John Howard talked his small business credentials up and up something shameless as he addressed the party faithful  in Perth yesterday. Yet in the afternoon, this was running on the wire: “Small business conditions slackened over the last three months of 2006 faced with rising interest rates and a tight labour market…”

They’re both due to the feds. Small businesspeople are notoriously hard to please. They’re capitalists who hate capitalism. And there’s no doubt that IR will be a thorny issue for Kevin Rudd – but will the economy be so bad?

Stephen Koukoulas from TD Securities published an interesting little brief at the beginning of the year that read:

The election is likely to see a change in government, but this should not have any significant market implications. The current Opposition Labor Party has indicated that if it does win government, it is committed to keeping the budget in surplus, it will ensure independence for the RBA, it will keep a fully functioning government bond market and (unlike the Howard government of the past 11 years) the Labor Party will keep the size of government constant as a share of GDP.

While we are waiting to see the full details of the Labor Party’s economic policy agenda, it appears that many of the infrastructure and other microeconomic issues that have underpinned capacity constraints and forced the jump in inflation can and will more likely be addressed more efficiently with a Federal Labor government. This is because there is likely to be a greater opportunity for genuine reform and policy change because all six state and the two territory governments and are run by the Labor Party.

If the Howard government is returned at the election, there will be little change in the thrust of policy…

Reserve Bank Governor Glenn Stevens is giving evidence to the House of Representatives Standing Committee on Economics, Finance and Public Administration – also meeting in Perth – today. And one of the first things he’s said is that interest rates are more likely to rise than fall in the future.

John Howard might be able to warn small business people “whatever the soft selling you’re now getting from Julia Gillard about talking to small business, the nightmare of unfair dismissal laws will return and they will re-establish an industrial relations system that’s dominated by the union movement”. But how strong will his economic credentials remain, er, for all of us?

Peter Fray

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