Crikey's economists on fire!

The big news today is of course that the government as a party has fallen behind in the polls for virtually the first time since the election. Beazley is still not ahead in leadership approval ratings, but no real surprise there.

Fairfax papers have been arguing that this is a reaction to three things: more troops in Iraq, economic warning signs and interest rate hikes. Crikey points to Murdoch's Newspoll which finds that the PM is still popular on his security and economic skills. It seems Australians don't see any connection between interest rates and economics, which is no doubt why they get so angry when rates rise, as they seem to think the PM (or the Labor party) just do it out of some vengful whim. Perhaps why the "recession we had to have" touched such a raw nerve despite the common sense involved in reigning in a country living beyond its budget.

On the leaders:

"Opposition Leader Kim Beazley trumps his political rival on being trustworthy, likeable and in touch with voters," Newspoll admits. "However, 62% of voters believed Mr Howard had the judgment and capability to lead Australia's economy, while only 24% of voters believed Mr Beazley displayed the same characteristics. Mr Howard also retained a strong lead - 56% to 28% - when it came to being better able to manage national security issues."

Sideshow Bob's philosophy of politics becomes disturbingly accurate at this point:

"Because you need me, Springfield. Your guilty conscience may force you to vote [Labor], but deep down inside you secretly long for a cold-hearted [Liberal] to lower taxes, brutalize criminals[, refugees and Iraqis], and rule you like a king. That's why I did this: to protect you from yourselves. Now if you'll excuse me, I have a [country] to run."

Sums up right-wing politics to a tee, not to mention Howard and why Australians vote for him.

The polls show that Australians do like Beazley, which is precisely why they won't vote for him. They want someone who has the cruelty and 'moral-flexibility' to expel foreigners, kill Iraqis, cut welfare and wages and make it sound like he's technically not doing anything bad and even sound confident that something abstract, like the market, will fix all these problems soon enough anyway.

In the meantime, while Howard stays shtum on the tax hordes he's unwilling to release - even to his wealthy base - The Australian, of all right-wing Murdioch rags is reporting Liberal back-bench pressure to raise the tax-free threshold, thereby giving the much discussed tax 'reform' to the whole country and most especially the poorest.

Now Murdoch's press have been raving about tax-'relief' since Howard got the senate and this may just be another rant to push tax cuts from a different angle and maybe get the welfare class onside with the idea of tax cuts. But it's a dangerous tack.

"It's yet another admission - like the Prime Minister's, the Treasurer's and Finance Minister Nick Minchin's response to last week's OECD report saying the total percentage of tax taken by Canberra has been increasing since 1996 is misleading because it does not include the Commonwealth's family tax benefit - that the Howard Government survives by reaping record revenue from the GST and handing some back to carefully selected demographics in extravagant expenditure, regardless of the policy and economic implications."

If talk of raising the tax-free threshold really gets going it could well overwhelm talk of tax cuts for the richest. It would in fact have been clever politics if Labour or the Dems, or even the Greens had taken this route to thwart Murdoch et al's binge, and indeed according to Crikey the Dem's are on board with lowering the threshold, so Howard could do it before July. But then he'd be in a real corner - no longer the highest taxing nation in the OECD, no longer able to throw money around like a drunken sailor come election time.

And though today's polls mean very little about an election still 3-4 years away what is more distubing for the Liberals is the economic scene. And this is what Crikey has been saying for some time. All the economic signs have been towards a downturn since before the election. Given that Howard strolled into an economic upturn when he won office and hasn't really had much to deal with since you might say it's about time. The recent interest rate rises were not only predictable before the election but in fact well overdue to stop people going crazy with credit and buying up imports that we can't pay for in exports.

If that's all a bit too waffly try this from Crikey:

"Since 1986, average weekly earnings have increased by 128%, but house prices by 310%," says Peter Saunders in the new edition of the Centre for Independent Studies magazine Policy, out today. "Many people who bought at these inflated prices are financially stretched and vulnerable. The recent house price boom has made many people better off, but has also made housing less affordable, particularly for first home buyers."

How's that for straight between the eyes! People (witrh mortgages) are vulnerable, the economy is turning, do the math.

And people are in record debt because of ridiculous house prices and:

"A number of government policies have contributed to the inflation of house prices," Saunders says. "These include the First Home Owner Grant, negative gearing, changes to capital gains tax, and restrictions on the supply of land."

The theory is simple, if you set up high income tax with loopholes like negative gearing for property investments then you channel disposable income into productive uses. Instead of the wealthy blowing all their cash on frivolous imports, holidays and so on (and sending money out of the country and out of our collective savings) they spend it developing houses and providing rental properties all of which has some use for the national economy. Taken to extremes though it all goes bad for new home buyers because demand raises prices, and once you've got everyone into housing it gets a little difficult to pull out without losing votes. Howard's checkmate was to threaten everyone with interest rate rises if they voted Labor and then he had them over a barrel. But now?

Saunders says "the house price bubble has finally burst."

That's a big call since people have been expecting it for a while, but it has to come sooner or later. Then not only do the rich get their fingers burnt but all the new home buyers get verily raked over the coals.

The question is will the 20-somethings of today be able to handle the debt involved in buying a house or is the first phase of the shift to the right the generational death of the Australian dream?

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