SINGAPORE, Nov 2 (Reuters) - Australia's central bank is expected to raise interest rates on Nov. 3, after being the first in the G20 last month to hike rates since the start of the financial crisis, again sparking opposition attacks on the economic management of Prime Minister Kevin Rudd.
The arrival of several boats carrying asylum seekers has again ignited the hot-button political issue of boatpeople, forcing Rudd to defend his border security policy.
Rudd is well ahead in opinion polls, but an expected series of rate hikes, and now the issue of asylum seekers, has increased speculation of an early 2010 poll. Elections are due by late 2010.
Following is a summary of key Australian risks to watch:
* RELATIONS WITH CHINA
Relations between China and Australia have stabilised after a series of recent Australian ministerial visits to China and a high-level visit by China's First Vice Premier Li Keqiang to Australia last week. But bilateral ties will remain vulnerable to tensions involved in China's efforts to buy key stakes in Australian commodities and resources firms. Australia will have to find the appropriate balance between being open to investment and trade -- demand from China was the key factor that rescued the country from global recession -- while ensuring that deals are not contrary to the national interest. The legal case in China against Rio Tinto executives soured relations in recent months.
Key issues to watch:
-- China's next move in the Rio Tinto case. A decision is expected soon on whether to put the four arrested executives on trial. By dropping the most serious charge, of stealing state secrets, China may have signalled it wants to defuse the politically charged case.
-- Progress on a free trade agreement with China.
-- Decisions on future Chinese investment bids and China's response.
* CLIMATE CHANGE AND ENVIRONMENT
Australia is the biggest per-capita emitter in the developed world, and climate change is among the most contentious political issues. In August, a hostile Senate voted down an emissions trading bill championed by Rudd. The government wants a second vote on the bill in mid-November, the last parliamentary session of 2009, and ahead of global climate talks in Copenhagen in December. If the Senate votes it down a second time, Rudd can dissolve both houses and call early elections -- on current poll indications, this would return him with a strengthened majority. Key issues to watch:
-- Parliamentary vote on emissions trading bill. The opposition has delivered a raft of amendments, most notably exempting agriulture from the scheme, that it hopes the government will agree to and thereby avoid a snap election.
* RUDD'S POPULARITY
As elections get closer, markets will be evaluating the chances of a change of government, and whether this would result in major changes to economic policy, climate change policy, defence policy and relations with China. For the moment, the possibility of a change in government appears low. Rudd has a commanding majority, and current poll ratings suggest elections would return him with an even stronger mandate. Australia's performance during the global financial crisis has been better than many of its peers and Australia has dodged recession. However, unemployment is still forecast to rise and interest rates are rising again as the economy strengthens, giving some ammunition to the opposition.
Key issues to watch:
-- Monetary policy. The Reserve Bank of Australia tightened rates on Oct. 6 and signalled more rises to come. Interest rates and the possibility of tax rises will be key election issues.
-- Opinion polls, for any sign's Rudd's lead is slipping.
* GOVERNMENT INTERVENTION IN THE ECONOMY
The economy weathered the crisis well, helped by government stimulus spending, but many Australians worry about the rising level of private and public debt and budget deficits. The opposition has made it a political issue, attacking the spending as excessive. Australian elections are traditionally fought over economic management.
Key issues to watch:
-- Economic data. Recent revised data says the budget deficit will be much smaller than had been feared and unemployment not as bad as forecast.
* SECURITY
Border security is back on the political agenda, with Rudd being accused of being soft on boatpeople after dismantling the previous government's policy of mandatory detention. Rudd says conflicts in South Asia are the reason for the rise in boatpeople numbers, still small by global comparisons, but would fear the issue as conservative parties won a 2001 election on the issue.
Rudd has been a far less vocal backer of the global war on terror than his predecessor, and has pulled Australian troops out of Iraq. Nevertheless, Australia is seen as a key U.S. ally and faces the possibility of attacks on its soil by militant groups. The foiling of a plot by local militants to shoot Australian soldiers on an army base was the latest evidence of the low-level, but ongoing security threat that Australia faces.
Key issues to watch:
-- Any change to Australia's terrorism alert level, which has been at medium since 2003.
(Compiled by Andrew Marshall; Editing by Michael Perry)