Subject: RE: KRUDD - on the news this morning.
Dear Mr ORSM,
I don't want to turn this into a rant, but I do want to clear a few things up about the Australian economy. For all those interested, high interest rates are caused by an over-heated economy. As people spend more and more money, more money needs to be printed - this is inflation. High inflation is a bad thing and over the past year in particular, Australia's inflation has been above the Reserve Bank's comfort level.
There are two ways to try and reduce inflation. The first is for the government to apply pressure by raising taxes, as this gives people less money to spend; the second is to place all the pressure on the Reserve Bank and force them to raise interest rates. The Howard Government opted for the latter and as such, interest rates have been going through the roof over the past three years. If there is a rate rise in February, then it is a direct result of Howard's economic policy, not Kevin Rudd's.
How the Labor government will tackle this issue is not clear. Their tax policy suggests that over 2008 they will not use taxes to try and reduce spending, as it was quite similar to that of the Lib's (inspiring the "Me Too" Liberal campaign). The Kyoto announcement, however, might suggest that one avenue to help reduce inflation is to introduce different policies that place pressure on spending. I would like to add at this point that most utilities in Australia are privately owned, so any raise in utility prices would be the decision of the company, not the government. The the government could cause a rise, however, by placing limits on carbon production through a 'carbon tax system'. Whether this will be the case is yet to be seen.
But what this suggests is that the Labour Government is leaving the status quo in place and waiting to see whether the application of new policies will help reduce inflation before raising taxes. Which at this point in time is the most responsible thing to do.