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Government gets closer to carbon pricing model

Julia Gillard is backing away from the word "tax", describing the upcoming carbon pricing model as
an Emissions Trading Scheme.


STEVE CANNANE, PRESENTER: When is a carbon tax not a carbon tax? When it becomes an emissions
trading scheme, according to the Prime Minister, who today seemed to back away from the "T" word.

Tony Abbott says it doesn't matter what you call it if it hurts the economy and a high-profile
economist today agreed with him.

From Canberra, here's political correspondent Tom Iggulden.

TOM IGGULDEN, REPORTER: Warwick McKibbin's a Reserve Bank board member for another month, but he's
not letting that stopping criticising the carbon tax.

WARWICK MCKIBBIN, RESERVE BANK BOARD MEMBER: Australia does have a comparative advantage in high
fossil fuel energy related production, and if we tax ourselves and if the world taxes us, that's
going to hurt our terms of trade.

TOM IGGULDEN: The word tax itself is becoming contested space in the carbon argument, even though
the Prime Minister's used it often.

JULIA GILLARD, PRIME MINISTER (Feb. 24): It's a scheme that would start with a fixed price for a
fixed period, effectively like a tax.

That is effectively a tax and I'm happy to say the word tax.

TOM IGGULDEN: But that happiness has faded. She stopped using the "T" word in about April and now
she's disowned it entirely.

JULIA GILLARD: What Tony Abbott likes to refer to as a carbon tax. ... What Tony Abbott calls a
carbon tax.

TONY ABBOTT, OPPOSITION LEADER: If it looks like a tax, if it works like a tax, if it costs like a
tax, it is a tax and the Prime Minister is being both untrustworthy and tricky.

TOM IGGULDEN: Julia Gillard's office denies there's a change of direction in her communication
strategy, but there does appear to be a new message on the horizon.

JULIA GILLARD: An emissions trading scheme, which I support, John Howard supports, Malcolm Turnbull
supports. ... That's an aim that I share with John Howard and Malcolm Turnbull: an emissions
trading scheme.

TOM IGGULDEN: But Julia Gillard compromised on an ETS with Bob Brown who had his own name for
what's become the carbon tax.

BOB BROWN, GREENS LEADER (Oct. 2010): We want to put a carbon levy not on to the taxpayers as the
big parties would, but on to the polluters.

TOM IGGULDEN: He said that when he just learnt at the last election he'd won the balance of power
in the incoming Senate, giving him an unprecedented say in policy.

BOB BROWN (Oct. 2010): A couple of days ago a baby whale was born in the Derwent for the first time
in 200 years. Two days later we're seeing the real birth of a new political movement.

TOM IGGULDEN: Tomorrow the Greens officially seized the balance of power. Nine Greens senators will
sit, a far cry from 1996 when Bob Brown was first elected to the Senate.

BOB BROWN (1996): Now that causes me to ask: what is that relationship with the Earth, or indeed
with the universe.

TOM IGGULDEN: The balance of power's a crowning achievement for a party that traces its roots back
to 1972, making it the oldest green political party in the world and one that's had its fair share
of critics through the decades.

JOH BJELKE-PETERSEN (archive footage): Who's running them internationally? It's hard to say.
Gaddafi might be, who knows?

TOM IGGULDEN: The critics haven't let up since.

BOB KATTER, INDEPENDENT MP: The Greenie monster has to be fed. Every four or five months we got to
give a human sacrifice to the Greens.

TOM IGGULDEN: Bob Katter's accusing the Government of suspending the live cattle trade to Indonesia
to keep the Greens happy. Graziers in his electorate agree.

MARCUS CURR, GRAZIER: I think we've been forgotten for years. And I think it's time we all made a
stand, to be honest.

TOM IGGULDEN: The Government's just announced a $30 million rescue package for the industry, with
those affected by the ban eligible for an immediate payment of $5,000 through Centrelink.

JULIA GILLARD: This is a short-term hardship package.

TOM IGGULDEN: But there's no word on when trade will resume and the Agriculture Minister's been
facing rising anger at meetings with graziers.

NEIL BURN, RESIDENT: Everybody in this room should be so [beeped] angry at you people they should
just bloody slaughter yous. What you've done here to this group of people in this room is absolute
bloody bullshit.

FRED PASCOE, MAYOR OF CARPENTARIA: With all due respect, the offer of compensation of $25,000 is
but a piddle in the Norman River.

