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CANBERRA - Prime Minister John Howard has been handed a double-edged sword with the Reserve Bank's decision yesterday to increase interest rates - the first time such a move has been made during an election campaign.
While it opens the Government to a potentially devastating backlash from the nation's mortgage belt, it has also pushed economic management to the fore in the campaign for the November 24 election.
The economy remains at the top of voters' concerns and has been a consistent stronghold for Howard, especially among the large number of wavering voters who do not make up their minds until the closing hours of a campaign.
Howard's chances of closing Labor's commanding lead in the polls have been further boosted by surveys showing that most voters do not blame him for higher interest rates.
A Newspoll in the Australian also reported that Howard had doubled his lead of the previous two weeks as preferred economic manager, now enjoying a 19-point advantage and 51 per cent voter support, compared to Labor leader Kevin Rudd's 32 per cent.
The Government will now be increasing the tempo of its fear campaign of economic mismanagement by an inexperienced Labor administration as new uncertainties cloud both the global and domestic economies.
Labor in return will be hammering Howard's 2004 pledge to keep interest rates at record lows - yesterday's rise was the sixth since the Government was returned for a fourth term - and attacking policies that have allowed inflation to begin breaking through the Reserve Bank's ceiling.
As this slanging match gathers pace, further economic debate will focus on industrial laws and their impact on inflation, adding to Labor's intense campaign against Howard's WorkChoices reforms that removed many rights and conditions.
The Government claims that its laws have strengthened the economy and helped keep inflation under control. "[WorkChoices] is a policy that targets 3 per cent unemployment, a policy that locks in a stable workplace relations system to the next term of government so that business can get about employing more Australians," Workplace Relations Minister Joe Hockey said.
He also promised, during a nationally televised debate with Labor counterpart Julia Gillard, to allow employees to take double their annual leave at half pay and up to one year's unpaid parental leave, and to enable grandparents to have one week's unpaid leave to help parents care for a newborn baby.
Gillard, who has promised to shred WorkChoices if Labor is elected, said the Government was simply peddling fear: "Be afraid of unions, be afraid of Labor, be very afraid it will lead to a wages breakout [but] of course none of these things are true."
Yesterday's widely expected decision to increase the official interest rate by 25 basis points to an 11-year high of 6.75 per cent will push home mortgages to more than 8 per cent.
Deputy Prime Minister Mark Vaile conceded this could push monthly mortgage payments up by between A$50 and A$100 per month.
The move has been slammed by tourism operators and the housing industry, which echoed Labor's warning that homeowners would be placed under even higher levels of stress at a time when levels of housing affordability were at record lows.
But Howard, supported by Treasurer Peter Costello, said the rise had been made necessary by the strength of the economy, very low unemployment, and by global pressures over which the Government had no control. Howard said higher rates would have negative consequences for many borrowers.
"I would say to the borrowers of Australia who are affected by the change that I am sorry about that and I regret the additional burden that will be put upon them as a result."
Rudd attacked Howard for breaking his promise on interest rates: "Listening to Mr Howard today, it underlines to me the extent to which [he] has lost touch with working families in two key respects in responsibility for his actions of the past and a plan for the future."