Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

When the government borrows, it increases the demand for money and therefore increases the price of money. It is pretty simple, really. It is a supply-demand equation. Increasing the demand for money puts upward pressure on interest rates. So, when we reduce the deficit, when we reduce the amount we borrow from our children and grandchildren, what we are doing—contrary to what Labor did—is giving the Reserve Bank room to move. Under Labor, because Labor spent too much and because they spent excessively in the context of the GFC, Australia continued to have one of the highest official cash rates in the Western world. While in the United States it was hovering at zero quantitative easing and going into negative territory now in parts of Europe, here in Australia, even though it was at low levels for Australian standards, the official cash rate was actually still high. (Time expired)