Labor's no worse, and no better, than the Libs

To the superstitious, the meaning is clear: Julia Gillard and her Labor mates must be OK on economic management, otherwise God wouldn't have let her off the hook by causing the quarterly inflation reading to be low and thus averting a mid-campaign rise in interest rates.

Or perhaps all it proves is that God is a woman.

But there's a better reason for believing Gillard is a genuine fiscal conservative: the revelation that, as a member of Kevin Rudd's Gang of Four, she queried the cost of the decisions to introduce paid parental leave and significantly increase the age pension (while ensuring the benefit to sole parents was limited and the benefit to people on the dole non-existent).

As Tony Abbott has proceeded to demonstrate, Labor's paid parental leave scheme wasn't particularly expensive. Particularly not when you take account of how readily it can be justified in terms of both horizontal equity (reducing the biases facing women in the workforce) and economic efficiency (reducing the wastage of female skilled labour).

But the pension increase was hugely expensive, with costs that will keep growing until the end of time. And it was far more generous than the inquiry into pension adequacy recommended. It said there was no justification for increasing the married rate, but Rudd slung them $10 a week anyway.

Even with the single pension, the inquiry said it was mainly people who were renting who were struggling (the great majority of age pensioners own their homes outright), but Rudd ignored this targeted approach and granted all singles a $30 a week increase.

It was a profligate decision, one John Howard would never have countenanced. I've no doubt it was motivated by politics rather than fairness, being Rudd's attempt to buy the grey vote - a futile gesture. If Gillard queried the politics of it, she showed better judgment than her leader.

It's true the ever-growing cost of the pension increase was covered by ever-growing savings measures: phasing up the pension age to 67, tighter means testing of the pension and family tax benefits, reductions in superannuation tax rorts and means testing the private health insurance rebate (a measure the Liberals have blocked in the Senate).

But the opportunity cost of using those (eminently justified) savings to cover the cost of a needlessly generous pension increase is that they're no longer available to help return the budget to structural balance.

So if Gillard was querying the cost of the pension increase, good on her. Just a pity she didn't push harder.

But there's a deeper conclusion to be drawn. It soon became clear Rudd, the self-proclaimed fiscal conservative, was addicted to spending. Even so, he made sure his stimulus measures were T-for-temporary, enunciated a plausible "deficit exit strategy" and stuck to and strengthened it in his last budget.

I concluded the two purse-string ministers in the Gang of Four - Wayne Swan and Lindsay Tanner - were working hard to keep Rudd's spending proclivity in check and make his professed fiscal conservatism a reality.

Now, however, it's clear they were getting strong support from the third member of the quartet, Gillard. That's a good sign.

But though budgetary responsibility - sticking to the medium-term fiscal strategy of achieving budget surpluses, on average, over the economic cycle - is important, it's not the be-all-and-end-all of economic management that Abbott and Joe Hockey portray it as.

It's an inadequate substitute for courageous micro-economic reform, starting with immediate implementation of an emissions trading scheme. No party that squibs on acting early to protect the economy from the hugely adverse consequences of climate change can claim to be a good economic manager.

It's noteworthy that once the Liberals had abandoned their commitment to using a price-based approach to combating climate change, it didn't take Labor long to abandon its own commitment.

Similarly, once the Libs set their face against the highly equitable and economically efficient resource super profits tax, it wasn't long before Labor went into retreat.

It could merely have slashed the rate of the tax when it discovered how much more it would raise than had ever been contemplated, but for good measure it butchered the design of the tax, greatly reducing its economic efficiency benefits as a substitute for the inflexible state royalties.

And it's the Liberals' Costello-instigated obsession with budget deficits and public debt (though certainly not current account deficits and foreign debt) that does most to explain why Labor has donned the same hair shirt. Labor began by arguing we needed to overcome the Howard government's neglect of economic infrastructure, but soon succumbed to Costelloism.

See what this means? This government is so lacking in self-confidence on matters economic it takes its lead from its political opponents - even when they're led by that unabashed economic irrationalist, Abbott.

Elect Gillard and what you'll get is Abbott populism at one remove. What you won't get is a government with the confidence to decide for itself what the economy needs and what is politically achievable, if there is a willingness to put up a fight and lose a bit of skin.

Why is the Rudd-Gillard government so reactive when it comes to economic management? Because, when the public is asked which party is better at managing the economy, its answer almost always favours the Liberals. By 47 per cent to 35 per cent, according to a recent Newspoll.

The public is convinced the party of the workers wouldn't be much good at running the economy. And in its heart, Labor fears the public is right.

If by some chance Labor fails to get itself re-elected, there'll be one overwhelming explanation for such an extraordinary result: the punters aren't impressed by timidity and lack of conviction. Bring back Paul Keating.