Senator Andrew Bartlett
Thursday, March 03, 2005
 
Interest rate rise was avoidable

The economic news of the past day shows how laughable the assertion is that either of the two major parties can somehow be seen as good economic managers.

The totally avoidable interest rate rise will significantly hurt huge numbers of Australian families because of the enormous levels of private debt. Some will say that this is the fault of the individuals who have got themselves into that debt, and there is some truth in that. But both major parties are guilty of supporting tax and economic policies that have greatly encouraged higher levels of private debt and they have made high debt almost unavoidable for anybody that wants to buy a home.

Australia's interest rates are now higher than most other western countries. Our total household debt continues to skyrocket – according to today’s Sydney Morning Herald, it’s gone from $495 billion in June 2002 to $744 billion now. Housing debt alone went from $410 billion to $628 billion in the same period, a rise of over 50% in less than 3 years.

Both Labor and Liberal have supported a tax regime of negative gearing and capital gains tax cuts that encourages property speculation. In addition, we have had tax cuts for the highest income earners while low income earners struggle with higher effective marginal tax rates. We also had an election campaign where votes were being blatantly bought by throwing untargeted lump sump cash payments at whole sections of the electorate.

It wouldn’t worry me so much that we have the highest taxing Government in Australia's history if that tax take was derived in a more equitable way and the revenue was spent on services and infrastructure, instead of vote buying, porkbarrelling, upper class and corporate welfare and gross wastage of money on things like detention centres and government advertising.

As I have written before, this Government had plenty of warning about the cost of housing. Public pressure forced the Treasurer to announce a Productivity Commission inquiry into housing costs. However, it is now clear that this was done to get the issue off the front pages by looking like they were doing something about it. When the Inquiry eventually reported, the federal government rejected every recommendation that required significant action from them.

I don't know why the mainstream media seem to have no interest in the unsustainable price of housing. If the price of food and clothing doubled in the space of a few years there'd be an outcry, but when the same thing happens in housing its seen as a good thing, presumably because some people make money out of it. Sometime I think the huge amounts of advertising revenue from the property industry might have something to do with it, but I guess that's too simplistic.

On top of this, the skill shortages which are seen as part of the reason for the rate rise (to address possible upward pressure on wages) is being used as an excuse for draconian industrial relations changes to cut the minimum wage. This is despite the fact that the minimum wage has nothing to do with skill shortages, as it is only paid to unskilled workers, who sadly there is not a shortage of.

Discretionary consumer spending and property speculation are the main factors driving up private debt and the current account deficit, yet we still have plenty of Government members pushing for more tax cuts for higher income earners, whilst also campaigning for lower wages for the unskilled and kicking disabled people and sole parents off the pension.

It's all a bit of a mess, and with every sign that the Government is blaming everyone but itself for the interest rate rises, high housing prices and massive levels of private sector debt, it seems there is a good chance of another rate rise in a few months time.

One more piece of icing on the cake - we also had the announcement from the Government that private health insurance rebates will rise by another 8%. The extra sting is that it will also mean a rise on the spending of public money on the ever more wasteful government subsidising of health insurance – now as much as 40% for some people, again thanks to those economically responsible Liberal and Labor parties. I'm sure every other business would like a 30-40 per cent subsidy for people who wanted to buy their products.

posted by Andrew Bartlett @ Thursday, March 03, 2005 Permalink
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