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Last Updated: Wednesday, 21 November 2007, 23:55 GMT
Rudd aims high as Aussie economy booms
By Simon Atkinson
Business reporter, BBC News

A truck at a mine in Western Australia
The commodities boom has fuelled Australia's domestic inflation

When the closure of a KFC restaurant was splashed across the front page of the Mackay Mercury last month, it was not just a bit of parochial news in an Australian town.

Instead, the woes of Colonel Sanders were symptomatic of one of the biggest problems faced by parts of the country - a less-welcome side effect of surging demand, especially from China, for the nation's commodities: coal, copper and iron.

Fewer places have felt the success of country's economy more than the north Queensland town - a base for people going to work in the coal mines 200 miles to the West.

As commodity prices have soared, so too have house prices and the wages on offer, both in the mining industry and in the businesses that support or feed off it.

"People have got used to economic prosperity and so the government's strength in economic management is not as much of an electoral bonus as might be expected,
Prof Clive Bean
Queensland University of Technology

It is this - and the resultant inability to recruit people to more lowly paid jobs - that forced the fast food outlet to close its doors and get by only running its drive-through.

'Experience and ability'

Granted, when Australians go to the polls on Saturday for the federal election, the availability of chicken wings is not going to be prompting many to sway between the incumbent coalition, led by Prime Minister John Howard and his Labor opposition, the bookies' clear favourite, led by Kevin Rudd.

But in the crucial final days of campaigning the economy has been at the top of the agenda. (Studies suggest that in the last election about 20% of Australians did not make up their mind how they would vote until the final week).

Mr Howard has 11 years of strong economic management under his belt, supporters say, and he has certainly been playing on it

So while Mr Rudd has been accusing the government of failing to ensure prosperity beyond the mining boom, Mr Howard has been adamant that it can continue well into the future.

AUSTRALIAN ELECTION
More than 13.5m of Australia's roughly 21m people are registered to vote
Electors will choose candidates for all 150 seats in the lower House of Representatives and 40 of the 76 seats in the upper house, the Senate
PM John Howard has led the conservative Liberal-National party coalition to four election wins since 1996 and is seeking a final term
Kevin Rudd is taking the centre-left Labor Party to the polls for the first time as leader
Election issues are the economy, environment and war in Iraq

This week he gave a press conference in front of a red backdrop adorned with a new slogan: "Don't risk our economy with Rudd".

The prime minister has continually argued - as in previous elections - that it is his party that has the experience and ability to continue Australia's economic prosperity.

His treasurer Peter Costello warned of how the Australian people could "look back in fondness at interest rates of 8.5%" if they were to elect a Labor government.

Marginal matter?

However, the message has been a hard one to sell to voters.

The government's economic credentials took a serious knock last month when the central bank - the Reserve Bank of Australia - put up interest rates to 6.75% from 6.5% to try and rein in inflation.

It was the first time in Australia's history that the politically independent RBA had made such a hike within an election campaign.

The government said that events beyond its control - most notably the worst drought in a century - were behind the rising inflation.

And of course the influx of income from natural resources has also inflated the domestic economy - driving up the exchange rate, which some argue is potentially damaging for its long-term prosperity as it is making the country less internationally competitive.

John Howard
John Howard has already won four Federal elections

Politics professor at Queensland University of Technology, Clive Bean, says that for all the emphasis put on it by politicians, the role the economy would play in the minds of the voters would be "probably mainly at the margins".

"People have got used to economic prosperity and so the government's strength in economic management is not as much of an electoral bonus as might be expected," he says.

"Voters, to a large extent, accept that various factors outside of the government's control have had an impact.

"But when the government claims success for managing the economy well it also ends up taking some of the blame for things like rising interest rates, especially when it had campaigned so hard on its ability to keep interest rates low at the last election."

Rising inflation has not stopped both sides promising massive incentives to try to win over the electorate.

Labour's offerings were dwarfed by the war chest of the Coalition's, which launched its campaign by offering 9bn Australian dollars (3.9bn) on new tax breaks - including promises for first time home buyers and tax deductions on school fees.

It took its total commitment to 34bn Australian dollars.

The economic advantage for the government has been weakened slightly by the rise in interest rates
Prof Paul Warhurst
Australian National University

Indeed, the national newspaper, The Australian, describes the prime minister's tactic as "spend big and cloak yourself in economic responsibility".

Incumbency advantage?

Meanwhile Labor pledged about A$31bn worth of tax cuts, inevitably leading to accusations that such generosity could only exacerbate the widening inflation.

"The government's spending promises weaken their claim to fiscal rectitude, but the economy remains the government's key card," says John Warhurst, professor of politics at the Australian National University.

"But the economic advantage for the government has been weakened slightly by the rise in interest rates, though the issue here is as much the trustworthiness of the government as the rate rises themselves."

Kevin Rudd
Mr Rudd is odds-on to lead his party to victory

Professor Warhurst argues that if the government is going to be saved, it is the economy, plus the advantages of incumbency, that will be key.

But he says that it also needs the support of the business community on controversial workplace laws.

Labor is planning to repeal much of the controversial industrial relations legislation - known as WorkChoices - which came into force last year.

'Error of judgement'

The government introduced the new laws to make the workplace more flexible, to encourage workers onto individual labour contracts and off trade union-backed pay deals, and to save employers from facing court action when they sack workers.

Unions argue that this has driven down conditions and wages.

The government says they are key to the economy, creating jobs and keeping unemployment at record lows.

I barely walk through a shopping centre in Australia without people telling me about the impact WorkChoices is having on their lives
Kevin Rudd
Leader, Australian Labor Party

"I talk about keeping the mining boom going because we believe the maintenance of our industrial relations will do that," Mr Howard said this week during a visit to a marginal constituency in Western Australia - the state that has been transformed more than any other by demand for the nation's natural resources.

"Mr Rudd's knows the implementation of his policy will kill the mining boom."

But Monash University analyst Nick Economou says voters are nervous about the government's new Labor laws and that it is this that could "bring them down".

"Its industrial relations policy continues to be the government's main problem as this has been the main catalyst for a major shift in stated voting alignments," he says.

"They've committed a big error of judgement. It has made people really insecure in what should be a time of prosperity and stability."

Mr Rudd accuses the PM of "treating working people as economic commodities".

"I barely walk through a shopping centre in Australia without people telling me about the impact WorkChoices is having on their lives,'' he says, in a speach at the National Press Club this week.

Whether such sentiments translate to votes may become a little clearer on Saturday.

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