TOM IGGULDEN: Whether or not the Greens did have something to do with the Government's ban on the
live cattle trade to Indonesia, they say they are close to a deal with Julia Gillard on the carbon
tax, which seems to be in its final stages of design.

For her part, Julia Gillard wants to phase it out by 2015 in favour of an ETS, the earliest date
the Greens will allow.

Tom Iggulden, Lateline.

Academics protest Monckton speaking tour


STEVE CANNANE, PRESENTER: Despite a protest by academics, climate change sceptic Lord Christopher
Monckton has started his latest Australian speaking tour.

More than 50 academics have signed a petition calling Lord Monckton ignorant and urging the
cancellation of tonight's speech at Fremantle's Notre Dame University.

Lord Monckton's supporters say the self-confessed climate change layman is entitled to share his
views, but they won't go too far tonight as the media has been denied entry.

Karen Barlow reports.

KAREN BARLOW, REPORTER: Lord Christopher Monckton has been getting plenty of attention. The trouble
is, he says, is that it's not the right kind of attention.

CHRISTOPHER MONCKTON, CLIMATE CHANGE SPEAKER: Well now I haven't lashed the media; the media have
lashed me, I think is probably the fair way round to put it.

KAREN BARLOW: The prominent climate change sceptic is in Perth as part of a speaking tour.

Lord Monckton is still making amends for calling Australian climate change advisor Ross Garnaut a

CHRISTOPHER MONCKTON: The fact is that in politics, and this is now a political subject like it or
not, people will use strong language. They shouldn't use language quite as strong as I used, but
they do you use strong language. You know, shit happens, get used to it.

KAREN BARLOW: He got a warm reception from miners today.

Lord Monckton used chaos theory and selected quotes from the Intergovernmental Panel on Climate
Change to argue that long-term predictions of climate are not possible.

He claims governments are using global warming as an excuse to raise taxes.

CHRISTOPHER MONCKTON: Well I think it's very clear that the Gillard Government needs money, because
socialism is expensive.

KAREN BARLOW: Tonight, the man without academic qualifications on climate science has spoken at
Notre Dame University. This and another engagement next week at the University of Western Australia
has angered Australian academics, who accuse him of spreading discredited climate fiction.

University organisers have defended the British peer's right to free speech, but say that tonight's
oration is an internal event which is closed to the media.

CHRIS DOEPEL, DEAN OF BUSINESS, NOTRE DAME UNI: We are happy to provide a climate where those
views, particularly the ones on public policy responses, and that is the gist of much of his talk
this evening, can be aired and be tested.

in, reporting what he's saying and allowing it to be subjected to the full scrutiny of the public
at large.

KAREN BARLOW: The Sunday Times environment and science editor is surprised by the Australian
interest in Lord Monckton.

JONATHAN LEAKES: He has no peer-reviewed papers, he has no scientific background and really very
little academic credibility at all.

In practical terms, he's not really seen as a serious figure by the British media. And in a way,
the reason - one of the reasons for my interest in him here was because he is being taken so
seriously here, when in Britain, he's effectively ignored.

KAREN BARLOW: And the quality of the climate change debate is under attack on another front. The
recipient of Lord Monckton's fascist jibe, the Federal Government's climate change advisor Ross
Garnaut is also critical of media coverage.

ROSS GARNAUT, CLIMATE CHANGE ADVISOR: Much of the media and public discussion of climate change
policy over the past nine months has been about the crudest and most distorted discussion of a
major public policy issue in my long experience.

KAREN BARLOW: Ross Garnaut has now signed off from his advising duties with the Government as it
finalises its carbon pricing policy.

Karen Barlow, Lateline.

UK public servants protest pension changes


STEVE CANNANE, PRESENTER: Hundreds of thousands of teachers and civil servants are taking part in a
general strike in Britain, protesting over proposed changes to pensions there.

The government wants to reduce entitlements and increase the eligible age as part of wider spending
cuts designed to slash government debt and reduce the budget deficit.

Europe correspondent Philip Williams.

PHILIP WILLIAMS, REPORTER: In the schools, the airports, courts and many other government offices,
it's down tools and strike.

It's not about wages, but pensions. The government wants to slash entitlements and raise the
pension age. Teachers especially are incensed.

PROTESTOR I: I'm 54 years old. This proposed changes to pension is going to extend my working life
to 66, it's going to halve the pension that I get and it's going to mean that if I die my husband
will only get half of what he's due now.

