the economic myths of peter costello

Excerpts and comments from an article in October Monthly by Andrew Charlton.

"Interest Rates were not only central to the 2004 election. They have been a recurring theme for the past 11 years of Coalition government. Even more importantly, it is almost certain that interest rates will be a major theme, perhaps the major theme, of the next federal election campaign."

To paraphrase, Howard and Costello will run the line that under Labor interest rates will rise. They`ll suggest that they control the rates which are largely linked to budget deficits and surpluses.

"As no part of this story is actually true, the next election campaign will be conducted on the basis of seriously misleading or straight-forwardly false Howard-Costello claims."

He compares interest rates: Highest under Hawke = 19%, highest under Keating = 7.9%, highest under Fraser (Howard, treasurer) = 21.4%

"Do governments, anyhow, have much control over interest rates?"....

"On this score, Howard and Costello have spent many productive hours assiduously establishing in the minds of voters a false association between Labor, budget deficits and high interest rates."

"The second aspect of the government`s economic spin is that budget deficits cause high interest rates. Howard and Costello know this to be untrue...the stock phrase they employ is that budget deficits 'put pressure' on interest rates."

Charlton talks about how this is logical, but not necessarily relevant. He cites the American budget deficit ($400 billion by 2004) and how their rates did not rise but in fact went down.

"The great triumph of Howard and Costello has been to convince Australians of a spurious link between his government`s fiscal conservatism and low interest rates."

He points out that this is accepted widely in the community but doesn`t make economic sense. Then raises the fact that it is not the level of interest that is the problem, but rather the amount of interest. And that has increased significantly.

"Nevertheless, polling shows that the economy remains the Coalition`s strongest electoral asset.."

"They claim, again and again, that a change in government will necessarily cause economic disaster"

He concludes with the fact that what actually matters is...

"..economic policies which deliver long-term prosperity to the nation, rather than short-term political advantage to those who cling so desperately to power."