John Howard says that interest rates will be higher under Labor than under him, and so journalists run out and find a bunch of experts to say that governments have little or no effect on interest rates. They could save their time, because governments do have an effect on interest rates, and even if they don’t, voters believe they do, so as far as election results are concerned, they might as well.
Which is not to say that John Howard has a particularly circumstantially strong argument. A friend, Michael Lee, provided me with this chart. It shows interest rates from the days of Billy McMahon through to the present, both here and in the USA. One can see that under the Howard Government rates have been dramatically lower than under the Hawke/Keating governments – an average of 11.46% versus 5.46%. But it shows a quite different story when comparing the Whitlam and Fraser period. Under Whitlam, interest rates averaged 9.42%, while under Fraser they averaged 12.33%. So the circumstantial evidence to support Howard’s case only appears to hold true in the case of his government versus the previous one. A point that Latham has made.
But there are a few more wrinkles in the circumstantial case, which don’t help Latham. In the period before Whitlam took office, rates had averaged 6.35% since 1969. During his watch they topped out at 21.75% – a figure a touch higher than any reached by Fraser, contrary to Latham’s assertions. So, while the Fraser government did have higher interest rates on average than Whitlam’s, it also inherited a rapidly accelerating trend. One can only speculate what heights Whitlam might have reached if he had inherited the same interest rates of 8% from his predecessor as Fraser did. This leaves Howard with the circumstantially arguable case that the last 30 years have represented a struggle by Liberal governments to get control over interest rates that have run away under Labor Governments.
One objection often raised to Howard’s circumstantial argument is that Australian interest rates mirror overseas interest rates and Howard is just a beneficiary of a benign international interest rate climate. There is some truth in that, but only some. As the graph shows, based on comparing our 90 day bills with US 90 day treasuries, under Labor, in Australia interest rates have been dramatically higher than in the USA. Even though our rates have mirrored international fluctuations, those fluctuations in Australia have been vastly exaggerated on the high side.
So much for the circumstantial argument. What about the causal relationship? Is it true, as Bob McMullan claimed yesterday that “Interest rates don’t respond to political parties, they respond to good policy…History doesn’t support what John Howard is saying, independent commentators don’t support what John Howard is saying, the financial markets don’t support what John Howard is saying.”? The Herald Sun summarised this as “Interest rates [go] up and down regardless of which party [is] in government”.
The answer is no, judged on the basis of history. Political parties do have an effect, because policy and how they implement it is born out of the sort of organisation that they are. Labor tends to want to do more than is financially possible. In fact, Australia’s interest regime became volatile in the 70s as a result of the mismanagement of the Whitlam government where government expenditure grew well out of control so as to fund Whitlam’s wish list. Keating innovated more modestly on the tradition, but given a choice between growth and moderation, he used to go for growth, and boast about it, until he had no choice but to hit the brakes. Journalists may not remember these things, but ordinary voters, even if they can’t remember the particulars, remember the effects. Latham may be different, but will voters take the punt?
Of course, it is not so long ago that Bob McMullen was claiming that Howard was bad for interest rates, so his record as an economic analyst is a bit opportunistic. In fact, he has a lot of front to make the accusation later in the article that “It’s just another instance when the Australian people can’t believe the Prime Minister”. Whether or not interest rates go up under Labor, the speculative bubble that is most interesting to watch is the one in accusations of lying. If they continue to deal with the facts like this, it may burst for them sooner rather than later.

We’ll be running a dedicated campaign blog later in the election, but for now I’m going to be doing more than my quota of posts on this blog. Election coverage requires you to do a bit more than the occasional “thought piece”, which is what this blog is primarily designed for.
One of the things election coverage demands is blow by blow commentary on who is getting the upper-hand, and this is my first piece of that type.
On my analysis Mark Latham is having a very ordinary election so far. He was flat-footed in his response to the Prime Minister’s announcement of the election. On the other hand Howard was upbeat and produced his “truth/trust” play on words and contexts. Some comment suggests that Howard had gone for the “trust” line on the spur of the moment. I find that hard to believe. My suspicion is that the Government has had a campaign ready to go, but has not wanted to show its hand before the election period. Howard is such an instinctively conservative person that it is impossible to see him just winging it on a major campaign theme.
In his response Latham just trotted out the Ladder of Opportunity again. As an image it is fine, but it is going to need some substance behind it if it is going to take him over the walls of The Lodge. Mark has had months to prepare for this moment, and, to use an Olympic metaphor, it looked like he was still in heavy training and hadn’t tapered properly for the event.