PHILIP WILLIAMS: Pretty angry today?

PROTESTOR II: Very angry. Yeah. And, you know - and I think it's important that the future - you
know, it's for the future generations that we're doing this, not just for ourselves. We're doing it
for everybody.

PHILIP WILLIAMS: In London and many other cities demonstrations have already begun despite calls
from ministers to cross picket lines. It appears three quarters of a million employees are on

FRANCIS MAUDE, BRITISH CABINET OFFICE MINISTER: But people are living longer, we know that, and so
it's perfectly reasonable for people to expect to work a bit longer before they start drawing the
pension, which will still be among the very best.

PHILIP WILLIAMS: Especially hard hit are schools, a regrettable consequence of a government that's
not listening, according to one union.

CHRISTINE BLOWER, NATIONAL UNION OF TEACHERS: Well I say several things to parents. One is: I am
sorry that they're going to be inconvenienced, but the point is that if we have a significant
worsening of teacher's pensions, our survey shows that fewer people will want to come into
teaching; it will be a less attractive proposition.

PHILIP WILLIAMS: But business organisations fear strikes like this mean the nation is a less
attractive proposition for prospective investors.

DAVID FROST, BRITISH CHAMBERS OF COMMERCE: If the UK is perceived as a country where we have a lot
of public sector strikes, then I think investor confidence, perhaps in putting new business into
the UK, could be hit.

PHILIP WILLIAMS: What has been hit are airports as border protection staff joined the dispute,
creating delays and disruptions.

It's too early to tell if this pressure will have any measurable effect on negotiations with the

Earlier violent protests by students protesting against a hike in fees had little effect on the
outcome there.

The government says all of this is unavoidable, the pensions are unaffordable - all part of
rebalancing an economy hooked on debt.

Although no rocks or petrol bombs are being thrown, there are some parallels to what's happening in
Greece because at the core of it all are public finances under severe strain and cuts being made,
and this, the push back from the people affected.

Philip Williams, Lateline.

Greece struggles with implementing cuts


STEVE CANNANE, PRESENTER: While Athenians clean up after two days of violent clashes, Greek
politicians are back in parliament for a second vote on the austerity measures.

A first vote agreeing to the measures was passed yesterday. Now they're deciding how to actually
implement the cuts that they've promised to deliver.

Europe correspondent Emma Alberici reports from Athens.

EMMA ALBERICI, REPORTER: From this to this in less than 12 hours.

Most of the rubble's been removed from the streets, workers already replacing marble tiles hacked
off and used as missiles during two days of violent demonstrations.

Much of the anger is directed at this man, one of the architects of the Government's dramatic
cost-saving measures designed to help pay off loans to the IMF and the European Union that are now
worth $485 billion.

PANDELIS ECONOMOU, GREEK DEPUTY FINANCE MINISTER: We have a huge debt, not the biggest in the
world, not the biggest in the civilised world, not the biggest in the OSCE (Organization for
Security and Co-operation in Europe) countries, among the OSCE countries, but we need to tackle
this problem.

We must face this problem by our own means because with the program we have voted yesterday, we're
safeguarding proper financing and proper serving of that debt., but we have not solved the problem
of the debt itself.

EMMA ALBERICI: Can you pay it back?

PANDELIS ECONOMOU: Yes. Yes. I'm positive about it.

EMMA ALBERICI: Inside the parliament, George Papandreou and his government are preparing for
another vote, this time on exactly how to raise the $40 billion they've promised their
international lenders that they can squeeze out of the Greek economy.

In return, the Government says it's secured a commitment from Brussels that Greece will not require
any more loans. Instead, the existing borrowings will be reduced by forcing mostly French and
German banks to write off a portion of the debt.

PANDELIS ECONOMOU: It's a proper package of reconstructing the economy, getting time for that and
funds for that.

Not enough probably. Not enough to solve the problem of the debt, but we have solved the problem of
serving that debt which means we have time to solve the problem of the debt by ourselves.

EMMA ALBERICI: The toxic smell of tear gas still lingers in the air, but otherwise it is almost
business as usual. The anti-government protestors are gone, but their sentiments are still
ever-present on the streets of the Athens.

VOX POP (voiceover translation): In the current situation, we can't have any kind of solution
because the people tried to get us out of this situation are the same people who got us into it. So
we don't have any hope.

