Friday, January 19, 2007

Economic predictors

With a federal election later this year the media jockeying is now underway. It is common in Australia for each party to contest the underdog position, essentially to lock in wavering voters. But a couple of headlines this week seemed to be taking that approach to extremes:

Electoral loss will mean death of Liberal Party (The Liberal/National coalition currently govern under John Howard.)

Poll loss the end for ALP, unions (The Australian Labor Party are seeking to break a decade on the opposition benches)

To put these competing claims into perspective, the former Labor leader Kim Beazley says the loser of this year's federal election will struggle to survive as a political force. A bit over the top of course, parties might come and go but the only changes are generally in name not substance.

Part of the problem for the Liberal Party is John Howard’s total dominance for more than a decade, and the extremely conservative direction he has taken the party. In the process Howard has managed to systematically destroy any challengers, always a danger with dominant leadership. Britain’s Labour Party faces the same issue when Blair finally departs.

If the Liberals lose in Canberra they will be out of office in every jurisdiction in the country. But that is not enough reason to call the end of the party. The Australian electorate maintains a fine balance between state and Federal politics, and we would most likely see the Libs picking up state and territory governments.

The upcoming NSW election could be a litmus test in this regard. Labor should win easily, but if the NSW voters sniff a federal win for Labor they might well pre-empt things and dump the state Liberals into power.

Even without stories like: Inflation puts rates fear in Coalition MPs the average voter knows they are getting ready to shaft Howard. With interest rate rises predicted, the emphasis on rises, people are hurting.

Economists calculate that every 0.25 percentage point rise in interest rates takes $2billion out of Australian consumers' pockets. “The problem for the Government, as it prepares to fight an election due in October or November, is that the impact of rate rises is concentrated on the 30 per cent of households - many in marginal seats - that have a mortgage.”

Labor analysis of the 2004 election results showed that the Government's interest-rate scare campaign was most effective in polling booths in electorates with the highest number of mortgage holders.

Financial markets now are starting to give some thought to a nightmare scenario for the Government of another two or three rate rises this year.

I don’t really see the death of either major party, regardless of election results. But I can see the Howard government taking a hiding at the polls, and not before time. It’s just a shame people need that financial hit before they take the hint.

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