Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

I move:

That the Senate notes:

(a)

that the interest rate rise on 8 November 2006 is the eighth consecutive increase since May 2002 and the fourth since the 2004 election;

(b)

that the headline inflation rate increased to 3.9 per cent for the year ending September 2006;

(c)

that national and personal debt levels are increasing; and

(d)

the lowering of productivity and trending down in manufacturing and services export.

The motion I have placed before the Senate on behalf of the Australian Labor Party for consideration this afternoon focuses on a number of important economic issues: interest rate increases, the increase in inflation, increasing national and personal debt levels, and lower productivity and downtrends in manufacturing and service exports.

First I want to deal with some issues relating to interest rates. It is obviously an issue of considerable community concern at the present time, given the circumstances that many Australians find themselves in. We have seen some eight interest rate increases since May 2002—four of those increases, including the increase yesterday, since the last election. I remind those who are listening that at the last election the Prime Minister, Mr Howard, on behalf of the Liberal Party, promised—a number of commitments were made, but there were two that were critical to this debate—to keep inflation under control and to keep interest rates at record lows. This is from the Liberal Party website. I referred to it yesterday and noticed that those promises were still up there.

In recent times we have seen a considerable amount of debate as to the reasons for the eight increases in interest rates over the last five years. The recent increase is as a consequence of a significant increase in inflation. As the Reserve Bank remarked in its decision to increase interest rates, the headline rate of inflation, without referring to the specific figure, has now reached 3.9 per cent. If we examine this, the Liberal government can hardly continue to claim that it has kept inflation under control. It simply has not. One of the important reasons for the increase in interest rates is that the government has not kept inflation under control. As a matter of fact, inflation has increased significantly.

The government, of course, want to give all sorts of reasons for the increase in inflation. But the fact is they gave a commitment at the last election. Mr Howard, on behalf of the Liberal government, gave a commitment that they would keep inflation under control. They did not qualify it by saying, ‘Well, petrol prices may go up, food prices might go up or there might be a drought.’ They clearly made a promise to keep inflation under control. What has happened? Inflation has started to increase significantly. They also claimed that they would keep interest rates at record lows. How can interest rates be at record lows when we have had eight increases since May 2002?

Amanda Vanstone (SA, Liberal Party, Minister for Immigration and Multicultural Affairs) Share this | Link to this | Hansard source

It is a record compared with your record, that’s why!

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

I will get to your record and the Labor Party’s record in a second, Senator Vanstone. And we have had four interest rate increases since the last election—since the Prime Minister, Mr Howard, pledged on behalf of the Liberal Party that they would keep interest rates at record lows. Senator Vanstone has challenged me and I will respond, because I was going to refer to history.

The Liberal Party is fond of comparing the current percentage level of household interest rates, which will be 8.05 per cent, to the peak reached under Labor of between 17 and 18 per cent. If we want to make percentage comparisons, why don’t we go back a little further in history to when housing interest rates reached 22 per cent—when the current Prime Minister was Treasurer of Australia? Why don’t we do that if we want to make percentage comparisons? If we want to make percentage comparisons, compare 8.05 per cent to the 17 to 18 per cent under Labor and to the 22 per cent when the current Prime Minister was Treasurer of this country.

But the more valid comparison is the money comparison—the actual dollar payments of Australians who are making mortgage repayments. The fact is that the level of household debt in terms of mortgage repayments has trebled in the last 10 years. That is the more valid comparison. That is the reason—and we have seen numerous examples today in the media and we have had numerous people contact us—for the difficulties that Australians and Australian families face as a consequence of the eight increases in interest rates, four since the last election.

Of course the Prime Minister, Mr Howard, and various other frontbenchers for the Liberal government are fond of laying blame. Everyone else is to blame. It is the states, it is foreign oil prices, it is inflation, it is bananas. We get all sorts of excuses as to why the promise made by Mr Howard at the last election has been broken. I thought one of the most extraordinary attempts to lay blame elsewhere was made by the Prime Minister himself yesterday. Yesterday at his doorstop interview Mr Howard claimed that, under Labor, as a consequence of our fairer industrial relations policies:

Wages will go up across the board and that will push up inflation which in turn will push up interest rates.

That was the claim by the Prime Minister yesterday: wages will go up across the board as a consequence of Labor’s fairer industrial relations policy. But only three months ago—and this is another clear example of the dissembling and misleading we get from this Prime Minister—in his address to the New South Wales Liberal Party conference on 22 July, the Prime Minister said that Labor’s fairer industrial relations policy would result in lower wages:

… we will be putting at risk the higher living standards, the higher wages, the better conditions …

He said that wages would be put at risk; they would be lowered. So three months ago the Prime Minister was claiming that Labor’s industrial relations policy would lower wages and yesterday, attempting to find another excuse and lay blame elsewhere, he claimed that Labor’s industrial relations policy would push wages up across the board—a totally contradictory position. Yesterday the Prime Minister was being held to account for his failure to deliver on his election promise, and he was looking around for any sort of excuse to spread the blame. Three months ago Mr Howard was claiming that Labor’s fair industrial relations policy would lower wages; yesterday he was claiming that they would lead to higher wages, leading to an increase in inflation, leading to a further increase in interest rates—quite extraordinary contradictions and contortions from the Prime Minister, Mr Howard.

What we do know from real-life experiences is that a consequence of the continuous increases in interest rates is hurt for many Australian families. My colleague Senator Sterle today in question time referred to the example of the truckie Wayne Phillips, who lives in Penrith, in Western Sydney. Mr Phillips had borrowed money in order to provide a $50,000 loan to his daughter so she could buy a house. Mr Phillips was totally correct in his analysis of the promise given by the Prime Minister when he said:

This is not the first hike in interest rates, it’s the fourth since the election—so much for the Howard Government’s promises.

It is not Labor saying this; it is Mr Phillips, the average Joe Blow out there in the street, the struggling battler. Of course, Mr Phillips is not the only example. This increase in interest rates will have a very significant impact across all sectors of the community.

There has been a reference to a two-speed Australian economy. It is actually a three-speed Australian economy: we have Western Australia, and Queensland to a lesser extent, with strong economic growth; we have the other states with lesser economic growth; and the third area of the economy that we should give considerable thought and concern to is the rural and regional economy because, there, average broadacre farm debt is approximately $230,000 to $240,000. That is a considerable amount of debt for farmers in this country to carry at the same time as interest rates are going up. It has a very major impact on issues relating to the funding of cash flow and the general debt levels of farmers in this country, and at the same time they are experiencing a major drought. So the farmers of this country are really going to battle as a consequence of this interest rate hike.

We heard from Senator Boswell earlier, complaining of misrepresentation on his eight mobile phones. Since interest rates went up we have not heard one word from National Party senators—not one question and not one statement of concern on behalf of the battling farmers in this country and the people living in rural and regional Australia. We have heard not one word from the National Party. All we could get was Senator Boswell coming in here complaining about the press coverage of his eight mobile phones. If the situation were not so serious it would be funny. But it is a very serious situation when the representatives of the National Party in this place cannot utter a word of defence, a word of concern, for the battling people of rural and regional Australia, who will be really hurt by this latest interest rate increase at a time of significant drought.

That does not surprise me. I have long regarded the National Party as the doormats of the government. I refer to a Liberal government; I do not refer to a Liberal-National government. The National Party have long since failed to represent effectively the interests of rural and regional Australia. Let’s get Senator Boswell in here to contribute to this debate on behalf of the National Party. He is their so-called leader in this place; he should be in here explaining why the Prime Minister, Mr Howard, broke his election promise to keep interest rates at record lows. But he is not here; all he could do was front up and talk about eight mobile phones. That says it all for the relevance of the National Party in this country today.

Interest rate increases do have a devastating impact in the community. The last four interest rate increases since the election have increased the cost of the average Australian household mortgage by $260 a month. We have had four increases in interest rates since the last election. How can that be keeping interest rates at record lows, when the level of repayments has increased, on average, by $260 a month since the last election? I want to refer to further comment on interest rates, particularly insensitive comments by a state Liberal Party shadow minister which have been drawn to my attention. The Liberal Party opposition finance spokesman from my home state of Tasmania, Mr Brett Whiteley, has made some truly appalling comments. He said today:

‘The interest rate increase should serve as a reminder to home buyers to be more realistic about what they can afford to borrow.’ Mr Whiteley, a former bank manager, said that if people were worried about a modest interest rate rise it was a sign they were overstretched. ‘Both individuals and banks need to be far more responsible when contemplating what sort of house to buy and the loan that comes with that.’

