Interest rate wars continued in Canberra yesterday,
with the Prime Minister arguing home buyers are better under his Government than
in the 1980s. Labor’s gone in hard on interest rates, but
the Government has gone back to 1989 and 17% interest rates.

Labor says Reserve Bank figures show home
purchasers are spending more of their income on interest payments now than
under either the Hawke or Keating governments. Yet the PM has ignored the proportion of
income going to paying off mortgages. Instead, he says that if interest rates
were at their late 80s levels, home buyers on today’s mortgages would be
shelling out more than $4000 a month.

Labor, however, is holding its ground, pointing out how Australia’s
rates are at the high end among OECD countries and that people
are handing over a higher proportion of their disposable income to feed
their
mortgages.

The attack is being taken as a sign of
confidence from the Opposition – daring to mention Keating and interest rates.
But it also says plenty about the state of the economy.

Earlier in the week the National Australia
Bank accused the Reserve Bank of being overly optimistic in its forecasts for
economic growth.

Its latest survey of business conditions
suggests that higher interest rates are starting to bite. The NAB says that
although business conditions remain firm, they have moderated in response to
rising interest rates and confidence continues to fall. It says the trend is most apparent in
retail, wholesale and manufacturing, and in New South Wales
and Victoria.

Remember the warning from David Uren in The
Australian
earlier this year that the “resources boom is cleaving the economy in two, with
unsurpassed prosperity in the west and stagnation in the industrial capitals of
Sydney and Melbourne.”

How do workers in, say, manufacturing in
either of those cities feel, living in their far-flung suburbs with massive
mortgages and mounting petrol bills?

The housing boom is well and truly over in
the south-east. If the states could set interest rates independently, they’d be
slashing rates in NSW and Victoria and raising them in the West. NSW is in recession and Victoria close.
The strong Australian dollar and higher interest rates are hurting
manufacturers and exporters in the south-east, while WA’s economy is
overheating. Housing costs there are soaring.

It’s all opportunity for the ALP.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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