Chris Evans (WA, Australian Labor Party, Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

I move:

That the Senate take note of the answers given by the Minister for Finance and Administration (Senator Minchin) to questions without notice asked by Opposition senators today relating to inflation and interest rates.

Today we saw the eighth increase in a row in mortgage interest rates. We now know that on an average mortgage, or a mortgage of about $300,000 a year, families in Australia will have to pay an extra $195 a month, about $50 a week, to service their mortgage—to pay for the house in which they live. This is a huge burden. It is the highest burden in a decade, and it represents a record share of people’s income being spent on the cost of their mortgages. With rising house prices and the rising size of mortgages, people in Australia are now paying a record share of their income to service their repayments.

What we have from the government today is an out of touch, arrogant response to the concerns and pressures on Australian families. Mr Costello, the Treasurer, and the Prime Minister continue to describe interest rates as ‘extremely low’. I do not know what planet they live on and I do not know what they know about paying a mortgage, but everyone I know does not describe these interest rates as ‘extremely low’. Everyone I know realises that they have had to suffer eight increases in a row, that the pressure on their families to meet those repayments is huge, that they are feeling threatened and that their financial security is threatened as a result of this. And this government does not seem to care.

We also know that the Liberal Party’s website still carries the promise—John Howard’s claim that he would keep interest rates at record lows. That was his promise to the Australian people at the last election: he would keep interest rates at record lows. He has breached the trust of the Australian people. He has let them down, because interest rates are not at record lows. We know they are not at record lows, but the Liberal Party is in denial. The Liberal Party will not accept the fact that it has lost control of inflation and, as a result, Australian families are paying the price. They are paying the price by having to pay up to $200 extra a month in interest rates on repayments on their mortgage as interest rates continue to climb.

The government are in denial. They do not want to talk about the promise made before the last election. They want to run from that. Mr Howard wants to rephrase and reclarify what he promised. But we know that the Prime Minister has breached a promise to the Australian public. He will not and has not been able to keep interest rates extremely low, and now he wants to move on. We know also that he gave the green light to the Reserve Bank to increase interest rates. He saw it as the interest rate hike that we had to have. What he said to Australian families is: ‘Because we have lost control of inflation and because you are paying 10 per cent extra on your grocery bill compared to what you were paying last year, we have let the economy run out of control. Because of that, someone has to pay a price. And who is going to pay the price? Australian families are. We have given the Reserve Bank the green light so they can put up interest rates. So ordinary families will pay 50 bucks extra a month because we failed—because we let inflation get out of control. You will pay the price.’

Senator Minchin today said, ‘Governments need to touch the brakes.’ That was his phrase: they need to touch the brakes. What he meant was that every family servicing a mortgage will have to pay in excess of $50 a month extra as the government seek to touch the brakes. ‘Touching the brakes’ means ‘touching you’. Touching you and increasing your repayments is the way the government touch the brakes on the economy. They have not invested in infrastructure, they have not invested in skills, they have not managed inflation, and now it is all out of control and Australian families are paying the price.

Australian families will be very interested to hear that you are so out of touch as a government—that you are so unconcerned with this that you continue to say, ‘Oh well, it is the states’ fault,’ or, ‘It is the former Labor government’s fault.’ Today you are trawling around the press gallery with a document saying what Kim Beazley said in 1994. Take some responsibility. Take up your commitment to the Australian public. You will not take responsibility for your failure. You want to take credit for the positives, but you will not front up. You have breached your faith with the Australian public. You said that you would keep interest rates at record lows. You have let them down, and you ought to front up and take some responsibility. (Time expired)

Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

How much more do they pay if they’ve got a fixed interest rate?

Chris Evans (WA, Australian Labor Party, Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

You are asking the Australian people: why didn’t they fix their interest rates? I hope Hansard got that.

Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

So do I.