‘Younger couples today seem to have the unreasonable expectation that they can enter the housing market at a place where their parents are after 30 years of marriage.’

This is the Liberal Party shadow minister in my home state of Tasmania saying:

‘Younger couples today seem to have the unreasonable expectation they can enter the housing market at a place where their parents are after 30 years of marriage.’

He further said:

‘Home buyers should be budgeting and keeping a buffer zone to be able to absorb such unexpected increases.’

These are truly appalling and insensitive comments from the Liberal shadow minister—

Nigel Scullion (NT, Country Liberal Party) Share this | Link to this | Hansard source

That is good advice from a bank manager.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Housing and Urban Development) Share this | Link to this | Hansard source

From a man of your wealth, yes. You’d know about a bit of a buffer between you and poverty. There’s quite a buffer.

Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

Senator Carr, your colleague has the floor. So give him a go.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

I will take that interjection. These were truly outrageous comments by the Liberal shadow finance minister in Tasmania, blaming the victims, blaming the poor, struggling—in this case, Tasmanian—mortgage borrowers. They are responsible; that was the line from Mr Whiteley, the Liberal Party shadow minister. Just how out of touch can Liberal shadow ministers and ministers be when they allege that it is the poor, suffering householder who has borrowed money who is responsible? Because they are irresponsible, according to Mr Whiteley. They were quite appalling comments, and I hope that others in this debate distance themselves from these particularly unfortunate—

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Housing and Urban Development) Share this | Link to this | Hansard source

Callous.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

callous and insensitive remarks by the Liberal shadow finance spokesman from my home state of Tasmania.

As for the interest rate rises that we have seen, it was of course the Prime Minister himself, Mr Howard, who gave the green light for the interest rate rise that occurred yesterday. The Prime Minister normally avoids speculating on interest rate rises; he usually does not make any comment at all. However, a week and a half ago he did make comments about increases in interest rates. Referring to the Reserve Bank, the Prime Minister said he could understand why the bank would be increasing interest rates. So we have a fairly bizarre situation: the Prime Minister, in the run-up to the election, saying, ‘We will keep interest rates at record lows,’ and the situation 10 days ago when the Prime Minister was publicly giving the green light to the Reserve Bank to increase interest rates, effectively urging the Reserve Bank to increase interest rates, in view of the higher inflation rate.

Why is inflation high? Why is it increasing? Because the government has neglected some fundamental economic issues in this country. It has neglected productivity growth; productivity growth has been declining. Not only are the poor, suffering families of this country having to face finding money to pay increasing housing mortgage and other loan repayments; they are also having to, for example, cut some money out of the household budget to meet increasing food costs. In the latest inflation figures, food increased on average by 10 per cent in the last year to September. So battling families are experiencing some real difficulties while an out of touch and arrogant government is neglecting some important issues such as productivity and the education and training of the workforce—of course the government’s solution to that problem is to bring in foreign workers—and issues relating to infrastructure and investment in this country, which are so critical to lessening the pressure on interest rates.

Today the issue of national debt, the debt that the country owes to the rest of the world, was raised in question time and we referred the finance minister, Senator Minchin, to his view, when he was in opposition, on the importance of minimising foreign debt. Back in 1995, the view of the finance minister was that our then foreign debt, $167 billion—remember the debt truck that the Liberal Party rolled out as they expressed grave concern about the level of foreign debt that Australia owed to the rest of the world—

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Housing and Urban Development) Share this | Link to this | Hansard source

Senator Campbell used to drive it around!

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

That’s right. I recall that Senator Ian Campbell, the current minister for parrots, used to drive that truck around. I remember him in it out the front of Parliament House. Where has that truck been? It has been parked in the garage.

Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

Senator Sherry, I think you should refer to the minister by his proper title.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Yes, Mr Acting Deputy President; the minister for the environment. He drove that truck around and then parked it. We have not seen it since because in the last 10 years foreign debt has increased from $167 billion to almost $500 billion. That is what Australians owe to the rest of the world—$500 billion. It has almost trebled, and Senator Minchin said back in 1995 that $167 billion in foreign debt was ‘just mind-boggling’ and ‘beyond the comprehension of most Australians’. He said that this would put upward pressure on interest rates. That is the importance of the foreign debt issue: if you have high foreign debt you need to import the capital and you need to fund that and that puts upward pressure on interest rates. That is why today, because of the need to import capital, Australia has the second highest interest rate of 19 advanced economies. When they were in opposition, the government had a lot of concern about foreign debt when they brought out the debt truck. That was when the debt was $167 billion. But today they are not interested in foreign debt and its consequences of upward pressure on interest rates, and foreign debt has reached almost $500 billion. (Time expired)

Michael Ronaldson (Victoria, Liberal Party) Share this | Link to this | Hansard source

Thank goodness that’s over. Where do you start? Quite seriously, Senator Sherry, you can’t be serious about two-thirds of your speech today. If that is the Labor Party’s contribution to a debate on the economy, then while it will be a tough election next time around I suspect we will probably get re-elected. There was not one single positive suggestion about what the Labor Party would do if they were in government. Clearly, what is left open to us? If they have not got anything positive to say, we will have to refer to their previous record and assume that they will repeat the sins of the past, which is a quite reasonable take on a speech like Senator Sherry’s.

A day is a long time in politics, and it is a particularly long time for the Australian Labor Party, because it was tears of great joy yesterday and tears of anguish today: great joy yesterday because interest rates went up; tears today because unemployment went down. The Labor Party were pleased to see interest rates rise yesterday because they could attempt to make some cheap political points over a rate rise that they know and we very much acknowledge will impact on Australian families. The Prime Minister has made it quite clear that no-one likes higher mortgage interest rates. But sometimes a difficult decision needs to be made, and the independent body, the Reserve Bank of Australia, made that decision yesterday. That decision was made to underpin the long-term growth of this economy, the long-term growth of jobs and the long-term investment in education—in universities and schools—and for Senator Sherry to talk about debt and not talk about the $96 billion of government debt that this government inherited in 1996—$96 billion ratcheted up by the Australian Labor Party to pay for budget deficits—beggars belief.

Every man, woman and child in Australia shared in that $96 billion debt the Labor Party left to them in 1996. Through good economic management, that amount is now zero. Is there money left over to put into the dramatic water shortage situation we have at the moment? Yes, there is. There is $2 billion, and probably more will be required. Is there money left over for drought relief? Yes, there is. There is over $1 billion at the moment and undoubtedly that will rise. Is there money left over to pick up the slack of state Labor governments who are prepared to see our children playing outside in summer on asphalt and then returning to unair-conditioned classrooms?

I am the patron senator for Bendigo, and $3 million has gone into about 40 schools in the electorate of Bendigo to do things the Bracks government should have done. It is about putting in air conditioning; it is about putting in covered areas for children to play under in winter and summer. Could that have been done if we were running up budget deficits of $10 billion a year? Could that be done if every man, woman and child in Australia were paying $8 billion in interest payments on borrowed budget deficits? No. Would those kids in Bendigo have a computer? No. Would those kids in Bendigo have air conditioning? No. Would they have somewhere to play under cover during winter and summer? No. The Australian Labor Party’s gall in talking about the economy utterly beggars belief. I want to go to the question of interest rates.

Santo Santoro (Queensland, Liberal Party, Minister for Ageing) Share this | Link to this | Hansard source

This will be good!

Michael Ronaldson (Victoria, Liberal Party) Share this | Link to this | Hansard source

Absolutely. I said at the start that, had Senator Sherry indicated in 20 minutes one single policy that the Labor Party would introduce, we might have a different conversation. The fact that he, in his shadow ministerial position, in 20 minutes on his own motion, was not able to put forward one positive suggestion, one point of difference, means that we are required to return to the record of the Australian Labor Party—because the Australian people will quite rightly assume that, if the shadow minister does not have a positive contribution, Labor will repeat the sins of the past.

