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Labor should cut spending to protect home-owners

Andrew Robb

by Andrew Robb

08 Nov 05:45am

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Filed under: Economy, Federal Budget, Gillard Government, Myefo

55 comments

This government must have the courage and discipline to cut spending, reduce borrowing and to repay debt.

Robb: Cuts now could save households later.

The mid year economic update (MYEFO) expected this week needs to take the form of a mini-budget. Wayne Swan needs to accept that government spending has and is contributing to the upward pressure on interest rates. We have now seen seven rises under his watch.

The Treasurer was at direct odds with leading economists such as Saul Eslake, Chris Richardson and RBA board member Warwick McKibbin, when he said: “Anybody who’s claiming the stimulus is somehow related to rate rises is simply talking rubbish.”

At the same time Finance Minister Penny Wong says: “what we are delivering for our part is the fastest fiscal consolidation that we have seen since the 1960s.”

In reality, this should be easy after you have just conducted the biggest spending and borrowing spree in Australia’s history.

The government’s latest monthly financial statement, however, which Senator Wong dropped out late on a Friday afternoon, raises serious doubts about the budget returning to surplus in 2012-13.

Senator Wong is on record pledging that the return to surplus is “not negotiable” and ultimately that is the benchmark from which she will be judged.

This was before Friday’s confession from Mr Swan that the high exchange rate could punch a hole in tax revenue, including the $10.5 billion he is banking on from the mining tax.

Labor’s surplus looks to be phoney, cooked up to get it through the election.

In the first three months of this financial year, Labor had racked up a deficit of $25.2 billion and net debt increased from $42.3 billion to $64.6 billion.

For the month of September the deficit was a staggering $13.8 billion, the highest on record.

CommSec chief economist Craig James estimates that the underlying budget deficit in the year to September was also a record $63.3 billion.

Labor’s spending for the first three months of the financial year was $9.6 billion higher than for the same period last year. Despite this, revenue was $1.9 billion lower.

But the Gillard government continues to borrow $100 million each and every day to fund its continued spending. Interest repayments alone on Labor debt will peak at $6.5 billion in 2012-13 - enough to build six world class hospitals.

In response to one quarter of negative growth back in 2008, the Gillard government is spending a further $6 billion on new school halls.

Calls by the Coalition and leading economists for Labor to rein in its spending and make significant cuts have fallen on deaf ears.

Instead of accepting some of the responsibility for the continued upward pressure on interest rates, inflation and the record exchange rate, the government is sitting back letting the Reserve Bank do the heavy lifting.

While the RBA has the foot on the brake, Labor still has its foot planted firmly on the accelerator. It defies logic and confirms the government’s economic team of Gillard, Swan and Wong is out of its depth.

Instead of making cuts to spending it is lazily banking on increased and new taxes as well as dramatic improvements in revenue to bring its ailing budget back to health.

But Craig James noted: “The main concern is that revenues are still trending sideways rather than showing signs of repair. Meanwhile, government spending is at record highs and showing no signs of stabilising.”

Penny Wong demonstrated the huge learning curve she is on when she claimed that $30 billion in new and increased taxes were in fact “cuts in expenditure”.

Therein lies a key philosophical difference between contemporary Labor and the Coalition.

Labor’s notion of economic reform is to tax, spend and borrow, while the Coalition champions fairer, lower and simpler taxes and living within our means. The Howard government paid off $96 billion in debt it inherited from Labor and delivered six real and consecutive surpluses.

As it stands, we are vulnerable to any double dip that may occur. We were able to weather the GFC because we entered it with no debt and significant reserves. That resilience has been eroded by the Rudd-Gillard government.

To re-build the durability and to gain some credibility, Labor must be prepared to bring forward the fiscal consolidation it talks about and make meaningful spending cuts to dud programs like ‘Cash for Clunkers’.

MYEFO has to be more than simply an update of the numbers, it must be a document akin to a mini-budget.

If this doesn’t materialise, Penny Wong will have failed her first big test as Finance Minister.

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55 comments

Show oldest | newest first

    • Faz says:

      05:45am | 08/11/10

      Must be a tough gig, Rob, trying to be critical of one of the most successful western economies.

      As I recall, your committment to return to surplus is one year earlier than Labor. Hardly anything to crow about.

      Only this weekend, PM Julia says that promised timetable will be kept.

