ANALYSIS - Strong economy may save PM Rudd at Australia polls

SYDNEY/CANBERRA Wed Jun 23, 2010 12:17pm IST

Australia's Prime Minister Kevin Rudd delivers a speech to the Perth Press Club as demonstrators protested nearby against the government's proposed super profits mining tax in Perth June 9, 2010. REUTERS/Ron D'Rain/Files

Australia's Prime Minister Kevin Rudd delivers a speech to the Perth Press Club as demonstrators protested nearby against the government's proposed super profits mining tax in Perth June 9, 2010.

Credit: Reuters/Ron D'Rain/Files

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SYDNEY/CANBERRA (Reuters) - It should be Prime Minister Kevin Rudd's recipe for re-election: economic growth for 16 years, unemployment about half that of Europe and the United States, a strong housing market and manageable mortgage rates.

Yet Australian voters who felt little pain from the global financial crisis seem intent on inflicting electoral pain on Rudd this year, and may even turf him from office after just one term.

Rudd has plummeted from record high popularity last year to now having to struggle to defend his leadership following policy failures like his postponement of a carbon trading scheme.

He is battling to gain voter support for a controversial mining "super profits" tax, which was designed to be a springboard for re-election come expected October polls.

But if Rudd can settle the mining tax row or at least take the sting out of the debate before the election, then a robust economic outlook may take centre stage and win him a second term.

"The wobbly global economy is good news politically for the PM -- he can remind voters of his safe pair of hands," wrote Shaun Carney, associate editor of The Age newspaper.

"If the government is to navigate its way to an election victory a few months from now, it needs to be able to blend positive and negative information on the economy into a single coherent message," Carney said.

"Distilled, this message will be: we've made some achievements in firewalling Australia against international collapse, don't put it all at risk."

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Global miners like Rio Tinto and BHP Billiton say the 40 percent "super profits" tax will damage Australia's resource-based economy, although local mining stocks have outperformed their Canadian counterparts since the tax was first announced in May. But the doom and gloom scenario from miners is worrying Australian voters.

Rudd's glimmer of hope is that while voters are deserting him they are not rallying behind the conservative opposition, led by Tony Abbott, and plan a protest vote going to smaller parties.

Many Australians say they will vote for the small but influential Greens party, but the twist is these Green voters are expected to preference Rudd's Labor with their second vote, saving the government what could be critical seats.

Rudd hopes voters will remember his A$52 billion stimulus which saved Australia from recession, but he's not confident they will make the connection at the ballot box.

"Those whose jobs were saved don't know who they are, and, even if they did, would be hard pressed in most cases to draw the link between retaining their employment and the government's actions," Rudd told reporters this week.

"MISERY INDEX" LOW

Voters seem happy with their economic prospects, which should augur well for the government. Australia's "Misery Index", unemployment plus inflation, is just off a 37-year low, at 8.1, compared with 11.7 in the United States.

"The Misery Index remains historically low. That is a key variable when you are thinking about the strength of the economy and the prospects for the incumbent government," said Craig James, chief economist at CommSec.

Unemployment remains an issue in Europe and the United States, but Australians are enjoying strong jobs growth and low unemployment around 5.2 percent.

Home ownership in Australia is like a religion and if house prices fall and mortgage rates start to hurt, then government politicians need to be concerned. Luckily for Rudd, house prices in the major cities climbed 20 percent in the 12 months to March and mortgage rates are lower than when Rudd was elected.

A growing population and a shortage of homes, projected to reach 300,000 by 2014, will continue to boost house prices.

At the same time the Reserve Bank of Australia seems to be holding cash rates at 4.5 percent, leaving mortgage rates around 7.4 percent, compared to the high of 8.97 percent in 2007.

Consumer confidence has fallen in recent months, fuelled in part by concern over global financial conditions, with voters nominating the budget and taxation, followed by economic conditions and rising interest rates as their main worries.

But Australians are optimistic about the next few years. Around 40 percent of Australians expect their family to be "better off financially" this time next year compared to near 17 percent that expect their family to be worse off, Roy Morgan weekly consumer confidence surveys showed in June.

The Westpac-Melbourne Institute index measuring expected economic conditions for the next two years is 25 percent higher than in June last year.

The central bank says the second leg of Australia's resources boom, driven by China's appetite for its minerals, is now under way and may last a decade or more.

"I think if there was a sharp economic dive, then there would be a number of reasons why Rudd would have problems. But things are looking reasonable," said Rick Kuhn of the Australian National University, who expects Rudd to win the election.

"As one senior minister has said, once the campaign starts, two or three percent (of voters) will come back to Labour."

Some commentators see the miners' multi-million dollar advertising campaign against the resources tax, which uses average Australians to warn how the tax will adversely impact their livelihoods, as possibly benefiting Rudd.

"The government needs voters to get worried about exactly where the national economy is headed because they'll be less disposed to give Tony Abbott and the Liberal-National coalition the benefit of the doubt," Carney said.

Other commentators see this as a delicate balancing act. If voters become too worried about the economic outlook, then they may turn their backs on new boy Rudd and revert to the conservatives, who held power for 12 years until 2007.

Carney believes the 2010 election will be about who voters see as the lesser risk.

"The international economy will be cast as a scary, uncertain place, while Australia under Labor has been a calm, prosperous nation led by a government that's made some serious mistakes but is determined to learn and do better," Carney said.

"This year it will be about risk, if Labor gets its way."

(Editing by Andrew Marshall)

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Comments (1)
argyle wrote:
Short life on this analysis – Kevin is no longer the Australian PM!

Jun 23, 2010 9:43am IST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

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