Kevin 07 vs Gough 72

The parallels between Kevin Rudd in 2007 and Gough Whitlam in 1972 are close in terms of a (likely) new Labor government. Neither has a union background, both are strong supporters of spending on public education and both have some loose connections to Liberal or National roots. But the most unfortunate similarity is that the economy is primed for an inflation and wages breakout, just like it was in 1972.

In the 3 years to June 1972, price inflation was 5.0%pa and wages inflation 9.7%pa. Over the next 3 years (1972-75) price inflation had blown out to 13.1%pa and wages to a whopping 17.5%pa. This was part world oil price jump but in Australia it was more baby boomers spending on getting married and setting up house with production not able to keep up with demand and with unions like storeman and packers slowing down supply to get big wage rises. The Whitlam government push to expand education and the public service made public sector wage rises a pace setter for the private sector. This rocky three financial years saw the Labor government of 1972-75 try three different treasurers (Crean, Cairns and Hayden).

It will be interesting to look back in 3 years time. With a tight labour market and with the Reserve Bank 'required' to push up interest rates until inflation surrenders, the die is cast for a challenging environment for a new Labor government which will be let into the candy store after 11 years locked outside.

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