Higher interest rates ’embedded’ by market, Frydenberg warns mortgage holders

But with Australian financial markets forecasting a full one percentage point interest rate hike by the end of the year, and another percentage point in 2023, Mr Frydenberg admitted the cost of a mortgage would likely increase, even if wage growth remained relatively flat. However, he moved to reassure the families.

Treasurer Josh Frydenberg greets former Prime Minister John Howard at an AFR business summit dinner on Wednesday evening.Credit:oscar colman

“Monetary policy is the responsibility of the Reserve Bank. I’m not commenting on that except to say that interest rates are at historic lows. And that allowed a household with an average mortgage of $500,000 to earn $600 a month,” he said.

“But the market at some point is pricing in higher interest rates. What I can say is that because of our strong economic management, we are making responsible decisions that yield better results than what you would see under the Labor Party.

He said he was confident Australians entering the mortgage market would face the rises due to changes requiring lenders to assess homeowners’ ability to repay a mortgage at a higher rate, creating an “additional layer of stability in the system”.

For an average $830,000 new mortgage in New South Wales on an existing home, an increase of 2.4% to 3.4% would mean repayments would rise from $3,692 per month to $4,121. An increase to 4.4 percent would mean monthly repayments would reach $4,576 per month.

For an average $650,000 new mortgage in Victoria on an existing home, an increase of 2.4% to 3.4% would mean an increase in monthly payments from $2,893 per month to $3,229. An increase to 4.4 percent would mean monthly repayments would reach $3,586 per month.

Mr. Frydenberg pointed to the government’s timidity over large-scale tax reform if the Coalition is re-elected, saying “we have no intention of changing the GST”.

He also promised “new investments, even in addition to those made over the past week” in the Defense budget, which has already pledged $10 billion for a nuclear submarine base on the east coast and $38 billion to increase the number of troops.

There will also be a women’s economic statement; more money for women’s health, safety and economic security beyond the $189 million already announced; more funding for skills and manufacturing; and a “great focus on the regions as a generator of economic growth”.

When asked how the government would tackle the rising cost of living – an issue that has been exacerbated by soaring oil prices due to war in Ukraine and flooding in Australia, which are expected to drive up food prices – he pointed to a range of measures already in place, but would not reveal what new measures the budget would contain.

“We are seeing a significant rise in commodity prices which will feed through to inflation here at home and also hurt global growth. We respond to cost of living pressures in several ways. Investments in our energy sector have driven electricity prices down 8% over the past two years. They doubled under the Labor Party,” he said.

“We have invested nearly $2 billion in additional child care support this year [2021-22] budget and [we are] spend more than $10 billion a year, dramatically reducing the cost to families.

“And we have implemented tax cuts, which have helped increase household disposable income during the pandemic. And the LMITO [the low and middle-income tax offset] that I announced in last year’s budget is available to people at the end of this fiscal year.

When the Coalition came to power in September 2013, net debt was $174.6 billion and by October 2018 it had risen to $354 billion.

Mr Frydenberg would not say whether the compensation, which brings in up to $1,080 a year to 10 million Australians with incomes below $126,900, would be retained in the March 29 economic statement.

The Coalition backbench believes that removing the measure from this budget would carry big political risks – and that it should be kept for at least another year.

However, Mr Frydenberg said: “LMITO was never intended to be a permanent feature of the tax system”, implying that its future was not settled by the cabinet’s Expenditure Review Committee and that it could be deleted.

As petrol prices have topped $2 a liter on Australia’s east coast in recent weeks and are heading towards $2.50 a litre, the government has been called on to temporarily suspend excise duties on gasoline, which are currently 44.2¢ a liter and are expected to drop to 45¢ in a matter of months.

The Howard government stopped indexing the federal fuel tax 20 years ago and it wasn’t until 2014, under the Abbott government, that it started again.

Mr Frydenberg said he would not play the ‘rule in, rule out’ game over whether a break could be reintroduced, but other high-profile MPs such as Energy Minister Angus Taylor said it was “not planned” to do so.

The treasurer dismissed suggestions the Coalition had dropped on major economic reform or on tackling the rising tide of debt.

When the Coalition came to power in September 2013, net debt was $174.6 billion and by October 2018 it had risen to $354 billion.

December’s mid-year budget update projected net debt to reach $673.4 billion and $914.8 billion by 2024-25 as the impact of COVID-19 hit the Australian economy and that the Treasury has turned on the taps to support growth. Annual deficits are expected over the next decade.

Asked to reconcile how the Abbott government had come to power promising to reduce the debt and the deficit, when it had rather ballooned, Mr Frydenberg said: “Even after the terrible bushfires and the ongoing drought, we balanced the budget for the first time in 11 years and then COVID hit and the economy went into hibernation.

“We put aside any ideological constraints and made the necessary decisions that needed to be made and the facts are now our friend. We have outperformed all major advanced economies.

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The key to debt reduction, the treasurer said, was to develop the overall economy.

“If you look at the end result of the budget for 2021, it was an $80 billion improvement over what I originally announced in the October 2020 budget. The reason for that is that we have seen more people working, so fewer people on welfare, more people. paid taxes and fewer social benefits were paid.

“As the economy grows we will see our fiscal position improve and that is the experience so far.”

He rejected suggestions the Coalition had abandoned on major economic reforms and highlighted the “significant structural reforms” being implemented by the government.

These included abolishing a tax bracket and moving 95% of taxpayers to a maximum rate of no more than 30¢ to the dollar, reforms to lower electricity prices, changes to insolvency laws, changes to the foreign investment framework and pension transparency and forcing Google and Facebook to pay traditional media companies to generate content.

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Leslie M. Gill