The rate rise will undoubtedly be passed on. It may well have started today; I do not know. Mortgage interest rates will rise to about 8.05 per cent. Under the Labor Party, in 13 years, mortgage rates were never lower than that. Never in 13 years did the Australian Labor Party get interest rates down to 8.05 per cent. In 1996, when the Australian Labor Party left office—fortunately—interest rates were 10.5 per cent. In Labor’s 13 years in office, home loan interest rates averaged 12.75 per cent. My notes say that, between 1989 and 1990, interest rates peaked at 17 per cent. If only they had been 17 per cent! I vividly remember buying my first house with my wife in 1983. At the peak, we were paying 18.25 per cent. In six years we did not pay a single dollar off our mortgage.

The small business community in my home town of Ballarat were utterly decimated because, as you would be well aware, Mr Acting Deputy President Ferguson, they were paying interest rates of 22 per cent, and if they were a bit shaky on it they were having another two per cent whacked on top of that—24, 25, 26 per cent! In the main street of Ballarat every second shop was closed. Unemployment was closer to 20 per cent than 15 per cent. Youth unemployment was at 45 per cent. They were diabolical days.

The reduction in mortgage interest rates since 1996, even after yesterday’s increase, would still save a typical family $449 per month in interest payments on an average $220,000 home loan. In September 1994, Kim Beazley was the Minister for Finance, home loan mortgage rates were 9.5 per cent, and this is what he had to say—and I will read through this slowly so that those opposite can take this in:

... I point out that this is still a very low interest rate regime—

this is 9.5 per cent—

in Australian historical standards. It is a regime that is capable of being held at that level largely because the fundamentals of the economy in this country are very good indeed.

So in 1994 a 9.5 per cent interest rate was considered low. The Leader of the Opposition, the Leader of the Australian Labor Party in 2006, said, in 1994, that mortgage rates of 9.5 per cent are low and that keeping them at that percentage was an achievement of the Labor Party. And yet for the last two days we have heard, from those opposite, doom and gloom about 8.05 per cent—a figure that, as I said before, no-one wants to see, a figure that was put forward by the Reserve Bank of Australia.

I am pleased that Senator Sherry—I think mistakenly, and I could see the look on his face after he had said it—talked about food prices. Senator Sherry knows as well as I do that increased food prices are a result of two things primarily: the drought and Cyclone Larry. Fruit prices rose 20.5 per cent in the September quarter. Banana prices rose by 45 per cent. I am not saying, and nor would I argue, that the inflation figure we had recently was all about bananas or about food. But I will passionately argue the case that they were a contributor.

Through the September quarter, the price of fuel rose by 10.5 per cent. Recent falls in world oil prices have started to impact on the price we are paying at the bowser. That, presumably, in due course, will be reflected in the inflation rate. And, indeed, if the petrol prices remain at the current level to the end of December, then fuel would take away about half a percentage point from the CPI growth in the December quarter. So we have got food, we have got cyclones, we have got drought and we have got fuel.

Underlying inflation has also been affected by 16 years of economic growth. And I think everyone acknowledges that. Access Economics’s recent Business Outlook said about inflation:

Underlying inflation is rising as demand catches up to the economy’s supply-side potential, which, in turn, is raising wages and the cost of materials. Headline inflation has risen even more, topped up by bananas and petrol prices. The momentum behind demand may keep underlying inflation flirting with 3% for a while, but its next big move is down. New supply is coming—more workers, factories, mines and roads. That will send underlying inflation back down through 2007 and 2008.

In the last 10 years, this government has worked very hard to strengthen the economy, to reduce unemployment, to increase real wages and to keep inflation and interest rates low. Under this government, real wages have increased by nearly 17 per cent. Under the Australian Labor Party, in 13 years they increased by 0.2 per cent. Again, because the Australian Labor Party are incapable of putting forward any alternative views on how the economy should be run, we are of necessity forced to go back to their record on what we could expect were they to be re-elected.

Under this government, inflation has averaged 2.6 per cent. Under the Australian Labor Party in their last term in government it was 5.2 per cent. In 1986, inflation was nine per cent. We talk about these figures in 2006—nearly 2007—in the context of a lack of understanding about the impact of nine per cent inflation, 17 or 18 per cent mortgage interest rates and 22 per cent small business loan rates. In 2006 we need to take in context what that would mean were that to be the situation now. And I can say to you that unemployment would not be at 4.6 per cent. Inflation would not have averaged 2.6 per cent. We would not have given our kids the opportunities they have had, of a good education, of good wages, the ability to put a roof over their heads, and the ability to have some security. The ability to go out and invest, to take a risk, to start a small business, would be gone. And this country survives, as you, Mr Acting Deputy President Ferguson, would be acutely aware, on the ability of the small business sector to survive and to employ.

The effect of the only policy that we have had from the Australian Labor Party, which is a return to a centralised union-dominated wages system, is that wage rises and booming parts of the economy would flow through to the rest of the economy, with a generalised wages blow-out on inflation and everything else. We cannot return to that.

In the quarter after Work Choices was introduced, jobs growth in this country was three times the average for that quarter over the last 20 years. The average for that quarter has been approximately 55,000 jobs. In the quarter after the introduction of Work Choices nearly 160,000 extra jobs were created. Were they created across the economy? Yes. Was there a heavy concentration in small business? Yes—because this government sent a very clear message to the small business community that we were going to give them the opportunity to invest with confidence and the opportunity to employ with confidence. In the short time that is allocated to me, let me say that the one thing that the Australian Labor Party does not understand is the relationship between small business and its employees. It is a relationship built on trust. (Time expired)

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Housing and Urban Development) Share this | Link to this | Hansard source

Senator Ronaldson speaks of history and speaks of a great deal. He fails to point out that there have in fact been eight interest rises in a row under John Howard; that, during the last federal election, John Howard asked Australians to trust him ‘to keep interest rates at record lows’, yet they keep going up. Mortgages are now increasing to the point where we can no longer say that there is such a thing as a small interest rate rise, because there are very few people in Australia at all who can say that they have a small mortgage. I remind the opposition benches of what the Prime Minister said at the Liberal Party election launch—and I am sure that Senator Ronaldson was there; I will remind him, too. The Prime Minister said:

My friends, we all prize the financial security of our families. Let me say this, and it’s not just my view, but it’s a view frequently expressed to me as I move around this country talking to Australian families. Nothing threatens that security more directly than the prospect of rising interest rates. Rising interest rates dominates everything else when it comes to family security. Just a tiny upward movement in interest rates more than devours a few dollars of taxation relief or additional family benefits. There is no economic credential for office more crucial than a capacity to keep interest rates low.

On that basis, you would have to suggest that the Prime Minister is condemned by his own words. According to the Reserve Bank, the ratio of household debt to income is at a record level of 157 per cent. Since the last election, repayments on a $300,000 mortgage have increased by $195 a month. John Howard’s interest rate hikes have hurt, because skyrocketing debt has seen that 85 per cent of disposable income, which was the level of debt in 1996, now move to 157 per cent, which the Reserve Bank estimated today. I can understand John Howard’s view that rising interest rates dominate—

Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

Senator Carr, I remind you that you must refer to the Prime Minister as either ‘the Prime Minister’ or ‘Mr Howard’.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Housing and Urban Development) Share this | Link to this | Hansard source

Indeed. Thank you, Mr Acting Deputy President. The Prime Minister’s view is stated as follows:

Rising interest rates dominates everything else when it comes to family security. Just a tiny upward movement in interest rates more than devours a few dollars of taxation relief or additional family benefits.

As a consequence of these interest rate rises, we have seen that the media is now constantly reporting the harrowing tales of families losing their homes as a result of mortgagee sales. These stories are prime examples of the Prime Minister’s failure to understand that the changes to the Australian economy over the last decade have created this new reality for Australian families. I think we can forget about academic debates about inflation rates, consumption and various other things when you consider the consequences for families and their budgets and the domestic economy, which is placed under such stress as a result of these interest rate rises.

One thing is for sure: for far too many families in Australia, yesterday’s interest rate rise means that they will in fact lose their home. These are families who are often our most vulnerable in the community. These are families who are often young, who bought their houses during a housing boom and who will, as a result of mortgagee or forced distressed sales, see the value of their property being forced down. The consequences for families in the west of Sydney, for instance, is that young people, young families, who decided two or three years ago that they just could not wait any longer to get into the housing market, will now be forced to sell their houses, where they will lose a great deal of money.

