Those with existing home loans will be worried about how they will meet the increased loan repayments. Those wishing to purchase their first home will be disappointed as the dream of owning their own home slides further away. A relative increase in rents may also follow making it harder for those without their own home to save. The rate rise will also add to the cost of business and in particular the farming community already hard hit by the drought. These sectors have no alternative but to pass the interest rate rise on to consumers already hard hit by high and rising petrol prices.

The Government must be held responsible for the management of the economy and hence rises in interest rates. It cannot hide behind the so called independence of the Reserve Bank. The reports of rises in the CPI due to fuel price rises and the price of bananas caused a lot of speculation that interest rates would rise. At the same time we saw both the Prime Minister and the Treasurer making statements that interest rates should not rise and hiding behind the independence of the Reserve Bank. In terms of the independence of the Reserve Bank it needs to be remembered that the Government via the Treasurer is responsible for the appointment of the Reserve Bank Governor and Deputy Governor. This was only illustrated on Monday 1 August 2006 with the appointment of current Deputy Governor of the Reserve Bank Mr. Glenn Stevens to take over from current Governor Macfarlane who is retiring after ten years as Governor. (Source Treasurer’s Statement No.079 1/8/06).

Housing costs have increased over recent years to the extent now very few first homebuyers can afford to purchase a home unless they have two full time incomes and no children. So much for Treasurer Peter Costello’s suggestion for Australian couples to have more children.

One way the Government should assist First Home Buyers is by increasing the First Home Owners Grant to make it relative to the cost of a home in 2006. The current First Home Owners Grant of $7,000 was established 1 July 2000 in conjunction with the introduction of the GST. A strong case could be made to at least increase the grant in line with the CPI. It seems unfair that prices and government charges can be increased in line with the CPI. However when it comes to assistance to people by the way of grants like the First Home Owners Grant the same criteria does not apply.

The only time the first homeowners grant has been changed since July 2000 was for political purposes. This was as a result of the loss in March 2001 by the government of a by-election for the Brisbane based Federal Electorate of Ryan. The First Home Owner Grant for the building of a new home was increased then to $14,000 until 31 December 2001 and then reduced to $10,000 until 30 June 2002 when it reverted back to $7,000 for all first homebuyers. Apart from this period to stimulate the home building industry the First Home Owners Grant has remained at the $7,000 amount established in July 2000.

State Governments and local governments should also be providing more assistance to homebuyers by reducing fees and charges. We have seen some increase in the State Government rebate for stamp duty applying to first homebuyers. However state taxes like stamp duty should have been eliminated with the introduction of the GST or at least phased out as the revenue from the GST built up.

Interest rates were an issue at the last Federal election and no doubt will continue to be an issue for elections. Homebuyers will be interested to see the response by the Federal Opposition to the current interest rate rise and the alternative they offer. The Federal Opposition cannot just expect to win the next election by the current government sliding out of office on a banana skin.