John Howard’s blaming the states for home loan interest rate rises is seen as a desperate low act by Australian voters and State Pollies
20/01/2012 
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The Federal Government’s attempt to blame the states for home mortgage interest rate pressures is complete nonsense and smacks of political desperation, the NSW Government says.
NSW Treasurer Michael Costa hit back at suggestions the state governments were increasing home loan interest rate pressures through heavy borrowing for infrastructure projects.
The Howard Government is bracing itself for a ninth home mortgage interest rate rise on Wednesday – the fifth since the 2004 election was won on a low-rates pledge – with advertisements blaming state borrowing for putting upward pressure on mortgage rates.
Most market economists expect the Reserve Bank of Australia will increase official rates by a quarter of a percentage point to 6.50 per cent, or a standard variable home loan rate of 8.32 per cent, after its board meeting tomorrow.
Anticipating a mortgage rate rise of 0.25 precent per annum, the Liberal Party has released a pre-emptive ad blitz on YouTube blaming state budgets being plunged into the red for putting upward pressure on home loan interest rates.
The ads, shown first on the internet and part of a planned political assault yesterday, targeted budget decisions by the states to increase borrowing under the headline “Labor can’t manage money”.
“Never forget, it is governments who borrow money and get into debt who put upward pressure on interest rates,” the ad says.
But Mr Costa dismissed the Howard Government’s claim.
“There’s absolutely no evidence that the NSW Government’s borrowings for infrastructure, and for that matter other states – with the proviso that it is for required infrastructure – is actually doing anything of the sort,” Mr Costa said.
Mr Costa agreed the NSW borrowing program was at record levels, with about $50 billion slated over the next four years for essential infrastructure.
About 40 per cent of that would be borrowed, he said.
“The issue is what are our debt levels going to be at the end of this (borrowing) program, and this is the salient fact – our debt levels will be less than they were when we came into government, at the end of this ambitious program.”
The bulk of economic factors influencing interest rates lay beyond the control of both state and federal government, Mr Costa said.
“The Federal Government is absolutely desperate, they take credit when the economy’s going well, when they’re in difficulty they want to blame the states,” he said.
‘RBA happy with state debt levels’
The Victorian Premier John Brumby also defended his state’s balance of finances.
Mr Brumby said suggestions the Labor states were responsible for putting pressure on interest rates were “a complete nonsense”, adding the Reserve Bank of Australia (RBA) was happy with state debt levels.
“Reserve Bank governor Glenn Stevens … said he was completely relaxed about state debt levels, that they are not an issue in terms of home loan interest rates,” Mr Brumby said.
“Debt levels today in Victoria are just a fraction of the debt levels that they were 50 years ago under (former premier) Henry Bolte.
“If there’s pressure on interest rates, it’s coming from the Federal Government. This would be the fifth mortgage interst rate rise since 2004 when John Howard promised to keep interest rates low – five rises putting real pressure on family budgets.
“We’re seeing the Prime Minister in a desperate pre-election vote-buying spree, travelling around Australia trawling from marginal seat to marginal seat to find projects to bail out.
Market volatility could stop home loan rate hike
Only concerns about this past week’s volatility on world stock and finance markets are likely to prevent repayments on a typical $300,000 mortgage home loan rising by $50 a month.
Macquarie economist Richard Gibbs said while global financial trends were very important to the central bank, the danger of inflation was clear and present and could continue on the back of recent federal budget measures.
With the Government’s fiscal payouts likely to boost incomes, retail spending over the next quarter is expected to be healthy, he said.
Also, global growth continues to remain strong, which means that the demand for the country’s resources continues
Finance Minister Nick Minchin said the Government believed with the headline inflation rate at 2.1 per cent and, on one measure, underlying inflation at 2.6 per cent, there was little case for a mortgage rate rise.
But if there was pressure on home loan interest rates, he said decisions by the states to borrow $80 billion over four years were responsible.
Any move to wind back industrial relations reforms would also put pressure on mortgage rates by allowing for uniform wage rises, Senator Minchin argued on the Ten Network’s Meet the Press.
- With The Australian and AAP
Rick Adlam has been helping clients with home loan finance since 1985 when he was home consultant with AV Jennings. Rick started Equity Home Loans in 1996 to help homeowners become property investors. Rick currently consults in the development of Mr Mortgage for mortgage brokers and HomeMate for new home buyers.
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