KEY POINTS:
Question: "What is the definition of waste?" Answer: "A bus load of Treasury economists going over a cliff with two empty seats."
This old joke would be unremarkable except that it entered Australian political folklore after it was told by John Kerin, Bob Hawke's last Treasurer. It is the ultimate response to economic rationalism.
Economic management has been dominating the news in Australia this week. It's a consequence of something that's likely to happen after Melbourne Cup Day next week. The Reserve Bank of Australia is to meet to review the country's interest rate regime. It's a critical decision, going well beyond its economic impact.
The RBA is independent of government and both sides of politics observe this decision-making disengagement from Canberra's influence.
And RBA chairman Glenn Stevens has made it clear its review processes do not stop for elections.
Charged with maintaining inflation at 2-3 per cent a year, the RBA is under remorseless scrutiny. Its independence will be tested. This is ominous for the Howard Government.
Rising interest rates are always difficult for any government. In the middle of an election campaign, they're about the last thing any incumbent wants to see.
Unfortunately for John Howard and Peter Costello, the underlying rate of inflation is on the increase. Interest rates have already risen five times since the 2004 election. And it's the 2004 election that sets the benchmark.
That election, in which Howard beat Labor's Mark Latham, was dominated by conservative claims about keeping interest rates at historic lows.
It was the centrepiece of the Federal Coalition's electoral strategy. Latham was seen off but the promises are returning with a vengeance.
Australians are seeing Labor leader Kevin Rudd brandishing Liberal advertisements of three years ago guaranteeing a low interest rate regime. The wheel has come full circle.
It's widely accepted that Howard's reference to a 17 per cent high in interest rates under the Keating Labor Government cost Labor any serious chance three years ago.
Too late, Labor realised that the high point under the previous Coalition Government, when Howard was Treasurer, actually hit 22 per cent.
All of this should be ancient history. It's not. Interest rates are often regarded as the third rail in Australian politics. That is, deadly. The polls may show that punters are seemingly unaffected, but the reality is in the tale told in the mortgage belt seats.
The mortgage belt in Greater Western Sydney is telling a tale of negative equity. Home prices in marginal seats like Lindsay and Parramatta have dropped and more than a few people are struggling to meet the payments.
Selling the home is no solution, for the return is less than the amount owing to the bank. It is a devilish dilemma. So, electorally, interest rates are indeed capable of shifting votes.
But for Australian business at the moment, interest rates are less of a concern than the value of the Australian dollar. Over the last several months, the dollar has risen from about US80c to over US90c. This is a headache for many in the business community - from exporters trying to compete in international markets in everything from farm produce to financial services, to global businesses whose budgets are struck in either pounds sterling or US dollars.
Consider just two examples.
One investment bank in Sydney has already let it be known that bonuses for next year are under pressure, as there has been an effective 12 per cent appreciation in the Australian dollar. And a technology company, successful locally and abroad, is bemoaning the fact that every one cent increase in the dollar's value against the greenback strips A$5 million ($6.01 million) off its bottom line. The pressure is on.
These realities mean that economic management is at the forefront of political debate during the 2007 election campaign.
This crystallised this week in a National Press Club encounter between Treasurer Peter Costello and shadow treasurer Wayne Swan.
By and large the punditocracy saw the debate as a draw, which means of course that the challenger did better than expected, particularly given the Treasurer's established reputation as a skilled debater. Among punters, both the Channel 9 worm and the Morgan polls scored the debate a clear victory for Swan. The issues on which they concentrated, however, proved more illuminating.
The Treasurer focused on tax cuts as a means of easing the pressures on family living standards. But both sides are on the same page on tax cuts, with the Coalition promising A$34 billion in relief and Labor A$31 billion. Where the difference arises is that for incomes over A$180,000, Labor would divert these tax savings into education and health, with school computers a priority.
Swan focused on WorkChoices, arguing that the Treasurer, if he became Prime Minister in due course, would make the industrial relations regime even harsher for working Australians.
Unsurprisingly, questions about the future of the Liberal Party leadership came up in the debate. Mischievously, Swan said he was quite happy to serve as Rudd's Treasurer for a decade. Costello played a straight bat, maintaining he was a team player with his Prime Minister. The punters will take all this with a grain of salt.
More seriously, Costello and Swan emphasised skills, with the Coalition running hard on major boosts for technical education. Labor is not to be found wanting here, promising to turn every Australian high school into a technical training centre as well. The truth is that with a boom economy, skills in many areas are in short supply and importing the necessary personnel is only a stopgap measure. This is a dilemma born of success.
The intriguing point which is new to the debate on economic management is that climate change is being seen more and more in the Australian context as an economic issue.
Labor is pushing hard here in promising to sign Kyoto and rejecting nuclear power, and Rudd has moved decisively to a 20 per cent renewable target for Australian energy needs by 2020. The Coalition has walked away from nuclear power and there are leaked suggestions that Environment Minister Malcolm Turnbull really wants to endorse Kyoto.
Investment in alternative energy is being encouraged by both major parties, and increasingly the economic opportunities of moving to more efficient energy sources and to renewables are going to reflect business decisions as well as greener choices.
So while the electorate worries about interest rates, business worries about the strength of the dollar. The respective candidates for Treasurer focus on taxes or workplace relations, skills and climate change.
In all, it's a potent mix which comprises the debate on economic management in Australia at the moment. The Australian electorate is highly literate in economic discussions. This is a legacy of the Keating years which, to his credit, Costello has maintained. The electorate is therefore sceptical of promises that cannot be sustained.
All this means that neither Costello nor Swan was foolish enough to go down the road of pork barrelling. That's seen for what it is: real waste.
It's welcome and a long cry from John Kerin's bus.
* Stephen Loosley, a former federal president of the Labor Party and Australian senator, chairs business advocacy group Committee for Sydney