VOX POP II: All I have to say is you'd think somebody's trying to destroy this country, and it's
one of the most beautiful countries in the world.

EMMA ALBERICI: The ruling socialist PASOK party say they have two big priorities in government:
tackling tax evasion and corruption.

It's not a secret in this country that if you're a doctor or a lawyer, you can get by without
paying any tax at all, as long as you know the right people and you're prepared to pay off someone
in the Tax Department to look the other way.

This government might not last long enough to change the Greek culture that's now so entrenched in
bad corporate behaviour.

Fixing those problems will prove a lot more difficult than mending the scars from another night of

Emma Alberici, Lateline.

Greece could be containable: Rossi


STEVE CANNANE, PRESENTER: Now to tonight's guest, Vanessa Rossi is an international economist at
the British think tank Chatham House.

She's written extensively on Greece's debts crisis and how Europe's economic status affects the
international economy.

Vanessa Rossi joins us now from Oxford.

Vanessa Rossi, thank you very much for talking to us.


STEVE CANNANE: For those who haven't been following the economic crisis in Greece as closely as you
have, tell us how did Greece get in such a mess?

VANESSA ROSSI: Well, I think we should firstly go back a little way before Greece actually entered
the Eurozone and recognise that Greece's economy was always quite turbulent.

It tended to lurch from one crisis to another, had very high debt and even under the potential to
devalue, it was not a high growth economy - the average growth rate was about one per cent during
that period.

During the Eurozone entry, Greece made efforts to look like it was stabilising its public finances,
but actually then it enjoyed a higher growth period, three, four per cent growth rates, since the
last decade until the crisis, but of course a lot of this was because of the lower interest rates
enjoyed under the Eurozone, and of course because it built up a lot of debt.

Unfortunately there was very little attention paid to this massive build-up of debt. Even some of
it was relatively hidden.

STEVE CANNANE: It is interesting: you say very little attention was paid. What role did the
European Central Bank in ignoring what was going on in Greece?

VANESSA ROSSI: Well, I think this was of course we have to remember pre-crisis times when the rest
of the Eurozone looked as if it had comfortable finances: there was ample money coming in, there
didn't seem to be a particular problem and undoubtedly in Brussels they thought a little bit of
overrun wasn't too bad a thing because you had higher growth and more rapid convergence in Europe.

The problems all began with the crisis in 2008-9, when all the Eurozone countries were plunged into
crisis, finance became a big problem, and suddenly there was the discovery that Greece actually had
much higher debt than had previously been reported.

Now, this year, we're looking at Greek debt, government debt alone, being 150 per cent of GDP. And
the stark truth is that it is highly unlikely that any country could repay a debt of this kind.

We're really talking here about which form of restructuring we're going to see enacted for Greece.

STEVE CANNANE: Let's talk more about that. Last year Greece had its first bailout and series of
austerity measures. Soon after they had much higher debt-to-GDP ratio, the recession deepened in

Is there any reason to believe that the series of bailouts and austerity measures this time won't
plunge Greece further into recession and make it even harder for them to payback those debts in the

VANESSA ROSSI: Well, I think this is one of the reasons why the central bank governor's waded into
the debate.

He can see the see the same things that I can, that in spite of massive efforts in Greece to curb
the budget deficit - and they did bring it down significantly during this first phase of austerity
- you still have a large budget deficit.

This is partly because they had a massive deficit before, of course. You still have that deficit
and now because of the size of debt, even on highly reduced subsidised interest rates, the payments
you have to make every year on that debt are seven or eight per cent of GDP.

And so you're creating an ever-more massive task to be able to overcome that, and help to repay the
debt. How you can actually draw down the debt, how you can move back to a free capital market
situation, of course I think most of us have already known - analysts have known for at least the
last year - this is not going to be feasible.

It depends which fairytale you want to tell.

STEVE CANNANE: Is the EU in a state of denial? Would they be better in accepting Greece cannot
repay those debts and work out some kind of deal to write off those debts? Or a proportion of those

VANESSA ROSSI: I think this is what we're seeing. The issue we have to address, which is being
addressed - both in Greece with the government - even if it is not well explained in the public -
and with Brussels with the IMF, is how you can buy more time.

Actually, buying time from last year was very valuable. This has meant if this had occurred last
year, if Greece had been close to a default as it has been now, last year we would probably have
seen the euro plunging through parity against the dollar, massive turmoil in the rest of Europe and
much bigger problems for other periphery debtors.

