It’s the economy stupid

This phrase was coined in 1992 by James Carville when he was advising Bill Clinton on his successful run for the White House, and it might be haunting Prime Minister Anthony Albanese as he returns from international globe-trotting to a touchy Australian economy.

On 2 November, newly-minted Reserve Bank Governor Michele Bullock wasted no time raising the cash rate by another 25 basis points to 4.35 per cent as authorities try to tame the inflation tiger. 

Comments made earlier in the month by Peter Costello, Former Treasurer and outgoing Future Fund Chairman, highlighted the economic conundrum facing the Government. With total immigration in 2023 running at 500,000, including returning students and working holiday participants, rents and housing are being squeezed, lighting a fire under inflation.

The higher the rates, the higher the pain for borrowers in the mortgage belt. This is electoral poison for an incumbent government holding high debt and debt repayments.

Is it any wonder the PM has set his sights on reducing inflation-fuelled expenditure on big-ticket items like infrastructure? National governments have incrementally taken over funding for road, rail and major infrastructure projects from state governments, but these arrangements are now in the crosshairs. 

It’s a bold move, but the PM and Treasurer Jim Chalmers are determined to wind back the Commonwealth/state funding arrangements from an 80/20 share to 50/50. 

This will not be welcomed by the Queensland, New South Wales and Victorian ALP governments, which all have massive construction spends on their books. If the Commonwealth pulls back, state treasurers will have to pick up the bill, which will drive state debt levels higher, or they’ll be forced to cancel projects – which will all be politically unpalatable. 

With the Federal ALP still recovering internally from the failed Voice Referendum, the scene is now set for another schism with its fellow state ALP governments over infrastructure funding.

The Christmas break can’t come fast enough for Prime Minister Albanese, unfairly characterised as ‘Airbus Albo’.

As always, it’s the ‘economy stupid’ that will make or break leaders, governments and countries. Just ask Bill Clinton.