Australia's Labor licks wounds after bad week

By Belinda Goldsmith

CANBERRA (Reuters): Australia's opposition Labor Party was licking its wounds on Friday after capping a damaging week with a tax gaffe, allowing the embattled government to regain the upper hand in the 2001 election campaign.

Center-left Labor has been riding high in opinion polls ahead of the election expected by year end, and seemed a dead cert to deny conservative Prime Minister John Howard a third term.

But a weak response to the government's vote-buying 2001/2002 budget announced on Tuesday, and an unfortunate acknowledgement by a frontbencher that a Labor government might have to hike taxes to fund policies, may have halted Labor's momentum.

Political analysts said on Friday that the government going on the offensive after four months of embarrassing policy reversals and spending promises had paid dividends.

"So far Labor has not come up with anything very exciting to take power but had been banking on people getting fed up with the government, which was working until this week," political analyst Jim Jupp from Australian National University told Reuters.

"The government's strategy of building up a big surplus then giving it all away in the budget before the election has also worked because it has boxed Labor in, leaving no funds."

With the battle for budget credibility emerging as a major theme for this year's election, all eyes were on Canberra this week for the government's 2001/2002 budget and on Labor's spending plans should it topple the five-year-old coalition.

The Liberal/National government found a good reception for its big spending budget that targeted key voters but maintained fiscal discipline.

Extensive leaks before the budget were cited as a reason for the gap between the coalition and Labor narrowing to one basis point in a poll on Tuesday from 10 points two weeks ago.

Labor failed to notch up any political points during the parliamentary debate that followed the budget, and leader Kim Beazley's official reply speech was overshadowed by a bombshell dropped by Labor's financial services spokesman Stephen Conroy.

Conroy told students the thin A$1.5 billion surplus unveiled by Treasurer Peter Costello meant a Labor government would have to make tough choices between cutting education and innovation programs or "increase some taxes".

The government was quick to react, accusing Labor of having a secret tax plan to fund its promise to reduce, or roll back, a controversial Goods and Services Tax (GST) introduced last July.

"We are going to go day in, day out, to make sure that we nail you on your secret plan for tax rises," yelled a jubilant Treasurer Peter Costello in parliament.

Beazley was forced into damage control.

He "had words" with Conroy and copies of his budget speech, usually handed out under embargo in advance, only appeared minutes before he stood in parliament -- issuing a guarantee Labor would not increase personal income tax rates.

Australian income tax rates, with the top-end rate of 47 percent kicking in at A$50,001 (US$26,000), are considered high.

Beazley did not give similar assurances about other taxes.

He pledged to cut government advertising costs and redirect funds to cancer, give more money to public schools at the expense of private schools, and roll back GST on charities -- measures viewed as drop in the ocean for a budget of A$160 billion.

"But before the electorate will buy these policies, Beazley must demonstrate he can deliver these promises by running a fiscally prudent government," The Australian newspaper said in an editorial on Friday.

"Thanks to a lackluster reply (to the budget) and Senator Conroy's gaffe, that is now going to be harder than ever."

Prime Minister Howard was clearly relishing the reversal in roles this week, with Labor coming out the underdog.

"That old saying about a week in politics is a long time is certainly true," Howard told Melbourne radio station 3AW.

"But I'm not getting any exuberant comfort out of what's happened over the past couple of days. We still have a hard slog ahead of us."