These are hardworking Australians who have got to understand exactly what the Prime Minister’s comment in 2004—that the housing boom was fantastic for the economy—means for them. The situation is now arising where the housing boom has delivered massive windfalls for those who own their houses but, for young families and particularly for first home buyers, there is ever-increasing pressure on them and their family budgets. The windfalls to existing homeowners at the start of a boom, of course, could be fed back into, with the wealthy using the increased value of their mortgage to leverage investment in rental properties and of course competing directly with first home buyers to drive inflationary cycles.

We have a situation where Prime Minister Howard and Treasurer Costello are seeing the housing boom as being fantastic for the economy, while young Australian couples are seeing the dream of homeownership slip further and further out of reach. Young couples in Sydney are putting off weddings and putting off having children while they try desperately to save for a deposit. As we have seen, the goalposts have continually moved. Eventually, the young people have shifted too. I think the former Reserve Bank governor, Ian MacFarlane, has noted the demographic risks associated with the dramatic movement of young people out of Sydney, primarily to Brisbane and Perth. I am only too happy to acknowledge that some of these couples have done well. The deposits they scraped together in Sydney, while nowhere near enough to buy a house there, were enough to get them into a house in Brisbane, Melbourne or Perth—but still with a massive loan.

The housing boom has spread to become a national crisis in housing affordability. And this, of course, is in the period when the Howard government have continued to ignore their responsibilities to Australians with regard to housing. The Prime Minister and Treasurer continue to crow about rising household wealth. We have had the Minister for Finance and Administration in this chamber speak of it on a number of occasions. They do so while at the same time turning their backs on any responsibility for the rising debt levels that have gone with it. So, as we see on so many things, we have an arrogant, out-of-touch government seeking to have it both ways. They want to take credit for the increase in wealth, which they say, of course, is a good thing, but they want to blame someone else for higher prices in housing and higher household debts. If it is not the unions, it is the states, it is local government—it is anyone but, of course, the government itself.

Housing affordability has become an increasingly sore point for ordinary Australian families. The latest figures from the Housing Industry Association and the Commonwealth Bank tell us that, for first home buyers, the proportion of income needed to pay the average first home mortgage is now back to some 29 per cent, just short of the record level of December 2003. That is in an environment where we have actually seen housing prices fall in some parts of Sydney. To put this in perspective, the equivalent figure from September 1989, with 17 per cent interest rates, was less than 28 per cent. For young couples who have taken the plunge into homeownership over the last five years, the huge mortgages they have taken on during the boom have meant it takes two salaries to keep a roof over their heads.

That is in the context where the government says, ‘This is all about choice’—the choice of getting ever-increasing levels of debt. The reality is that young mothers now have to rush back into the workforce before they would choose to be there because it is the only way they can afford to pay off the mortgage. The reality is that house prices give young parents no choice but to work longer hours—including weekends and public holidays—at the expense of having time with their kids. That is in an environment where the government has provided employers with maximum choice, through its industrial relations legislation, to minimise the choices for workers.

A young couple interviewed in today’s Canberra Times have taken on a third job and are worrying that they will not be able to start a family and still keep their home. At the sharp end, too many young Australians are asking: ‘If things are so good, why can’t I afford to pay my mortgage? Why am I about to lose my house to the bank or to some bodgie loan shark?’ This is the hollow boom in full flight. This is the price Australian families are paying for trusting John Howard when he said this government would keep—

The Acting Deputy President:

Senator Carr, I remind you to refer to the Prime Minister by his proper title.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Housing and Urban Development) Share this | Link to this | Hansard source

I remind you, Mr Acting Deputy President, that this is the price that Australians are paying for the trust they placed in this Prime Minister when he said that this government would keep interest rates at record low levels. And this is the price they are paying for the Howard government’s failure to protect desperate homebuyers from unscrupulous mortgage brokers and loan sharks.

The reality is that the housing boom has left too many people desperate to get into the housing market, as they watch their dreams slip further and further out of reach as prices continue to rise. Too many have seen their financial position deteriorate before their eyes. After the four interest rate rises that have occurred since the last election and the promise to keep interest rates at record lows, the opportunities for tens of thousands of Australians are similarly reduced. When people see their dreams disappearing, they are vulnerable to the new breed of ruthless lenders and brokers that are now pillaging the Australian mortgage market.

I have seen estimates that suggest that up to 20 per cent of the mortgage market will be captured by these mortgage brokers, who offer no-doc housing loans to people who are unable to afford to make the payments. These people are not required to show that they actually have an income. I have seen examples in recent times of people who are on the dole being given mortgage finance. The mortgage broker does not care whether or not the loan can be repaid. People are required to sign contracts whereby the money will be extracted without any consideration for changed circumstances. I urge all senators to have a look at their email inboxes—to occasionally spend a bit of time going through the emails they are receiving every day. Everyone would have seen these brokers touting loans which are effectively without any paperwork.

John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

They don’t send them to me.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Housing and Urban Development) Share this | Link to this | Hansard source

They might not send them to you, Senator Watson, but I can tell you that I get two or three of these emails per day. I have seen the advertisements on television and in newspapers. They offer home loans with little or no deposit and virtually no documents to people who quite clearly have bad credit records. These are loan amounts in excess of 110 per cent of the value of the property. The email may well be headed up ‘Guaranteed loan’ or ‘We will loan to you’. Shonky operators are operating as if they are a virus. The list of their victims is growing.

We have seen increases in the rates of mortgage foreclosures of some 60 per cent according to court records in Victoria, New South Wales and the Australian Capital Territory. This is a growing and direct response to the Howard government’s economic policies. This government, which of course has revelled in the good times, cannot turn its back quickly enough in the bad times. It cannot get away fast enough from the victims of its economic policies. More and more hardworking Australians who listened to John Howard and his government when they said that they would keep interest rates at record low levels—

The Acting Deputy President:

Senator Carr, you have done it again.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Housing and Urban Development) Share this | Link to this | Hansard source

They listened to the Prime Minister and his government, who claimed that they would keep interest rates at record lows. They have now, of course, seen themselves become victims of these loan sharks. Unlike other financial advisers, mortgage brokers can put up a shingle with no qualifications and open for business the next day. In many cases pensioners are offered a refinance deal to cut the cost of their housing loans. The loan shark then signs them up to grossly inappropriate loans, which they know they cannot repay, and they lose their homes as a consequence. Do we hear anything from this government on these issues? No, not a word.

Ross Gittins told us today that rates will always go up and down—that people just have to live with it. We have heard Liberal politicians from various parts of the country now say that it is appropriate—that these are only small increases in interest rates. I repeat: in the circumstances where there are no longer small mortgages, there are no longer small increases in interest rates. Senator Minchin has expressed his view that he is disappointed that Australians have found themselves in financial difficulty. I can understand that he genuinely is disappointed. But we have seen other views expressed by many others in this country that it is to be expected that there will be casualties of the rate rises—that that is natural for the greedy and the gullible. Unfortunately the domestic economic situation is not quite so simple. What we are finding is that there are increasing numbers of Australians who have been taken for a ride by shonky mortgage brokers. They have been left in debt with no home and facing the distress of foreclosure. This is not just about the gullible; it is about the exploited and it is about those who have been misled. I find it appalling that we have this situation.

ASIC only recently referred to the Federal Court the case of a Canberra teenager who inherited a small sum, consulted a buyer and bought a house. He was on a low and intermittent income. I think he was an artist or something of that type. He signed various documents that claimed he had an income of $70,000 a year. The young man soon defaulted. ASIC alleges the broker who arranged the low-doc loan for the teenager, who could not repay it, misrepresented the teenager’s financial status to the lender and misrepresented to the teenager what would be in the various loan forms. In this particular case the young man was lucky because he did have some legal redress, and he had the brains and fortitude to take up his legal rights. But most, unfortunately, do not have that assistance. They are left stranded with a debt and no home. Of course, we have seen that situation repeated around the country.