      OK, that’s a government politician’s promise.

      But there’s only one thing less reliable than a government politician’s promise: an opposition politician’s promise.

      Reply

    • dovif says:

      07:40am | 08/11/10

      LOL

      One of the most successful western economies, which this ALP government inherited

      It does not mean the government had actually done anything to make it that way

      They have spend money blindly like drunken sailor, that does not make them good economic managers

    • Dash says:

      12:41pm | 08/11/10

      Faz, dovif is correct. This ALP inherited a suplus, and the previous Labor government’s debt had been paid off. In addition, the Financial Services Reform Act served to provide the strongest Banking and finance sectors in the Western world. All of that from the Howard government.

      As for your comment on promises: “Grocery Choice”, “Fuelwatch”, “More affordable housing”, “Cheaper better childcare”, “root and branch tax reform”, “we wont touch the private health tax rebate”, “we’ll abolish uni union fees”, “I fully support PM Rudd”, “I have more chance of playing full forward for the dogs”, “We’ll turn the boats around”, “public ownership of hospitals by July 2009”, “260 childcare centres”, “I’m an economic conservative”, “East Timor Solution” which never existed, “there will be no carbon tax”, “the non-negotiable profits tax”, “I was only a member of the socialist forum in my 20s”, “biggest moral challenge of our time”, “no child shall live without a laptop”, “we’ll stop Japanese whaling”, “well set up a coast guard”, “We’ll end the blame game”, “We’ll establish a department of Homeland Security” never delivered, “There will be no more onshore detention centres”, “We will honor every promise made to the Australian people” ha ha ha.

    • Faz says:

      02:52pm | 08/11/10

      @ dovif and Dash,

      Great copy guys, but you didn’t address my point.

      The current opposition’s position on the economy is not that different to Labor’s except for the huffing and puffing.

    • Andrew says:

      07:13am | 09/11/10

      Didn’t address your point Faz?? You HAVE no point. The only point of similarity is that both parties have committed to a surplus in 3 years. The differences:
      - Libs called for stimulus in the 2008 budget, opposing Swan’s spending cut plans as inappropriately timed. (You reckon?? Slashing spending during a global recession?? Keynes would be spinning in his grave.) That’s the real reason ALP is terrified to cut their own waste.
      - Libs proposed a $35bn stimulus spent when it was needed rather than $60bn spent 4 years after the recession that never eventuated.
      - Libs went into economic turmoil debt free, in surplus, and with a strong banking system. ALP hasn’t yet destroyed the banks, but have ruined the other two pillars of economic strength. The slightest global downturn now and we’re b@ned.
      - Libs called for stimulus to end when we returned to above-trend growth (in Q3 09). ALP continuing to spend for reasons they have entirely forgotten.
      - Libs called the GFC event over - ALP said “economy too fragile to stop spending.” RBA has voted 7 times - Libs were right.
      - Libs criticised spending half the package on the construction and pink batts installation industries, calling for broader acting stimulus. ALP only cared about pandering to the CFMEU and Teachers Unions.
      - Libs outlined huge spending cuts - $50bn of them. ALP has no specifics other than a new tax (which they lied about, and completely stuffed up). ALP spending hits record after record, and they’re getting further away from surplus not closer.

      While on banks, Libs said deposit guarantee needed, ALP ridiculed the idea until every other country did it. Then ignored RBA advice and created our home grown credit crisis by an unlimited guarantee, then backflipped.

    • Robin Banks says:

      05:49am | 08/11/10

      If there is a connection between government spending and economic management and interest rate rises,this begs the question of why under the last term of the Howard-Costello regime of economic surplus we still had upward pressure on interest rates. Now you claim 7 rate rises under Swan,yet I seem to recall the same under the supposedly more prudent economic management of the Howard years. It doesn,t seem to be any different under a surplus or deficit budget. Makes me wonder who or what the agenda of the R.B.A. really serves.

      Reply

    • Super D says:

      06:52am | 08/11/10

      Howard’s spending was profligate in his final term.  The fact is they should have delivered higher surpluses and parked them in an enlarged future fund.  At the same time though I don’t think the electorate would tolerate too much money being squirrelled away for a rainy day, most people actually want tax cuts as often as is possible and infrastructure built right now.

    • Matt says:

      07:19am | 08/11/10

      Robin, go and attend an economics 101 class and you may be able to answer your own question. Perhaps you could take Penny Wong and Wayne Swan with you for all our sakes.

