Today Australia goes to the polls in one of the strangest elections in modern times. In a momentous year that has seen the rise of the racist One Nation party of Ms Pauline Hanson, divisions over Aboriginal land rights and class war on the waterfront, there has been no serious debate about anything except one issue: whether Australians are to pay a version of value added tax. "It's the Prozac campaign," wrote one commentator.

Moreover, in the eyes of many Australians, the two candidates for prime minister are barely credible figures. Mr John Howard, the Coalition (conservative) incumbent, is the embodiment of an enduring suburban parsimony that remains ill at ease with modern, multi-cultural Australia and Mr Kim Beazley, the Labor Party leader, is a grey chameleon.

Mr Howard likes to invoke the values of the 1950s, the "golden era" of conservatism, when Australian men wore serge suits in the heat and the Aborigines were excluded from the census, unlike the sheep; and the then prime minister, Sir Robert Menzies, ruled when he wasn't at Lords Cricket Ground in London.

The irony is striking. For all his imperial pretensions, Sir Robert was a Keynesian social democrat who presided over a nation boasting the most equitable spread of personal income on earth. Mr Howard is the diametric opposite. Having learned by rote every New Right shibboleth of the 1980s, he is a devotee of the 19th century laissez-faire capitalism that has returned to destroy the economies of Australia's Asian "partners" and to cast a shadow over the "Lucky Country" itself.

During Mr Howard's two years in office, the gulf between rich and poor has widened as never before. In 1997, the Centre for Population and Urban Research found that almost a third of Australians depended on welfare and that 41 per cent of children aged 15 were growing up in families on welfare or defined as "working poor". Having diminished one of the smallest welfare states in the Western world, Howard has accelerated privatisation and tried to smash the trade unions. (Documents tabled in Parliament show that he secretly endorsed a conspiracy to sack most of the country's dockworkers). Last year he claimed unemployment had fallen to 8 per cent. The official figure is a deception; in one of the richest, most underpopulated countries in the world, around 15 per cent have no work.

It is in race relations that he has made his name, first by going along with propaganda suggesting that Aboriginal land rights threatened the backyard "barbie", then with legislation that undercut the High Court's landmark ruling in 1992 that Aboriginal people possessed common law rights to certain uninhabited land and remote leasehold property. This allowed him effectively to hand the freehold of large tracts of Australia to some of its richest landowners, including 26 government MPs and Mr Rupert Murdoch, who owns 70 per cent of the metropolitan press.

Last year, a Human Rights Commission report on the "stolen generation" was tabled in Parliament. Describing the forced removal of thousands of Aboriginal children from their families, it read like a page from the history of apartheid. The commission's president spoke of genocide in Australia and called for compensation. For many Australians, the Howard government's response was shaming. Unlike a proposal for a levy on the slaughter of emus for human consumption which Parliament had debated for an hour, it was given half an hour, during which the Prime Minister, the members of his Cabinet and most government MPs contemptuously left before the "debate" was over.

Abroad, and to some extent in Australia, the emergence of Ms Hanson's One Nation party has been misinterpreted as a glimpse of the nation's underbelly. Ms Hanson herself has been roundly abused in the press as a "former fish and chip shop owner". What is seldom said is that Ms Hanson's message is little different from that of Mr Howard, the suburban solicitor and tribune of the Australian conservative "mainstream".

Ms Hanson's "One Nation" closely resembles Mr Howard's "One Australian Policy" which, he promised in 1988, would be pursued by a future government led by him. Like her, he "warned" about "a lack of social cohesion": in other words, he attacked Australia's substantially Asian society. Last year, the Aboriginal leader, Noel Pearson, a lawyer and much admired as a "moderate", said that, on this evidence, Howard's policies were racist.

Why did a majority vote for him in 1996? There is little doubt that many ordinary Australians were expressing the profound bitterness and anger they felt about the Labor government, in power since 1983, and especially the then prime minister, Mr Paul Keating.

In a country that pioneered the principle of full employment, the minimum wage, the eight-hour working day, pensions and child benefits, Mr Keating was the destroyer. As treasurer under Mr Bob Hawke and later as prime minister, he launched the most spectacular redistribution of wealth in living memory. When Labor came to power, the combined wealth of the top 200 richest Australians was less than $A5 billion. After six years it was $A25 billion. Wage-earners saw their incomes cut by 25 per cent. When Mr Keating was defeated by Mr Howard, his legacy was a structural unemployment and poverty Australia had not known since the Great Depression.

He did see through a Native Title Bill in 1993; but even that was hedged, almost, it seemed, designed to fail. As for his famous republicanism, his real achievement was to give his country the distinction of being the most foreign-owned country in the world.

Yet his successor, Mr Beazley, who is remembered as Mr Keating's defence minister in permanent thrall to the ambitious Australian military establishment, may well win this election. Australia has a complicated preferential system of voting, and those placed second and third can exercise great power if the result is close. The polls have the two goliaths neck and neck.

Last week, they both appealed to Ms Hanson's followers to give them their second preferences. Inexplicably, Mr Howard's self-defeating refrain has been to call on Australians to vote for him so that he can impose a "patriotic" 10 per cent goods and services tax on almost everything, including food.

The title of the prophetic book, The Lucky Country, has often been misunderstood. Its author, Donald Horne, meant the title to be ironic.

John Pilger's latest book, Hidden Agendas, is published by Vintage.