“Our problem isn’t a weak economy, it’s a strong one,” Access Economics’ Chris Richardson declared on The 7:30 Report last night.

“It is that choking on the prosperity of the moment that ranks as our biggest risk for 2008. It is the likes of rising inflation and rising interest rates that’s the first enemy that the new Government has to guard against.”

It’s a new dilemma – one that poses new challenges for the new government. Richardson has warned, “I don’t think there’s anything the incoming government can do to stop another interest rate rise come February”.

They’ll be OK then. It will be seen as a hangover from the Howard days. Rates rises after that will be more problematic.

Richardson says a February rate rise isn’t a “done deal”. He says the credit crunch might stop the Reserve Bank, but warns “pretty much nothing the incoming government could do could stop the Reserve Bank”.

“The bigger question,” he says, “if we’re still travelling at speed, is the risk of another, a further interest rate rise in the middle of 2008. That’s the crunch one for the Government. Can their first budget help ward off yet another interest rate increase then.”

That’s where things really come down to the Rudd government.

The Hawke government was a great reforming government, but by accident, not design. Floating the dollar and deregulating the financial system wasn’t a key part of bringing Australia together. Instead, Hawke and Keating and Walsh identified the challenges to prosperity, and tackled them.

Richardson has set out the challenges for Rudd and Swan and Tanner. “If you have an economy at full stretch, spray around the money, you don’t get a bigger economy, you get more prices higher, price pressures instead,” he says.

“For the Government to be able to break that connection between more tax cuts and more interest rate rises, it’s got to do something about the spending programs it’s inherited. Remember, an awful lot of spending, about $230 billion a year of which $40 billion a year is relatively new. The previous government added that in relatively recent times.”

Richardson says, “There is a rich vein there of potential opportunity to give tax payers better value for money in terms of what the Government’s doing, and take pressure off interest rates at the same time.”

John Howard sought to make the economy the key issue at the last election, but rather than vacating the field, Labor fought back. They sought to portray the Liberals as lazy.

They can continue to do so. Australian voters rejected John Howard’s bribes at the last election. Labor can continue to portray the Liberals as lazy and complacent. Peter Costello has helped them with his conduct since the poll. They can make the Liberals look like poor economic managers – spending like no tomorrow, with no thought of tomorrow.

Labor can use this to claw back spending at the Budget and ensure that the Liberals support their cuts or risk their economic management credentials still further.