    • Adam Keynes says:

      09:35am | 08/11/10

      Economics 101 isn,t that astrology for accountants,j curves,double dips ,statistical lies and creative number crunching, no I think Robin has asked a very fair question.

    • Matt says:

      12:09pm | 08/11/10

      No Adam. That’s advanced economics. In Eco 101 you can learn about demand and supply. If there is growing demand for something, but no increase in supply, the price goes up. The price of money is called “interest”.

      When things are going well and people are confident, like they were during the Howard years, individuals borrow and spend more. That puts pressure on interest rates.

      Now that people are not so confident, they are borrowing and spending much less. But instead of seeing a release of that pressure on rates, the Government is borrowing and spending so much money that they are now the source of a lot of the demand for money and hence responsible for adding to the pressure on interest rates.

    • Ribald Gadfly says:

      01:16pm | 08/11/10

      This is a fair question.
      Here’s how I see it: In the days of Howard/Costello, the budget was running at a surplus - a surplus means that net government activity is withdrawing money from the system. The main thrust of spending was from the private sector, whether that be from mining or consumers. Rate rises were neccessary to slow down consumer demand - i.e. the rate rises came from the underlying strength of the economy.
      Currently, with the significant exception of the mining sector, the economy is in a relatively quiet state. Government is responsible for a significant percentage of additional spend. There is a large budget deficit, i.e. this adds money to the system. In this case, the government spending is a cause of inflation leading to the RBA’s rate increases.

      Further to this, when banks seek to invest money, they are currently relatively risk averse. Hence when they invest money they go and put it in government bonds, which are now readily available, rather than than lending it to business, especially small business, which is leading to no small difficulty in this sector.

      Therefore there is a fundamental difference between the rate rises of the Howard era as opposed to the rate rises of the Rudd/Gillard era. The former was despite the government budget position the other because of it.

    • David says:

      08:28pm | 08/11/10

      Something too many of you aren’t actually addressing is that a government budget surplus does not in fact mean the sovereign debt of the nation is being paid off or reduced.

      For example, in WA right now we have had a couple of surplus budgets under Barnet but our government debt has only grown and continues to grow. Basically, Barnie isn’t even servicing the loans WA government has but still turning up on budget day with a smile claiming to be running the state in surplus. It is a furphy and one our federal politicians are just as guilty of comitting.

      Why don’t all the self-appointed econimists making comments here go and look at the Commonwealth’s debt over the last 20 years and chart it in relation to budget surplus or deficit. Then again, the media aren’t all that encouraging of actual in-depth analysis either.

    • Ribald Gadfly says:

      07:14am | 09/11/10

      Actually David that doesn’t apply to the Howard/Costello surplus. Government debt was paid down to a degree where the bond markets were in question, at least in terms of Commonwealth debt. Some debt was left to keep the bond markets active foryour when it was needed again. BTW your condscension is uncalled for. I AM a qualified Economist

    • DameO says:

      06:42am | 08/11/10

      ALP will spend us to our graves, don’t bother having kids folks.

      Reply

    • Bill says:

      07:58am | 08/11/10

      Yes true they will..I’m the first to bash Labor..BUT…The electorate has been pretty handy at over spending too. This article’s title suggests home owners need saving..In reality home buyers need protecting from themselves..People have borrowed as MUCH as they could…Interest rates were always going up..Only an economic illiterate would have thought otherwise…Labor or not…...I say stop throwing MY MONEY at financial illiterates….If Liberal weren’t so out of touch with that ridiculous WORK CHOICES we would not have this incompetent lot trying to govern a country.

    • Davida says:

      10:34am | 08/11/10

      I agree that the electorate has been pretty handy at overspending too.  Remember the ‘70s?  One car, one television,  girls sharing one bedroom, boys in another, eating out was a rare luxury, holidays spent at home?  Interest rates were at 17% but in starting modestly many were able to upgrade down the line.  Today it’s all about having it all immediately, whether you can or can’t afford it.  Each to their own, but why expect to be saved from your own sense of entitlement and need for instant gratification?  The government is not out of touch with consumers, unfortunately it is right on trend.

    • Duff says:

      04:34pm | 08/11/10

      Yes, quite right, Young Liberals, please don’t have any kids.

