CANBERRA OBSERVED: by Peter WestmoreNews Weekly
Inflation: next test for the Howard Government
, August 19, 2006
There is little, in the short-term, that the Howard Government can do about rising fuel prices, inflation and interest rates.The combined damage of higher petrol prices, inflation and interest rates is causing some heartburn for the Howard Government.
Prime Minister John Howard, who has nothing if not a long political memory and an acute smell for what moves voters, understands the potential dangers better than most.
In a recent candid interview, the PM declared: "The big ongoing additional cost thing is petrol and it's the greatest worry of my political life."
With an election due in about 18 months, and the first poll since the 1998 GST election to be fought entirely on bread-and-butter issues, Mr Howard is justified in outlining his concerns.Oil shock
Other observers with long political memories will also recall that it was the oil shock of the early 1970s that caused governments of various persuasions around the world to tumble as inflation spiralled upward and markets suffered turmoil.
The Howard Government is also being troubled, on a separate front, with the ACTU continuing to run as a de facto
The unions are spending millions on an effective advertising campaign to highlight problems with the Government's new WorkChoices industrial relations system.
One senior government strategist said that, even though there were tens of thousands of good employers, the Government's detractors only needed to find 365 "rogue ones" across the country to fire their ammunition.
"You can trot a new bad employer out each day - one each day for the next year," he said.
While the Government itself spent tens of millions introducing the public to its workplace laws, negative advertising is proving far more effective.
The Reserve Bank has expressed its own nervousness about the current economic situation, warning that we may face our own version of the 1970s wage-price spiral.
The Reserve's inflation target zone is between two to three per cent, and recent petrol price rises and food price hikes (caused by the devastated banana crop) have seen inflation leap to more than four per cent.
New Reserve Bank chief Glenn Stevens will want to try to stamp his own authority by acting early in his term to tame inflation and to avoid a possible breakout on the wages front.
These days, though, the Reserve Bank uses the media to "jawbone" the public into being more frugal, or at least to dampen the housing investment mania.
The bank would not have been unhappy about the week of bad headlines about its interest-rate rise - even though the actual change was only a quarter of a per cent.
However, it also understands the political reality that Australian householders, who are mortgaged higher than at any time in history, are living on a knife's edge.
One interest rate rise too many and Australia could easily tip over into recession.
While all this is helping to lift the Opposition in the polls, it is difficult to see whether this will translate into votes in the coming election.
Kim Beazley is certainly the beneficiary of any interest-rate/petrol-price angst, but what will he be able to offer as an alternative?
Mr Beazley is arguing that the Government needs to introduce a mini-Budget to reposition its economic settings - but this in itself will solve little.
He also argues that the Government needs to have more urgency in addressing the skills shortage and infrastructure bottlenecks to ease pressure on inflation.
And Labor correctly wants the ACCC (Australian Competition and Consumer Commission) to be given more powers to stop periodic price-gouging by petrol companies.
But there is virtually nothing in the short-term that any Australian government can do about petrol prices, though in the long-term they can and should be doing more on the ethanol front.Locked in
Both the Howard Government and the Opposition have locked themselves into maintaining the current excise/GST regime.
The Greens and Australian Democrats, for entirely different environmental reasons, also oppose cutting fuel excise.
Family First remains the sole political party advocating a 10 cents per litre cut.
If the petrol price pain becomes too troublesome for the Government, it could succumb and offer a temporary tax cut to ease consumer pain.
But, while voters may be turning toward Labor as a possible alternative over the next 18 months, they will need a lot more convincing to secure their actual vote.