Thursday, November 15, 2007

Howard vs Labor - the Election Promise Effects

Both major parties have now launched their election campaigns. We've had almost 4 weeks of the unofficial election campaign where travel and living expenses of our politicians have been paid by taxpayers. Many would argue that, ethically, once the election writs have been issued by the Governor-General, political parties should be paying, not the taxpayer.

John Howard, at the Liberal Party launch, promised an extra $9.5Billion to voters. This brings his total to almost $65 Billion.

Kevin Rudd, claiming the economic conservative high ground, promised an extra $2.3Billion at the Labor Party's launch. this brought his total to almost $57Billion.

The possible effects of election spending by the end of 2009 are:

  • Home Loan Interest Rates under John Howard: 11% - 12%
  • Home Loan Interest Rates under Kevin Rudd: 9% - 10%
The inflation figure from John Howard's spree is exacerbated by his ideological, but economically bad, drive to put ever more money into the hands of middle-class and wealthy taxpayers, many of whom spend it on consumer goods. This drives consumption inflation, one of the current problems identified by the Reserve Bank.

Of course, John Howard could have some "non-core" promises that he won't implement; and Kevin Rudd could increase the amount of budget surplus retained from 1% to 1.5%-2% during the current boom.

John Howard has gone for the "Go for Growth" slogan - the problem is that there is no room for growth without inflation. Both he and Peter Costello are ideologically locked into retaining only 1% of GDP, even as the economy is overheating and creating inflation. Excessive growth is NOT what the economy needs at the moment.

Kevin Rudd has gone for the "New Leadership" slogan. If elected, his leadership will be tested by the economic conditions he inherits. An overheated economy with rising inflation and significant overseas pressures. Increasing the retained budget surplus from 1% to 1.5% will be a challenge.