Watching Latham I was also fascinated by his look. While he is pitching himself as the agent of generational change, he actually has an old-fashioned Labor look about him. I’m not sure whether it is his unruly cowlick or the cut of his suits, or maybe the way he walks, but it has a mid-twentieth century feel to it. Perhaps it is a case of taking the boy out of Green Valley, but not taking Green Valley out of the boy. That, coupled with his recent health scares, and Howard’s power walking prowess perhaps open the way to Howard to use another “pivot word”, taking “age” and turning it into “fitness”.
The first day of any campaign is the day when you state your case to be re-elected. The second day is when you start to develop it and start to probe your opponent’s case to expose its weaknesses. It is rare for either side to make any big gaffes this early in a campaign, but both did.
On the Liberal side it was Peter Costello’s initial failure to rule out challenging for the leadership. It illustrates why Costello does not have widespread support inside the Liberal Party. He has shown himself to be self-indulgent and ill-disciplined on crucial issues. Howard must have been ropeable. It is not as though most voters are likely to be too worried about who is going to replace Howard, but a niggling issue like this has the potential to create media static which drowns out the message that he wanted to drill home that day.
Fortunately for Howard, Latham made an even greater gaffe. He denied Labor had a plan to introduce a payroll tax, and then compounded the gaffe by trying to distinguish the plan, which has been Labor policy for two years, from a tax by saying it was a levy, and then being unable to explain what the difference is. For the record, while lawyers may make some distinction between “levy” and “tax” in a general sense economists don’t, and neither does common english usage. Labor hard-heads might care to check this entry in Thesaurus.com. The synonymns that it lists from Roget’s Thesaurus for “levy” are “burden, collection, custom, duty, exaction, excise, fee, gathering, imposition, impost, muster, tariff, tax, toll”.
It is one thing to go after your opponent as a liar and evasive, another to prove to be so yourself. This election is not likely to be directly determined on the Children Overboard issue, but it is likely to be determined by threats to the household budget, so in the evasion stakes, Latham is in trouble, because he has fudged about something electors care about. Of course most voters won’t have noticed the mistake because they haven’t noticed that there is an election on, but you can rely on the Liberal Party to use the issue in advertising or direct mail.
Latham should have immediately confessed to having been confused by the question and owned up that Labor did indeed propose the equivalent of a payroll tax. He could then have been effective in stressing that at .1% of payrolls in companies with more than 20 employees it is not a signficant cost and by providing a fund to ensure that employees of companies that go bankrupt are not robbed of their wages represents a clear benefit to employed Australians. Instead he just undercut one of his main campaign themes of “truth”.
Latham and Howard appear to both have a similarly stubborn streak which leads them to refuse to admit that they are wrong. It is the effort to prove they are right that leads to the evasions. This is a very human reflex, but the fact that it is common to both leaders reveals the Labor tactic of running a substantial part of their campaign on the issue of truth is flawed.

While political leaders construct their messages in terms of policies and ideals, elections are most often won at the emotional level. So, despite all the rhetoric yesterday from both sides about security, health, education and interest rates, the pitches were actually to the electorate’s gut-level – you just needed to decode the language.
Labor will run a very nasty campaign based on the accusation that John Howard is the most dishonest leader the country has ever had. It won’t be primarily run by the leader but through direct mail, talk-back radio, and, increasingly, the Internet. It will focus on the word “truth”.
The Liberals will run a very nasty campaign based on vilification of Latham and memories of Keating. It will be run by the leader using earned media, as well as through direct mail and talk-back radio, but not so much the ’net. The Liberal campaign will focus on the word “trust”.
In the battle between “truth” and “trust”, I think that “trust” has the upper hand. This is not a prediction that John Howard will win – there are other forces that might tip him out of office.
The media and many of the elite have been obsessed by the belief that John Howard lies and that this is an important political fact. So we have phenomena like Margo Kingston’s book Not Happy John, and the movement of the same name, fronted by John Valder. We also have www.johnhowardlies.com.au and other websites running variations on it, including the Labor Party’s “27 lies” section of their own website.
But the nub of the complaint isn’t that John Howard lies, it is that many of these people are shut out from the levers of power by Howard’s government. Natasha Cica, the editor of new eJournal, New Matilda, another manifestation of the phenomenon, expresses the feeling when she says “If you don’t like what’s happened to our nation and its sense of decency and possibility under Howard’s watch…”
For those who never had access, or aren’t shut out, the accusation doesn’t pass the dinner party test. At least it didn’t at mine last Saturday. “Well, they all lie, don’t they?” summed up the responses to my ad hoc qualitative research. So the charge of “dishonesty” is really dog-whistling to the left.
