Kevin Rudd ends the year on a remarkable high. He has pushed Malcolm Turnbull, whom we all expected to make life more difficult for the Government, back to Nelsonesque polling numbers. Employment held up in November, despite near-negative economic growth. His stimulus package is rolling out, and it won’t be the last handout. He’s copping criticism from both the Left and Right for his climate change strategy — right where he wants to be. And the Opposition is in disarray, fighting amongst themselves, keeping the political focus on internal divisions — exactly where they were for much of the year.

That’s the politics.

In policy terms, Rudd ends the year with major challenges. His seeming willingness to corrupt an emissions trading scheme in favour of looking after rentseekers and commencing with a virtually notional target represents the smallest of steps forward from where the Howard Government would have taken Australia. The financial crisis has removed at a stroke the surpluses Labor was relying on to fund its infrastructure, education, health and Commonwealth-State reform agenda. The Government seems more committed to propping up unviable manufacturing industries than encouraging innovation. And above all, 2009 will almost certainly see a dramatic rise in unemployment.

Above all, the sense remains that this Government baulks at taking hard decisions, decisions that will cost it support. Next year, there will be nowhere to hide for a risk-averse government. At some point Rudd will have to show a capacity not just to work hard but to take the risk of alienating significant constituencies if he is serious about significant reform. You can’t stay popular forever if you don’t do anything.