579,

The whole point is that the higher the federal debt, the higher interest rates the banks have to pay to borrow money from overseas, which they have to pass on.

Pelican,

The Tag "middle class welfare" is created by Labor to vilify the incentives given to encourage investment. Is negative gearing middle class welfare?

Now Labor is looking at targeting super for high income earners. That 0.5% increase with an additional 15% tax is really going to encourage people to save for their retirement. What an idiotic approach.

Australia's largest banks are warning that borrowing costs will continue to climb higher after the European debt crisis sparked further increases in borrowings and margins in the previous quarter, according to a report by The Australian.

Banks are seeing their wholesale cost of funds rise sharply, which is expected to be passed on to customers.

“It's looking like the cost of investment-grade loans will rise by at least 30 basis points in the first quarter,” NAB managing director of debt markets origination Christine Yates said, according to the newspaper.

The banks say that companies with $A145 billion in loans falling due by 2014 in particular will likely accelerate early refinancing because of the rising borrowing costs.

Syndicated loans in Australia cost, on average, 191 basis points, which surpasses benchmark rates last quarter, compared with a 177 basis-point margin in the US, the newspaper reported, citing Bloomberg data.

The largest lender in Australia, Commonwealth Bank of Australia (CBA) paid a record spread of 175 basis points more than the benchmark swap rates when it sold $3.5 billion of covered notes earlier this month, according to The Australian.

579

Thanks for making my point.

Australia has one of the strongest banking systems in the world because our banks didn’t play the silly overseas banking games of lending to people, organisations or governments who were unable to repay loans. But we have a weakness – our so-called ‘funding gap’ – and it's time to bring that weakness into the open, given that ANZ is this week deciding whether to lift mortgage interest rates.

Australian banks’ funding gap is the money they need to raise from the expensive overseas inter-banking market. It’s expensive because global banks no longer trust each other, as no one knows the extent of bank exposure to high-risk securities.

To determine the size of the Australian funding gap I needed help, and not everyone will agree with the method of calculating the difference between bank loans and deposits (excluding wholesale deposits). But the methodology shows that we have a massive $625 billion funding gap.

In times gone by this funding gap could be filled overseas at interest rates that were lower than Australian rates. Now the overseas borrowing costs have risen sharply and are slightly above the local term deposits rates. It is the rising cost of filling the funding gap that is causing the banks to think about lifting mortgage rates despite the Reserve Bank’s latest steady interest rate stance.

Is negative gearing middle class welfare?

If it artifically increases the cost of housing and exists only to provide tax breaks to those who use that particular minimisation vehicle, and if most property investors are indeed "middle class" then the answer would have to be "yes".

Especially so if the majority of PAYE taxpayers then have to pay more tax to make up the revenue shortfall it creates.

The ALP is also guilty of pork barrelling via middle class welfare but the Libs are the masters of wasteful spending in this regard.

Forget the term if it offends you, what about the principle behind wasting tax dollars on what are essentially personal choices-baby bonuses, overly generous parenting payments, health insurance subsidies.

Why are those on higher incomes not in Hockey's sights, why target pensioners. Sorry I just don't get that at all. There is certainly some room for reform on welfare but removing a safety net without being mindful of the long term consequences is just plain dangerous IMO.

Hockey may be on the government gravy train with a good pension package in his future but many people of his and older generations did not have super as part of their salary when they first started work; and many women stayed home with children for a time.

Yes negative gearing is a good example. As wobbles writes NG has been one factor in housing unaffordability.

I am not sure how baby bonuses, rebates and subsidies to those who earn way above the median wage stimulate investment over the long term.

Fact is both Lib and Labor have erred in this area, but putting the blinkers on when your side is responsible for some of the worst policy handouts is not going to help Australia into the future.

If this is part of Liberal's vision I would rather pass.