The bewildering bombshell that was Donald Trump’s election victory was most felt by the Democrat politicians and their key followers who now have to accept that their party is out-of-step with the majority of Americans. They might need to reflect on what’s important to voters that was made famous by a successful Democrat called Bill Clinton, who once had to remind his colleagues that in politics “it’s the economy, stupid!”

The next question is whether Australian voters have the same attitude towards the Albanese Government, with political experts pointing to the cost of living as a big reason why Kamala Harris’s messages fell on deaf or tin ears.

One you have a tin ear, you’re failing to appreciate what you’re hearing. Left-leaning politicians sometimes think the big macro or world picture matters more than the micro or personal picture of voters.

All this is an important background to how voters will look at the story of the AFR’s Michael today that says the following:

1. “The total cost of public servant wages grew faster than it has in 15 years last financial year to $232 billion.”
2. The ABS reported government employee expenses rose 8% over 2023-24.
3. This was one of the fastest growing areas of government spending!
4. Public sector spending spiked to a record 27.3% of GDP in the June quarter.
5. Some economists blame the state and federal governments for prolonging inflation.

The trouble with all this for the PM and Labor is that until October 26 all governments around Australia, except Tasmania, were Labor. So, the generosity they’ve shown to public servants in granting higher wages and creating jobs is now being portrayed as the prime reason that inflation has remained high compared to other economies. This, in turn, is seen as a significant cause of why interest rates haven’t been cut, while the rest of the world is doing exactly that.

While you were sleeping, the US Fed cut rates by 0.25%, the Bank of England did the same, while earlier this week Sweden’s central bank cut the official rate by 0.5% to 2.75%.

Our equivalent cash rate is 4.35%. While Labor’s kindness to public servants specifically and most workers generally is a big part of the higher inflation and interest rates here in Australia, so is the ‘niceness’ of the Reserve Bank.

The central banks that are cutting now generally took their official rates over 5%. This created tougher economic environments, greater job losses, lower inflation and now, falling interest rates.

The Kiwi story shows the pluses and negatives of hardnose central bank policies. The RBNZ took the cash rate to 5.5% and now have cut by 0.75%. But this is the latest take on the economy from Reuters: “New Zealand's central bank painted a bleak economic picture on Tuesday, citing rising unemployment and delayed business investment plans due to financial hardships.

“The Reserve Bank of New Zealand's (RBNZ) semi-annual Financial Stability Report said weakness in domestic economic activity had become more pronounced and a combination of subdued global growth and high interest rates had reduced demand.”

But wait, there’s more from Reuters: “Rising unemployment is starting to create acute financial difficulties for some households,” it said.

“It added that businesses were experiencing lower profitability and weak demand, and lingering cost pressures had made the trade environment more difficult for firms.

“Over the past two years, the country's economic growth had fluctuated, occasionally dipping into negative territory.

“The RBNZ expects that the economy contracted in the third quarter, as it raised the cash rate to temper demand and bring down inflation. Unemployment is on the rise and sentiment remains subdued.”

Yep, I know I took a lot from Reuters, but it does show you what happens when central banks play hardball on interest rates and governments aren’t generous with public servants.

In concert with the RBA, the Albanese Government hasn’t played a tough game. The price is higher inflation and higher-for-longer interest rates for households but less job losses and less bankruptcies.

Recent election results have shown that governments who were in power with high inflation and high interest rates have been shown the door, as Kamala Harris experienced this week.

It will be interesting to see if Albo’s public service generosity and the RBA’s smaller rate rises, will save Labor from the ignominious belting the Democrats this week. It will also be intriguing to see how Labor sells the message that we helped public servants with jobs and pay hikes, and while it did keep interest rates high, we didn’t go into recession.

What could be a stinging irony is that a lot of this support for public servants happened at the state level, but Albo and his team could cop the lion’s share of the blame in the expected May election next year, especially if we don’t see a few rate cuts before we go to the polls.