    • Reg says:

      12:02pm | 09/11/10

      Perhaps it is rather simplistic but if the free market is functioning and the cost of home mortgage is beyond the average worker, why is Sydney growing towards the five million mark instead of people fleeing to the countryside?

      Could it be that by concentrating industry, an over-supply of workers ensures that wages remain depressed? Has anyone else noticed that Woolworth’s prices in Sydney have risen at least 20% this week.

    • bleeding says:

      06:50am | 08/11/10

      The simple fact of the matter is the ALP is squandering money… yours and mine. Nobody can dispute this. The bad part is they feel absoulutely no responsibility for wasting others money in this way. They are just like the banks, they need to be made to heel.

      People need to look a why they are paying so much for electricity and other neccesities. I know of some people with Solar systems that will be paying almost nothing on electricity. In a classic case of getting it completely wrong, those who cannot afford solar panels, pay for those who can.

      I really don’t care what happened in the Howard term all those years ago, just like Keating has no relevence as to who is governing now and who are inflicting pain on families and low income workers NOW!

      Reply

    • thatmosis says:

      06:55am | 08/11/10

      Sorry to burst your bubble Faz but theGovernment is already angling to blame the high Auistralian Dollar for not reaching its budget predictions. All they needed was an excuse to get them off the hook and the Aussie Dollar has delivered. Nobody with half a mind really believed the Swanny could get the budget back in surplus in 2 years not even his own party. This Government is borrowing about $150m a day just to pay for its policies that have almost all gone over budget. What a legacy they are going to leave Australia when they are finnally kicked out, a debt that will take decades to erase due to their mismanagement and foul ups.

      Reply

    • progressivesunite says:

      07:06am | 08/11/10

      Just one point - home owners in Australia are either immensely well off sitting on a gold mine, or they are in trouble/about to be in trouble through their own stupidity in taking on more debt than they can service. Either way, they do not need government protection!!!

      Reply

    • Bill says:

      08:09am | 08/11/10

      So true..Not one cent of mine should be used to prop up a housing market…It is greed that has fueled the housing market and watch as it collapses the government step in to protect home owners (voters)...It’d be good to get a commitment of NO SUPPORT for mortgagees from the government now, while no one in government (or the banks) thinks housing is going to collapse. We live in very funny times..

    • Shane From Melbourne says:

      08:30am | 08/11/10

      Sorry, I thought it was the big, bad banks that were charging interest rates higher than the RBA rate on mortgages. It was really the government’s fault all along…...

      Reply

    • Dash says:

      12:51pm | 08/11/10

      Shane the RBA has identified inflation as a key concern driving up interest rates. The ALP are following inflationary policies. A price on carbon will not only drive electricity up but will result in increased business costs being passed on to the consumer. When inflation goes up, interest rates follow. Sure some increases have been in excess of the official cash rate. But whilst the cash rate keeps increasing, so will mortgages.

      In addition, the second stimulus was unnecessary and over heated the economy. This also has had the effect of driving up interest rates. Whilst rates are still reasonably low, we have now had seven rate rises over the last 12months. Whilst the government keeps spending and driving up inflation, rates will continue to rise.

      The government is responsible for monetary and fiscal policy. It needs to control it’s spending and it needs to stop adding to inflationary pressure through policies like the carbon price.

    • Shane From Melbourne says:

      02:35pm | 08/11/10

      So does the price of crude oil on the world market have an inflationary effect on the Australian economy. I don’t see anyone complaining about price gouging and price transfer (a form of tax evasion) within that sector. To be honest, I’d rather have Australia’s situation (fortuitous or not) then to be facing stagflation and depreciating property assets. Australia has a problem- but it is not interest rates, it is an overvalued property market. If that bubble bursts, then the banks, the government and the mortgagee is in a world of hurt….

    • The Badger says:

      08:48am | 08/11/10

      “Labor should cut spending to protect home-owners”
      how about
      Home-owners should cut spending to protect home ownership

      Reply

    • fairsfair says:

      09:34am | 08/11/10

      OMG, I agree with you! yay smile

      I am a homeowner, and my choice to buy a home is not the issue of anyone else - or the government. My only debt is my house and I intend to keep it that way. I think the issue is credit cards, GE lines of credit etc and all of this non secured lending that is about. For that reason, I will continue to watch my 68cm telly with set top box, until I can afford to pay cash for a flat screen. I am already saving for a new car, even though my current one is only 5 years old, because in five years time - I might have to buy a new one. I’d love a new one right now - but why?

