Rate rise hits home affordability: Libs

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ANOTHER interest rate rise has sent housing affordability down the "gurgler" and is due to the "incompetence" of the Federal Government, the opposition says.

The Reserve Bank of Australia (RBA) on Tuesday raised the cash rate by another 25 basis points to 4.5 per cent, the third consecutive monthly rise and the sixth since October.

Opposition housing spokesman Senator Gary Humphries said Prime Minister Kevin Rudd should be falling over himself to talk about the issues around housing affordability "but the reality is very different".

"Here we have a succession of broken promises - house prices up, rents up and homelessness up and now interest rates up again," Senator Humphries said in a statement on Tuesday.

"Housing affordability is going even further down the gurgler."

Mortgage broker Loan Market called for spending cuts in next Tuesday's federal budget to give borrowers interest rate stability.

"What borrowers want to see is tightened foreign investment legislation, as well as a reduction in government spending, both of which should take pressure off the need for the RBA to increase rates," Loan Market executive chairman Sam White said in a statement.

Family First Senator Steve Fielding said the government should start taxing the super profits of the big four banks with their "obscene" billion-dollar profits.

"Instead of penalising the miners with a tax for being successful, the government should look more closely at the big four banks, which have been ripping off ordinary Australians for decades," Senator Fielding said in a statement.

"Families have been taken advantage of by the big banks for years, who jack up their interest rates well above that of the Reserve Bank without any justification."

The government proposed a 40 per cent super profit tax on resource companies in its initial response to the Henry tax review on Sunday.

Treasurer Wayne Swan says the decision by the Reserve Bank of Australia (RBA) to lift the official cash rate again will be tough on families and small business.

"Unfortunately this is one of the difficult consequences of an economy that is recovering better than other advanced economies," Mr Swan told reporters in Canberra on Tuesday.

"But as the Reserve Bank itself has observed today, rates (have) returned to normal levels."

He said, as the RBA noted, that for many people with mortgages they are still significantly below where they were at their peak.

He said the RBA's decision did not put any further pressure on him to deliver a tight budget, saying it would be a "no frills budget".

Mr Swan will hand down the 2010/11 budget next Tuesday.