09/11/2007 - 19:32

Round 4: Bulls in china shops in View from the Arch

09/11/2007 - 19:32

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As the nation watched horses on Tuesday, Wednesday saw a bullish Reserve Bank increase interest rates to 6.75 per cent. Meanwhile, debates were held on the Environment and Industrial Relations as the WA government released a controversial study.

Round 4: Bulls in china shops in View from the Arch

As the nation watched horses on Tuesday, Wednesday saw a bullish Reserve Bank increase interest rates to 6.75 per cent. Meanwhile, debates were held on the Environment and Industrial Relations as the WA government released a controversial study.

Interest Rates

After holding its monthly meeting on Tuesday, the Reserve Bank of Australia announced interest rates would rise by a quarter of a percentage point to 6.75 per cent, the first time in history it has done so during an election campaign.

This marks the sixth increase since the 2004 election and will add around a further $40 per month to the average standard variable mortgage repayment.

In a statement accompanying the rate decision, RBA governor Glenn Stevens said the pace of economic growth had increased and that both the consumer price index and underlying inflation were likely to be above three per cent in the first three months of next year.

The RBA has an inflation target of two to three per cent.

"There are few signs of that strength diminishing as yet, and reports of high capacity usage and shortages of suitable labour persist," Mr Stevens said.

"Growth in labour costs has been contained so far and high levels of investment are adding to productive capacity in some sectors."

He says the strength of the Australian dollar will help to contain price pressures, but demand will need to moderate if inflation is to be kept to the target in the medium term.

"Having weighed both the international and domestic information available, the board judged that a further increase in the cash rate was needed now in order to contain inflation in the medium term," he said.

The reaction - Coalition

Despite its impact, the rise in interest rates had been widely expected, meaning no parliamentarian was caught off-guard when the inevitable statements were made.

Prime Minister John Howard and Treasurer Peter Costello even got in early, claiming on Monday that Labor would not be able to manage the challenges in the economy.

"If you have a strong economy, you have high world oil prices and you have a drought - some inflation in the system unavoidable," Mr Howard told ABC TV.

The tone didn't change much on Wednesday, with Mr Howard telling reporters that the rise, the sixth since the 2004 election, would hurt a lot of people.

"This decision will have negative consequences for a lot of borrowers. They will be hurt by it, they will be affected by it," Mr Howard said.

"I know that, I sympathise with them, I don't like it.

"I think we all have to understand that when these adjustments occur, no matter how they might be justified in overall terms, they do have a personal and family consequences.

"I would say to the borrowers of Australia who are affected by this change that I am sorry about that and I regret the additional burden that will be put upon them as a result."

Mr Howard says the reason rates have increased is because there are concerns about inflationary pressures in the economy, with pressures coming from Australia's economic strength, drought and high oil prices.

He also pointed out that Mr Stevens had drawn attention to the fragility of world markets, a key point the coalition has been pushing in the election campaign.

But he acknowledged that Mr Stevens was reassured about how Australia could handle this.

"He makes the reassuring observation that Australia's financial system remains very sound indeed. That is a fair observation to make and it also a warning to financial institutions in this country ... that there is not a lot of justification in passing on any borrowing over and above increases flowing from the official increase," Mr Howard said.

Treasurer Peter Costello has warned of a potential tsunami on world financial markets which requires experience in Australia to handle the economy.

And Mr Howard tuned in, saying interest rates would always be lower under the coalition than under a Labor government.

"I say that unashamedly, directly and unconditionally," he said.

"I'm looking forward. If Labor wins this election interest rates will be higher than if the coalition wins.

"They have been in the past and they will be in the future."

He said he based this on Labor's industrial relations policy and past experience.

"I believe if Mr (Mark) Latham had been elected interest rates would have gone up a lot more because he would have run a very permissive fiscal policy and he would have implemented the industrial relations policy Mr Rudd and Ms Gillard (have put forward).

"I believe very strongly now that if Mr Rudd is elected, then the upward pressure on both inflation and interest rates would be much greater than if we are elected."

The Reaction - Labor

Opposition Leader Kevin Rudd addressed reporters later in the day, telling them the Prime Minister had lost touch with working families.

Mr Rudd said the Howard government had shown that it had no plan for dealing with inflationary pressures in the economy.

The government had been asked if it would have done anything differently and still insisted nothing would change, he said.

"In other words there is no change in policy.

"They are simply saying that all the factors that are contributing to inflationary pressures in the Australian economy are beyond their control. Well we disagree."

Labor's Treasury spokesman Wayne Swan said the federal government had ignored 20 central bank warnings in the past three years that a skilled labour shortage was contributing to the economy overheating.

"The government has been inactive and complacent about skills shortages and infrastructure bottlenecks that are putting upwards pressure on inflation," he said.

"How can a government that can be so complacent about the very basis of lifting productivity in the economy and creating prosperity claim to be trusted on interest rates?

"They can't claim to be trusted on interest rates if they have so little regard for those factors in the economy that drive productivity and put downward pressure on inflation and interest rates.

Mr Rudd said a Labor government would continue to save 1.0 per cent of gross domestic product when it comes to the budget surplus, while restraining its spending commitments.

"What we have committed ourselves consistently to in commitments we have made in this election period is not to match Mr Howard dollar for dollar, and to come up with a more modest set of election undertakings that have been put forward by Mr Howard and we will adhere to that," he said.

"We have also indicated that we intend to adhere to the general discipline of 1.0 per cent of GDP as an acceptable basis for surplus into the future.

"Those two undertakings should be taken in harness."

Mr Swan said Labor would also expand the supply capacity of the economy.

"Which is why our spending is directed particularly at education and training, and why we say there needs to be leadership when it comes to infrastructure," Mr Swan.

