The last time interest rates rose during an election campaign was in 2007. Inflation had reached 3% and the Reserve Bank feared it could climb higher.
His decision to raise rates just two and a half weeks before Election Day was not well received by the Howard government, to say the least.
Howard, already facing likely election defeat and with nothing to lose, issued an immediate apology to the mortgage holders:
“I don’t like it and would say to Australian borrowers who are affected by this change that I am sorry about it, and I regret the additional burden that will be placed on them as a result.”
By the end of the month, he had lost the election and his own seat.
Scott Morrison must now consider how he will react if he suffers his own mid-term interest rate blow next week. Don’t hold your breath to apologize.
Wednesday’s inflation data came as a shock to both the government and the Reserve Bank. They were expecting a number with a 4 in front. The 5.1% result was another blow to the Coalition’s campaign. It confirmed what everyone was feeling at checkout: prices hadn’t gone up like this in decades.
Aware that inflation news was unlikely to be good, the prime minister spoke to the media two hours before the figures were released to set the stage. He acknowledged the pressure facing Australian families, reminded them of the cost of living supports announced in the budget and pleaded with them to look overseas where the problem is much worse.
Morrison even produced a graph to show how much higher inflation is in other countries compared to “what the markets estimate at 4.5% in Australia”. It’s unclear if anyone pulled out the sharpie to correct their chart when the real numbers came out.
Global comparisons will be of little comfort
Even at 5.1%, Morrison is right that inflation is worse elsewhere. And the treasurer is right to blame the war in Ukraine and the COVID supply constraints.
But international comparisons are likely to provide little comfort to those struggling to pay more for meat and seafood (up 6.2%), fruits and vegetables (up 6.8 %), housing (up 6.7%) and fuel (up 35%). ). Especially when wages are way behind (up just 2.3 percent over the past year).
The next few days will now be consumed by speculation on how the Reserve Bank will react. It’s no longer just a question of whether rates will go up. It is now also a question of how much.
After the precedent of 2007 – raising rates when inflation was 3% – leaving them as they are now that inflation has climbed to 5.1% risks being seen as a political decision.
Around 3 million Australians have a mortgage. Some of them took out tempting loans and never saw a rate hike.
The work is already preparing for the imminent decision of the RBA. Shadow Treasurer Jim Chalmers said a rate hike, coupled with slow wage growth and a spike in the cost of living, would represent the “triple whammy” of failing economic management.
The government’s best hope is to convince voters to stick to what they know in these uncertain times – managing the economy is complicated, now is not the time to risk change. Some activists argue that the Coalition is winning as long as it continues to hammer home this message and the focus is on its turf: the economy.
Albanese’s absence from COVID does not cause serious damage
However, this does not seem to work on the Coalition’s other favorite terrain: national security. As we approach the halfway point of this campaign, there has been little movement in published polls, despite the intense focus on China’s security pact with the Solomon Islands.
The daily warnings from the Prime Minister and others about the threat to Australia and the danger posed by putting Anthony Albanese, Richard Marles and co in charge don’t seem to be changing the needle.
Morrison’s personal numbers have improved slightly and some who know the Coalition’s internal polls say there is still a narrow path to victory, but they know they are still behind. Those familiar with Labor polls, on the other hand, seem much more confident.
It turns out that Albanese’s absence from COVID has so far caused no serious damage to the Labor campaign.
A sharper focus over the next week on the cost of living and interest rates should force a closer look at economic and fiscal plans. On Wednesday, Labor pledged $5 billion in fiscal repairs by cutting contractors and hitting multinationals. In reality, a $5 billion improvement is a small beer when predicting accumulated deficits of nearly $225 billion over the next four years.
Labor has promised a “waste audit” of public spending if it wins on May 21, but is unwilling to identify a specific cut ahead of the election. Neither side is serious about controlling spending. Instead, they are both relying on economic growth to fill the structural deficit slowly and painlessly, at some point in the very distant future. No one can say when.
Which brings us to the other impact of rising rates – servicing the country’s ever-growing debt. Interest payments are already expected to hit $22 billion a year by 2025-26, a figure that could rise if rates climb faster and higher than expected.
At least that’s a problem John Howard didn’t face in 2007. Back then, there was no debt.
David Speers is the host of Insiders, which airs on ABC TV at 9 a.m. Sundays or on iview, and co-anchor of Q&A.