Few gains for opposition from growing pains of economy on the mend

RISING interest rates are unlikely to be a vote-winner, or vote-loser, despite what the parties say.

YESTERDAY'S rise in official interest rates, the fifth since October, was widely expected. Depending on which side of politics you believe, it is a sign of an economy on the rise (the government's line), or a sign that fiscal ill-discipline is forcing rates higher (the opposition's line).

The government says that the setting of monetary policy is out of its hands, but isn't it great that it is doing such a good job managing the economy, so much so that the problem now appears to be growth, not recession.

The opposition argues that the impact of the government's fiscal policy settings (read stimulus spending) has forced the Reserve Bank to act where it otherwise might not have needed to, hurting home-owners and small businesses in the process.

Wouldn't it be nice if life really was as black and white as our politicians like to think it is?

Rightly or wrongly, Labor has been consistent in arguing that monetary policy is not something political parties have much influence over.

That will give it a jump-start on the opposition as it attempts to downplay rising rates this year.

Kevin Rudd's subsequent criticism of John Howard when he said he could keep rates low at the 2004 election (but didn't) was not that Howard allowed interest rates to rise between 2004-07, but that he had given a commitment that he simply couldn't keep.

The Coalition's argument is a complex cause and effect case, made harder to sell to voters because of recent memories that interest rates went up during the final term of the Howard government.

It will argue that small businesses are already struggling to access finance and will find doing so difficult because borrowing costs are getting more expensive with the government also in the market competing for available money as it looks to service its deficit.

This "double whammy" on small business will help Liberals appeal to their base, but won't go much wider than that.

With so many other issues entering the political lexicon -- health, climate change, refugees and population policy -- rising interest rates won't get as much attention as otherwise might be the case, especially given that a cash rate of 4.25 per cent isn't exactly setting a new record.

This will make it hard for the opposition to draw enough attention to an issue it believes is a political winner.

Throw in the declining economic credibility of the opposition in the wake of Barnaby Joyce's gaffes in recent months, and it is questionable whether the opposition would be trusted as better alternative managers of the economy, even if voters become concerned about rate rises.

Rapid growth in the mining sector and a booming housing market have made it very difficult for the Reserve Bank to hold off on returning interest rates to so-called normal settings. (The use of terms such as "normal" and "average" to describe changes to interest rates doesn't help the Coalition make Labor wear political pain for the adjustments.)

Despite a sluggish manufacturing sector, much of the Australian economy is going from strength to strength in the wake of the global financial crisis, and the Reserve Bank governor doesn't want it to overheat to the point where inflation becomes difficult to contain.

While some economists continue to warn that global economic conditions remain very uncertain, so much so that Australia shouldn't consider itself a miracle economy insulated from another global downturn, Glenn Stevens is more inclined towards putting interest rates up to guard against what he sees as the greater threat, inflation and a bubble in property prices.

In the final term of the Howard government, the two-speed economy was easily understood by the dividing line of the Nullarbor. Western Australia was booming: sharing in the economic advantage John Howard started to gloat about late in his prime ministership.

The political advantage of the West Australian boom saw Howard only lose one seat in the west in 2007 while he won two seats off Labor, giving Liberals a net gain of one seat in that state at an election where everywhere else around the country they were going backwards rapidly.

But the new two-speed economy is more complicated. States such as Queensland and South Australia are increasingly joining in on the resources sector's good fortunes. Queensland is witnessing an explosion of interest in LNG exploration and extraction, and the freeing up of uranium mining in South Australia has helped its Premier, Mike Rann, fulfil his commitment to move the state's economy away from sole dependence on the manufacturing sector.

This spread of benefits from the emerging boom means that rising rates won't be as widely resented as they were between 2004-07.

While Labor has to be careful to manage people's disappointment with paying more on their mortgages, rising interest rates are also a sign that the economy is strengthening and that, after all, was the government's primary goal in the wake of the global meltdown. Yes, stimulus spending is a factor the Reserve Bank would consider when adjusting interest rates. But it is an afterthought to the more significant factors pushing the economy along at the present time.