There are some predictions that these types of loans could make up to 22 per cent of the total market by 2008. We have heard nothing from this government in terms of its moral responsibilities and its moral obligations to regulate and to ensure that these shonky brokers are brought to heel. This is a situation that requires national action, particularly at a time like we are seeing at the moment where we have a catastrophic failure of public policy and where the government has failed to move to protect those who are most vulnerable. These people are dismissed as being simply the casualties of the good times. The Howard government deserves to be condemned. It deserves to be condemned for its absolute failure— (Time expired)

John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Listening to the Labor Party speakers, one gets a sense of gloom and doom. They are whipping up unnecessary hysteria. Yes, we all acknowledge house prices in Sydney—which seems to be a focus of their point—have always been expensive. Of course, that is a reflection of a supply and demand situation, where demand is very strong, just as house prices are going up in Perth at the moment because demand is very strong. But I remind the Senate: in contrast, we have a Howard coalition government which is providing hope and is delivering on a sound basis.

The Australian economy, I remind everybody, continues to be the envy of the developed world. We have held inflation relatively steady and seen growth rates that have not been achieved by most OECD or comparable countries. I remind people with a bit of a sense of history that, looking back a few years, this was the sort of talk that we heard from the Labor Party when the Asian financial crisis was upon us. But the reality of it was: how did Australia emerge? Australia emerged as the ‘miracle’ economy, because we had taken all the necessary steps and done all the right things. As the OECD reminds us:

In the last decade of the 20th century, Australia became a model for other OECD countries in two respects: first, the tenacity and thoroughness with which deep structural reforms were proposed, discussed, legislated, implemented and followed-up in virtually all markets, creating a deep-seated “competition culture”; and second, the adoption of fiscal and monetary frameworks that emphasised transparency and accountability and established stability-oriented macro policies as a constant largely protected from political debate.

Now, how did other people view the recent budget? I will take a couple of examples. One said:

The Treasurer’s ... budget stands at the apex of recent budgets and one that sees the economy in good shape and one that will ensure the economy continues to grow into the future.

Perhaps the most vulnerable sector of the economy is often small business. And what do we hear from the Council of Small Business Organisations? They said:

... this is a budget that will help small business owners and their employees, these tax cuts will also go a long way to boosting the economy, increasing spending both at the consumer level and by business ...

So independent analysis really supports what this government is doing. Now let us get back to the OECD comparison. As the Leader of the Government in the Senate reminded us this afternoon at question time, European countries, unlike Australia, have actually had to use monetary policies to stimulate their economies. For example, they have used interest rates, or low interest rates, to try to stimulate growth and move the economy forward. How different is the scenario here in Australia? People who have analysed the situation say that the coalition’s strongest selling point is our management of the economy.

Honourable senators will be very familiar with a phrase used by Paul Keating when he was in power. He used this analogy in relation to pulling levers, but I remind honourable senators it is the coalition government that has ‘pulled all the right levers’ at the right time. As a result, it was announced in the Senate that Australians now have more people in a job than ever before, with a 4.6 per cent record unemployment rate. This just does not happen without strong discipline. So, unlike Europe, Australia has undergone unprecedented reforms in tax, labour relations, eliminating debt, superannuation et cetera. All these have contributed very significantly to raising employment, to higher wages, to higher savings, to increased productivity, to higher growth levels and, for most Australians, to increased wealth. Our Prime Minister, John Howard, said in September:

... the reason why we have had almost two million jobs created in the last 10 years, the reason why in the last six months we have had 175,000 new jobs created since Work Choices came into operation, the reason why industrial disputes are now at their record low level since statistics began to be collected and the reason why workers’ wages have gone up by 16.4 per cent in real terms since this government—

a coalition government led by John Howard—

came to power is the combination of this government’s economic policies and the relentless commitment of this government to maintaining and extending the prosperity of the Australian people.

And people have some hope. They have got something to look forward to. We contrast that with the Labor Party. What does the coalition stand for? Our foremost priority is to deliver a strong economy, because a strong economy, while not necessarily an end in itself, is the means for delivering on other very important social goals and national aspirations. I remind the Senate that it is only with a strong economy that Australians and their families can build on their futures with security and can plan with certainty and confidence and with more and better paid jobs, more affordable homes and a better standard of living.

It is only with a strong economy that Australia can maintain a strong Defence Force, build better roads and deliver the best possible health and educational outcomes. A coalition government led by John Howard understand that it is not governments that really create prosperity but hardworking and enterprising Australians. It is the government that must set the environment to enable this to happen. It is our job to create the climate where markets are competitive, where enterprise and hard work are rewarded and where government can help facilitate rather than impede wealth creation. All this includes fairly important things. There is disciplined financial management so that the government lives within its means. We have been delivering budget surpluses without the need to impose higher taxes. People will recall that it was not many years ago that the opposition was advocating higher taxes or running deficits and increasing government debt.

We now have a very efficient workplace relations system, where there is incentive for employees and employers to work together in harmony, which is important, to boost productivity so that business can make profit and employees can earn higher wages. We have a very efficient tax system, where enterprise, investment, saving and hard work are encouraged as well as rewarded, rather than penalised under a Labor government. The coalition believe that if we can keep this budget in surplus and deliver on our funding commitments at important levels, such as health, education and defence, taxpayers deserve to have any left over revenue returned to them, which we did in the last budget.

At the same time, the government are creating the right economic climate. We are producing practical measures to assist industry, innovation and trade. We are helping those sectors of the economy, particularly those affected by one of the severest droughts in living memory, in practical ways to stay on their farms and to stay in business in their regional towns. We are also encouraging self-reliance and personal responsibility to be the norms and trying to dissuade able-bodied people of working age from long-term dependence on welfare. We are trying to minimise and eliminate government waste and inefficiency so that government’s investments in services, such as health, education, defence and transport, are weighted towards services on the ground rather than on red tape and administration, as we have had under successive Labor governments.

Sometimes achieving these objectives will require some tough decisions, which are not always possible. But, at the end of the day, we are creating a strong economy—an economy that is the envy of the rest of the world—by a disciplined and systematic approach. I have to ask: why does the Labor Party play down the evils and problems of high inflation? I remind the Senate that this is the great problem facing any nation. What does high inflation do? High inflation hurts the most vulnerable members of our society—those who are least able to help themselves. High inflation causes an unintended distribution of income. High inflation creates false expectations and leads to quite bad economic behaviour, which can lead to higher wage increases and, in the end, force people out of jobs.

Contrast the situation in Australia with that in the United States under the Volcker administration. The US Federal Reserve was targeting inflation within a range; it so squeezed the economy that it resulted in high unemployment rates. And it used interest rates to squeeze inflation out of the economy. In other words, the whole thing got out of balance. The beauty in Australia is the strict discipline and the acknowledgement of the independence of the Reserve Bank. Things getting out of balance can create problems. The advantage of our government’s approach is that we look at every aspect that has an impact on the economy and we take necessary measures as and when required. One of the difficulties in terms of the Reserve Bank decision recently to increase interest rates is that it does not differentiate between states. Tasmania, Victoria and New South Wales quite often are the hardest hit in paying for some externals, such as oil-price effects or cyclone effects, such as those of Cyclone Larry.

In comparing policies, if we go with the policies espoused by the Labor Party in this place in recent times, Australia ultimately could be led down the Argentine path, where inflation has absolutely got out of control. The Reserve Bank has the delicate job of matching and controlling the levers that are going to affect inflation, full employment and growth. The challenge is that they do not, as they have done once or twice in the past, give an interest rate rise too long in a chain. I remind honourable senators that sometimes interest rate rises have a deferred impact. In other words, people do not default on the very next interest rate rise; it often takes a little time to filter through the economy.

If I may offer some gratuitous advice: be careful that you do not take one interest rate rise too often. But in Australia we really have relatively low inflation, at 3.9 per cent. Yes, it is above the norm that we would like, but look at what happened under the Labor Party: a peak of 11.1 per cent and an average of 5.2 per cent. With the targets that are now set, how would the Labor Party, given the advice that we continually get from the other side, live within these sorts of constraints? That is the worry that voters need to take into account. Lower inflationary expectations greatly enhance the confidence of business to invest and of individuals to plan for their future.

We have had a focus on looking at all aspects and we have achieved an elimination of government debt. When governments run budget deficits, money has got to be borrowed. The interest rate savings that we have achieved—the $10 billion black hole: remember that?—are now able to be put into worthwhile things such as health, education and so on. But, to come back to inflation, the big thing is the need to preserve the purchasing power of money. If inflation is high, investors will require a higher interest rate for lending their money. The good news is that the coalition government is, to use my earlier phrase, pulling all the right levers at the right time. By doing so we hope to control inflation, which in our country is often a result of external causes as opposed to internal, as enunciated by the Labor Party.

