Sunday, November 25, 2007

Downunder it's upside down as Rudd reinvents Blairism

You travel to the other side of the world and still all they're talking about is house prices. Even in Australia, where they're supposed to be interested in sport and barbecues, they've succumbed to the planetary obsession with real estate, that has ruined dinner table conversation and debased politics.

The Australian election, which has been won by Labor after over a decade in the wilderness, was supposed to have been about the environment, but the big issue on the ground was mortgage payments. The victorious Labor Party leader, Kevin Rudd, is youngish and personable in a Blairite sort of a way and he has a range of New Labourish policies from the environment to broadband. But what killed the Liberal leader, John Howard, after eleven years in office, was the shock rise in bank interest rates at the start of his campaign. Howard's warning to voters not to let Labor back because they were the party of high interest rates, exploded in his face as home payments rose. Shockwaves spread across the swimming pools faster than a kangaroo pursued by a dingo.

Home panic was compounded by insecurity in the workplaces of Middle Australia, brought about by Howard's "Work Choices" programme, a down under version of our own flexible labour market, which allows employers greater freedom to hire and fire. Australia may not have much in the way of trades unionism these days, but a history of labour shortages has left workers here - by hand and brain - a lot of residual power, and pay rates are as high as in the UK even though the cost of living is significantly lower. In his only obvious gesture to His party's socialist roots, Rudd has promised to scrap Work Choices and restore workers rights.

Attempts by Howard to buy last minute votes by offering financial help for private school fees and new tax-free housing loan accounts (surely coming soon to a Tory party near you) were to no avail. Nor were the countless Liberal attack ads warning that Rudd was a self-professed "Christian socialist" (shock) and that his cabinet would be filled with "trades unionists" as if that was synonymous with Stalinist commissars. The Liberal campaign sounded like John Major's in 1997, complete with the taint of sleaze and dirty tricks, so it was hardly surprising Howard was defeated by a clone of Tony Blair.

But in the end it was house prices wot lost it. The polls showed that the "battlers" as they're called here- people earning less than gbp 35,000 - deserted Howard because they were no longer sure they could afford their homes at a time when job security is becoming tenuous. Interest rates here are nudging 7percent and expected to rise further, possibly to 9percent as the federal treasury grapples with an overheating economy based on an unsustainable boom in house prices, latent inflation and huge personal debt.

Sound familiar? the similarity with Britain is uncanny and perplexing. This vast Australian continent is a very different place to crowded and cramped Britain, but they've somehow managed to have the same housing shortage. In the past decade house prices have risen to seven times earnings and average debt repayments are now over that critical level of 30 percent of household income beyond which home ownership becomes unsustainable.

Travelling across this vast country around the size of the USA with only a 12th of the population, you can only ask: why? There is no shortage of land here, and the construction industry doesn't have to deal with Nimby planning regulations. It's like having a sand shortage in the desert. The crisis clearly has less to do with physical characteristics of the housing market than with years of cheap money. Years which are now over - there as here.

Indeed, looking at Austalia you realise just how much this global debt cycle has been driving policy and politics in western democracies almost irrespective of whatever party happens to be in government. The Australian Liberal Party, their equivalent of our Tories, has been riding a decade long wave of apparent economic success, presided over by their answer to our iron chancellor, treasurer Peter Costello. As in Britain, the Aussie boom has been based on inflated house prices which have created a "wealth effect" and kept consumers spending beyond reason. Costello claimed to have ended boom and bust, and has been warning the voters not to risk going back to the days of negative equity and unemployment. Change the names and this could be our Labour government and Gordon Brown talking.

Indeed, you wonder if the election result in Britain - had Gordon Brown actually called one last month - might not also have led to a change of government. John Howard's record of apparent economic success didn't save him - even though looking around Australia you see evidence of it everywhere in the shiny new cars and new restaurants. Unemployment is non-existent and cities like Melbourne are booming as never before.

But to Howard's dismay the voters refused to stick to the script and decided it was time for a change even though, as Costello kept telling them, they'd never had it so good. The Australian voters have concluded that the new post-sub prime financial world needs a new administration in charge - one not drunk on its own hubris and dazzled by its own supposed economic competence. They see new problems ahead and they want new heads to tackle them.

The coming of Kevin Rudd will probably be a good thing - for the world at least. The Labor leader has promised to reverse Howard's hostility to Kyoto and to take global warming seriously. And since he may need the support of the Green Party in the Senate, there is every expectation the he will deliver. However, Rudd has his work cut out taking on the immense vested interests in Australia's colossal coal and mineral extraction industries. Australia is in the midst of its worst drought in a hunded years, but one of the solutions put forward by Howard was a desalination plant which would be coal-fired. Solar power is not being developed despite sunlight so intense that Australian mothers are afraid to let their children be exposed to it.

Australian citizens love their country and are intensely protective of the natural environment here. Many are probably instinctive environmentalists. But there is a huge battle ahead as the country awakens to the enormity of the challenge presented by climate change and discovers the commercial interest vested in the carbon economy. Can Kevin Rudd really grow the economy enough to pay for costly health and education reforms, not to mention 30 billion in tax cuts, and slash carbon emissions? He has promised to halt fuel price increases when the pump price is a third less than in Britain.

Otherwise, the victorious Rudd has promised to withdraw Australian troops from Iraq by next year, ending the involvement of the only remaining US ally with the stomach to fight there. It means the end of the line for George W. Bush's coalition of the willing. But like Gordon Brown, Rudd will remain broadly pro-American. And he will arguably be more conspicuously pro-British than the supposedly monarchist John Howard. Rudd wants to ally himself to the New Labour project and Gordon Brown will be happy to oblige.

It will be useful for the PM to have a new ally in the environmental debate, and in Afghanistan, a fight which Rudd says he still wants to fight. The danger for both of them is that they may sink or swim together, and things aren't looking too buoyant on either hemisphere right now. Both Rudd and Brown have been waiting a long time for the top job, but they may both have taken over just at the moment when the boom has finally bust.

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