Raven Paradox

After a little more research using the official Reserve Bank of Australia’s website and also the Australian Prime Ministers website, I discovered some interesting facts about Howard’s years as treasurer.

Fact - he was treasurer from the 19th of November 1977 until the 11th of March, 1983

Fact - during his time as treasurer, interest rates peaked at 22%

Fact - the average interest rate during his tenure was 12.66%

Fact - he left Labor with interest rates of 13.95% when Fraser’s government lost office in 1983

Fact - when he became treasurer, interest rates were 10.25%. when he left office as treasurer, they were 13.95% - 3.7% higher.

Fact - during Labor’s tenure in government (12th March, 1983 - 11th March, 1996), the average interest rate was 12.22%

Fact - Labor left Howard’s government with 90 day interest rates of 7.51%

Fact - Labor reduced interest rates by 6.44%

On the balance of it, it would appear that Howard’s claim of interest rates always being higher under Labor is, well, quite untrue.

Presently, the official rate is 6.25%.

This means that Howard’s government has reduced interest rates by only 1.26% since they came into office almost 75% less than Labor was able to do with the figure that they inherited… John’s claims of his government always being better with interest rates are looking somewhat shaky.

Now I am not suggesting that a Beazley government would be any better - anyone with half a brain knows that the Reserve Bank, not the government controls interest rates - what I am saying is that it is time that Howard was taken to task for his obfuscation, lies, non-core promises and misrepresentation.

Would a Beazley government be better for Australia? It is impossible to say, Beazley appears to base his policy on perceptions of populous emotion as much as Howard always has, but Howard’s hubris needs to be punished and it would hurt him to lose to Beazley as much as it hurt Keating to lose to Howard.

One good turn deserves another.

The final word on Howard’s misrepresentation can go to Michael Costello, brother of Howard’s treasurer Peter:

Michael Costello: Stand by for a new Tampa

Dr John has fluffed interest rates, so he’s bound to try the snake oil

November 10, 2006

http://www.theaustralian.news.com.au/story/0,20867,20730841-7583,00.html

DR John Howard says interest rate increases are good for you. Now there’s a campaign slogan. And just in case you thought this was a pretty amazing - some might say foolhardy - line, Dr John continued that not only was this interest rate rise good for all of us, but it was only a little one and we shouldn’t be too excited about it.

So do Howard’s defences on interest rates stand up?

Let’s take them one by one.

First, a 0.25 per cent rise on its own can fairly be said to be small, but when it’s the eighth in a row, four of them since the previous election, at which he promised to keep interest rates low, we are talking about serious, and in many cases, devastating effects on home buyers, farmers and small businesses.

Second, Howard says the rate increase is necessary to control inflation now so inflation doesn’t get worse in the future. What this self-evident argument ignores is the question of why inflationary pressures have increased in the first place.

Mostly it’s because the economy is pushing up against capacity constraints because of shortages of labour, especially skilled labour, and deficiencies in our infrastructure, especially export-oriented infrastructure. Yet Howard has flatly refused to address the tax-welfare trap that keeps large numbers of people out of the work force. Furthermore, Howard has dramatically cut spending on higher education, and his so-called “new apprenticeships” are a sham, failing to deliver the skilled tradesmen the economy so desperately needs.

Howard’s next defence is that interest rates will always be lower under a Liberal government than under Labor. Shadow treasurer Wayne Swan blew this argument out of the water when he pointed out that when Howard was treasurer in 1982 interest rates reached 20.39 per cent, while the highest they were under Paul Keating was 19.56 per cent.

In light of this, Howard has changed to talking about housing interest rates, which reached 17 per cent under Keating but only got to 13.5 per cent while Howard was treasurer. But as Howard well recalls, housing finance was rationed before 1983 and housing interest rates were fixed by government. There was no independent Reserve Bank while Howard was treasurer. The Campbell report to the Fraser-Howard government recommended the abolition of these government-fixed ceilings but Malcolm Fraser refused to change. So to compare 17 per cent housing rates under treasurer Keating with 13.5 per cent under treasurer Howard is a breathtaking deception, a blatant comparing of apples with oranges, of government-capped interest rates with market forces interest rates. This piece of low trickery from Howard does nothing but remind us of his failure as treasurer to push through the sort of modernising financial reforms that we had to wait for Bob Hawke and Keating to deliver.

But the real problem with Howard’s argument that interest rates will always be lower under a Liberal government than under Labor was once again exposed by Swan. Using Reserve Bank figures, he points out that the effect of interest rates on households now, at 8 per cent, is very much higher than the effect on households when rates were 17 per cent under Keating. The reason for this is simple. Household debt has almost tripled as a percentage of family income since 1989, when interest rates were 17 per cent. At that time housing interest payments made up 6.1 per cent of household disposable income. Now they make up 9.1 per cent of household disposable income.

In short, repayments on your house are 50 per cent more burdensome on you than they were when interest rates under Keating reached their highest level in 1989. Get that. Fifty per cent higher under a Liberal government than the highest level under a Labor government. So much for the effect of interest rates being lower under a Liberal government.

Howard’s final defence is that Labor will go back to the old industrial relations system, which he says will force up wages and inflation and thus force up interest rates. This is an extraordinary statement coming from a man who spent most of the past 10 years boasting about how wages have grown faster under his Government than they did under Hawke and Keating. And he cannot claim this is because of productivity growth because productivity has slowed dramatically under his Government after rebounding to high levels under Labor. So another dud defence.

Howard’s hope is that he will get lucky again and interest rates will start to fall before the next election. But they’ll still be higher than they were at the previous election. They’ll still have a greater effect on households than they did under Labor. And if interest rates are falling, it will be because unemployment is rising and the economy is slowing.

Howard will argue he is better at managing a difficult economy than Labor, but what is interesting is that Labor, far from ducking this argument, has been taking Howard head-on during the past two years. It is landing heavy body blows.

So what’s Dr John to do? Time to reach for the snake oil. It has worked before. Trouble is, like antibiotics, the more you apply snake oil, the more the patient develops an immunity. I can feel another Tampa coming on.

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