Rate cuts and politics in Australian history

The movement of interest rates is watched closely by political campaigns, looking for any advantage in the polls, even though in reality, politics has little to do with the decisions of the Reserve Bank.

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Even during an election.

The challenge today for the Opposition leader Tony Abbott is to convince voters that a cut in the interest rate to a record low of 2.5% is not good news.

“The Reserve bank is worried about the state of our economy, and why wouldn't they be, given just last Friday the government's economic update revealed that the budget is haemorrhaging to the tune of $3 billion every single week, unemployment is surging toward 800,000 and debt is spiralling to $400 billion,” Mr Abbott said ahead of the RBA's announcement.

The political strategy behind spinning the rate cut for the Labor government is much easier.

"The fact is that now, under Labor, interest rates are at record lows," said Treasurer Chris Bowen. "Australian families and businesses know that lower interest rates are a good thing, especially with the economy continuing to grow."

According to Australian politics lecturer, Mark Rolfe, from the University of New South Wales, interest rates didn't really factor into elections until 1989 when they approached 18 per cent.

"One of the things that [former Liberal leader] John Howard came in with was the idea that [the then Labor Prime Minister] Paul Keating was in charge of wrecking Australia and he would fix Australia and take interest rates out of the control of the Treasurer and put it in charge of the Reserve Bank," said Mr Rolfe.

John Howard did just that when he became Prime Minister in 1996. But that didn't stop him from using interest rates as a political weapon.

Ahead of the 2004 election Mr Howard told the nation interest rates would invariably be higher under a Latham Labor government.

"I will guarantee that interest rates are always going to be lower under a Coalition government," he said at the time.

"John howard was able to politically and astutely pursue the connection between budget deficits and interest rates in order to bash Labor," says Mr Rolfe.

The political obsession with interes rates continued under Labor Party. In 2004, the party's leader Mark Latham went as far as signing a contract to ensure low rates.

Seasoned Labor strategist Greg Turnbull says for most people the number one issue facing them during any election is the economy. Interest rates are therefore often the best way to get to the heart of that issue.

"It goes to everything they do. It goes to where they live, what kind of car they drive," says Mr Turnbull.

This is why the Coalition wants voters to see a drop in interest rates as the result of good government, and the Opposition hopes to spin it as the sign of a weak economy.

"Governments and Oppositions have got to try and convince us that they can control the economy for our benefit," says Mark Rolfe.

Even if the ultimate decision of whether to raise or drop the nation's interest rate is out of their hands.


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3 min read

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Updated

By Greg Navarro

Source: SBS


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