Australia’s IR
reforms may well define the outcome of the next Federal election. Yesterday, one
of Henry’s most plugged in business friends said: “No-one (exaggerating only a
little) understands AWAs, or even if they are on one themselves. It will come
down to “do you want to be controlled by the union?” He added, “Beazley will
lose big-time on this, and the economy will
benefit”.

Today The Oz reports:
“Kim Beazley’s gamble that scrapping Australian Workplace Agreements will boost
Labor’s electoral chances has failed its first
test.

“The latest Newspoll, conducted
exclusively for The Australian at the weekend, reveals that the Coalition has
leapt ahead of the ALP, despite a Labor campaign against the government’s new
industrial laws and the opposition leader’s vow to do away with AWAs and
personal contracts.

“Mr Beazley’s low personal
satisfaction rating remained virtually unchanged, with John Howard still
outpolling him more than two-to-one as preferred prime
minister”.

At the end of the day, it will be
all about the economy. If the good times continue to roll, as now seems very
likely, the government will maintain support. As someone once said, “Its the
economy, stupid”.

One of the bigger puzzles is how
little wages growth has increased in the long boom that we have experienced.
While there are skill shortages in a number of areas, this has not so far
translated into much upward pressure on wages growth – inflationary expectations
are under control and everyone knows that “one person’s wage hike is another
person’s job loss”. As we have said before, the global brotherhood of central
bankers seem resolved to keep inflationary expectations under control, hence the
recent raft of rate hikes.

As long as inflation remains under
control the economy will grow strongly. For Australia this means a continued
commodity boom, strong budgets and the capacity to cut tax rates again in
2007.

A recent Roy
Morgan survey published in January shows that 83% of Australians consider their job
safe, while 62% believe that if they became unemployed, they would be able to
find work fairly quickly. Relative to the rest of the world, Australia rates highly on both of
these dimensions.

More reading at Henry Thornton.