As each drip of data suggests an economy under inflationary pressure, John Howard and Peter Costello will be hoping an economic version of Stockholm Syndrome keeps voters faithful to them.
As the Government has been quick to point out, it’s pretty hard to have the benefits of an historic economic boom, including near-full employment and tax cuts, without the negatives, like inflationary pressure and the higher interest rates now being foreshadowed.
But when Howard promised in 2004 to keep interest rates low – no matter how he parsed it subsequently – it always looked like a written invitation to Nemesis to show up three years later. Yesterday’s IMF report, urging fiscal restraint in an at-capacity economy, suggests that that good lady is flexing her wings for the flight to Kirribilli.
The Government would’ve known the IMF report was coming, and factored it in to the timing of its tax announcement. Even Daily Telegraph readers might think it wasn’t very responsible to announce tax cuts after the IMF suggested the Government should take its foot off the accelerator.
But the Government’s reliance on so-called “aspirational” voters places it particularly at risk. Stereotypically, such voters reside in an air-conditioned McMansion in an outer suburb and care only about how to pay off the enormous mortgages they have acquired. And they’ve multiplied in the economic conditions of the last decade. Personal debt, house prices and mortgages have all increased significantly, so that large numbers of households are now exposed to even small increases in interest rates. Further rates rises will thus make such aspirationals decidedly perspirational.
To combat this, Howard and Costello have only one line: it might be bad under us, but it’ll be worse under Labor. The high interest rates of the Labor years are invoked (and the higher rates under Treasurer Howard quietly ignored).
In other words, having encouraged an economic framework of high debt and reliance on appreciating housing assets, the Government is in effect now telling worried voters that only it can prevent the whole house of cards from collapsing around them. Punters may not like it, but the idea is they’ll be too scared to turn to the other side. It’s rather like hostage-takers hoping their captives will end up identifying with them.
All things being equal, this ploy might actually work. But, thanks to WorkChoices, things definitely are not equal. The removal of employment protection affects aspirationals just like everyone else.
In an economy with near-full employment, they may not be too worried about losing their own jobs. But seeing their kids have to take pay cuts or get sacked will anger even the most self-absorbed McMansionite.
In such circumstances, the Government’s message that it is the lesser of two evils isn’t going to go down very well. The hostages are likely to beat their captors to a pulp.