Economy remains Howard's strength
By Geoff Hiscock
Australia's stock market is trading at record levels in 2006.
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SYDNEY, Australia (CNN) -- Economic management is the strongest attribute of John Howard's 10 years in power, according to the latest Australian opinion poll.
More than national security, education, health or welfare, it is in handling the economy where Howard's Liberal-National coalition government is judged to be well clear of its Labor opposition -- 55 percent to 23 percent in a Newspoll conducted in mid-February.
That reflects Australia's sunny economic outlook in 2006:
Underpinning this rosy picture is the strong global demand for Australian commodities such as coal, iron ore, LNG and agriculture.
A combination of resource riches, good timing and business reforms dating back more than 20 years have created another bout of prosperity for the "lucky country"; China and India are emerging as Australia's big new customers to challenge longstanding buyers such as Japan, South Korea, the United States and the European Union.
The man who claims the most credit for that dream run is Howard's potential successor, Treasurer Peter Costello, who says the decade since March 1996 has witnessed the greatest accumulation of wealth in Australian history.
Costello has been treasurer for the entire Howard era, and maintains that there is "no more important job" than managing the Australian economy properly.
Costello, a former university lecturer and barrister, has been tenacious in cutting debt and running a government budget surplus -- a feat achieved in seven of the past eight years. This year, he says, the government will likely eliminate net debt completely.
"This is an outcome matched by few developed countries and is a remarkable improvement given that in 1996 Australian government net debt was over 18 percent of gross domestic product (GDP)," Costello said recently.
Structurally, two decades of industrial and financial reform have given Australia a stable and robust economic platform. A strong banking system and a corporate cleanup after the debt excesses of the early 1990s allowed the country to escape the worst of the 1997-98 Asian financial crisis.
Introduction of a goods and services tax in 2000 delivered a revenue boost as it tapped into the "black economy" and allowed tax cuts elsewhere.
And despite a debilitating drought in 2001-2003, the rural sector has bounced back, fueled in part by a property boom that lifted family wealth, and a global demand for energy and food.
But the reality is that there are some clouds ahead. Australia's economy is starting to hit capacity constraints -- even though its annual GDP growth of around 3 percent seems tardy compared to the stellar 9 percent rate of China or 7 percent of India.
Labor is tight, meaning wages are moving higher and the target inflation rate of around 2.5 percent to 2.75 percent may come under pressure. An interest rate rise is expected later this year.
The central Reserve Bank of Australia has lifted rates only once in the past two years -- the current cash rate of 5.5 percent has been in place since March 2005 -- but Governor Ian Macfarlane said in mid-February the next rate move would most likely be up.
John Edwards, HSBC Australia's chief economist, noted recently that there are "plenty of serious long-term issues in the economy."
"First and foremost in our view is that the burden of servicing foreign debt will continue to increase faster than GDP, until Australia manages to run a permanent trade surplus," he said.
Exports are doing well this year because of Chinese demand, but Edwards' point is that for too many years recently, Australia's propensity to import has outstripped its export ability.
When Howard won his fourth straight term in October 2004, his pitch was that "people are never bored with prosperity."
If Costello inherits the leadership role before the next election, keeping the "lucky country" prosperous will continue to be his key job.
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