PM HOWARD STEPS OUT TOWARD THE 2007 ELECTIONS

C O N F I D E N T I A L SECTION 01 OF 02 CANBERRA 001244

SIPDIS

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STATE FOR EAP/ANP
PACOM FOR POLAD

E.O. 12958: DECL: 08/13/2016
TAGS: PGOV ECON AS
SUBJECT: PM HOWARD STEPS OUT TOWARD THE 2007 ELECTIONS

REF: A. CANBERRA 1161


B. CANBERRA 1172

Classified By: CDA Michael P. Owens. Reasons: 1.4(b) and (d).

SUMMARY
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1. (C/NF) With his declaration July 31 that he would seek a
fifth term in office effectively ending months of speculation
about his intentions (ref A),Prime Minister John Howard can
now focus on the national elections that must be held in

2007. A renowned morning power-walker, Howard has good
reason to stride confidently into the year-long run-up to the
election, given a strong economy and polls showing him with a
double digit lead over his challenger, Australian Labor Party
leader Kim Beazley. Australian elections are almost
invariably near-run affairs, however, and Howard certainly
realizes that next year's contest will be no exception.

MIXED ECONOMIC NEWS
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2. (U) As Parliament reconvened after a two-month winter
break, the overall economic news for the Howard Government
was excellent: an OECD report declared that Australia's GDP
per capita has now surpassed all G7 nations except the United
States; and the national unemployment rate has dropped to a
30-year low of 4.8 percent. However, the news was not all
good for the government. The Reserve Bank raised interest
rates to 6 percent, the second quarter point increase since
May, and petrol prices continued to climb. A liter of
gasoline now costs about A$1.47 (roughly U.S. $4.50 a gallon).


3. (C/NF) The problem for the Government in these
"pocketbook" numbers is that Howard promised to keep interest
rates low during his last election campaign in 2004, and
Australians now have a higher debt load than at any time in
their history. Upticks in mortgage rates hit particularly
hard because the vast majority of Australian homeowners hold
adjustable rate mortgages. Members of Parliament and their
staff confirmed during a series of calls by Poloffs last week
that higher gas prices were an issue that was beginning to
worry their electorates, particularly those in rural areas.
As a result, the Howard Government spent the week scrambling
to find a response to the higher prices. (While Howard noted
correctly that higher prices stem from forces beyond
Australia's control, the Government is looking to support
alternative fuels such as ethanol or natural gas for
vehicles).

POLLS STILL POSITIVE
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4. (C/NF) Although a Sydney Morning Herald poll released
August 14 indicated 75 percent of voters are dissatisfied
with the Government's response to petrol prices, it also
noted that the Coalition is the preferred choice ) by 20
percentage points -- to manage the economy. The poll, and a
Newspoll published by The Australian newspaper August 15
showed that Howard is the clear choice for Prime Minister by
almost 2 to 1 over Beazley. Although the Morning Herald poll
gave Labor a 53-47 advantage in the two-party preference
voting, the Newspoll (taken after the latest terrorist
arrests in London) gave the Coalition the lead 51-49. A
Coalition aide noted that the Coalition's poll numbers have
dipped midway through the last three governments. He said
the party out of power needed at least a three percent lead
in the polls for the results to indicate any threat to the
Government.

LABOR SEES TOUGH FIGHT
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CANBERRA 00001244 002 OF 002



5. (C/NF) Poloffs spoke to several Labor Party Members of
Parliament and their aides last week about the current
political situation. They understood they had an uphill
struggle to defeat the Coalition in the next election and in
the words of MP Bob McMullan (Protect) &they weren,t there
yet.8 Their strategy is to work with the unions to brand
the new industrial relations law as unfair to the average
worker (see ref B) and combine that law with rising interest
rates and petrol prices to show that the average worker is
not better off. In the words of Chris Bowen (Protect),
another Labor MP seen as a rising star in the Party, if a
voter is asked who they trust more to run the economy, the
Coalition is favored 70-30 percent, but if the question asked
is who do you believe cares more about the average working
man, Labor wins 60-40 percent.


6. (C/NF) Labor Shadow Foreign Minister Kevin Rudd recently
told visiting EAP DAS Davies and Charge that he believed
Labor's prospects for gaining government were about
fifty-fifty. Recent polls, he said, showed Labor within
striking distance, which reflected a solid improvement in the
party's fortunes over the past several months. On the other
hand, Labor really needs to build its polling strength even
further, Rudd noted, since government support generally
improves during the lead-up to Australian federal elections.

COMMENT
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7. (C/NF) All Australian elections are close, and come down
to winning the marginal seats ) districts where the
incumbent's margin of victory was less than four percent.
With Howard at the top of the ticket, Coalition members
holding marginal seats have been invigorated. While Labor
politicians have to feel buoyed by the concern over petrol
prices and interest rates, they know they have an uphill
struggle given the strength of the economy and the confidence
the voters have in Howard.


8. (C/NF) Both sides of Parliament will need to reshuffle
their front benches prior to the next election to remove
members who are not seeking re-election. Multiple coalition
senior staffers confirmed that PM Howard will adjust his
ministers, likely during the Christmas break. They agreed,
however, that the top four -- Treasurer Peter Costello,
Minister for Health and Aging Tony Abbott, Foreign Minister
Alexander Downer, and Defense Minister Brendan Nelson -- were
extremely unlikely to change, thus minimizing the possibility
of a significant shake-up.
Owens