KEY POINTS:
CANBERRA - Suddenly the bubble has burst on the world's greatest optimists.
Despite a raging resources boom that has pumped the national economy like steroids, Australians have plunged into gloom.
Not since Treasurer Paul Keating warned in 1986 that the nation was on the brink of becoming a
banana republic have its people felt less confident about their future.
At the heart of the despondency creeping across the continent are soaring petrol prices which, by themselves and by the flow-on costs across the economy, are eroding the standard of living in one of the world's most affluent countries.
For Prime Minister Kevin Rudd, whose seven-month-old Labor Government inherited rising interest rates and is now battling skyrocketing global oil markets, a series of new polls warn of a growing political backlash.
It was felt in the hammering the Government suffered in last weekend's byelection in Gippsland, Victoria - the first since Rudd won power last November - and threatens a repeat in the upcoming byelection for the South Australian seat of Mayo.
Mayo has been held for more than two decades by former Foreign Minister Alexander Downer, who is expected today to announce his resignation from politics.
But the impact extends beyond politics, into the nation's boardrooms and across its sprawling mortgage belt.
Yesterday research by insurance giant AAMI said three in five drivers reported that rising petrol prices had reduced their overall standard of living, and that 60 per cent were driving less.
"For many Australians, the rising cost of living that has resulted from record prices at the pump is of major concern, and is impacting on people's lifestyles," AAMI public affairs manager Geoff Hughes said.
"A higher cost of living, and growing awareness of dwindling natural resources and other environmental issues, are also affecting drivers' attitudes about whether an alternative method of transportation can be used instead."
Hughes said 40 per cent of motorists reported that they drove only when necessary, electing to instead walk or cycle whenever possible, and almost one-third were now willing to carpool.
A Newspoll in the Australian yesterday added to the gloom, reporting that Australians' confidence in their jobs and the cost of living had dived to its lowest since the recession of the 1990s.
The poll said that in the past six months the percentage of people who feared their living conditions would worsen had more than doubled - the biggest leap in the standard-of-living survey's 23-year history. The percentage expecting improvement had almost halved.
Further evidence of waning confidence came from Tuesday's decision by the Reserve Bank not to further increase interest rates.
Reserve Bank governor Glenn Stevens said that tightening financial conditions, with such other factors as rising fuel costs, were restraining demand.
"Indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has weakened significantly," he said.
"There have also been some tentative signs of an easing in labour market conditions."
Polling by Roy Morgan Research has also shown that fewer than half of Australians now believe the nation is heading in the right direction, and that more say their families are financially worse off than a year ago.
Morgan's latest consumer confidence index has fallen to its lowest level since December 1991.
And the Australian Chamber of Commerce and Industry's latest survey of investor confidence, released this week, said that businesses were far less optimistic about the future than at this time last year. The chamber said investment was likely to suffer.
Last month the ACCI-Westpac survey of industrial trends reported that business expectations had fallen to their lowest levels since March 2003.
Finance Minister Lindsay Tanner said he was not surprised.
"In the circumstances we're dealing with it's probably not surprising that people are less optimistic than they were, say, 12 months ago, when these factors weren't really there to anything like the same degree," he told ABC radio.
But Opposition finance spokesman Peter Dutton said Australians were fast losing trust in the Government.
"The public has formed a view that Mr Rudd is all spin and no substance when it comes to public policy."
