Forget all that talk about “trust” at the time of the last election. John Howard and Peter Costello deserve to wear the heat for yesterday’s rise in interest rates.

We have higher rates thanks to the Howard Government’s aversion to economic reform – and its decision to pursue easy financial policy while presiding over near record growth in government spending.

Market watchers say this, combined with inadequate investment in infrastructure and education, have generated capacity constraints and skills shortages that have magnified the inflation risks the Reserve Bank used to justify yesterday’s rate rise.

John Howard asked the rhetorical question “Who do you trust to keep interest rates low?” when he called the 2004 poll – and then went further. “I will guarantee that interest rates are always going to be lower under a coalition government.”

Labor said this was boll*cks. But the punters took it on face value. The Liberals had their issue – and pushed economic management in its campaign material.

The Reserve Bank, however, wasn’t so sure. Yesterday, finance figures were recalling how the Bank took the unusual step of writing to the Australian Electoral Commission to seek advice over a Liberal Party brochure that claimed “under Labor, you may need to find an extra $962.24 every month just to keep your home”.

The Reserve asked the AEC to “take action to prevent further circulation of such material” in a letter sent on 17 September 2004 – 22 days before polling day. The Electoral Commission wrote back to the RBA on 23 September, indicating that the Liberal brochure did not breach the rules – but suggesting the Reserve contact the authoriser of the material “and discuss the matter directly with them.” The Bank did just that, and asked “that no further distribution of the brochure occurs.”

Yesterday’s rate rise – the second since the poll – shows that the Government’s claims were just talk. When it flows through, borrowers on a standard variable mortgage will find their borrowing costs have risen by seven per cent in the last 18 months.

And there’s another angle that isn’t being discussed. With the cash rate at 5.75 per cent and the variable mortgage rate heading to 7.55 per cent, both are at their highest levels since February 2001.

Interest rates are not low. After yesterday’s rise they are at their highest level in more than five years. The standard variable mortgage rate is a whole 25 per cent higher than it was in early 2002.

And don’t believe Cossie’s claims that yesterday’s rate rise was driven largely by global factors. Australian rates are now higher than rates in the US, the UK, continental Europe, Canada, Israel, Peru, Chile, Japan, Malaysia, Singapore, South Korea, Taiwan and Thailand – to name but a few.