The Reserve Bank has raised the official interest rate by 0.25 per cent to an 11-year high of 6.75 per cent.
So argues Ross Gittins in today’s Sydney Morning Herald.
Surprisingly, a central question in the third last week of the election campaign is: what’s the role of the federal treasurer? If you think it’s to manage the national economy, that’s what you’re meant to think. But although the politicians on both sides want you to believe it, it hasn’t been true for a long time.
Consider the view of a prominent business economist, Rory Robertson, of Macquarie Bank. He says the job of any modern treasurer, Liberal or Labor, is not so much to manage the economy as to pretend to manage the economy.
“With few macro-economic policy levers to pull in Canberra these days, any modern treasurer’s job often resembles Head of Government Marketing – Economic. That is, it’s at least as much about absorbing incoming economic news here and abroad and providing upbeat economic commentary for public consumption, as it is about making macro-economic policy,” he says. “On a typical day, the job is to explain that everything is going very well, and ‘that’s because of us’. And, if everything is not going well, ‘it’s not our fault’.”
If, as expected, the Reserve Bank raises the official interest rate today, we’ll see Peter Costello doing a weird dance in which on the one hand he declines to accept responsibility for the rate rise while, on the other, claims to be far better qualified than Labor to guide the economy at a time when inflation and interest rates are rising…
The Monthly has now made freely available Andrew Charlton’s essay from the October 2007 issue. Do read it.
Addressing the media, Howard summed it all up: “This election, more than anything, is an opportunity for people to make a judgement about whether they want to have higher interest rates under Labor or re-elect a government that will always deliver lower interest rates than the Labor Party.”
Interest rates were not only central to the 2004 election. They have been a recurring theme of the past 11 years of Coalition government. Even more importantly, it is almost certain that interest rates will be a major theme, perhaps the major theme, of the next federal election campaign. The story Howard and Costello will tell the Australian people will go, roughly speaking, like this. Under Labor interest rates are always unacceptably high. Under the Coalition they have been and will remain low. They will suggest to the Australian people that interest rates are controlled by governments and directly linked to federal budget deficits and surpluses. As no part of this story is actually true, the next election campaign will be conducted on the basis of a series of seriously misleading or straightforwardly false Howard-Costello claims.
Are interest rates higher under Labor? The highest interest rate during the Hawke years was 19%; the highest under Keating was 7.9%. But when Howard was treasurer in the Fraser government, interest rates peaked at 21.4% in April 1982. (He defended the rate by arguing that it was necessary to prevent an “economic crisis”.) The situation was not dissimilar for housing rates, which are different to the government rates – the benchmark for the economy – but nevertheless important: these are the ones that affect the average mortgagee. A Liberal Party television advertisement screened before the 2004 election showed that rates were 10.38% under Whitlam, 17% under Hawke and 12% under Keating. What was conveniently omitted was Howard’s own unimpressive record as treasurer in the early ’80s, when housing rates hit 13%. So much for the notion that interest rates are always higher under Labor governments.
Do governments, anyhow, have much control over interest rates? As John Howard pointed out in his own defence in 1982, it is doubtful that they do. More importantly, whether they are higher or lower under one party or the other is of much less consequence than the government of the day understanding both the real determinants of interest rates and their place in the economy. On this score, Howard and Costello have spent many productive hours assiduously establishing in the minds of voters a false association between Labor, budget deficits and high interest rates.
Read it all.
Bruce has just posted from Adelaide Interest rate hike; economy or ennui? Although “a member of The Australian Labor Party”, Bruce says:
I’ve been calling this election for the Libs based on the distribution of votes over seats even without a lead in the two party preferred vote (or primaries). This development is making me think twice. If the Kruddster can make “The Economy” all about Thompson’s remarks, and the Government allows the Thompson issue to have a delayed closure (by their oft-repeated tendency to side-step issues), then the Government could be effectively losing/neutralizing the one major policy area that they had over Labor.