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

I welcome the interjections of Senator Ferguson, because he comes with a very sound understanding of economics. He would agree with me that today there has been a breakthrough in question time. For the first time since the last election, which was two solid years ago, the Labor Party spent the whole hour on economics. This is a first. After the last election, the message from the Australian people was loud and clear that you had to establish your economic credibility. It has taken them two years to finally dedicate a whole question time to the economic state of the nation. And what a muddled affair it was. We had Senator Hutchins, who is going to get up after me, saying that housing prices have dropped, that they are now too cheap and that the Howard government is to blame for that. No sooner had he sat down than up jumped ‘Mr Economic Credibility’ himself, Senator Carr. How could you even allow him to get up on economics? He got up and said that housing prices are way too expensive. I know they are from different states, but surely they talk and swap questions. Obviously not. You would have thought that they would. What a muddled affair that was.

Senator Sherry, who is still in the chamber, yesterday and today and any time he has jumped up has tried to say that the government have had absolute responsibility for the decision to increase interest rates, that we can control and direct the Reserve Bank. He knows only too well that that is not the case. He is not that dumb—or is he? He knows only too well that one of the first reforms the government introduced was the independence of the Reserve Bank to make such decisions about the economy and the inflation rate. There was a good reason for introducing that reform in 1996—one of the first fundamental reforms the government made to the economy—and that is that the previous government had lost all credibility in the markets, in the community and in this parliament because they boasted that they had the Reserve Bank in their back pocket. The Treasurer and Prime-Minister-to-be boasted that he directed the Reserve Bank’s decisions on interest rates. Of course, we know where interest rates ended up with that government. It was the most blunt, heavy-handed monetary tool used, because of a lack of fiscal discipline displayed by the previous government.

Senator Sherry is getting the previous government mixed up with this government. They know only too well that it is a cheap political trick to say that John Howard has given the green light to the Reserve Bank to increase interest rates. Nothing could be further from the truth. The only thing I can say is that I congratulate the other side for at least spending one solid hour—you must have all walked out with headaches—on economic questions. It is a first in the two years since the last election.

I will move now to the substance of the issue, but I felt I had to make that point. At least I acknowledge that the Labor Party have spent one hour on economics. The point is, of course, no-one likes the increase in interest rates. We in this parliament know that it hurts businesses and it affects household budgets, but we also know that it is done against the backdrop of a sound and solid economy where the fundamentals are in place. Employment is at a record high. Productivity is on the increase and wages are increasing also. So there is an economic security, a foundation stone, on which this decision to increase interest rates has been based.

We know that the last inflation figures were above the bounds given to the Reserve Bank, at 3.9 per cent. But over the 10 years of this government they have been below three per cent, at an average level of 2.6 per cent. I only regret that time does not allow me to answer the proposition put by the previous speaker, Senator Evans, about taking responsibility for the increase in interest rates. I invite Senator Evans and those on the other side to look at a quote from the former Governor of the Reserve Bank, Ian Macfarlane, who warned that the biggest threat to interest rates and inflation in this country is the state government budgets. (Time expired)

Annette Hurley (SA, Australian Labor Party, Shadow Minister for Citizenship and Multicultural Affairs) Share this | Link to this | Hansard source

The Prime Minister, Mr John Howard—‘Honest John’—made a major issue at the last election of interest rates remaining at record lows. Now the Liberal Party, and especially Senator Ferguson, are saying that people should be careful about their borrowing, that they should organise their affairs so that they have fixed interest rates. So we have to turn ordinary householders into economists and financiers in order for them to afford the interest rate rise.

People relied on the Prime Minister’s judgement. People relied on his word when they borrowed. He has let them down; he has badly let them down. All the government can do is run their mantra on interest rates under the Labor Party. They will not take responsibility for their own lack of actions in this regard. That is the problem here. A huge amount of cost pressure has built up on ordinary everyday families over the 10 years of the Liberal government.

The Liberal Party have made life more expensive in a number of ways over a range of essential services—for example, health care. People have been forced into private health care by the government, by their campaign. Okay, there is a 30 per cent rebate, but people are still paying health care costs that go up every single time there is a review. They are paying more for education. The government have funded private schools, but public schools are still struggling. If a student goes on to tertiary education, where the HECS debt is now sky high, that is another cost pressure on families. Child care is another cost pressure on families. It is difficult to access and very expensive when you do access it.

