CBA decision not a result of rising government debt: Rudd
By Colin Brinsden, Economics Correspondent15 Jun 2009 5:47 PM
CANBERRA, June 15 AAP - The federal government has dismissed suggestions its plans to raise debt are pushing up interest rates, saying they represent only a fraction of global bond issuance.
Treasurer Wayne Swan has also ruled out lifting the 10 per cent rate of GST after a business lobby group recommended such a move in its submission to the Henry Tax Review.
Customers of the Commonwealth Bank of Australia's (CBA) face a 10 basis point increase in their standard variable mortgage rates and business loan rates from Monday.
Opposition Leader Malcolm Turnbull said CBA's decision last Friday was the result of the government's "reckless spending and debt binge" putting pressure on interest rates.
But Prime Minister Kevin Rudd said the cost of bank finance was set by global markets, and in offshore bond markets there was something like $84 trillion of debt on issue.
"The percentage of that which the Australian bond market issues is 0.001," Mr Rudd told parliament.
He also defended the government's wholesale funding guarantee, saying that spreads had narrowed because of the measure and that funding was cheaper.
"Banks have relied on the actions of this government," Mr Rudd said.
The government kept up its attack on CBA with Mr Rudd expressing his "fundamental disappointment" over the rate decision.
Mr Swan said there was no justification for the decision.
"I believe that if any other bank were to take a similar decision, there would be understandable community outrage," he told reporters in Canberra.
The executive director of mortgage broker Loan Market Group, John Kolenda, says there is still a possibility the Reserve Bank of Australia (RBA) could cut the cash rate again if the economy remains in the doldrums.
"But the decision by the CBA indicates the major banks may be more likely to move rates upwards rather than downwards, or hold back some or all of future RBA cuts," he said.
RBA Governor Glenn Stevens has said there is scope to cut the cash rate further if needed.
The RBA cut the cash rate by 425 basis between September last year and April to a 49-year low of 3.0 per cent.
Just under 400 basis points of the official cuts have been passed on to borrowers by the retail banks, reducing monthly repayments on a $300,000 mortgage by about $700 a month.
Minutes of the central bank's June board meeting are released on Tuesday.
JP Morgan chief economist Stephen Walters said the minutes were unlikely to deliver any surprises given they were already dated, and obviously won't include thoughts on the CBA's decision.
"The perception that the RBA is losing traction with monetary policy probably will be an important point of discussion at the next RBA board meeting in early July," Mr Walters said.
While consumers may be fretting about the interest rate outlook, Mr Swan was quick to allay fears that there was not about to be an increase in the GST.
The Business Council of Australia, in a submission to the Henry Tax Review, has called for a halving of the company tax rate to 15 per cent and an unspecified increase in the GST.
No government would be able to balance its budget without a "fundamental transition" between income tax and consumption tax, the council said.
But Mr Swan said the government from day one of the review had ruled out any consideration of increasing the 10 per cent GST rate.
"It has a savage impact on people on modest incomes, and that's why we've ruled it out," he said.
