Labor States attack over interest rates rise
The federal opposition and Labor state governments were quick to attack the prime minister and his treasurer after Wednesday's interest rate rise.
Prime Minister John Howard conceded the Reserve Bank of Australia's (RBA) decision to raise rates will hurt some homebuyers, but said this would be offset by the government's strong budget surplus and tax cuts.
But Labor leader Kevin Rudd said the quarter of a percentage point rise in rates is a "worrying development" for all working families.
"When Mr Howard says it will affect only some, it does tend to indicate to me ... that he is losing touch with the reality of working families across the country," Mr Rudd told journalists.
As widely tipped by financial markets, the RBA lifted its cash rate to 6.5 per cent from 6.25 per cent, its highest level since November 1996.
Homebuyers can expect to pay around an additional $50 per month on an average $250,000 mortgage if banks pass on the increase in full, which will raise the standard variable rate to 8.3 per cent from 8.05 per cent.
"Working families are already struggling to make ends meet, particularly when you take into account nine interest rates on the run," Mr Rudd said.
The RBA's decision came as data showed more than 66,700 people took out a home loan during June, many of whom will feel the pinch from Wednesday's interest rate rise.
And despite this surge of interest to get a home loan, there is little sign of housing affordability getting any easier.
The Australian Bureau of Statistics house price index for the June quarter shows house prices in capitals across the nation on average grew 3.2 per cent, the fastest quarterly pace of growth in a year.
Treasurer Peter Costello said the official interest rate was still lower than the 7.5 per cent cash rate when the coalition was elected to government in March 1996.
"The fact that after the longest continuous expansion in Australia's history and 2.1 million jobs the official cash rate is still lower than it was when the government was elected, shows the distance we have travelled since 1996 and the improvement in economic fundamentals."
In a statement accompanying its rates decision, RBA governor Glenn Stevens said the high outcome of the consumer price index in the June quarter indicated a "less favourable" outcome for inflation and a higher starting point for further price increases.
Mr Howard said he accepted the government would be partly blamed for the rate increase but reiterated rates are less than half of the "notorious" 17 per cent under the Keating government.
Mr Rudd predicted the prime minister would engage in such selective debate about economic history in the upcoming election campaign.
"Every time Mr Howard says 17 per cent interest rates under Labor in 1989, we'll be talking about 22 per cent interest rates under the Liberals and under Mr Howard personally as treasurer in 1982," Mr Rudd said.
In the run-up to Wednesday's decision the federal government has been attempting to shift the blame on to state government borrowings for putting upward pressure on interest rates.
The states were quick to fire back on Wednesday.
NSW Treasurer Michael Costa said Mr Costello had tried to blame bananas for interest rate rises last year and was now trying to blame the states' investment in necessary economic infrastructure.
"Infrastructure investment and borrowing has little impact on CPI inflation that the RBA targets. Tax cuts and federal handouts do," he said.
Queensland Premier Peter Beattie said Mr Howard has betrayed ordinary families when he claimed he was going to keep rates low.
"I say 'Mr Prime Minister, no one believes you any more'."
Kevin Rudd
