Chris Bowen, a key backer of returned Prime Minister Kevin Rudd, was sworn in as Australia’s third treasurer in 17 years and faces the challenge of reviving a slowing economy as a mining-investment boom wanes.
Bowen, 40, elected to parliament in 2004 and a former assistant treasurer, takes the top economic role as policy makers attempt to engineer a rebalancing of the world’s 12th largest economy by boosting industries including construction to extend 22 years of economic growth. The University of Sydney economics graduate may only hold the post for a few months as an election must be held by Nov. 30 and opinion polls have shown the ruling Labor Party is set to lose.
“The domestic economy is slowing and China looks more uncertain,” said Martin Whetton, an interest-rate strategist at Nomura Holdings Inc. in Sydney. “Bowen has to deal with the end of the commodities boom and he faces major challenges.”
While the ruling Labor party has trailed Tony Abbott’s Liberal-National coalition for more than 18 months in opinion polls. the surveys have also showed Rudd would improve the government’s standing. Reserve Bank of Australia Governor Glenn Stevens and his board have slashed borrowing costs by 2 percentage points over the past 20 months to 2.75 percent to help the transition from mining.
The government abandoned a pledge to return the budget to surplus this fiscal year, citing the impact on tax revenue of the high currency and lower company profits, and in May projected a deficit of A$19.4 billion ($18 billion).
Bowen, who lives in Smithfield in Sydney’s west, a key election battleground, was Australia’s youngest Cabinet minister in 2009 when he was appointed by Rudd at age 36. He resigned in March this year after then-Prime Minister Julia Gillard called a leadership ballot that she won uncontested. He had supported Rudd in an unsuccessful challenge against Gillard in 2012.
Prior to entering parliament, Bowen was an advisor to a member of parliament, an industrial officer for the Finance Sector Union, and chief of staff for a New South Wales state minister. He is a former mayor of Fairfield, one of the biggest and most multicultural local government areas in Australia, and was immigration minister from 2010 until 2013 under Gillard.
“Bowen is one of Rudd’s trusted allies and it’s a good move politically to put him in the position,” said Zareh Ghazarian, a lecturer in politics at Monash University. “But Bowen’s an unproven performer in such a major portfolio, and it’s going to be a big challenge for Rudd and Bowen to make voters have faith that he can do the job.”
Bowen’s economic challenges include coping with fallout from policy change in China, Australia’s biggest trading partner, as it seeks to slow growth to a sustainable level. The Australian dollar has slumped 11 percent this quarter in response to a deterioration in China’s outlook, the worst performer among the 16 major currencies tracked by Bloomberg.
The depreciation has provided some relief for industry that has been squeezed by a currency that held above $1 from mid-June last year to May 10, the longest stretch above parity with the U.S. dollar since the Aussie was freely floated in 1983.
Ford Motor Co. said last month it will stop making cars in Australia, nine decades after founder Henry Ford first began building Model Ts in the country, and plans to cut 1,200 jobs from its two plants by October 2016. General Motors Co.’s Holden unit said this month it will initiate talks with labor unions to reduce costs that may include a cut in wages as it struggles with the currency’s strength.
Bowen replaced Wayne Swan, who had been treasurer since Rudd’s 2007 victory returned Labor to power after nearly 12 years in opposition, and who was deputy prime minister from June 2010 after he backed Gillard’s ousting of Rudd in a backroom party coup.
“I want to say what a privilege it has been to serve as deputy prime minister and also as treasurer in a Labor government that has represented the very, very best of Labor tradition,” Swan told reporters late yesterday. “Almost alone amongst developed economies, we avoided a deep recession.”
Swan and Rudd -- former friends turned enemies -- met the global credit crunch following Lehman Brothers Holdings Inc.’s 2008 collapse with cash handouts and bank guarantees. Rudd paid tribute to Swan today when he addressed parliament for the first time since being sworn in again as prime minister.
“I would also like to acknowledge the work that the former treasurer did with me to prevent this country from rolling into global economic recession and avoiding mass unemployment,” Rudd told parliament. “No-one should forget this work. When we think around the world and the hundreds of thousands of people who lost their jobs in other countries, millions in some, that was avoided here and I acknowledge the strong work done by the former treasurer in assisting me and other members of the Cabinet in dealing with that crisis.”
Both Swan and Rudd attended Nambour High School in the northeastern state of Queensland in the 1970s, where Swan captained the rugby league team and Rudd led its debating team.
“Wayne was very, very cool. I was very, very not,” Rudd said during the 2007 election campaign when the duo visited the school.
An arts graduate of the University of Queensland, Swan worked as a council sewerage maintenance worker before lecturing at the Queensland Institute of Technology.
In June 2010, when factional leaders ousted Rudd as prime minister, Swan didn’t inform his former flatmate he had switched his support to Gillard. “I had to phone him,” Rudd said in an interview with the Australian. “I suppose he found the prospect of higher office more tempting. It’s been a sad end to a friendship that went back a long way.”
Tensions between Swan and Rudd exploded on Feb. 22 last year when Rudd mounted an unsuccessful challenge against Gillard. The then-treasurer accused Rudd of trying to “tear down” Labor’s 2010 election campaign, having a “deeply demeaning attitude” toward Labor party colleagues and of “dysfunctional decision making” prior to his ouster as leader.
More recently, Swan’s fortunes faded. A Newspoll taken May 17-19 showed Shadow Treasurer Joe Hockey for the first time overtaking Swan on the question of who is more capable of managing the economy. That’s even as unemployment remains at 5.5 percent.
Rudd has yet to say if he will support Gillard’s big-ticket policy changes, including the nation’s first levy on greenhouse-gas emissions. Even so, the Rudd government is committed to carbon pricing, Bowen said.
“We’ll always take a responsible approach to these matters,” he told ABC Television’s 7.30 Report program. “If there’s matters that need to be addressed in the future, then the prime minister and I and the relevant ministers will address them.”
Australia’s economy grew 2.5 percent in the first quarter from a year earlier, the slowest annual pace in almost two years. Goldman Sachs Group Inc. economists estimated in a report this month that there’s a 20 percent chance of recession and Bank of America Corp.’s Merrill Lynch sees a 25 percent chance.
Still, the local dollar’s drop should boost company profitability, said Warren Hogan, chief economist at Australia & New Zealand Banking Group Ltd.
“The substantial fall we’ve seen in the currency will have a positive impact on the budget, there’s no doubt about that,” Hogan said. “At this stage it’s too hard to tell the magnitude of it because the fall in the currency has gone hand-in-hand with the decline in commodity prices. It will certainly offset that decline in commodity prices.”
The stability of the treasury portfolio since 1996 followed a series of holders between 1991 and 1996. One was John Kerin, who served then prime minister Bob Hawke for six months in 1991 and stumbled in a national press conference and was soon replaced.
“Let’s just hope Bowen’s not like Kerin at the end of the Hawke era, who imploded when asked a simple definition question on the economy,” Whetton said.