As inevitable as the post-pandemic global rise in inflation is the narrative that interest rates will become the Albanese government’s political kryptonite.
For readers who confine themselves to the Marvel Universe, kryptonite is the mineral from the DC world that renders Superman and all those from his home planet impotent, while feeding the strength of his enemies.
In much the same way, the political orthodoxy holds, rising interest rates drain Labor leaders of their superpowers while giving strength to their conservative opponents.
A cursory view of our recent political history reinforces this trope. Gough Whitlam lost control of the economy, so the legend goes, after the OPEC oil shock drove up interest rates and engulfed Australia in a wages and inflation spiral.
Then, after shepherding through wide-ranging economic reforms that opened the economy to the world, the Hawke-Keating government scarred a generation of mortgagors for life when an over-heating economy saw interest rates rise to 17%.
Labor doesn’t even need to be in power to fall victim to the spectre of rising interest rates. When his government was in mortal danger in 2004, John Howard audaciously unleashed the kryptonite against Mark Latham, making fear of rising interest rates the proof points to his inexperience and temperament.
Now, after a period when money has been effectively free, Labor is facing the challenge of becoming the “high interest rate party” all over again with results from this week’s Guardian Essential report showing a growing number of Australians concerned about their financial circumstance.
These figures show more than half the population are either struggling or feeling serious financial heat – up seven points since November.
Even more striking is where the pain is being felt: renters who face the impact of rising costs with the offset of a growing asset base. One in 10 people with a mortgage describe themselves under stress as well.
In contrast, our wealthiest people – older homeowners without a mortgage, with disposable income and accumulated wealth – are least likely to be affected by an economic policy designed to dampen economic activity. Go figure that one.
Economic management is always dangerous territory for Labor. At the best of times it carries the curse of what regular readers of this column will know as “the Fingerhut effect”.
Vic Fingerhut is the Washington pollster who over more than five decades has proved and re-proved the hypothesis that regardless of merit, right-of-centre parties are deemed by most voters the better economic managers while left-of-centre parties are marked harder.
Call it brand equity, no matter how ill-earned. The pro-business party is the one that most voters trust with managing the money. Debt from a Labor government, such as Kevin Rudd’s stimulus to save the economy in the face of the Global Financial Crisis, is profligacy. When Josh Frydenberg splashes the cash it’s a timely intervention.
So are the rising interest rates damaging Labor’s economic credentials at this point? Short answer: au contraire.
Our regular monitor of brand equity shows Labor ahead on points where they would be expected to be: climate change, health and welfare. But more surprising – and concerning for a new conservative opposition – is the extent to which the Coalition has lost its advantage on economic management. While many voters are sitting on the fence, more see Labor as better equipped to manage cost of living, while on interest rates it’s line ball.
And those actually hit by rising interest rates peg Labor significantly higher: 34% of renters and 33% of mortgage borrowers would rather have Labor managing their interest rates. In other words, only people who no longer have to worry about rising interest rates put the Coalition higher to keep them low.
So what’s going on? The thing to remember about kryptonite’s power is that it never actually ended up killing Superman. Even Paul Keating found a way of surviving the 17% rates to take the prime ministership from Bob Hawke and then hold on to it for another term.
Over the course of his adventures Superman found myriad ways to overcome kryptonite: from fashioning a lead suit to exposing himself to the healing powers of sunlight to recruiting the help of Batman.
Likewise, the PM and his Boy Wonder treasurer have a range of tools at their disposal.
Firstly, Jim Chalmers is trying to construct a protective layer for the government by fashioning a defence plan based on the three Rs: rebuilding supply chains, restraining spending and relieving energy prices. Whether all these measures work is probably less important than having a coherent line of defence that can be rinsed, repeated and reinforced in the upcoming budget.
Secondly, the government is benefiting from the presence of a readymade perceived villain – the Reserve Bank governor, Philip Lowe – with the media pack turning him into the meme of a tone-deaf financier who broke his promise that rates would remain at their historically low levels. If he didn’t exist, you would have to invent him.
But most profoundly, Labor benefits from the reality that after four decades of globalisation the public accepts there are only limited things that the government can do to control the economic environment.
A final question shows that while the government bears some responsibility in the eyes of the public, it is nowhere near seen the all-powerful economic superhero.
People accept that the interest rates are a product of higher prices, the global disruptions from Covid and, to a lesser extent in the public’s mind, the war in Ukraine. Oh, and Lowe.
Pointedly these findings suggest another conservative talisman, higher wages, is not seen as a major driver of rising costs, and if the reforms shepherded through by the workplace relations minister, Tony Burke, can actually get wages moving, this may actually become a super-power of the government.
Who knows? As interest rate pressure rise attention may finally shift to fiscal policy, perhaps freeing the government from the shackles of its dreaded stage-three tax cuts. An ongoing crisis might even place the spotlight back on the unconscionable property and super tax concessions that continue to flow to those who are already financially secure.
In truth, kryptonite was just a dramatic device made to create new reasons for our hero to run faster, fly higher and leap taller buildings. For Labor, the interest rate bogey could give it the impetus to become the government our nation truly needs.
• Peter Lewis is an executive director of Essential, a progressive strategic communications and research company
• This article was amended on 21 February 2023: a reference to mortgagees should have said mortgagors.