      Impatient Materialism plus the availablity and ease in which unsecured finance can be obtained is the problem. And this is why it applies to everyone - not just homeowners.

    • Dash says:

      01:01pm | 08/11/10

      The Badger, believe it or not, I also agree with you. People should manage their finances to protect their homes. And anyone who borrows without factoring in rate rises is a little bit silly. We should all spend within our means.

      But sensible fiscal management is also an important responsibility of government. Over heating the economy through fiscal policy (eg the second stimulus) and increasing inflation through things like a carbon tax, is very poor government. Whilst consumer demand and inflation are issues, interest rates will continue to rise.

      At the moment, the big boggy man for us all is inflation. A price on carbon in this environment is stupid economics and very dumb politics.

    • Arnold Layne says:

      01:33pm | 08/11/10

      Couldn’t have said it better. 

      Home-owners don’t need protection.  If they chose to over-commit to a mortgage that was beyond their means to repay if rates went up, then that’s their fault.  Their actions, and those of people like them, are what drove prices to their current level in the first place.  Buy a smaller house, cancel Foxtel, get a cheaper mobile plan, sell one of your cars, use the air conditioning less. 

      If you want an example of economic Hansonism, it’s this column ffrom Andrew Robb.

    • Gottakloo says:

      09:23am | 08/11/10

      If the government cut spending then the only business remaining in this country would be selling loads of dirt to China. Everything else would whither and die without government support.

      Our high dollar means exports are uncompetitive so we can’t rely on anything else. It’s only sheer desperation that China needs our resources and is willing to pay top dollar for them.

      Interest rates are yet to return to normal so it’s not like these rates are anything to really worry about.

      Maybe people can stop buying opverpriced houses requiring huge mortgages, and then adding to the mortgage and credit cards falcodores and SUVs, 3D plasmas, trips to Bali, new clothes and jet skis.

      That will help them out more than anything.

      Reply

    • The Badger says:

      10:13am | 08/11/10

      Let’s just hand the government over to Twiggy and Clive and be done with it.

    • Richard says:

      12:22pm | 08/11/10

      Rubbish, we have an entrepreneurial national spirit and an educated population with many innovative creative individualists within it. There is no limit to the productivity and prosperity our country can enjoy it is freed from the bureaucratic shackles of government enforced collectivism.

    • Shane From Melbourne says:

      03:55pm | 08/11/10

      @ Richard- You’re the one that is talking rubbish. I can name many Australian inventions and innovations that have gone overseas due to the lack of investment funds and risk taking by Australian business. We only like the easy money- property asset increases, stock market, digging up stuff, government benefits.

    • hicko says:

      04:16pm | 08/11/10

      citation needed for this bit thanks richard:
      “bureaucratic shackles of government enforced collectivism”

    • Reg says:

      12:11pm | 09/11/10

      Yes we should all be running around like chooks with no heads. ROFLMAO.

    • Daniel says:

      11:22am | 08/11/10

      Andrew instead of worrying about Labor spending you better get your own Liberal house in order before attacking Labor. The Liberals sound like they are big spenders too and need to do some fund raising.

      Reply

    • The Badger says:

      12:36pm | 08/11/10

      Daniel
      Isn’t it amazing you much money you can spend in election campaigns just saying no?

      I hear the conservatives have tried to get a copyright on the letters NO.
      Luckily sesame street beat them to it.

    • Dash says:

      02:32pm | 08/11/10

      Daniel, sure thing mate. The Libs spent billions paying off the ALPs debt. Returned the budget to surplus (when was the last ALP surplus???) and left over $20billion for the Rudd gang to waste on $900 to dead people, rorting of school halls programs, repairing the damage from their insulation fiasco, grocery choice and the fuel watch failed policy!

      The Badger, isn’t it amazing how much money you can spend bribing your way into government. What was the going rate again? $11billion in taxpayers money to secure Gillard and the ALP government!

    • nosthow says:

      11:24am | 08/11/10

      Dont forget Andrew that it was the Labor government that saved Australia from te GFC not your motley crew fella. Your mob couldnt even get their election costings anywhere near accurate being in fact $12 billion out ! Now the almost broke Liberal Party has the hide to telk Labor all about finances ! God bless you Andrew for having the hide of 10 rhinos ! Your national treasurer Michael Yabsley who has just resigned reckons you are all a bunch of drongos going nowhere Andrew - and he would know !

