Howard's WorkChoices is allowing us to reap the China boom

The graph shows inflation and inflationary expectations since 1958. Note the upturn since the turn of the century. The recent downturn - despite the boom - is the strongest evidence yet of Australia's "new economy" at work.

Australia is undergoing a fundamental change in the relationships between workers and employers. Consumers, of course, are workers, and as consumers they demand the opportunity to buy goods and services when it suits them, not when it suits a union boss who gets his jollies from telling employers what deals they will strike with their workers. Suppliers, of course, are employers, and to service consumers efficiently (ie, profitably) they need the freedom to operate without "instructions" from union bosses or their shop stewards.

There is of course a major threat to the WorkChoices reforms - election of a Labor government in thrall to its union supporter base. Kevin Rudd is a clever bloke who works hard and so far at least has shown great discipline. Henry's guess is that Kevin Rudd is capable of understanding the extent to which WorkChoices has helped the Australian economy and the costs of rollback in this area. However, while the jury of public opinion is still deliberating on this subject, the portents are not good. It seems if Labor wins the federal election there will be at least some rollback, and this will reimpose the shackles on Australia's growth and prosperity, at least to some extent.

One challenge for John Howard and Peter Costello is to sell the benefits of WorkChoices far more effectively than hitherto. Another is to give back the taxes collected in such volumes in ways best calculated to support growth and prosperity. Education and infrastructure both need far better support than they have had so far from the Coalition. But direct tax cuts must also become a regular and planned part of budget statements.

If the budget is as good as it should be, the next move in interest rates will be down rather than up. Imagine the potential impact of this on Australia's future economic performance.

We shall await next week's federal budget with more than our usual interest. A strong budget with carefully targeted new spending on infrastructure and education and a healthy overall surplus is vital. A credible promise of a steady program of cuts to income tax, including for "Howard's battlers", is what is needed to give the Howard-Costello Government a realistic shot at another term in office.

Surprisingly strong employment and surprisingly low inflation have kept Howard and Costello in the political race. Now they must gird their loins for the toughest fight of their political careers. Selling the manifest benefits of their WorkChoices legislation is the challenge they face.