Prime Minister Julia Gillard has admitted the government faces a “fiscal challenge” in the forthcoming Mid Year Fiscal and Economic Outlook but insists it won’t detract from commitments on disability and education reform.

The statement, to caucus this morning, confirms the government faces a significant challenge from lower-than-forecast tax revenues, particularly given falling commodity prices and the International Monetary Fund’s overnight additional downgrades to world growth forecasts for this year.

Caucus chairman Daryl Melham also announced he is resigning from the post in a move being carefully scrutinised for its implications for internal Labor tensions. The resignation of Melham, said by some to be a Rudd backer who was again preselected for the seat of Banks on the weekend, takes effect at the end of the month before the start of the next scheduled caucus meeting. A replacement will be elected at the meeting on October 30.

Melham’s explanation to colleagues, provided during the course of an historical account of the role, was that eight years in the role was sufficient and that he had undertaken it far longer than previous chairs. However, Rudd supporters within caucus are blaming his departure on the management style of the government executive. It’s a complaint loaded with significance given one of the single strongest criticisms of the Rudd government was over the then-PM’s abysmal relations with caucus.

The government leadership also faced down a revolt on single parent pensions, with more than 20 MPs debating at length a proposal from Senator Doug Cameron and MP Janelle Saffin to defer the controversial cut until after a Senate committee inquiry had reported. The “wide-ranging” debate also covered off the adequacy of the Newstart allowance, a caucus spokesman reported. The Cameron-Saffin motion was defeated, with debate participants said to be evenly split

The PM also reiterated the government’s “long game strategy” to implement controversial reforms early so they would be in place by mid-term in order to given people “a lived experience” of major reforms like carbon pricing and the minerals resource rent tax.

Peter Fray

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