Cooperation or Contention?

Thanks to the passage of a House-friendly continuing resolution in the Senate, it seems very likely a government shutdown won’t prevent field trips to the Smithsonian this Spring.

Spring field trips to the Smithsonian and summer vacations to US national parks were granted a stay of execution through at least September when the House and Senate passed a continuing resolution last week. There will be no government shutdown—at least not this summer related to this budget debate. There was no last-minute brinkmanship, no scrambling and remarkably little acrimony.

In addition, a Republican-sponsored amendment repealing the Affordable Care Act’s 2.3% tax on medical devices sailed through the Democrat-controlled Senate by a (symbolic) 79-20 vote.

Huzzah! Congressional cooperation!

Which highlights a point often misunderstood over the past few years: Gridlock doesn’t mean nothing happens—just that most legislation tends to be vanilla, not Rocky Road. The continuing resolution is a near perfect example: It continues spending at the sequestered level and doesn’t increase funding for Dodd-Frank or the Affordable Care Act. Not only is this legislation easier to ram through Congress, it tends to be more easily digested by markets compared to big, property-rights-impacting legislation.

But even during last week’s relative political group hug, it wasn’t all warm and fuzzy in the Capitol. The bill the medical-device-tax-repeal amends is the Democrat-backed 2014 budget blueprint which Republicans generally reject. (Thus, the devices tax repeal would need to be voted on again.) And Senator Paul Ryan’s Republican-favored budget was summarily dismissed in a Senate vote as well. These bills, obviously more far reaching and policy intensive than the continuing resolution that dances around contentious issues, stand little chance of becoming law in this environment. In addition, other contentious issues remain (like gun control) and politicians have already decided the debt ceiling counts again effective May 18.

While we can certainly sympathize with the notion political discourse has been overheated the past few years, we’d note that the lack of radical action that’s resulted since 2010’s midterms is a good thing. To see this more clearly, let’s look at politics down under.

If you define recession as two consecutive quarters of contracting domestic output, Australia hasn’t had one in 22 years. Even during the 2007-2009 global downturn, the “lucky country” rode its vast natural resources and proximity to Emerging Asia to growth. Even now, as the mining industry slows some, the IMF forecasts GDP will grow around 3%.

Yet politics have been contentious throughout—legislative gridlock high and turnover frequent.

In 2010, then-Prime Minister Kevin Rudd’s proposed Resource Super Profits Tax (RSPT) targeting big mining firms led to his ouster, as his and his Labor Party’s popularity plummeted amid an aggressive mining firm-funded advertising campaign. In a bit of back-room, intra-party wheeling-and-dealing, then-deputy, now-current, PM Julia Gillard toppled Rudd and called snap elections, subsequently defeating the Liberal Party’s Tony Abbott. However, the resulting parliament was hung, triggering gridlock.

Following this, Ms. Gillard ditched the RSPT to rid her administration of the unpopular proposal ... only to resurrect the general concept as the Mineral Resources Rent Tax (MRRT), which became law last year. MRRT was a greatly watered down version of Rudd’s plan—so watered down, in fact, that the first three months it was in force, it collected nothing. Zero dollars and zero cents. The second three months also showed little revenue, and few analysts project a sudden windfall any time soon.

Now that alone might be enough to massively shrink Ms. Gillard’s popularity, but it isn’t alone. Even though Australia currently has a low gross public debt-to-GDP ratio of roughly 25%, folks seem quite fixated on eliminating the nation’s deficits, which total around 3% of GDP. Not alarming figures, but the Commonwealth’s Treasury has been projecting surpluses throughout Gillard’s tenure. Surpluses, it seems, that won’t be met, in part due to MRRT’s failure to generate revenue. (This, despite Treasurer Wayne Swan’s insistence it would “come hell or high water.” Which begs the question: What came, Wayne?) Meanwhile, Gillard has also recently been attempting to explain away alleged conflicts of interest that existed while working as an attorney. A 2013 election looms. As Prime Minister, Ms. Gillard sets the date of the election—in late January, she selected September 14, guiding Australia to its longest election season ever.

Meanwhile, Gillard’s popularity seems to be dissolving—and her cabinet along with it. Three ministers resigned on Friday alone after a resurgent Rudd declined to contest her in a Labor Party leadership vote a day earlier. (A vote many pundits surmise he would have won.) And national polls, while very early, show her trailing Abbott in September’s national election—perhaps why Abbott is calling for an earlier vote.

It remains to be seen how the campaign plays out. In all likelihood, it will be heated, considering the two principal rivals faced off only three years ago and Gillard’s being somewhat embattled. But the broader picture is, Australia’s a country with near deadlock in the Federal government and yet economically, there are few signs of deleterious impact. Whether cooperative and kind-hearted or acrimonious and acidic, politicians’ actions (or inactions) speak much louder than words.