Victorias thoroughly modern Labor Government

It has been a year since the sensational Victorian State election which saw Victorians turn on their Premier of seven years, Jeff Kennett, unexpectedly thrusting Steve Bracks and his Labor team into power - albeit as a minority government.

Bracks has proved himself a surprisingly adept leader, successfully cloaking his Government with a legitimacy that mocks political opponents who insist on referring to "the Bracks minority government". As a put-down, it is proving remarkably ineffective. In the opinion polls, Bracks has eclipsed the popularity of Kennett at his peak with 70 percent-plus approval ratings. More substantially he has dealt with perceptions that his victory at the general election was a fluke by convincingly winning in subsequent by-elections Kennett's metropolitan seat of Burwood and the provincial seat of Benalla once safely held by former deputy premier and National Party leader Pat McNamara. (The Bracks Government, which initially relied on the support of the Parliament's three independent MPs, remains a minority government.) Victorians at large were never going to be Bracks' problem. Victorians, particularly regional Victorians, were exhausted by the Kennett government's punishing and relentless agenda of financial reform and belt-tightening. Bracks provides a relaxed, consensus style of government - the antithesis of Kennett's take-no-prisoners approach - and Victorians are responding to it.

But if voters have embraced Bracks because he's not Jeff Kennett, business is still quietly skeptical for the same reason. Kennett, even his detractors agree, rescued Victoria from being the terminal basket-case economy it had become under previous Labor administrations. Some business leaders remain aghast that Victorians could be so ungrateful to Kennett. "His achievements have been recognised internationally. I think he deserved better and he'd be entitled to feel bitter," says a Melbourne executive, who declined to be named. From the outset, the Bracks Government recognised that while it may have won over the wider Victorian community, the business community would require additional convincing. Business, particularly at the big end of town, considered Kennett its patron saint. But rather than declare business the enemy, the Bracks Government has actively and openly courted it. Much to the chagrin of some of its traditional supporters, the Government has repeatedly declared itself to be "unashamedly" pro-business. Speaking at a CEDA breakfast earlier this year, Treasurer John Brumby [at the time Assistant Treasurer] and Minister for State and Regional Development, said: "Both the Premier and myself describe this Government's agenda as unashamedly pro-growth, pro-business and pro-jobs."

An early sign of its bona fides was the Growing Victoria Together Summit. Held in March and chaired by former Prime Minister Bob Hawke, the summit was attended by more than 100 business, political, union and community leaders. Bracks used the summit to reinforce key financial and economic messages, but also to emphasise that "the smart economies of the world are the ones in which a proper balance is struck between economic and social goals". The summit was a surprise hit, with business leaders applauding Bracks' pledge to create a more competitive environment for business, with particular commitments to the development of skills, infrastructure and research. Sectors singled out included science, information and communications technology, manufacturing, small business and services. The summit, initially derided as a stunt, was a political triumph. With a hand-picked audience of the State's most influential community leaders, Bracks successfully differentiated his Government from the Kennett government, reaffirmed Labor's core commitments to social services and regional development, while maintaining intact Spring Street's commitment to financial responsibility and economic development.

A key recommendation of the summit was for the creation of a State business tax review. In May, Bracks announced the terms of reference for a review into Victorian business taxes in line with his commitment to deliver tax cuts of $400 million over the next four years. An expert panel was appointed to conduct the review, including John Harvey (senior partner, PricewaterhouseCoopers), Nicole Feely (CEO, Victorian Employers Chamber of Commerce and Industry), Professor John Freebairn (head of economics, Melbourne University), David Pollard (Commissioner of State Revenue) and Kathleen Townsend (director, Executive Solutions). Their report is due in December. The budget provided the Government with its first real test in the eyes of the business establishment. The budget, delivered by then Treasurer Steve Bracks, continued the summit's momentum. According to Paul Fennelly, Victorian director of the Australian Industry Group, the budget marked the end of the government's settling in period and provided the basis on which its performance and credentials will be measured by business.