      Reply

    • Peetme says:

      02:00pm | 08/11/10

      Nosthow, at the risk of sounding repetitive, boring or saying it all again, the bunch of drongos to whom Australians gave custody of the nation at the last two federal elections, did not save us from the GFC.

      It was the TAXPAYERS, that’s right, the TAXPAYERS of Australia who saved us from the mess which took place overseas.

      Labor got right in there and spent the living daylights out of the surplus that was waiting there for them when they came to office, and they are still doing it.

      Wake up to them and yourself. Gillard, Swan and the rest of the clowns in the Labor party couldn’t save stamps.

    • Dash says:

      05:07pm | 08/11/10

      Notso nosthow!!!

      For starters, the LNPs Financial Services Reform Act, meant that Australia had one of the strongest financial services sectors in the western world. As a result the security exposures triggering the GFC in the US were almost non existent in this market because of the capital penalties.

      Also, the ALP were left a surplus of over $20billion. They did not start off with a defecit! They had cash to splash! They also had no debt. The previous ALP debt had been repaid. How would they have looked trying to borrow with Labor’s previous debt around their necks?

      And, China was still growing at double digits and had a massive appetite for our natural resources despite the GFC! that did not hold true for many of the other western nations.

      $900 to dead people, paying for insulation fiascos and the rorting of taxpayers money under the school halls program did not “save” us!

      Also, take a look at the ALP costings for their NBN. $4.5b, no wait $7b no wait $43b. Look at the ALP costings in terms of the impact of the backdown on the not negotiable profits tax! They lied! Look at the $11b in taxpayers money used to bribe their way into office!

      As for finances, when an ALP government manages to balance a budget (let alone produce a surplus), any budget, look me up!

    • Al says:

      11:58am | 08/11/10

      What is going on here?
      I am becoming incredibly despondent about The Punch lately.
      I have really enjoyed some of the great debates and issues that have, in the past, appeared on these pages. But this recent round of Liberal politicians climbing on soapboxes to score cheap political points is disturbing.
      Can we please, please, stop with this raising of a political platform as inciteful commentary. I don’t want to hear political positions from Liberals, Nationals or Labor recycling lines they have already said in the media and conveniently ignoring obvious fllaws in their own arguments.
      Please, editors of The Punch, bring back the meaty issues and insights of experts who could perhaps comment on the reality of these political positions rather than have politicians comment on each other and not say anything new.

      Reply

    • mark says:

      12:07pm | 08/11/10

      Maybe homeowners should cut their spending. As usual, labor and liberal absolve Joe Public of any culpability so they can heap scorn on each other and what kind of leadership is that?

      People have had two whole years since rates were this high and at that time, which was on the down side, they were apparently a welcome relief and even better they kept going down. What have we done with those two years of welcome relief?

      Now, because they’re heading up, we actually realise didn’t do anything! We didn’t bother to save any extra, we didn’t bother to pay down any debt and we’re all hysterical because it’s two years on and the lower interest rate timeout we got, just ended.

      Why doesn’t the homeowner and consumer take some responsibility for once?

      Reply

    • Lisa H. says:

      11:17pm | 08/11/10

      There’s no denying that Australia’s interest rates tend to sit towards to higher end of international norms though, even in more ordinary economic times.

    • TIMFROMTHETOPEND says:

      01:29pm | 08/11/10

      This labor government will ultimately drive interest rates through the roof by way of their economic incompotence and insatiable appetite for borrowing.
      I own a small business and know that there are many things that I would like, but know that I must make do with what I can afford. The waste that is the NBN is a perfect example. The government believes that a Commodore is not good enough for the average Australian, we must all have BMW 540i, we cant afford them, we dont need something that flash, but we must have them anyway and hang the expense.

      I am truly worried as to what the future might hold for my kids!