"That's absolutely critical because this government has ignored the supply capacity side of the economy."

"The core of this plan is new leadership and new leadership is about building long-term economic prosperity for when once this mining boom is over."

Debate: Industrial Relations

While Mr Rudd and Mr Swan discussed interest rates in Melbourne, the ALP's most prominent Melburnian was in Canberra discussing the other IR.

Opposition industrial relations spokeswoman Julia Gillard and Workplace Relations Minister Joe Hockey both arrived at the National Press Club on time, giving Mr Hockey the chance to revel in the favourable spotlight that had eluded Health Minister Tony Abbott the previous week.

And he made the most of it, announcing a new policy allowing up to 52 weeks unpaid parental leave for both mothers and fathers and a week's unpaid leave for all grandparents when a grandchild arrives.

Grandparents working in firms of more than 100 employees would also be entitled to take up to 52 weeks unpaid leave.

Under the new Coalition policy, workers with the agreement of their employers will be able to take double their annual leave at half-pay.

But Ms Gillard said the policy wasn't worth the paper it was written on, citing interest rates and the Government's failure to flag its controversial WorkChoices laws in the 2004 campaign.

"In its industrial relations policy document released before the last election, it didn't mention Work Choices once - not the title and not the substance," Ms Gillard said.

Ms Gillard promised a Rudd government would go ahead with its pledge to wind back the Government's IR laws.

"I'm happy to do whatever you would like," Ms Gillard said.

"If you'd like me to pledge to resign, to sign a contract in blood, take a polygraph, bet my house on it, give you my mother as a hostage, whatever you like."

While Mr Hockey emphasised his belief the Coalition's current IR system had the right balance with its mix of employment, workplace and skills policies, Ms Gillard contended the Coalition was running on a fear campaign that the voting public was not buying.

There was plenty of negatives from Mr Hockey. Who would go in to bat for small business if Kevin Rudd won the election, he wondered? "Who's going to bat for small business in the cabinet room when there are serious issues to be addressed, when 70 per cent of Kevin Rudd's front bench are former union officials, and hardly any of them have had any experience in small business?" Mr Hockey said.

He said Labor's proposed industrial relations changes would make it possible for high wages in the boom states to flow to work sites in states that were not enjoying the good times.

Ms Gillard said Labor had decentralised wage-fixing and was proud of having done so.

"Our policy is about setting wages at enterprises," she said.

"It will be impossible under Labor's system for a wage outcome in Rockhampton to flow through to a business in Rockhampton, completely impossible."

Debate: Environment

The next day, Environment Minister Malcolm Turnbull and Opposition Environment Spokesman Peter Garrett met at the National Press Club for what was an even-handed debate focusing on climate change.

Mr Turnbull said climate change reform required a cautious approach, but said that Mr Garrett would be a "soft touch" in the diplomatic world.

But Mr Garrett accused the Government of planning to constructu up to 25 nuclear reactors as a means of dealing with climate change, which he said had been ignored by the govenrment for the past 11 years.

Other Policy Announcements

COALITION:

  • $1.56 billion in funding for South Australian roads and rail networks (from Auslink road fund).
  • $10.5 billion of road and rail upgrades for the eastern seaboard (all but $56 million from Auslink road fund).
  • $90 million in extra funding for a Pacific Highway bypass of Alstonville on the NSW north coast.
  • $15 million over three years for a new program to boost jobs, growth and community infrastructure in north-western NSW.
  • $4.2 million to help drought-proof Hervey Bay on the central Queensland coast.
  • $3 million for local law and order and community facilities in Prime Minister John Howard's Bennelong electorate.
  • $2 million for a cancer centre at the Lismore Base Hospital in NSW.
  • $650,000 grant for a Queensland chilli company.
  • $470,000 grant to convert a motel on the Pacific Highway into an indigenous aged care facility.
  • Pledge to extend commonwealth-employee superannuation death benefits to same-sex couples.
  • Workers will be able to take double their annual leave at half pay.
  • Grandparents will be entitled to take one week unpaid leave when a grandchild is born.
  • Grandparents working in businesses with more than 100 employees will have the right to take up to 52 weeks of unpaid leave.

This puts the total amount of new money allocated by the Coalition over the course of the campaign at $44.07 billion, with $171.4 million allocated this week.

LABOR:

  • $600 million on road and health services in Adelaide.
  • $23.3 million on the key NSW marginal electorate of Eden-Monaro.
  • $1.9 billion in increased disability spending.
  • $11 million in funding for various infrastructure projects in northern Adelaide.
  • $5 million to establish two GP super clinics in Perth.
  • $140,000 to help Lismore, NSW, prepare for future floods.
  • $150 million plan to provide 600 new houses and units for homeless people.
  • $5 million to establish a GP super clinic in the Blue Mountains, west of Sydney.
  • A tax-break scheme to allow first-home buyers to save for a deposit.

This puts the total amount of new money allocated by Labor over the course of the campaign at $47.04 billion, with $796.3 million allocated this week.

The Final Word

In a week where Kevin Rudd complained of cuts on his hands, brought on by too much hand-shaking (Arch imagines the PM has calluses), and Deputy Prime Minister Mark Vaile donned a backwards cap and skateboarded down a pathway, the final word goes to the Victorian Greens' Senate Candidate, Richard Di Natale.

ABC Online reports Dr Di Natale had reason to celebrate when his sister Deborah, married to Victorian Greens MP Greg Barber, gave birth to a baby girl on Tuesday.

"After the experience of childbirth, Deborah realised that labour isn't all it's cracked up to be," said Dr Di Natale.

Arch reckons maybe she was just glad the experience was over...

Only two weeks to go.

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