During the last year Europe has been able to put in place other schemes to help other debtors. It's
been able to ring-fence Greece to some extent, and this time around we've seen the euro holding
quite steady. Now that's actually quite a big advance and this points to why it is important to buy

STEVE CANNANE: Is there a downside to buying time, though? The money has got to come from

VANESSA ROSSI: There's definitely a downside. Part of it is that more money has to be put in from
official sources and more of that may ultimately be lost. But it is perhaps a price you're trading
off against the cost of not be able to deal with the contagion.

We're rapidly reaching now the point where the contagion limitation is now offering more
opportunities to play hardball. As we've seen with the latest negotiations, Brussels getting tough
and telling Greece it takes it or leaves it and in Greece itself, I think the problem there myself,
is that you really have to engage in a very thorough debate with the population as well as in the
parliament about which way they want to move forward.

Would they prefer to have a default sooner with all the problems that that would entail for
collapse of financial system, possible euro exit, or would they prefer to stick with the plan,
ultimately in some years' time having to deal with an orderly restructuring of the debt?

STEVE CANNANE: Would Greece be better off defaulting on their debt and leaving the Eurozone?

VANESSA ROSSI: I think that this has to be taken as a very difficult solution. I know that in
Greece it's probably one of few countries in Europe that thinks that the Argentinean solution is
attractive. If they think that they should look again.

Argentina, 10 years after the peso broke with the peg, now GDP is only just back in dollar terms to
where it was a decade ago. That's a long term before you get actual real recovery.

Many things have been said about recovery, but I think the stark truth of this and the problems you
face when you cannot access global capital markets should not be taken lightly. Also, the collapse
in the banking system in Greece.

STEVE CANNANE: Isn't it the case with Argentina though, they've had eight per cent economic growth
every year since 2003 after defaulting on their debts in 2001?

VANESSA ROSSI: Yes, but remember they had a massive fall in GDP before they began the recovery.

I think it is one of the follies of people who think that cathartic crises somehow produce new
growth. It actually means you fall off the cliff and you have to spend 10 years climbing back up
that cliff and if Greece thinks that is a painless solution, it should really be extremely careful
about going down that route.

It is also the case that Greece is not like the Asian economies which devalue and have better
growth because exports rise.

In Greece, manufactured exports are only five per cent of GDP. In Asia they're typically 50 per
cent of GDP. This means the effects of devaluation are simply not as powerful.

You can see the problems from Greece, before it entered the Eurozone, that Greece had turbulence
and low growth and devaluations didn't improve the situation. Greece effectively needs a structural
program of reforms to improve its growth potential.

STEVE CANNANE: Some European bankers have been arguing that the contagion of Greece debt collapse
could potentially be worse than the collapse of the investment bankers Lehman Brothers.

Is that the bankers being alarmist about possible debt restructures or are they right?

VANESSA ROSSI: I think all of us now are relatively prudent about this concept because, after all,
the Lehman experience was so shocking.

It reveals the massive interconnectedness of financial systems which we don't always understand.

I think there are now signs with Greece this may be not as high a risk as has been portrayed.

We've had one year - more actually of the Greek crisis, it goes back almost two years - but one
year of the bailout program.

We've discussed this for a long time. Most of those investors and banks, other financial
intermediaries have had ample time to ring-fence these problems, limit the damage, address where
there may be problems. We are in a very difficult situation today than we were with Lehman in 2008.

STEVE CANNANE: So you're not seeing major implications for the worldwide economy?

VANESSA ROSSI: I think that by now Greece alone could be relatively containable. That's provided
the Eurozone has really done its homework in the last year to be able to salvage the problem of the
other debtors to avoid the contagion that would drag Portugal, Ireland and potentially Spain into
the problem.

If they've done their homework we should be fairly secure. Given the doubts about the Eurozone
competence, I know that's a big if.

STEVE CANNANE: What does this mean for the future of one European currency?

VANESSA ROSSI: Personally, I think the euro is here to stay. This is a much more important currency
in the world. In many ways it has been very successful, been widely used, we have to remember
occasionally what life was like before the Eurozone.

The problems of changing currencies across Europe, the problems of borders across Europe, for not
only ordinary people but also companies, trade and so forth. There have been massive benefits.

