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July 27, 2007
The Howard Government's economic credentials are looking shaky with the surprise rise in headline and underlying inflation and the increased possibility that interest rates will be increased by the Reserve Bank of Australia. The weight of evidence is that underlying inflation is now close to the top of the Bank's 2-3 per cent target range.
Bill Leak
Labor has made successful inroads into the Costello economic management in recent months by raising the issue of housing affordability and household budgets and saying that the Government is out of touch. The inflation rate opens up a space to point the finger at the big election spending --buying the voters with lots of Xmas gifts.
So, though we have boom times and low unemployment, the Howard Government looks shaky, even if the the polls are overestimating the Labor's vote. If Howard and Costello are in denial about battlers doing it hard in struggle street or the need for an interest rate rise, then Labor says that it is a safe pair of economic hands. If Kevin Rudd doesn't play ---there are no differences apart from IR--then the states have to set up (wall-to-wall Labor governments) and then bashed (incompetent). Howard is trying to create conflict and antagonism to get some poll traction. Tim Dunlop has more on this strategy
So will the Howard Government bite the bullet and recognize economic reality and the need for tightening monetary policy? An increase in interest rates will be unpopular among the Howard battlers and cash strapped households. What then?
Peter Brent from Mumble.com argues in The Australian that this increase could work in favour of Howard and Costello. He asks: 'So what might happen if interest rates move up before the election?' His answer:
For one thing, it will turn people's minds to, well, interest rates. Australians are in hock as never before and the thought of further rises can be stressful. Perhaps - you never know - John Howard and Peter Costello will take the opportunity to cite Labor's 17 per cent from the late 1980s. Fear can be paralysing, and people who are scared don't like to take chances. If rising interest rates induce stomach-churning about the prospect of further hikes, then the status quo option - the Government - will look more attractive. In this way a rise in interest rates may help the Government.
Maybe. A lot of people are drawing down on the equity in their houses to buy things they need. There is a large group of people who aren't interested in economic issues as they've never experienced a recession.
So the Howard government needs to undermine Rudd's economic conservative credentials and that he stands for a safe pair of hands. Can they do so?
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Gary,
re your comments about Howard's bash the states strategy. Peter Hartcher in the Sydney Morning Herald has an op-ed on this. He says:
Hartcher adds that by being seen to stand up to the states, Howard helps frame one of the big questions looming for voters in the federal election - are you prepared to put every government in the land into the hands of the Labor Party?