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Interest won't rate

By Clive Bean - posted Monday, 7 August 2006


As is all too common on the release of major economic news, or indeed major news of any kind, pundits have been quick to point to the likely impact on the Federal Government's electoral fortunes of this week's announcement of a rise in official interest rates by the Reserve Bank.

The truth is that it is highly unlikely that on its own it will have any impact on the standing of the government at the next federal election at all.

Remember that the federal election is not due and not likely to be held until late next year.

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What usually happens with developments such as this that appear to have potentially adverse consequences for the government is that, if anything, they generate a small change in public opinion for a short period, which may be registered in the level of support for the government in the next couple of opinion polls, and then the status quo returns.

Long before an election occurs the interest rate rise will have been factored into the political landscape and will have no discernible impact.

Only if there were to be several sustained rises in interest rates in the lead-up to the election would it be likely that an issue such as this would really bite electorally.

But even then it needs to be remembered that there are many factors that go into determining people's votes at a general election. At best, any one economic or social issue has only a small part to play in that equation.

Historically, interest rates have not featured highly among the issues that motivate voting choices.

Two examples are the federal election of 1990 and the most recent election, in 2004.

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In 1990 the Hawke Labor Government went to an election with interest rates at historically high levels of around 17 per cent.

But Australia had experienced a high interest rate environment for some years before that election, so as far people's reactions go, it is not as though interest rates suddenly jumped up to the high teens now.

Double figure interest rates were part of the economic and political context of the time.

In those circumstances further rate rises had little impact and in the event the 1990 election was fought out on the basis of other issues, such as the environment.

At the federal election in 2004 interest rates became an issue in the campaign, not because interest rates were high, but because the government argued that if the Labor Opposition were elected interest rates would surely go up.

The implicit corollary of this argument was that interest rates would not go up if the government were re-elected. This was all part of the government's campaign that it was a more trustworthy manager of the economy than Labor.

Of course the government was re-elected, but the evidence from electoral analysis suggests that its victory had little if anything to do with the argument about interest rates.

If the direct impact of a small one-off rise in interest rates on support for the government is likely to be negligible in anything other than the short-term - and would certainly not translate into a loss of votes at a federal election almost certainly well over a year away - there is nonetheless the intriguing possibility of an indirect impact.

To the extent that voters bought the argument that the government could be trusted to keep interest rates down, it is possible that interest rate rises will be seen as a breach of that trust and that this will impact negatively on the government's - and the Prime Minister John Howard's - general image within the electorate.

Generalised images of political parties and leaders do have a powerful electoral impact and it is possible that through this more indirect path, the government's campaign at the last election, which proved of little value to it at the time, may come back to haunt it.

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First published in The Courier-Mail on August 4, 2006.



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About the Author

Professor Clive Bean is the head of the School of Humanities and Human Services at the Queensland University of Technology and a principal investigator for the Australian Election Study.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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