It has to be covert rather than overt because Labor can’t win on left-wing votes, it needs centre votes, and if it tells the left what it wants to hear in plain words, it will lose the centre. Yet, just as Howard needed one Nation voters to be enthusiastic for him in 2001, Labor needs its left enthusiastic for them. “Howard lies” is a rallying cry for a sort of reverse Hansonism. In 1996 it was average Australians lying in wait with their baseball bats to give Keating a whack. This election, the group lying in wait for Howard is the elites.
By using the word “trust” the Liberals are also in a sense dog-whistling. What they are essentially saying is that while they may have “lied” about children over-board and some other issues, they have kept faith with the Australians who voted for them to change the way the country was run, especially with the Hansonites.
They are answering the charge of dishonesty by pointing out that there are worse things than dishonesty. It allows them to answer the charge of untruthfulness by in a sense “moving on”. They are using a word with the same language roots as “truth” but a slightly different context and better leverage.
“Truth” focusses on words, while “trust” on actions. For the government this election will be a compare and contrast between what Labor says – about itself and Howard – and what Labor does. Latham will be portrayed as all fancy talk and incompetent action. “Trust” is the word that pivots the debate around to concentrate on performance rather than promise.
Labor puts itself in a weak position by relying on “truth”. Not only does it lay itself open to charges of hypocrisy (as does any politician who charges their opponent with lying), but by concentrating on what Howard says, it cuts itself out of the language that discusses performance and consequence.
“Trust” also comes with a hint of threat. Someone I must rely on lying to me does not prima facie present a threat as long as in the end I can rely on them to do the right thing by me. The Liberal Campaign will be a “don’t risk it” campaign. By stressing truthfulness Labor doesn’t help its cause. Electors may well say “What if Howard lies, at least he gets the right results. Why should I risk it with this other crowd who are obsessed with a 3 year old event like Children overboard?”
Labor’s “don’t risk it” strategy is a little more attenuated. In our focus group research in 2001 we found that voters liked what Labor promised, but, partly because of concerns about their patchy performance on refugees and boat people, didn’t trust them to deliver. Part of Labor’s strategy must be a hope that they can work this in reverse – that if they convince voters that Howard lies, then it will colour their perception of his ability to deliver on his promises.
The problem with that strategy is that Howard has, as far as most voters are concerned, delivered most of what he promised. The fact that the elites feel marginalised, confirms that.
Perhaps what Labor is hoping for is such a cacophony in the press over whether Howard is, or is not, honest that his message cannot get out. This may work.
We will be doing our focus group research again during this election campaign, and I’ll be interested to see whether it confirms my “dinner party” research. At this stage my gut says that if Howard loses it will probably be because people have become bored with him and feel safe enough in a relatively benign economic climate to change leaders. If this is the case a too strident Opposition campaign may actually work against Labor’s chances. They might be better to say “Well, we appreciate that John Howard has done the job that he was elected to do, but times are better now, and we can afford to take some risks.”

I have been thinking about a way to illustrate how volatile, untrusting, and “different”, the Australian electorate is today.
The opinion polls are volatile, but polls taken before a campaign commences often are. Minor parties – especially Greens and Independents – seem to be doing well, but that is not really new.
Perhaps the vest way to illustrate the electoral “mood” today is to have a look at the one issue that has been consistently influential in Australian elections over the last 40 years – the economy and its impact on voters hip pockets.
In 1961, the Menzies Government went within one seat of losing office – to a disunited and fractured Labor Opposition – because the 1960 budget had been a horror one and the resulting credit squeeze angered voters who had basically stuck with Menzies since the early 1950’s.
In 1975, high inflation and interest rates, and a perception of economic incompetence, destroyed the Whitlam Government. Eight years later, the recession of the early 1980’s and the drought tipped Malcolm Fraser out of office.
Move on to 1993. Rising interest rates and the lingering impact of the “recession we had to have” would have sent Paul Keating into political oblivion but for John Hewson’s promise of a GST.
Three years later, the electorate did what it was distracted from doing by the Hewson GST debacle, and removed Keating, not for his arrogance, but for high interest rates and his earlier recession.
Now to 2004. By any measure these are boom times for the Australian economy. Interest rates are historically low, inflation is at its lowest in almost 40 years, unemployment is low, people are spending up and business confidence and consumer confidence are high.
If history were the guide, the Howard Government therefore ought to be an absolute shoe-in.
The fact that it is behind in the polls, and that the election is very much an even money bet, serves to prove my point – the electorate is volatile, it is untrusting, and the once predictable electoral environment is no more.
