Sunday, August 12, 2007

COMMENT: So interest rates are going up …

Everyone is up in arms over John Howard’s “recent” discovery that state budgets place upward pressure on interest rates. Apparently, critics argue, he’s never used this argument before.

Really? So how do they explain the comment of David Bassenese in the Weekend Australian Financial Review as far back as 9-12 June 2006?

Admittedly Bassenese wasn’t impressed even back then at the PM’s claim.

… Prime Minister John Howard has a lot of gall to blame state budget deficits
for putting upward pressure on interest rates … every economist in Australia
knows it is Howard’s own pro-cyclical consumption-boosting budget last month
that is perhaps the single greatest public-sector threat to interest rates this

Bassanese claims the Howard government knew full well that reduced public sector spending on its part could keep interest rates in check. If it really wanted to spend, it could have done so

... on improving work skills and state infrastructure, thereby alleviating more
supply bottlenecks.

But that kind of spending is hard to explain to the punters. It’s hard to win brownie points with voters by telling them you’re improving ports and highways.

Instead, the government deliberately chose to fatten household wallets, which
will fuel consumption and thwart efforts at better balanced economic growth … No
pressure on interest rates? Yeah right.

Mr Howard’s fiscal irresponsibility is nothing new. He will spend and spend for the short term to keep the smile on the punters’ faces. Then when interest rates go up, he will blame anyone and everyone except himself.

Will Kevin Rudd’s alternative government be any different? Who knows? They have to win the election first.

No comments: