Kevin Rudd (Griffith, Australian Labor Party, Leader of the Opposition) Share this | Link to this | Hansard source

My question is again to the Prime Minister, and I refer to my two previous questions on mortgage payments as a proportion of household income. Can the Prime Minister confirm that Australian homebuyers pay the world’s second highest mortgage interest rates among comparable developed economies?

John Howard (Bennelong, Liberal Party, Prime Minister) Share this | Link to this | Hansard source

It is true that our interest rates are higher than those in some other developed countries. The reason for that is that our economy has been a lot stronger. The very low interest rates that obtained in the United States for a period of time were a direct reflection of the fact that the economy of the United States went virtually into a recession. If you want to chase that kind of situation, you have a very odd idea of good economic management for this country.

I remind the Leader of the Opposition that while he is pursuing issues relating to household debt he ought to read some comments made by the recently appointed Deputy Governor of the Reserve Bank of Australia, Mr Ric Battellino, who, on 22 August 2006, had this to say—and this is very relevant to the issue that the Leader of the Opposition is pursuing:

... in judging the health of household finances, we should not look at trends in debt in isolation; we need to look at the overall financial position of households. If we do this, we see that households’ financial assets have increased by substantially more than their debt ... As a result, even though household debt has increased, the net financial position of households has improved noticeably.

Very simply, what has happened over the last few years is that because interest rates have been so low—relatively speaking in the Australian experience, and much lower than the crippling levels of 17 per cent for housing interest rates and 21 per cent for small business interest rates that obtained under the former Labor government—people have become emboldened and have gone out and borrowed to the hilt.

The value of housing has rapidly increased and as a result the amount of disposable income consumed by mortgage payments—albeit at lower interest rates to pay for more expensive houses—has risen. That is simply what has happened: people have put more into housing because they can afford—because of lower interest rates—to borrow more to buy more expensive houses. It stands to reason that the ratio would have gone up. What you have to do, as Mr Battellino pointed out, is have a look at that against the value of your assets. Your liabilities in relation to that asset may be higher, but because your asset value has gone up, your net financial position has improved. That is fundamentally what has happened. Any simple examination of the facts would reveal that to the Leader of the Opposition.