gillard has promised more free-ranging ­caucus and cabinet debates, it should be easier for other ministers and backbenchers to argue against Senator Carr's methods to keep manufacturing's share of the economy up, instead of allowing scarce labour and capital to migrate to more ­competitive industries.
  The cabinet reshuffle announcement went off without a squeak from Labor MPs, or the rural independents whose constituents will pay for the automotive largesse through higher taxes and car prices. We hope this does not mean that it is business as usual for Ms Gillard and Labor.
  One group that could do more for innovation, the universities, have unfortunately been deprived of two of the main ­discretionary sources of income that encouraged creative course design. These were full-fee domestic students, banned in the name of equity, and now foreign full-fee students, whose numbers have been slashed by Labor's hasty reforms to the visa arrangements for ­foreign students.
  In their place Ms Gillard offered universities the straitjacket of unlimited local HECS places, which are loss-making for those universities striving to be as good as any in the world. In a curious move education is now split between Peter Garrett , with schools reform, and Chris Evans , who also has the job of making Labor's workplace relations system ­foster – rather than stifle – innovation.
  Another key link in the innovation and productivity cycle, the underperforming financial services industry, has its third minister in as many years. Bill Shorten is talented and has a big incentive to show he is not just one of the hatchet men who cut down Kevin Rudd . He faces a huge task coming to grips with the vast agenda of change in superannuation, taxation and financial services that Chris Bowen left for him, let alone making it work in the interests of savers and the wider economy. Mr Bowen has been given immigration, another sign that politics may trump economics in the "new paradigm" of minority government.
  The fault lines in Ms Gillard's cabinet reshuffle, necessitated by Labor's fragile grip on power, do not end here. Mr Rudd had to be given his wish, the foreign affairs port­folio, despite having lost the trust of his cabinet colleagues, senior public servants and some foreign leaders. His expertise is not in doubt, but he will have to modify his style, to be more ­consultative and not take setbacks as personal insults.
  The quietly impressive Stephen Smith is moving to the difficult Defence portfolio to make way for Mr Rudd. Penny Wong has a huge challenge to fill Lindsay Tanner 's shoes in Finance and act as a corrective to Treasurer Wayne Swan 's tax policy management. Her unwieldy emissions trading system also makes her an unlikely advocate of deregulation, which has lost a ­second key advocate with Craig Emerson 's move to Trade.
  Greg Combet should do a better job of managing and ­selling climate change policy. The government faces a difficult task to release and manage the Murray Darling Basin Authority's draft report on water allocations, which recommends big cuts to irrigators and will not sit easily with the rural independents.
  One wants to be positive about the minority government, but its capacity to manage the conflicting, populist agendas of the independents and Greens and maintain momentum on ­economic reform is not yet assured.