We have to set that against the downside risks. If we can manage to contain this crisis and
actually turn around some of these periphery economies, then the rest of the Eurozone is actually
not doing that badly and the euro is not its biggest problem. Public sector debt is a much more
difficult issue.

STEVE CANNANE: Does the Eurozone work? You've got 17 different economies with different priorities,
different growth, different leaves of fiscal responsibility. You've got one monetary policy over
the top of these 17 different fiscal policies and banking systems as well.

VANESSA ROSSI: Yes, but on the whole if you look at the core economies, they have relatively little
problem in coming together and operating under this scheme.

Or, in fact, the problems they do have would be there anyway. Part of the argument I make about
Greece being structural - the difficulties they have to face in governance and the reform of the
economy - are also true of certain other areas, arguably Spain and Italy coming into that too.

If we look at the main partners of France, Germany, Netherlands, the Nordics, even many of the east
European economies, these are moving along pretty well in synchronisation.

The differences on inflation factors for example, and policy, are not so great. So, tackling the
growth problems within Europe I think can still be done under this umbrella of the Eurozone, but it
is perfectly true that Brussels has to be cuter than it has been.

It has to be tougher about the policing of some of the budget issues, the public finances, but it
also needs to be smarter about these issues of growth across Europe than it has been.

We know the old Lisbon agenda of being the most marvellous economy in the world over 10 years
simply was a fallacy.

We now have to look much more realistically at the tough work that needs to be done to achieve
trickle-down growth from Germany into areas such as Mediterranean.

STEVE CANNANE: Vanessa, just finally, just briefly, will the rules for the Eurozone have to be

Under the Maastricht Treaty, which meant to impose strict criteria for countries entering the
Eurozone, there was meant to be strict criteria relating to inflation and debts and deficit. It
doesn't seem any of those criteria have been enforced?

VANESSA ROSSI: This is part of what makes it difficult to rewrite criteria. You can write lots of
lovely stories, but if you're not actually going to implement any of these policies, they won't be
useful. So, whatever we're now looking at for a new regime has to be something which can be
delivered, successfully delivered and policed in ways that will address the problems we've seen and
take the Eurozone forward. I think that's widely recognised. It is probably going to need
considerable changes at the top if you're really going to achieve in the public's eye certainly
those changes and the confidence in implementing those changes in the future.

STEVE CANNANE: We'll have to leave it there Vanessa Rossi. Thank you very much for talking to us


Obama attacks Republicans as debt talks stall


STEVE CANNANE, PRESENTER: The US president has come out swinging over the lack of progress on talks
to lift the US debt ceiling, with increasing market nervousness as the US Government edges closer
to a possible default.

Barack Obama scolded Republicans for holding up a deal.

Washington correspondent Craig McMurtrie reports.

CRAIG MCMURTRIE, REPORTER: It was a frustrated Barack Obama who let loose at Republicans who've
criticised his lack of leadership.

BARACK OBAMA, US PRESIDENT: Then they're saying Obama's got to step in. You need to be here. I've
been here. I've been doing Afghanistan and Bin Laden and the Greek crisis and ...

CRAIG MCMURTRIE: On a day when the IMF warned the US risks losing fiscal credibility, he ratcheted
up the pressure, calling Treasury's August deadline for a deal on lifting the $14 trillion debt
ceiling a "hard deadline".

BARACK OBAMA: If the United States government for the first time cannot pay its bills, then the
consequences for the US economy will be significant and unpredictable.

CRAIG MCMURTRIE: But attempts to get an agreement on reducing the deficit have bogged down over a
Democrat push to get rid of tax breaks for wealthy Americans and end oil and gas industry

In comments that will only infuriate Republicans, the President also compared the work habits of
Congress to his daughters, who he says get their homework done early.

BARACK OBAMA: We are going to start having to cancel things and stay here until we get it done.

MIKE LEE, REPUBLICAN SENATOR: The President has succeeded in playing 76 rounds of golf. He has
succeeded in securing exactly zero votes for his budget proposal.

CRAIG MCMURTRIE: With so much at stake, Barack Obama believes there will be a deal, but with the
Republican leadership saying he's sorely mistaken if he believes the House will support any tax
increase, so far there's little sign of one.

Craig McMurtrie, Lateline.

Thailand prepares for landmark election


STEVE CANNANE, PRESENTER: This weekend Thailand will hold a landmark general election amid
still-simmering political tension.

