Wednesday, November 07, 2007

Interest Rates Up - Howard says 'Sorry'

There were no surprises at all today, when the Reserve Bank announced it has lifted interest rates by 0.25%. The banks and financial institutions will follow suit.

Over the last 3 budgets (2005-2007), John Howard and Peter Costello have pumped about $70 Billion into the Australian economy in personal tax cuts alone. In May 2006, John Howard defended his tax cuts, saying they were not inflationary! He issued another $37 Billion in 2007.

His redistribution of tax money seems to favour those who are wealthier, with households in the top 10% of income taking about 30% of the tax cut money. See here.

A look at the RBA's interest rate rises shows increases in: May 2006, Aug 2006, Nov 2006, Aug 2007, Nov 2007.

The economy, for its part has had to generate an extra $100+ in value of GDP as consumers spent up big. There are only 2 ways it can do this: create more goods and services - difficult in an economy at full capacity - or the increase prices - inflation.

Part of the RBA's statement says:
Inflation in Australia has increased. ... During 2007, the pace of growth of
demand and output has also increased.

It is this growth in demand that needs to be managed. The Federal Budget needs to remove more money from the economy to help reduce demand - but that would not be popular in an election year, so political expediency takes precedence. Good economic management doesn't count.

Today, John Howard said "sorry", but 'sorry' doesn't mean "good economic management"