What has happened is that a broad based cost pressure on families is affecting the economy. We are not just talking about bananas here, despite what Senator Minchin seems to imply. We are not even talking about petrol. We are talking about broad based cost pressures that affect every single family in Australia.

On inflation the government goes back to history—goes back to Labor’s past, goes back to its averages—but increasingly we have seen that the government has lost control of inflation—not just the headline rate but also weighted medians and trimmed means. They are outside the Reserve Bank’s band and the reserve is desperately trying to keep them under control—without the help of the government, I should say.

You could argue that the very severe drought that is affecting us means that the rural sector is already in recession. In the urban areas, families are feeling the effects of the government’s mismanagement of the economy. That is because the Liberal government—as Liberal governments always seem to do—think in the short term. They have had a populist approach and now, after 10 years, it is starting to affect our economy, because of the capacity constraints on our economy. Our leader, Mr Kim Beazley, keeps talking about capacity constraints and I think it is starting to become a common term because people realise what it means. They realise the real effect on our economy because of underinvestment in infrastructure and underinvestment in training. It is affecting our productivity, our ability to meet the cost pressures and the demand of world economic growth.

It is now too late for the Prime Minister to fight inflation first, because he has not laid the background to fight inflation. He has sent mixed signals from the start. We have the baby bonus and tax rises while the government has been preaching about low inflation, and they are just incompatible. For the last 10 years, this government has ridden on the coat-tails of the former Labor government’s reform of the financial system and now it has to face the consequences of its own short-term policies.

Judith Adams (WA, Liberal Party) Share this | Link to this | Hansard source

I rise to take note of the answers given by Senator Minchin. I think that it is very important, having listened to what has come from the other side today, that we go through what the coalition has done and what Labor has done. With the interest rate rise today, it is now 8.05 per cent. The mortgage rate, as we have been told, was never as low under Labor. Never in the course of 13 years did Labor get the mortgage rate below 8.05 per cent.

By contrast, in 1996, when the Labor Party left office, interest rates were 10.5 per cent. In the course of Labor’s 13 years in office, home loan interest rates averaged 12.75 per cent. Mortgage interest rates peaked at 17 per cent in 1989 and 1990—and I can certainly relate to that, as we were buying more property. In the last 10 years, interest rates have averaged 7.17 per cent. The reduction in mortgage interest rates since 1996, even after today’s increase, would still save a typical family $449 per month in interest payments on an average $220,000 home loan.

Having heard Senator Evans mention the press release that is going around about what his leader, Mr Beazley, said, it is important that I read this out, because people may not be aware of what he said. In September 1994, when Mr Beazley was finance minister, home loan mortgage rates were 9.5 per cent, and this is what he said:

... I point out that this is still a very low interest rate regime in Australian historical standards. It is a regime that is capable of being held at that level largely because the fundamentals of the economy in this country are very good indeed.

That is what Mr Beazley said in 1994, in case those opposite are wondering what he said. So, in 1994, a 9.5 per cent interest rate was considered low and keeping interest rates at that level was regarded as an achievement and a testament to the economic management of the Labor Party.

Throughout the last 10 years, and particularly in the 2004 election campaign, we made the point that interest rates have been lower under the coalition than they were under Labor. That is an indisputable historical fact. Why would interest rates be higher under Labor? In 2004 we made two points about interest rates under the Labor Party. Firstly, a Labor government would create a risk of higher inflation because they would return us to a centralised, union dominated system of industrial relations which would remove the link between pay rises and productivity. That issue is even more important in 2006 because, with the commodity boom affecting wage outcomes in the resources sector, Labor’s centralised industrial relations system would create the risk of a wages outbreak and higher inflation, just like we saw during previous booms—for example, in the early 1970s.