It's hoped the poll will bring some certainty to the country, which has been in a state of
political flux since Thaksin Shinawatra was ousted in the last coup in 2006.

But there's concern the result won't be clear cut and that jostling to form government will further
inflame deep-seated community division.

South-East Asia correspondent Zoe Daniel reports.

ZOE DANIEL, REPORTER: Thailand remains divided along lines of colour and class. On one side are the
Red Shirts, still smarting from the ousting of their icon Thaksin Shinawatra in a coup in 2006.

They're made up of working class urban and rural poor largely.

On the other side are the so-called elites, an educated, wealthy and royalist group. At their most
extreme they're Yellowshirts, pro-establishment and recommending a no vote at the coming poll in
favour of a period of military rule until stability is established.

At the centre of this colourful fray are two key protagonists.

First, incumbent prime minister Abhisit Vejjajiva and his Democrat party, installed not through an
election but by the parliament after the previous government was banned and dissolved by the
courts, and now desperately trying to hold on to office.

ABHISIT VEJJAJIVA, THAI PRIME MINISTER (voiceover translation): I don't believe that most people
will let any one colour use a loud voice to threaten, to harm and to seize the country. We will not
allow it because we want this country to belong to every Thai.

ZOE DANIEL: Throughout the campaign they've been behind at the polls, but the Democrats haven't won
a general election in almost two decades and would have to govern in coalition with small parties

That remains a real possibility but the Democrats who told number 10 position on the ballot paper
will have to win a substantial proportion of the popular vote to have a chance.

SUPPORTER (voiceover translation): Abhisit Vejjajiva is an honest man who works for the country. He
doesn't work for his own benefit.

ZOE DANIEL: Prime minister Abhisit has long been teased about his good looks and clean-cut image.

But this campaign he's been challenged on that front too. In what at first seemed bizarre and more
recently has appeared a brilliant strategy, Yingluck Shinawatra, youngest sister of Thaksin, has
been installed as the leader of the main opposition Pheu Thai Party.

Her campaign has revolved around rock star-style rallies frequented by supporters who see her as
Thaksin in disguise.

YINGLUCK SHINAWATRA, PHEU THAI PARTY LEADER (voiceover translation): The unity and reconciliation
are also things we have to consider. I would like to announce the intention that we will not think
about getting revenge, but fixing things.

ZOE DANIEL: And while her surname could be seen as a liability, others see it as a strength. Pheu
Thai has led the polls throughout the campaign.

She admits they thinks the same as her brother Thaksin, but argues she's an independent leader.

Both leaders began the campaign focused on the need for reconciliation in Thailand and their
respective ability to deliver it.

Abhisit, through good governance and economic growth; Yingluck through listening to all sides and
promoting dialogue.

But as the campaign has progressed the rhetoric has become more vitriolic, with the Government
reminding voters about violent Redshirt protests last year and the Opposition accusing the
Democrats of inflammatory tactics.

Reflecting the increased tension, there've been a number of fatal shootings involving party

A list of more than a hundred hitmen has been released by police. Early on, former Opposition MP
Pracha Prasopdee was shot and narrowly avoided death.

PRACHA PRASOPDEE, OPPOSITION MP (voiceover translation): I would not trade my life, my blood and
pain for politics.

ZOE DANIEL: Yet political analyst Pitch Pongsawat doesn't expect political violence to break out
after the poll. The Chulalongkorn University lecturer has the difficult task of teaching of
Thailand's youth to understand a political situation that many have lost faith in.

STUDENT (voiceover translation): It's very strange. It became like everyone is corrupt, so maybe
it's better not to vote at all. Should we find another solution rather than an election?

ZOE DANIEL: He sees the election as a necessary means to an end.

PITCH PONGSAWAT, POLITICAL ANALYST (voiceover translation): Both side need to answer principle of

If the Redshirt win they need to make sure that, well, democracy doesn't need to go hand-in-hand
with corruption.

If the non-Redshirt win, right, you need to make sure that you win not by a lot of secret power.
You need to answer a lot of the issue of justice as well.

ZOE DANIEL: He warns that this election is a mere step in a democratic process that won't be
complete until those banned since the 2006 coup are allowed to participate in politics again.

An election result may be known as soon as Sunday night. It's likely the Opposition will win the
popular vote, but the key to who governs will rest on coalition deals with the smaller parties.

Zoe Daniel, Lateline.