In looking at this question of interest rate rises we have to look to where the responsibility or the blame lies. Essentially, in terms of our inflation, high commodity prices are indeed unfortunate. Are we blaming John Howard for that? Are we blaming John Howard for higher oil prices? These are the sorts of things that obviously do feed into the economy. Listening to the Labor Party speakers, one would think that it is all domestically induced, that it is all government inspired. I tell you it is not that in any case. And the Reserve Bank, to its credit, has kept interest rates quite low.

When we go back and look into a bit of history—and I know this is sometimes unfortunate—our current Leader of the Opposition, the Hon. Kim Beazley, was once the finance minister and home mortgage rates were 9.5 per cent. What did he say? He tried to convince the Australian electorate that they were still low by historical standards in Australia. What is Kim Beazley saying now when we have interest rates a lot lower than that? I put to the Senate that when they went to the last election they certainly had a very big spending platform but they did not have a disciplined approach that was going to affect every aspect of the Australian economy, including labour relations. The scare campaign surrounding that has not been borne out, because we have created more jobs, higher paid jobs and lower unemployment.

I come back to the fact that Australia has an economy which is the envy of most of the rest of the world. We can look forward to the future with a great deal of confidence. I urge people to ensure that they do not turn back to Labor, because of the consequences. I say that not only because of their track record but because of what they have said today about how they are going to solve Australia’s ‘problems’ when in fact the rest of the world believes we are doing remarkably well.

Kate Lundy (ACT, Australian Labor Party, Shadow Minister for Sport and Recreation) Share this | Link to this | Hansard source

It is interesting to see how the government senators resort to pretty shallow rhetoric to argue a defence of the government’s economic situation. It does not take someone with too much foresight to understand how much the Howard government has squandered the reasonable economic circumstances this country has found itself in through the last 10 long years. I would like to turn first to the issue of innovation and development of new industries and new sectors, particularly new technologies.

Over the last 10 years the Howard government has relied heavily, and more so lately, on commodity exports for Australia’s economic health and it has done the opposite when it comes to strategies to find new ways to create economic growth in Australia. It is only by the good fortune of the cycle of growth of countries such as China that our commodities exports are so strong, underpinning our economic growth. The manufacturing areas, particularly the high-technology area and the elaborately transformed manufacturing area, are shrinking at a rate of knots. So what we as a country have done over the last 10 years is decline in all of the areas that smart, clever countries have been investing in to grow their economies. Australia has been contracting precisely those areas and becoming more and more reliant on what we extract from the earth. This has left us particularly vulnerable, and in a way that, while it is healthy at the moment, is not sustainable for long-term future economic growth. It also has a series of flow-through effects in our economy, not least of which is how we try to shape our relationship with our trading partners in the future.

We have already seen how Australia can very easily become the provider of raw materials only to find our imports of elaborately transformed manufactures and high technology going through the roof. Our national foreign debt, standing at some $500 billion, I think—triple what it was 10 years ago—is testimony to that increasing vulnerability, to that reliance elsewhere and to our not being able to keep up our own part.

This has manifested itself in many ways. It has manifested itself in the loss of many of our clever people and great minds to overseas. It has resulted in a general lack of confidence in the education system in Australia, which I would argue was one of the finest and which has suffered so many damaging blows now. It is very difficult to stand proudly beside Australia’s education record when you see us sliding down the scale in expenditure on the OECD list. We are now spending less on education than most comparable OECD countries.

I mentioned earlier the decline in research and development, another area where this government has made some very tough decisions to reduce investment. This was particularly during the early years of the Howard government, when it saw that quite frankly as not a priority at all and an area where it could make some pretty rudimentary savings in the budget. This was at the expense of Australia’s long-term interest. We have also seen the damage done to our vocational system of education, the TAFE system. I will speak a little more about that.

But the overall picture is one where the long-term interests of Australia’s economic growth have not been cared for in any way, shape or form. The skills crisis is now a product of that neglect, with that investment not there in our higher education system—be it vocational or tertiary education. We are now paying the price, and it is with great frustration and disappointment that many Australians see the Howard government now over-reliant on using temporary skilled migrant labour to fill those skills gaps. I am the first person to say, ‘Yes: where there are genuine skills gaps we should be using that.’ But when the skills crisis has effectively been orchestrated by the Howard government, which then stands in defence of a skilled migrant program that is being used to fill the gap rather than actually addressing the problem that has caused that symptom, it is very hard to say that the government has any credibility at all. I think average Australians and people who are out there trying to get the skills they need for life or, indeed, update their skills for life can see the facts for what they are.

It is getting harder and harder to get an education. It is getting more expensive and it is a user-pays system; if you are not affluent in this country then in the future you will not be able to afford an education. Many people are experiencing that problem right now.

The other aspect of the skills crisis is that it is getting worse. Skilled vacancies in October 2006 were 1.5 per cent higher than for the same period last year, demonstrating that there is real damage being done to Australian businesses, their families and the national economy. These figures have been reminding the Prime Minister every month for years that he should have been taking action on this problem, instead of—as he has done—denying its existence. He just pretended it was not there. I would like to run through some of the areas with the most damning shortages. They include the science professionals, workers in the building and engineering sector, the associate professions of medical science and technical officers, and tradespeople. The biggest increases in reported skilled vacancies were in printing, automotive and wood tradespeople.

This government claims that Labor do not have any ideas; of course we do. We have got a plan to train more Australians by giving each traditional apprentice a $3,200 skills account to cover the cost of up-front TAFE fees, textbooks and materials. We have also proposed a trade completion bonus of $2,000 to encourage apprentices to complete their training, because we know that under the Howard government system a massive proportion—some 40 per cent of apprentices—were not even completing their apprenticeships. This shows that the system that is supposed to be training these people was not working under the Howard government. This, together with Labor’s skills account, would make an extra 13,000 qualified tradespeople available to Australian businesses every year. That is the sort of practical intervention that is required.

I would like to say a few words about the TAFE system as well. TAFE has copped a beating under the Howard government. It has been an unfair and ideological attack. A new report into the TAFE system shows that TAFE has a vital role in addressing Australia’s skills crisis if it is adequately resourced, and a document titled TAFE futures: working towards a principled future by Dr Peter Kell calls for increasing funding for the TAFE system to help address skills shortages by reducing the financial barriers which discourage young people from entering a training program, improving its infrastructure and equipment, and recruiting and retaining a professional teaching workforce that will meet TAFE’s future needs. But I have to say that I cannot see the Howard government listening to this advice, because over 300,000 Australians were turned away from TAFE. That is evidence that Mr Howard, the Prime Minister, is neglecting it. This must stop. I think TAFE has been a victim of bad Commonwealth policy and this is now flowing through, impacting on families and individuals at a very personal level as well as being damaging to the Australian economy.

I will turn now to the more general issues that are going on around people’s kitchen tables. The Howard government is going so completely wrong at the moment because it is so caught up in its own bubble of hyperbole about the state of the economy and its record. This is obviously a political feature of governments having been around for far too long, and it shows that there is a complete disconnect with what it is able to observe and say about the state of the economy, how people are faring and what is actually happening in the real world.

I have no doubt that this government has lost touch with what Labor calls Middle Australia—people who work on a daily basis, who are probably trying to raise kids, but not necessarily, and who are really struggling with their mortgages. My colleagues have asked several times already in this debate: how can things be so good, which is what they hear from the government all the time, and yet our situation be so tough? It is because of the way this government has not only misled Australians but allowed the costs inflicted on individual families to blow out of control, and nowhere more so than with interest rates.

It is so disgusting when you think about the campaign this government led at the last election about how interest rates would rise under Labor, with the direct claim that they would not rise under the Howard government. If you take a moment to recall those advertisements leading up to the last election, in retrospect with now eight interest rate rises in a row, you start to get a sense of the anger that is building in the community that they were so conned. Not all of them were conned, because not everyone voted for the Liberal Party, although I think this government likes to think everyone did. A proportion of people were conned by this government to vote for them on that basis.

