Petrol fuels political woes for Australia's Rudd

Rising petrol prices have ended Australian Prime Minister Kevin Rudd's political honeymoon after 6 months in office, with commentators warning his Labour government may now be vulnerable at the next election.

Although the next election is almost 3 years away, and Labour only swept into office last November, cracks in Rudd's handling of rising petrol prices have prompted warnings his government may wilt.

Veteran political journalist Rob Chalmers, who publishes a political newsletter in Canberra, said a series of cabinet leaks on petrol had damaged Rudd and given new hope to the conservative opposition Liberal Party for the next election.

"This week has the worst week for his government since the election," Chalmers said. "It is time for a rethink of the generally held view...that Labour is most likely to win the next election. Suddenly this seems out of date."

Rudd had been politically untouchable since becoming Labour leader 18 months ago and began his term in office with widespread praise for two major policy changes, signing the Kyoto Protocol and apologising to Aborigines for past injustices.

But leaked cabinet documents critical of his plan to tackle rising petrol prices at the bowser, by establishing a "Fuel Watch" monitoring system, rattled Rudd last week as he tried to defend his scheme.

Newspaper headlines read: "Rudd stumbles on cost of living", "Now Rudd pays the price", "Rudd low on fuel" and "Rudd, the lion who squeaked".

Rudd has said he expects to take a hammering in opinion polls after the leaked documents. Rudd's personal popularity is around 70 percent and his government's support about five points higher than the election result.

"It has all certainly taken some the gloss off him," Monash University political analyst Nick Economou told Reuters. "I have no doubt that the next opinion polls will show a swing back to the opposition."

LOOMING ECONOMIC STORM

Rudd went into last November's election promising to do something about petrol prices and to stop profiteering by oil companies by empowering Australia's competition regulators.

His "Fuel Watch" plan would see retailers set prices 24 hours in advance, with customers able to look on a web site to check prices and find the cheapest fuel in their area. Analysts are split on whether the scheme would cut or push up prices.

Last week Sydney petrol hit a record high of A$1.63 a litre at the bowser, with petrol in rural Australia already at A$2 a litre. Motorists flooded talkback radio complaining of the cost of filling up the family car and truck companies warned of a crisis with 75 percent of domestic freight carried by road.

With so much freight moved by trucks, rising fuel prices will quickly feed into higher prices at Australian supermarkets and department stores, putting pressure on inflation, already growing at its fastest pace in 16 years, and on rising interest rates.

Australia's central bank has raised interest rates four times since last August to a 12-year peak of 7.25 percent to curb inflation, with a growing number of home repossessions and more homeowners falling behind in mortgage payments.

The Reserve Bank of Australia meets on Tuesday to decide monetary policy, with economists saying it will be a close call whether the bank hikes rates again.

Economou said despite the problems of the past week, Rudd still had the ability to bounce back, particularly if he can restore discipline and plug the cabinet leaks, which Rudd has blamed on disgruntled public servants.

"He still holds all the cards," Economou said.