      Reply

    • Rick says:

      01:34pm | 08/11/10

      Get a grip Mr Robb.  One of the reasons Australia is in such a good state now and survived the GFC so well is that along with the strong economy and the stimulus packages we had a capacity to aggressively cut interest rates.  The US had interest rates at almost zero when the GFC hit.  Indeed it was their lax policies in this and other areas of economics and lack of regulation by the conservative Bush administration that created the mess.  Our interest rates - set by the Independent Reserve Bank - were appropriate then and allowed the rates to be cut quickly and strongly to keep Australians working.  The Reserve Bank does what is appropriate and Glenn Stevens has denied that government spending is the cause of interest rate rises.  I trust him more than you.  After all you couldn’t get your budget figures correct for the election.  You had 11 billion dollars in your figures that didn’t exist. You also claimed an ‘audit’ of those figures which the company concerned said was not an ‘audit’ at all.  Thanks Mr Robb but I prefer to listen to Mr Stevens.

      Reply

    • sadiq farris says:

      02:15pm | 08/11/10

      As usual,The Liberal Party And The Mass Media wants to recycle the past as the present and future.
      The Libs want to protect the rich only. The Libs want to protect home owners only .Only people with affluence,influence and effluence count with Mass Media heroes The Liberals,
      The Liberals do not want to know about RENTERS, Tent dwellers, Caravan Dwellers, Government Housing Dwellers and thje first australians.
      If Liberals ever get elected, Australians can expect the Libs to Robb A.

      Reply

    • hicko says:

      04:13pm | 08/11/10

      if thats not borderline discriminatory, i dont know what is. neck up you goose.

    • BR says:

      05:23pm | 08/11/10

      Sadiq Farris; Even if this were the case, please explain to me why we would want to encourage a society to be government sponges as “Tent, Caravan or Government Housing Dwellers” as opposed to wealthy risk takers and go getters? Seems to me you are advocating mediocrity which is downright laughable. I guess you have to back your party’s core principals even if it runs contrary to the tag line of “Moving Forward”.... hey Sadiq?

    • Fiddlesticks says:

      02:59pm | 08/11/10

      Against the finger-wagging and seeming certainty of Robb and eg Dash,  it might be helpful to think about what the Reserve Bank actually said.

      Public Spending:
      “While public spending made a significant contribution to aggregate demand in 2009 and early 2010, this impact is now lessening, with public investment estimated to now be declining as stimulus projects are completed. The expected rebalancing of public and private demand appears to be underway, with signs that private demand is firming.”

      Inflation outlook:
      “The Bank’s central forecast for the economy is broadly unchanged from six months ago. GDP is expected to expand by 3½ per cent over 2010 and then by 3¾–4 per cent over both 2011 and 2012. 

      This forecast continues to be driven by the effects of the income boost flowing from the very high level of the terms of the trade and the expected substantial increase in business investment, particularly in the resources sector.”

      Cash rate outlook
      “For a few months now, the Board has had the view that if economic outcomes in Australia turned out broadly as expected, then it was likely that higher interest rates would be required at some point to ensure that inflation remains consistent with the target over the medium term.

      The economy is experiencing a large expansionary shock from the high terms of trade at a time when there are relatively modest amounts of spare capacity, with the result that the medium-term inflation risks have been to the upside.

      Over the past couple of months, economic developments appear to have been broadly in line with the Bank’s central scenario, and the downside risks in Asia look to have lessened a little. As a result, at its November meeting the Board concluded that it was prudent to make an early and modest adjustment to monetary policy, increasing the cash rate to 4.75 per cent. “

      Perhaps Robb, as a senior elected member of Parliament, would care to explain precisely why he’s so carefully distorted the Reserve Bank’s actual words.

      As for Dash, caught out mouthing drivel he’d not bothered to check - no surprise there.

      Reserve Bank - wonderful stuff they publish. All there for anyone to think about, on their site:  http://www.rba.gov.au/publications/smp/

      Reply

    • Dash says:

      04:34pm | 08/11/10

      Fiddlesticks,

      Does inflation and expansionary fiscal policy put upwards pressure on interest rates? If you answer no to either, you need an economics lesson.

      I think perhaps you should also re read my post. The RBA in your quote says that increasing interest rates are required to contain inflation. Isn’t that precisely what I say in my post??? And if the government follows the carbon price policy (which has no impact on current RBA forecasts), wont that increase inflation more than the RBA has projected? And if so wont that increase interest rates further? I would suggest yes.

      In terms of spending, the RBA in it’s last round as you quote, suggests that the expansionary impact is coming to an end. But the second stimulus was unnecessary, overheated the economy and was in part, the reason for earlier rises. There have been seven rounds of increases, your post focuses on just the latest.