Secondly, we made the point that Labor had a big spending program. In the 2004 campaign, Labor promised some $40 billion in new spending over four years to be funded by some vague and rubbery savings. In 2006 the Labor Party had already outlined a substantial spending agenda. Labor’s promise to spend the annual earnings of the Future Fund represents a fiscal loosening of over $2 billion a year. Labor’s promise to raid the Communications Fund and spend it on present-day projects represents a further one-off $2 billion fiscal loosening. Labor has committed to a long list of vague and unfunded promises. Australian families do not trust Labor to keep interest rates low, because after 10 years Mr Beazley and the Labor Party have not done the work to articulate a clear alternative economic plan.

As far as affordability goes, Australia has a very high level of home ownership. Home ownership in Australia is 70 per cent. In the G7, only Italy has a higher rate. The most important ways to improve housing affordability are to keep unemployment low, keep real wages rising, keep interest rates low, maintain a competitive and efficient housing construction sector, ensure adequate land release and minimise taxes on land transfer.

Steve Hutchins (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I want to take note of the answers given by Senator Minchin this afternoon. Having listened to the contributions by the coalition colleagues, I understand that they just do not get it. They just do not get it that, right at the moment, Australian families are suffering. I listen to Senator Minchin’s answers all the time because I admire him in that, unlike a lot of other government ministers, we do not get the diatribe about 13 years of Labor government or what they did here or what they did there. Generally, if you listen to Senator Minchin’s answers, he will try to give you an answer to the question you have put to him, but not today. All we got from him today was haranguing. We were flippantly dismissed because of the serious questions we were asking. I can come to only one conclusion: this mob is worried.

In my question to the minister, I chose three suburbs in Western Sydney that are in areas held by the coalition. I know what is going on in those suburbs because I live out that way. I know that the men and women and their families who live there are suffering. As a result of what has occurred today with the Prime Minister’s inspired rate increase, those families will continue to suffer. They are suffering not only because of what they will have to pay in additional payments but also because of falling house prices. In the last few years, house prices have fallen by as much as 40 per cent in parts of Western Sydney and south-western Sydney.

In the last few years, people have borrowed on the basis that their house would be worth $300,000 to $350,000. But now people have been told that they cannot sell. Only a few weeks ago, a family—a husband, his wife and their eight children—came to my office. The family needed to relocate, but if they sold their home they would be in debt until they died. They could not afford to move because they had borrowed on the basis of the promises given by this Prime Minister when he went to the last election. We know what he said: ‘You can trust me.’ But, in the last three years, we have had eight rate increases. For an average mortgage of $300,000, these increases have resulted in an increase of $350 per month or $4,000 a year. Where are people going to get that money from?

I do not know how things are for people who live in the areas that Senator Adams and Senator McGauran represent, but I can tell you that things are getting tighter and tighter for people living in Western Sydney. People are not getting the overtime that they used to get; they are two-income families. There are pressures at home. People cannot move because they cannot afford to sell. Why can’t they afford to sell? Because they will end up in extreme debt. This has all happened on the government’s watch. It has all happened on the watch of the coalition senators, and it will continue.

We were promised by the Prime Minister that we could trust him to deliver on interest rates. Recently, the Sydney Morning Herald interviewed a family in Claremont Meadows, which is in the seat of Lindsay and represented by Jackie Kelly—that well-known landlady of Western Sydney. Mrs Slan said of Jackie Kelly:

She’s just a cheer squad for John Howard, but the issues that affect people in Kirribilli are very different from here.

Mr Elly Slan said:

By and large, we are supposedly wealthier, even though it’s only on paper. But we’re in debt now. He allowed the housing boom to go on for too long. We’ll be in a lot of trouble if interest rates continue to rise.

I say to Mr and Mrs Slan of Claremont Meadows: Interest rates have risen again today. What is there to say that they will not rise again? You are already worse off under this government. People like you are already committing 29 per cent of your income to paying the mortgage, which is more than they paid under Labor. Where will this all end? I will tell you where it will end: people like the Slans and those who came to see me will have to relinquish their houses and go into debt for most of the rest of their lives.

Question agreed to.