Having said that, I find it interesting that both sides want the electorate to “trust” them.
That is a high risk strategy, a higher risk for the Government, but still a risk for Labor.
The electorate inherently no longer trusts politicians, it does not trust governments, and it does not even trust oppositions.
Re-building public trust in our democracy and our political parties and politicians will take a generation. It won’t be achieved between now and 9 October.
So there is a risk for Mark Latham in pitching his campaign at the “trust” question because an untrusting electorate will probably end up voting for the party it trusts “more” than the other.
And, if interest rates and economic management are key determinants, then the prevailing good times might actually tip the balance in John Howard’s favour.
But when it comes to “trust” in the wider sense, then Howard has a real problem.
Boat people, weapons of mass destruction, and misleading the electorate individually won’t make the difference, but, taken together with the electorate’s volatility they represent a potentially fatal “mix” for the Government. That’s why John Howard yesterday repeated time and time again that he wanted the electorate to “trust” him to keep interest rates low and the economy strong.
I suspect the election will come down to whether voters trust one side “more” or the other side “less”. There is simply no chance they are going to trust either side substantially, let alone totally.
That makes the contest ahead interesting, and unpredictable!

Two days ago, as reported in yesterday’s Courier Mail, John Howard and Mark Latham both seemed to be giving the wrong questions to the right answers. Latham was asked why he had private health insurance if he was opposed to it, and Howard was asked whether he thought he was going to lose the next election.
Latham’s answer to this simple question (and Labor has had some days to hone their lines on this) should have been something along the lines of a concession that private health insurance was something that many Australians, including himself, took out because of the state of Australian hospitals. He could then have tied this to the need to completely reform the health system, while pointing out that Howard only has the imagination to patch the old system up. It is not as though the ALP is opposed to the health rebate or private health insurance, or that many of their voters don’t have insurance themselves.
Instead he pesonalised the answer in another way. He said that he is opposed to private health insurance “on principle” but two years ago his accountant had convinced him that it was cheaper for him to join up than to stay out. This answer leaves Latham open to some pretty devastating attack ads.
The cost to a taxpayer who does not take out private insurance is a 1% surcharge (Medicare levy surcharge) on their income. Payment of this surcharge is income contingent. If you are a married person, then you have to have a family income of at least $100,000 per annum before you pay the levy, and it could be more, depending on how many children you have. If you are to avoid the levy, then you have to take out health insurance. Latham has basic hospital cover. This is as cheap as it gets, but it still comes to $844.48 p.a. on the most recent MBF rates (allowing for the 30% rebate).
The cost of the levy versus the cost of insurance allows us to construct a matrix of how much Latham’s principles are worth. This year as Opposition leader he earns $197,000 and therefore has the choice of sticking with his principles, and paying the levy of $1,970, or purchasing basic health cover for $844.48, making his principles on this matter worth $1,125.52. Interestingly, the less he earns, the cheaper his principles come. It is even possible that two years ago the difference in cost of being in or out of private health was pretty close to zero for him on the assumption his income was very close to the $100,000 threshold.
So the attack ads could be along the lines of “How much are this man’s principles worth?” and feature a series of issues, including this one, where Latham’s and Labor’s actions are at odds with their public pronouncements. Health is one of Labor’s strong suits, but they have already undermined their position by caving on the PBS, tried to claw it back on the FTA, and now put it at risk via an inadequate explanation of the leader’s health insurance arrangements.
Howard’s wrong answer was when he told Western Australian journalists that the Liberal Party polling showed them doing well in the marginal seats. It is axiomatic that in Australian elections you play for the under-dog position. There are a number of reasons for this. To say you are going to win makes you look big-headed and complacent. It also puts the focus on what you will do if you win, when you want the focus on your opponent and what they might do if they were to win.
This was one of the basic strategies behind Howard’s 1996 campaign, so it should be burned into his mind, particularly as polls this year have consistently shown two things – Labor ahead, but voters convinced that Howard will win. The combination of these two things makes it probable that more voters will vote against the government than otherwise because they may think it safe to lodge a vote protesting against a particular issue or issues. It will also make the enemies of the government less complacent than they would otherwise be.
In the 1995 state election the Coalition was able to take some unguarded public comments by Mike Kaiser, the Queensland State Secretary, about Labor’s intention to win another 6 seats to turn public sentiment around. In 2004, perhaps Howard has given Kaiser, now Assistant National Secretary, the opportunity for a payback.
Two weeks of staying up watching the Olympics should have taught Howard and Latham that it is easier to lose than to win.