November 08, 2007In The Australian TodayBUSINESS BACKS PM ON...

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    November 08, 2007
    In The Australian Today

    BUSINESS BACKS PM ON RATES

    David Uren and Jennifer Hewett

    JOHN Howard yesterday intensified his warning that Labor's industrial relations plans would drive interest rates higher, despite offering an unprecedented apology to home buyers after the sixth straight rate rise since his 2004 pledge to keep rates at historic lows.

    Employer groups yesterday backed the Prime Minister's claim, saying Labor's approach to industrial relations could trigger a damaging and inflationary breakout on wages.

    Mr Howard seized on comments by the Reserve Bank yesterday that wages growth had been contained to insist the central bank was effectively endorsing his Government's Work Choices laws.

    "That, to me, is a big tick to the Government's industrial relations policy and a big warning sign to any change in that industrial relations policy," he said.

    But the Reserve Bank, in a statement explaining its decision to raise official interest rates by 25basis points to an 11-year high of 6.75 per cent, hinted there might be further rate rises unless growth in economic demand moderated.

    The Prime Minister, whose campaign slogan has been "Go for Growth", yesterday apologised to home buyers for the rate increase, which will lift standard mortgage rates to 8.55 per cent.

    He stressed that the Government had played no part in the decision, the first-ever rate rise during an election campaign.

    "I would say to the borrowers of Australia who are affected by this change that I am sorry about that, and I regret the additional burden that will be put upon them as a result," he said. "The Reserve Bank independently sets interest rates in this country, of that there can be little doubt."

    However, Kevin Rudd said the Prime Minister's apology was unacceptable. "Mr Howard needs to accept full, unqualified responsibility for his broken promise to the Australian people at the last election that he would keep interest rates at record lows," the Opposition Leader said.

    None of the major banks has yet adjusted the mortgage rate, which will add about $50 a month to the cost of servicing a $300,000 mortgage, but they are expected to do so over the coming week. Deposit rates on some savings accounts are also expected to rise.

    The rate increase, which is expected to be followed by another as early as next month as the Reserve Bank attempts to rein in inflation, triggered a round of attack advertisements from both major parties.

    Labor last night unleashed a television campaign targeting the six interest rate rises under the Howard Government since the last election. The ad begins with black-and-white images of the Prime Minister from the 2004 election asking "Who do you trust to keep interest rates low?" before the sound of cash registers rings as six interest rate rise arrows punch across the screen.

    The Liberal Party returned fire with a television campaign recycling the 2004 campaign on the high interest rates under Gough Whitlam, Bob Hawke and Paul Keating.

    The ad features images of Labor deputy leader and workplace relations spokeswoman Julia Gillard, with a voiceover stating she is a "union fanatic", and that Peter Garrett is an "environmental extremist".

    Mr Howard said Labor's plan to scrap his Work Choices laws would trigger a wages blowout and put pressure on inflation.

    "I believe very strongly now that if Mr Rudd is elected, then the upward pressure on both inflation and interest rates would be much greater than if we are elected," he said.

    And Australian Chamber of Commerce and Industry head Peter Hendy warned that Labor's industrial relations changes, including its proposal to abolish Australian Workplace Agreements and the construction industry watchdog, could encourage unaffordable wage rises, fuelling inflation and interest rate increases. "Rolling back Work Choices will increase pressure on interest rates," Mr Hendy said.

    Business is particularly concerned about the prospect of a return to across-the-board wage increases at a time when the labour market is already tight and cost pressures are increasing.


    Labor has rejected this criticism, arguing its policy has the balance right between fairness and flexibility but that it will not mean a return to pattern bargaining or centralised wage fixing.

    Steve Knott, chief executive of the Australian Mines and Metals Association, said the mining industry was worried Labor's policy would restrict the current ability to limit big wage increases to specific projects or enterprises.

    "We think that there is potential for that to take hold and result in a wages outcome that is not sustainable and will flow through to inflation," he said.

    The employer criticism of Labor policy fuels a ferocious political debate about who is the best party to cope with the mounting cost pressures and labour shortages in the booming economy and the turbulence on international financial markets.

    "The Government believes it can continue to grow very strongly," Mr Howard said.

    RBA Governor Glenn Stevens said yesterday the rising value of the dollar would help ease the pressure on prices, while the high level of business investment would ease some of the bottlenecks in the economy.

    But he signalled that the Reserve Bank would need to see some results from its run of rate rises before it was satisfied that it had dealt with the inflationary threat. "Growth in aggregate demand will, nonetheless, need to moderate if inflation is to be kept to 2 to 3 per cent in the medium term," Mr Stevens said.
 
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