Global crisis poses problems for Australia's Rudd

CANBERRA (Reuters) - Australian Prime Minister Kevin Rudd marks one year in power on Monday with his voter approval riding high, but the global financial crisis is threatening to derail his reform plans and puncture his popularity.

Rudd led the left-leaning Labor Party to power on November 24, 2007, pledging to rein in government spending, fight climate change, bring troops home from Iraq and apologize to Aborigines for past injustices.

But one year into a three-year term, analysts said the global economic downturn would force Rudd to curb his future ambitions, particularly on climate change, to make sure he holds onto public support against a backdrop of rising unemployment.

"Out in electorates where people actually work, they are very nervous," political analyst Nick Economou said, adding voters would be angry if plans to introduce carbon trading, to fight climate change, added to their problems.

"If he puts in place something that will exacerbate the problems coming from the financial crisis, he'll lose the next election," said Economou, from Melbourne's Monash University.

The faltering Australian economy and rising unemployment could also help revive support for the conservative Liberal Party, which warned voters at last year's elections that Rudd could not be trusted to manage the economy.

Labor inherited an economy in good health from its rival.

Rudd, too, got off to a good start, overseeing a 16th consecutive year of growth.

SLOWING GROWTH, RISING UNEMPLOYMENT

But the global financial crisis has hit Australia hard.

The government is forecasting slower growth and rising unemployment, and is spending A$10.4 billion ($6.6 billion) on a stimulus package to ensure the economy keeps growing.

The crisis has forced the government to cut A$40 billion from forecast tax revenue over the next four years, due to weaker corporate profits, leaving a surplus of only A$5.4 billion for 2008-09, down from its May forecast of a record A$21.7 billion.

Commodity prices and booming Chinese demand for Australian resources have also eased, while Japan, Australia's second-largest export market and a major customer for coal and iron ore, has slipped into recession.

In response, the government has forecast growth to slow from 2.75 percent to 2 percent in 2008-09, with unemployment rising off 30-year lows under 4 percent earlier in the year to 5.75 percent by mid 2010, although some economists believe the forecasts are optimistic.

Rudd has promised more stimulus, if needed, to keep the economy growing, leaving little money for other reforms in education and health.

Still, Rudd has won widespread praise for his first year and polls show voters still strongly prefer him to the conservative opposition, with his personal and political ratings around two points higher than at the last election.

His first action after being sworn into power was to ratify the Kyoto Protocol on climate change, ending a decade of refusal by the former conservative government.

Rudd then used the first day of the new parliamentary sitting to make an historic apology to Aborigines for past injustices, winning applause from crowds outside parliament and heralding a new era in race relations in Australia.

Rudd, a former diplomat, also moved quickly to withdraw about 500 Australian troops from Iraq, leaving only those needed for security and training.

CARBON TRADING RISK

Rudd is due to face elections in the second half of 2010, within months of the planned start of carbon trading, which puts a price on pollution and gives business a financial incentive to cut emissions which are blamed for global warming.

The government will detail its plans for carbon trading in December, when it will also spell out its overall targets for carbon emissions for 2020.

Green groups want hefty emissions cuts and low compensation for big polluting companies, but big business has warned that tough targets and high costs for carbon trades will force companies to close or move overseas, increasing unemployment.

The government's plans for carbon trading represent the biggest political risk for Rudd, and expectations are now growing that he will set soft targets to protect consumers and an economy already being battered by the global financial crisis.

"The politics means a lot more people are going to be more cautious, more selfish, more inclined to forget about the longer term and worry about the present," Australian National University professor or politics John Warhurst told Reuters.

"In that climate, he'd be more inclined to tread softly with his targets and action on climate change."

But the global financial crisis, and swift government action to guarantee bank deposits and spend money to help the economy avoid recession, has helped Rudd overturn public perceptions that he is too slow to make decisions.

"Politically it might be the making of him," Warhurst said. "It has allowed him to demonstrate his leadership qualities and keep him on top of the polls, for a while at least."

No Australian government has lost power after only one term since 1932, when James Scullin's Labor government was voted out. Scullin won a sweeping mandate in 1929, but the U.S. stock market crashed 17 days later, leading to global economic collapse.

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FACTBOX-Australia's Rudd after 1 year in power

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(Editing by Jeremy Laurence and John Chalmers)