True to form, the Howard government used fear and loathing to goad and intimidate people into voting for them. The same people that were motivated to vote in that way are now the ones that are really hurting. They are the ones that are paying $200 or more a month to pay back an average mortgage. They are the ones that are throwing their hands up in the air and saying, ‘So much for that promise!’ The bottom line is that it has been completely disproved and the Howard government has been shown to have lied to the Australian population. I think it is good that he has been exposed.

At the time, Labor made it very clear that the interest rate rises could not be controlled by any one person. We argued that at the time. However, we also argue that there is a capacity to influence interest rate rises by putting downward pressure on the causes of the rises. We have already undertaken to do exactly that, and that is why I mentioned the skills crisis and the need to invest in our economic future and in education to shore up our prospects, our crumbling infrastructure and so forth. We will address those issues. What we will not do is exacerbate the upward pressure on interest rates, as this government has done. We have seen them do that consistently with a range of issues but particularly those going to the heart of our future prospects as an economy.

I note with particular interest the Prime Minister’s cute little sidestepping, backflipping, tripping-over dance with the question of wages. He has claimed previously that under his Work Choices system wages are better and they have improved more than they have under anyone else’s system. When it suited the Prime Minister he argued how successful the Howard government had been in shoring up wages and pushing them up. But what did we see today? The minute the heat was turned on about the interest rate rises he skipped across to the other side of the street and ran back down the other way saying: ‘No, interest rates would go up much more under Labor’s industrial relations plans. Under us we’ll keep them lower.’

The bad news for the Prime Minister is that Australians are not stupid and they can see through this misleading tactic and this misleading manipulation by Mr Howard, Australia’s Prime Minister. It just does not wash any more. People are fed up. People around kitchen tables in Australia can see through the Howard government. I, of course, hope this augurs very well for the next election, but sadly for many people and many families who are paying 50 per cent more in mortgage interest repayments than they were way back in 1999—let’s understand that—there is still up to a year and maybe even more to go before the Howard government can be removed from office.

Labor believes there needs to be an ambitious program to put downward pressure on inflation and on interest rates. If you are a homeowner with a mortgage of $300,000, you are now paying almost $200 a month more than you were paying when this government promised two years ago to keep interest rates at record lows. The fact is that people are now taking on three times the level of debt that they had in 1989. So any comparison with the situation of interest rates under Labor previously is completely spurious, misleading and manipulative of the Australian population, who are burdened by these rising monthly payments. If the Liberal Party and their government, the Howard government, had any sense of even wanting to preserve their own credibility they would not persist with their blatantly misleading statements about interest rates.

In closing I would like to go back to my opening point about the big picture for Australia. For 10 years we have endured a stunted, myopic vision from this government. It has been nothing more than looking from one election to the next, with a substantial attempt to bribe and frighten Australian voters into voting for them next time. There has been no hope or grand vision. Even this week, with the drought and environmental crisis that the globe is engulfed in, we have seen such a reactionary response from the Howard government that stands as even more evidence of their short-term approach to managing this country. I think that is the greatest indictment. People out there do not feel proud of a government that has offered them so little. They do not feel proud and they do not feel a part of a world that they cannot relate to, the world that Mr John Howard, the Prime Minister, espouses. They cannot see themselves doing well, and Mr Howard cannot see what he is doing to them.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

I also rise to speak on the motion proposed by Senator Sherry, No. 623 in today’s Notice Paper, and in particular:

(a)

that the interest rate rise on 8 November 2006 is the eighth consecutive increase since May 2002 and the fourth since the 2004 election ...

We need to understand that interest rates move within bandwidths; they do not just sit at one particular level and stay there forever, otherwise we would not be discussing interest rates and economies would not work the way they work. Interest rates will move. They will fluctuate constantly, depending on world and local issues. Equally, interest rates move according to factors that are necessary for any Western economy. It would be just ludicrous to think they were going to stay in one spot. But one thing that this government has achieved is that we have maintained interest rates within what I call a low bandwidth.

There are bandwidths that interest rates will fluctuate within. Under the previous government, the Labor government, the bandwidth was very high, and interest rates did not stay at one level within that bandwidth; they moved. They moved to very high positions and they moved to moderately high positions. Over the last 10 years, in particular the last couple of years, they have been at the low end of our low bandwidth. I think that is a record that no-one could deny that this government has achieved through good economic management. Good economic management is one issue; it is not the only issue. I shudder to think what interest rates would be like under a Labor government, where the economic management record is not as sound and not as good as ours.

I want to address a couple of issues that Senator Lundy just raised. I want to quote from Real Estate Market Facts, a publication that comes out quarterly from the Real Estate Institute of Australia. In the March quarter, there were some interesting facts concerning generation Y and the change in that generation, in an article headed ‘Generation Y sacrifices for great Australian dream’. The article was produced by Warren O’Rourke, the National Corporate Affairs Manager of Mortgage Choice Ltd. It states:

In order to better understand the next generation of property borrowers, Mortgage Choice surveyed Generation Y on their property investment intentions.

It continues:

In the independent online survey conducted with over 1,000 Australians aged 18 to 28 years, 85.2 per cent who are purchasing a property or saving for a deposit within the next two years intend to make sacrifices in order to achieve their goal.

This is one of the issues that come to the core of the matter—that is, income levels are higher under this government. There have been enormous increases in real wages compared to when Labor was in office. The disposable income of people has increased. Younger people who want to go into the housing market also want to have other things.

I know the sacrifices I went through in the late seventies and early eighties when I started to buy my first home. I know what it was like. We went without. We simply went without things. That meant that you did not have a new car. That meant that you did not have furniture. In fact, I had some rooms of my home that were not furnished at all in the early stages. That is what you do, and that is what you have to do. You have to make sacrifices. I will continue with some of the interesting figures and interesting facts that came out of this survey. It stated:

‘Generation Y’ and ‘making sacrifices’ are not usually spoken in the same sentence but it seems this group of Australians are just as determined as previous generations to anchor a substantial amount of their financial future into property.

It continues:

With multiple answers allowed, the most common sacrifice was to cut back on spending—

81 per cent said that—

while 40.4 per cent planned to miss out on overseas trips. Next were—

that is, the next issues that people in this generation were considering were—

changing to a higher earning job—

if they could—

remaining in a current job ... purchasing a less expensive property—

and this is another important factor. To enter the housing market—I know that in Tasmania, my home state, there are plenty of houses that could be purchased for very modest amounts of money—people set their sights on higher property values when they probably should be entering the market at a lower level. It is a choice for everyone to make, but to say that it is the interest rates alone that are causing people not to enter the property market is absolutely false. This article also stated:

In previous decades, that number would have been higher. Housing affordability is a big issue for this generation but it doesn’t appear to have much impact in deterring them away from the market.

I will repeat that: ‘It doesn’t appear to have much impact in deterring them away from the market’—contrary to what has been proffered from the other side. It continues:

Property ownership—whether for the purpose of making money or making a home—is a goal that the majority of Generation Y is aiming for.

So the bandwidths that interest rates move within under the coalition are low and are not deterring new entrants into the property market—in particular, the people under the age of 28 years, as that survey bears out.

There are some other matters on housing affordability which are very important. In the world, Australia still has traditionally very high ownership rates—around 70 per cent. I think only Italy has a higher rate than we do. The most important way that we can improve housing affordability is not simply keeping interest rates at a certain low level, certainly within the low bandwidth that this government is proud of achieving, but keeping unemployment low. And what a record we have for keeping unemployment low! That is a significant factor in creating housing affordability.

Another way is to keep real wages rising. We have proven that over our decade in office. The real increase in wages, the disposable income level, is certainly higher under the coalition than it ever was under the Labor Party when they were in government. Yes, keeping interest rates within a low bandwidth is very important, but it is not the only factor. I keep stressing our bandwidth of low interest rates because a bandwidth of fluctuating interest rates is very important to remember, not just a single low interest rate figure.

Maintaining competitive and efficient housing construction is another important factor. I could go on forever explaining how we have created a very competitive and efficient industry sector. Some of the government’s policies have assisted greatly in that. These things do not happen by accident; they happen with deliberate hands on the levers of the economy and all the aspects that go with the national economy. Ensuring adequate land release is another very important aspect in keeping land prices relatively low. Whilst increasing with inflationary aspects, it is important to keep land prices at a low level.