Overall, says Fennelly, it was a budget with "the potential to make a positive contribution to investment, innovation and job creation", citing the Government's commitment to boost apprenticeship and skills training, the development of sectoral industry action plans, and regional and infrastructure programs. But there was one gripe: the Government's failure to proceed immediately on its commitment to reduce business taxes, particularly the despised payroll tax. "An immediate reduction, however small, would have sent an even more positive signal to industry and investors about the Government's determination to restore industry to the forefront of the State's economic planning," he says. The Government's commitment to reduce taxation is probably the most volatile benchmark it has set for itself. VECCI's Nicole Feely says the Bracks Government should make the most of the goodwill it has generated in the business community. VECCI's quarterly Business Trends and Prospects Survey, which quizzed 350 Victorian businesses about their June-quarter performance and September-quarter outlook, found that businesses have experienced a general slowing in economic activity over the past three months, and this is expected to continue in the months ahead. However, while the survey suggests that Victorian businesses are uneasy about economic and business conditions, it also found general satisfaction with the Bracks government.

"It would appear many in business have responded positively to the first Bracks budget," says Feely. "However, the challenge for the Government is to build on this momentum by ensuring the business environment remains conducive to new investment and job creation. This task won't be easy." The survey points to a sharp pick-up in non-wage labour costs over the coming September quarter. A significant 47 percent of surveyed firms expect increases - compared to 30 percent the same time last year - reflecting the increase in the superannuation levy from 7 percent to 8 percent and recent changes to WorkCover which have seen premiums almost doubling for many businesses. "The action the Bracks Government takes in the days and weeks ahead over WorkCover, industrial relations and state taxation reform hold the key to a dynamic business environment in the state," Feely says. Victorian businesses seem comfortable with the new Government and its handling of the economy. VECCI's Business Sentiment Index for the Victorian economy improved during the June quarter, with 45 percent of respondents expecting Victoria's economic performance to deteriorate a year from now, compared to 56 percent in the previous survey.

While the Bracks Government has won some kudos for its assistance measures for small businesses hit by WorkCover increases, industrial relations remains a sore point in Victoria. Earlier this year, industrial unrest in the construction industry caused further delays to the beleaguered $6 billion redevelopment of the Melbourne Docklands waterfront, prompting the Mirvac Group to postpone commencement of its $1 billion residential project. In May, having struck an agreement with building unions, Mirvac commenced construction of its first $100 million Yarra's Edge residential tower. For Mirvac's Yarra's Edge project, life goes on. But the Docklands Authority is still to approve projects for the key Victoria Harbour, Batman's Hill and Studio City precincts. (Following the unsuccessful $485 million float of the proposed Studio City theme park the project was abandoned, a major blow to the Docklands project.) Although the Government has been criticised by some business leaders for not supporting the Docklands project with the zeal of the Kennett government, the Government has announced the extension of Collins St in the Melbourne CBD into Docklands, as well as the redevelopment of the moribund Spencer St station, which adjoins Docklands, into a major transportation and retail hub.

But an escalation in union militancy continues to dog the Government beyond Docklands. Victorian manufacturing has been hit by a series of strikes as part of the Campaign 2000 push for a 15 percent wages increase. In August, Ford Australia was forced to stand down 4000 employees after workers at radiator supplier Natra, a subsidiary of manufacturer Austrim-Nylex, went on strike. VECCI's Nicole Feely leaves no doubts as to her position on the industrial campaign: "Our members are not telling us, they are screaming out to us that this campaign, if successful, will not only cost jobs but will also force many companies to review their continued business viability in Victoria." The Government insists there is no cause to question the State's business viability. It points to a series of initiatives - such as the Partnerships Victoria drive to attract $1 billion in private sector investment in public infrastructure projects over the next four years and the $960 million Scoresby freeway for south-east Melbourne - as living proof that the government is pro-economic development.

Analysts agree. The latest Access Economics Report has revised its estimate for Victorian economic growth in 1999-2000 to 4.7 percent (from 4.6 percent in its March-quarter estimate) and forecast employment growth of almost 3 percent in 2000-01. Unemployment is at its lowest level in Victoria in more than 10 years. In August, Victorian Employment Minister Lynne Kosky announced that the state had an unemployment rate of 6.2 percent for July, down from 6.5 percent the previous month. "The excellent figures reflect strong business confidence in the Victorian economy," Ms Kosky says. This month, a year after the landmark election which gave it office, the Bracks Government will proudly present its pro-business credentials to the world when it hosts the World Economic Forum for the Asia-Pacific region. The Melbourne forum has been targeted by anti-globalisation activists, but one suspects that it will take a major upset indeed to spoil this international coming out party for this thoroughly modern Labor government.

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