      I guess we’ll see what happens to rates in the new year. My guess is they will continue to increase. And it is simple economics that expansionary fiscal policy and inflation are both triggers for rate rises. That means the governments spending impacts it and any policy which increases inflation (such as a carbon price) will do the same. Call that drivel if you must.

      Sorry but I think we’re in for more rate pain. And unlike you, I don’t doubt the impact of fiscal policy and inflation!

    • N says:

      03:33pm | 08/11/10

      If the previous Hawke / Keating Labor government is anything to go by; I’d suggest everyone starts preparing for some significantly high interest rates. You can’t continually pump stimulus into the economy (especially when it doesn’t require it) and not expect some repercussions.

      While I’m a home owner, the increase in rates doesn’t particularly bother me as they were much higher when I first bought, though like everyone else, I’m happier to keep those extra dollars in my back pocket.  What does concern me is the increasing value of the AUD against other major currencies and the impact that has on the commercial, retail and export markets.  With retailers being the largest employers in the country; the upward pressure on rates increases business costs as well as increasing the AUD and making it more attractive for shoppers to buy online.

      I’ll be interested to see how the RBA works to find a significant solution to the problem they are now facing. The AUD is strong only because major currencies like the USD and GBP are being devalued by their respective countries (this kinda happens when you print $600 Billion valued against nothing).  In my thinking raising Aust interest rates further will only exacerbate this problem further; welcome to the complexities of the global market….

      Reply

    • Fiddlesticks says:

      05:19pm | 08/11/10

      In point of fact, the stimulus phase is indeed winding back, as the RBA noted. And as the RBA also noted, interest rates had only just returned to normal levels - that is, neither “on the brakes” or “on the accelerator”  - after a succession of carefully gentle nudges.

      And now we have had one -just one - very modest rise on top of that, against future - medium term - risk of rising inflation.

      The RBA is also well aware that, against the resource boom pressure, the $A rise acts to moderate inflation, and discussed that (and the $US) in the Nov Statement too. The net effect, as I’ve suggested before, is to somewhat reduce the likely need for cash rate rises. At some cost to Gov’t revenue.

      RBA and Treasury papers on these issues can be pretty densely packed but are really worth reading and readily available. They are a better guide than the whoop-de-doo OTT fuming peddled by Messrs Robb, Hockey and Abbott.

      The facts are, there’s a range of views on govt deficit, ,debt and interest rates. It’s pretty mischiveous of Robb to cite McKibbin’s own personal views, rather than what RBAs considered views as published.

      Others would tell you that the effect of Gov’t borrowing on cash rate and commercial rates is in fact minimal. As for net debt and deficit, prefectly reasonable in the circumstances, and hardly eye-popping historically, once you take account of either inflation over decades or proportion to GDP. You won’t hear anything sensible about that from Robb, Hockey and co any time soon.

      On the RBAs own analysis, at present the outlook to 2013 is for 4% growth and 3% underlying inflation. There are risks, no one denies that, but at present,  the risk of “significantly high” interest rates any time soon looks pretty remote.

      If you’d rather a media summary that’s both sound and less dry, try Ross Gittins at the SMH. He’s pretty even handed and knows this stuff very well.

      Good luck with it!

    • Against the Man says:

      06:25pm | 08/11/10

      Society is screwed and they deserve it. Families on hard times? Sweet as. Get the government and incompetence you voted for. Enjoy the high interest rates, electricity/water bills, more tax and at least in NSW more road tolls. Enjoy all that the ALP has to offer.

      Reply

    • Holly says:

      09:11am | 09/11/10

      I am somewhat puzzled. In 2007 just prior to the election after over 10 years of coalition government, the RBA raised the cash rate to 6.75% (2% above the current level) and my mortgage rate was somewhat higher than it is now (even allowing for .45% increase by CBA .  So according to Andrew Robb’s theory this increase under his government must have been in response to some pretty stupid profligate spending on the part of the coalition.  He knows his argument is completely flawed.  It does not reflect the report from the RBA as someone has already pointed out.  Glen Stevens was also of the view that inflation at present was largely driven by the mining sector and had very little to do with government expenditure. 

      Andrew Robb, after your election costings debacle ,  your proposed expenditure on a highly contentious parental leave scheme and your continuous opposition to any sort of means testing on benefits to middle and high income earners this article only serves to remind me that the country had a lucky escape.

      Reply
 
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