If the opposition were serious in keeping housing within what they say is the reach of every Australian, they would need to make sure that it is affordable at every level—not just interest rates, not just the mortgage. What about the add-on costs? What about stamp duties on land transfer? They represent 1.6 per cent of the GDP in Australia, compared with the OECD average of 0.7 per cent. I know it has been quoted before, but it is worth repeating and placing on the record that on 18 August this year the former Reserve Bank of Australia governor said:

I think it is pretty apparent now that reluctance to release new land plus the new approach whereby the purchaser has to pay for all the services up front—the sewerage, the roads, the footpaths and all that sort of stuff—has enormously increased the price of the new, entry-level home. That is a supply-side issue, not a demand-side issue.

It is important to understand that land release and the up-front costs, not interest rates, prevent people from entering the housing market. Interest rates are not a single determining factor; it is these other factors. And Labor state governments have control over these other issues that contribute to the inability of some people and the reluctance of others to enter into the housing market.

The Reserve Bank’s September 2006 Financial stability review showed that the mortgage repayment burden on a new home occupier mortgage was 27.7 per cent of average household disposable income, compared with 30.4 per cent in 1989 under Labor. So homeowners are clearly better off today than they were under Labor, when interest rates reached 17 per cent. That is a very important aspect for us to remember. I know that when we had two young children and were struggling with a mortgage on our family home it was very difficult for us to pay interest rates at that high level. Under this government, interest rates have never been anywhere near that high level, and they have been much lower within that bandwidth. From an interest perspective, I think that makes housing affordability extremely reachable.

There are some other matters that I wish to mention which concern mortgage interest rates. It is important to reflect that, apart from maintaining substantially lower interest rates than those during the Hawke-Keating years, we are also facing the worst drought in 100 years. This has an inflationary aspect. We have experienced the highest oil prices for a long time, in fact ever. The effect of natural disasters has been mentioned in this chamber before—in particular, the effect of Cyclone Larry on fruit prices. Fruit prices, which do affect people’s day-to-day spend, rose by 20.5 per cent in the September quarter. Enough has been said about the price of bananas over the last few months, but they rose in price by 45 per cent. Automotive fuel has also increased in price. It increased by 10.5 per cent. These factors can also affect a person’s disposable income, not simply interest rates. It is important to acknowledge that interest rates are just one aspect, and we still maintain and argue—I think successfully—that interest rates are still within a very low bandwidth.

As I mentioned before with that study from the Real Estate Institute of Australia, another aspect that we need to consider is how people spend and what their priorities and their focuses are. The priority for an overwhelming number of people is to own their own home, and they are not deterred by the entry cost. They realise that they have to make sacrifices, as many people have in the past, when buying their first home. I think that is a very important thing to consider.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

I am a bit of a hoarder. I still have every single bank statement I received since I started work in 1964, and that is bad news for Senator Sherry.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Senator Sherry interjecting—

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

Exactly the point, Senator Sherry. I have my bank statements, and I was able to trot them out at the last election. My younger staff members would not believe that I paid 17 per cent interest. I was able to produce for my younger staff members and also for the TV cameras my bank statements which clearly showed that I was paying 17 per cent interest in the Hawke-Keating years, and I still have those bank statements. But, unfortunately for Senator Sherry, John Howard was Treasurer between 1978 and 1983. I purchased my house in 1978, and I can show you the bank statements, Senator Sherry. I never paid 18.2 per cent interest, as you alleged in your speech. Senator Sherry, I think you should stand up at the end of this debate and apologise for misleading the Senate—I will not say lying to the Senate—with your allegation about the interest rates that homeowners were paying when John Howard was Treasurer. I have the actual evidence.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

It was 22 per cent.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

You say 22 per cent?

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Yes.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

I was paying 22 per cent on the housing loan?

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

You had a capped loan then.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

Well, it was not capped when Mr Keating and Mr Hawke were around. It was not capped then; it was 17 per cent that I was paying in the Hawke-Keating days. Unfortunately, my bank statements are back at home, but I will get them and bring them down to you, Senator Sherry. There was no way in the world that I was paying 22 per cent when Mr Howard was the Treasurer. From memory, it would have been about seven, eight or, perhaps, nine per cent—I do not know—but it certainly was not 22 per cent.

I think you should get up at the end of this debate and apologise for misleading the Senate by alleging that, in the time that John Howard was Treasurer, homeowners were paying those sorts of interest rates, because I—and I am sure anyone else in my situation—will be able to prove the lie to your statement. You trawl out figures quite regularly now in the hope that you might mislead the media or anyone who might happen to be listening to you about the situation back in the days when Malcolm Fraser was Prime Minister and John Howard was Treasurer. But people will understand that you are not telling the truth, and I would urge you not to pursue it further. I will bring my bank statements down, and one day in the next session of this parliament I will table a couple of my bank statements from those days to demonstrate what I was paying in interest rates when John Howard was Treasurer and what I was paying when Paul Keating was Treasurer.

With regard to this motion, a lot of the rhetoric that goes on these days is, again, the Labor Party trying to recreate history, trying to amend history to lessen the knowledge of the Australian people on what poor financial managers the Australian Labor Party are when they are in government. Why are they poor financial managers? It is for this reason: they spend, spend, spend because it gives them an immediate and short-term electoral popularity. They give money to anyone who comes along with a bit of a sob story. They give them a handout and pay them whatever they like. Labor Party governments never understand that someone has to pay for this largesse that goes out in the way of electoral bribes. They are incompetent and incapable of managing an economy.

In the few minutes left to me I want to pursue a little further the theme that Senator Parry was speaking about in the speech immediately previous to mine. The real problem for new homeowners is not interest rates but the cost of government taxes. I quote from a recently released report from the Property Council called Reasons to be fearful. It says:

On a national average, a quarter of the money Australians pay for their new homes or units is made up of taxes and compliance costs associated with producing new housing. The figure is as high as 35% of the cost of a new detached house and up to 28% of the cost of a home unit.

Further, this research report, which is a very detailed report—all credit to the Property Council for doing this—makes the point:

These costs—

of state governments and local governments—

are now arguably adding anything anywhere from $360 per month up to $1,445 per month in mortgage payments (assuming that new home purchasers are funded for loans of 7.25% over 25 years). By contrast, an interest rate rise of 0.25%—

which we had a couple of days ago—

(which would result in banner headlines across the nation) would only add $65 per month to a mortgage of $200,000.

I will repeat those figures: an 0.25 per cent increase in interest rates is an increase of $65 per month, and the costs that are imposed because of state government charges and taxes are anywhere from $360 per month to $1,445 per month.

Further, the Property Council relates this example: a purchaser of a $1.8 million home in upmarket inner city Mosman would pay about $85,000, or 4.7 per cent, in taxes on a purchase. By contrast, a young family purchasing a new home for $570,000, a house and land package in Sydney’s outer north-western development corridor, is paying $130,000, or 23 per cent of the purchase price, in taxes alone—that is, stamp duty, land taxes, state development levies, local government development levies and the GST.

We heard Senator Carr making the old Socialist Left plea for the workers and young families, but he forgot to mention that those workers and young families who try to get a home are slugged to the extent of $130 by the state Labor government in New South Wales. Why was Senator Carr not decrying the state Labor government for that? Sure, he had a lot to say about a 0.25 per cent increase by an independent Reserve Bank, but his friends in the Labor government in Sydney whack on those sorts of costs and you do not get a peep from Senator Carr. I think Senator Carr’s approach and the misinformation—if I might politely put it that way—of Senator Sherry are, again, examples of the Labor Party trying to rewrite history, desperately trying to attack the credentials of this government when it comes to financial management.

I remember that before the last election, while this government was running the economy properly so that pressure was kept off interest rates, the best Mark Latham could do was to get there before the TV cameras and sign an interest rate pledge. Do you remember that? Somehow he thought that picking up a pen and scribbling a signature with it would bring interest rates down. No wonder the Labor Party are trying to rewrite history, no wonder the Labor Party want to forget their recent past and no wonder they want to raise any bit of misinformation that might be around to try to alter the fact that the Howard government has been an exceptionally good government in running this country. I have confined my remarks to the housing market, as many other senators did, but the way of the housing market is indeed very instructive in other areas of the economy.

Debate interrupted.