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C O N F I D E N T I A L SECTION 01 OF 02 CANBERRA 001574 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
E.O. 12958: DECL: 10/04/2016 
TAGS: PGOV ELAB ECON AS
SUBJECT: INTEREST RATES MORE IMPORTANT POLITICALLY THAN 
LABOR LAW CHANGES 
 
 
Classified By: Political Counselor James F. Cole, REASONS 1.4 (b) and ( 
d). 
 
SUMMARY 
 
¶1. (C/NF) Interest rates will be a key political issue for 
the 2007 federal elections, according to a number of 
observers Embassy poloffs met with during a visit to Sydney. 
The consensus was that changes to the industrial relations 
laws will be at most a contributing factor.  So far, the 
impact of the labor law changes on workers has been minimal 
given the strong economy and low unemployment.  According to 
these observers, most Australian voters, thinking about their 
finances when they vote next year, will likely support the 
Coalition but they will not want the Government to continue 
controlling the Senate, as it does now.  New South Wales 
(NSW) Labor Party Secretary Mark Arbib (Protect) noted that 
left-of-center parties have stressed a "national vision" for 
the future but security concerns have helped right-wing 
governments since 9/11. 
 
INTEREST RATES BIGGER ELECTION ISSUE THAN INDUSTRIAL 
RELATIONS REFORM 
 
¶2. (C/NF) During a trip to Sydney September 28-29, Embassy 
poloffs met with Garry Brack (Protect), Chief Executive of 
Employers First, Mark Lennon (Protect), Assistant Secretary 
of the Labor Council of New South Wales, Dr. John Buchanan 
(Protect), Director of the Australian Centre for Industrial 
Relations Research and Training at the University of Sydney, 
and Mark Arbib (Protect), General Secretary of the New South 
Wales Labor Party. 
 
¶3. (C/NF) Mark Lennon, deputy director for the labor-union 
umbrella organization in NSW, said that while the changes to 
the industrial relations laws were a key issue for organized 
labor, the voters would be focused on the pocketbook when 
they voted next year -- and the key issue for them was 
interest rates.  Given the large mortgages needed to buy the 
expensive real estate in Sydney, and the fact that most loans 
had adjustable interest rates, a rise in rates affected most 
voters' disposable income.  Many voters were chary of 
Coalition Senate control, Lennon also maintained.  With a 
healthy economy and stable interest rates they would keep the 
Government in power in the House but were less likely to vote 
for Coalition senators. 
 
POST-9/11 SECURITY CONCERNS HAVE HELPED RIGHT WING PARTIES 
 
¶4. (C/NF) Arbib echoed Lennon's sentiments on interest rates, 
noting that during the 2004 election campaign, PM Howard's 
standing in the polls always increased when he focused on 
interest rates, and conversely, decreased when he changed the 
subject.  Not only does the strong economy help the 
Coalition, Arbib said, but post-9/11 security concerns were 
another factor.  Left-of-center governments need to 
articulate a vision for the future, and unless Australia 
invests in its future it will only be a "quarry for the 
Chinese and a tourist destination for the Japanese." 
However, Arbib continued, the immediate issues for every 
voter are the economy and security, and the Howard Government 
currently holds the advantage on both.  It will be a tough 
struggle for the Labor Party (ALP) to win the federal 
elections in 2007, Arbib admitted, but the ALP has a stronger 
team of young leaders coming up through the political system 
and he was confident for the future. 
 
¶5. C/NF) Arbib said Kim Beazley, because he was the opposite 
of the volatile Mark Latham, was the right man to lead the 
ALP at the present time.  Arbib noted that the March 2007 
state elections in NSW would be tough for the ALP.  They had 
been in power for 12 years and were having some problems but 
the Opposition leader was inexperienced and not yet ready to 
challenge for the leadership.  Coalition control of the 
Federal Government and ALP control of the states and 
territories was accentuated by the fact that the best 
Coalition political operatives gravitated toward Canberra, 
where they could get better jobs working at the national 
level.  The best jobs for the good ALP politicians and 
staffers were in the state governments, which the ALP run. 
 
¶6. (BIO NOTE: Young, dynamic and friendly, Arbib is reputed 
to be the leader of the right wing of the ALP (traditionally 
centered in NSW) and the one who chose Beazley to be the ALP 
 
CANBERRA 00001574  002 OF 002 
 
 
leader after Latham.  He also told us that he, unlike 
Beazley, supported Iraq as well as the war on terrorism in 
general.) 
 
WITH A STRONG ECONOMY, WAGES INCREASE DESPITE NEW LABOR LAWS 
 
¶7. (C/NF) Employer representative Brack explained that under 
the old awards system of industrial relations, an "award" 
issued by the Australian Industrial Relations Commission in 
response to a labor dispute increased compensation and 
benefits for a particular industry.  That award would then 
provide the benchmark that would increase wages and benefits 
in other industries throughout the economy.  This made it 
impossible for businesses to control labor costs and compete 
internationally, Brack said. 
 
¶8. (C/NF) While the reforms instituted by the Howard 
Government in 1996 and amended in 2005 have provided more 
job-market flexibility and ended the steady increases in 
wages and benefits, the reforms have had little impact, Brack 
pointed out.  With a growing economy and essentially full 
employment, the tight job market is continuing to push 
salaries higher.  Employers are most concerned with keeping 
their skilled employees.  In addition, Brack noted, many 
employees are covered by awards or state compensation laws 
that pre-dated the 2005 workplace law and have not yet 
expired. 
 
¶9. (C/NF) Dr. Buchanan, whose research institute has done a 
number of studies on the new workplace relations laws, said 
that strikes were much harder to mount under the new laws and 
the unions had lost bargaining power.  Skilled employees 
would be less affected by the changes than the 20 percent of 
workers at the bottom, who would lose many of their 
protections.  Under the old awards system, this 20 percent 
was paid relatively well, forcing employers to use fewer 
workers more efficiently.  Buchanan noted that New Zealand 
and the states of Victoria and Western Australia had 
undertaken similar reforms that dismantled industry-wide 
guarantees in favor of individual agreements and a few 
statutory minimum conditions.  The result has been the growth 
of low-paying jobs and greater wage inequality, especially 
for women, young people and low-skilled employees. 
 
¶10. (C/NF) The new industrial relations laws -- designed to 
give employers the ability to hire a more flexible workforce 
to compete internationally -- may be partially responsible 
for the fact that unemployment is at the lowest level in 30 
years (4.9 percent).  As Buchanan noted, under the old system 
employers had to pay their less-skilled workers relatively 
well, so they hired fewer.  His fear -- and perhaps a fear of 
many Australians -- is that employers may now be able to 
create a class of so-called Walmart employees in Australia. 
 
COMMENT 
 
¶11. (C/NF) The economy and security appear to remain the 
issues over which the elections will be fought next year. 
The observers we spoke with stressed that PM Howard is a 
master politician who will lay claim to the country's current 
prosperity and keep interest rates lower than a Labor 
government would be able to do.  He will also be a formidable 
campaigner in the fight to convince the electorate which 
party can best deliver on national security. 
 
 
OWENS