In his opening sentence Fred Argy verbals the PM:
"...John Howard, argued that the blame for any interest rate rise should be sheeted home to the states..."

In an interview on SKY News on 26 July the PM was explicit:
Q. "Is that State Government debt and their deficits, is that the major cause for the upward pressure on rates?"
A. "I am not saying it is the only cause, what I am saying is that it is a cause and state debt will be $70 billion over the next five years....I am not saying this is the only upward pressure on interest rates, but it is an upward pressure..."
The full interview can be found here:
http://www.pm.gov.au/media/Interview/2007/Interview24463.cfm

For an illuminating history of Australian interest rates in the last 20 years under ALP and Coalition Governments, go here:
http://www.globalfinance.com.au/interest_rates_australia.htm

The advertising campaign about interest rates at the last election promised that Mr. Howard would keep rates below Labor. Something impossible to measure. What Mr. Howard did do though is to give the perception he would keep interest rates down. Perceptions can have as much impact as promises made. He now has to wear the pain of his own past election advertising campaign which is boomeranging back onto him.

This is as much rubbish as I have ever read. I do not know what qualification some people need to post here, apparently not much

Interest rate rises because of the following
1. real interest rate rise
2. excess demand which drives up prices

excess demand is cause by people with too much money to spend, ie high wages paid to state public servents, too much projects undertaken by the state, high investment in the mining sector.

Since output have not been increase as much as wages increase, inflation happens.

Therefore while Federal government can set policies which help decrease inflation, ie tight monetary policy (budget surplus) and work choices (which help minimise impact of wages growth) if the state government and private sector over spends, the federal government have very little ability to limit inflation

Fred gets it wrong, Again......

From the article “The states had a surplus of 0.4 per cent of GDP in 2005-6 and are projecting a deficit (net borrowing) of 0.4 per cent in 2007-8: delivering a stimulus to the economy of 0.8 per cent of GDP.”

I would observe, the last thing the economy needs, with employment at a record lows, was more “stimulus”.
Such “stimulus”, unable to be satisfied from within the labor market (due to record low unemployment rates), becomes a direct inflationary pressure, which could produce the wages-inflation cycle which helped cripple the developed economies in the 1970’s.

Hence the state spending and stimulus is a direct contributory effect, if not the cause of inflation.

Re” Incidentally, it is ludicrous for the Prime Minister and Mr Costello to say that private financing of new infrastructure is OK but public sector financing is not. They both have exactly the same impact on interest rates.”

The interest paid by private entities will be managed by a visible economic return.

The public funded stuff has always tended to represent money into a socialist sinkhole of mismanagement and incompetence which consumes resource and benefits no one, except the union buddies who are building the infrastructural monoliths.

Through borrowing to spend on something which produces little to no benefit, do we generate inflation.

I see the left got in early, well maybe a day to be up for the postee, bringing the dole cheque.

Looking at the chart of interest rates since the 1980s you could conclude that Labor caused a spike and then fixed up their mess and the Libs took over and not much has happened since.

Treasurer Howard presided over significantly higeher rates than PM Howard. You could argue he learnt from his mistakes (which is what Kevin Rudd seems to arguing as an "economic conservative") or he is just lucky with the most benign world economic environment since the 1950s.

I remember the British Tories made inflated claims about their economic prowess in the 1980s - Tories Good - Labour Bad - which all fell in a heap in the early 90s.

Sure westernred, Keating fixed up the mess all right, by pushing the unemployment rate to 11%, the highest since the Great Depression (PDF/Adobe Acrobat):
http://www.melbourneinstitute.com/wp/wp1997n24.pdf