KEY POINTS:
Leaked Cabinet papers are rubbing the shine from Prime Minister Kevin Rudd's post-election honeymoon as his seven-month-old Government takes increasing flak over the rising cost of living.
With major banks predicting higher interest rates for a mortgage belt already under severe pressure and an inquiry probing soaring grocery bills, Rudd is now facing real problems with petrol prices.
As well as anger at the pumps, higher fuel bills are feeding into wider transport and other costs, and Qantas has cut services to shave costs in a move that has dismayed the tourism industry and rural Australia.
Rudd is further facing betrayal from within, with the release of two confidential Cabinet papers in as many days revealing splits within his Government and bureaucracy over his plan to provide an online petrol price-monitoring service.
While the Fuelwatch plan is being promoted as a means of keeping oil companies and their prices in line, the papers show that senior ministers and four key ministries oppose the scheme and believe it may increase - rather than subdue - prices.
The row flaring over Fuelwatch - resulting in opposing censure motions in Parliament yesterday - presents no immediate real threat to Rudd and the Government.
Their popularity continues to soar well above that of the Opposition and its leader, Brendan Nelson, whose future in the job hangs by a deeply frayed thread.
The most recent Newspoll in the Australian showed that since last November's election Labor's two-party preferred vote has climbed from 52.7 per cent to 57 per cent.
But Rudd's gloss has dimmed, with support as preferred Prime Minister slipping three percentage points to 70 per cent, while Nelson's has inched back into double figures - from 7 per cent in February to 12 per cent. The latest Morgan poll reported that despite a boost from this month's Budget - which included further tax cuts and other family-friendly measures - the Government is coming back to earth.
Pollster Gary Morgan warned the strain of higher petrol prices on household budgets was beginning to tell.
He said working Australians needed relief at the bowser - and that Nelson's promised 5c-a-litre cut in fuel excise was seen as a step in the right direction.
Rudd and Treasurer Wayne Swan have rejected an excise cut, and will instead start Fuelwatch as a means of ensuring that even if petrol prices do not fall, drivers will not be ripped off.
Fuelwatch was first started in Western Australia by the state Labor government, providing a website and an email service detailing retail fuel prices - allowing motorists to pick the cheapest local pumps - and the composition of wholesale prices.
Retailers are required to set prices daily, posting the next day's prices by 2pm to ensure Fuelwatch remains current and accurate.
Rudd announced his plan for a federal scheme after studies by consumer watchdog the Australian Competition and Consumer Commission said a nationwide Fuelwatch could save between 1c and 2c a litre at the pumps.
But this week leaked Cabinet papers showed that Resources Minister Laurie Ferguson had expressed strong reservations about the scheme.
On Wednesday night, more leaked papers showed that the key departments of Prime Minister and Cabinet, Finance, Industry and Resources and Energy had opposed the scheme.
The leaked papers - now the subject of police investigation - have severely embarrassed the Government, which has argued that divisions within the Cabinet, and between ministers and bureaucrats, are a normal and essential part of Government.
It has also defended its decision to accept the ACCC's study rather than departmental recommendations.
But the papers have been seized on by an Opposition struggling with its own internal schisms and with a Government that has so far given little opportunity for any telling attack.
In a failed censure motion yesterday, Nelson accused the Government of arrogant contempt.
Rudd retaliated with a successful censure motion against Nelson for failing to stand up for motorists and consumers and for capitulating to the interests of big oil companies.
And Swan said whoever leaked the papers would be tracked down.
HOW IT WORKS
* Fuelwatch is an online service set up by the Government to monitor petrol prices.
* It consists of a website and a personalised email service detailing retail fuel prices and the composition of wholesale prices.
* Retailers are required to set prices daily, posting the following day's prices by 2pm to ensure Fuelwatch remains current and accurate.
* It was set up to allow motorists to pick the cheapest local pumps.
