Hooked on government
Shadow treasurer Joe Hockey's suggestion for the regulation of bank interest rates is a problem for the liberal Party. Regardless of the fact that Hockey was not proposing that the Federal Parliament legislate to set interest rates on some mortgages, the damage was done. His valid points about the need for more competition in the banking sector were overshadowed by the impression he created.
In this case, what people thought he said was more important than what he actually did say. Perception is reality. Which is what Hockey's opposition colleagues think as well It was reported that he was told in no uncertain terms that he shouldn't ''trash'' the Liberal Party brand.
As soon as Hockey started talking about "social compacts" between banks, the government and the community it became all too easy to accuse him of turning his back on three decades of financial reform. It's the Liberal Party that's meant to be the party of competitive markets and economic liberalism. And Hockey has let Labor off the hook. From now on, any time a Liberal talks about the national broadband network (NBN) as a $43 billion white elephant we can look forward to a response from the ALP along the lines of "well, at least we've never called for the federal treasurer to decide who can get a home loan and who can't".
As we know. federal Labor ministers aren't too keen on cost-benefit analyses, and they're refusing to allow any such scrutiny of the NBN. But you can bet they'll have no such qualms about having the Treasury Department do a cost-benefit analysis of the reregulation of interest rates. We shouldn't be surprised if in the next few weeks a "leaked" Treasury brief reveals that the department has somehow calculated that implementing Hockey's suggestion would increase interest rates on mortgages, increase bank profits, and increase the salaries of bank executives.
Anyone who wants to know about what happens when politicians tell banks what to do need only look to the Community Reinvestment Act in the United States. The Carter administration thought it would be a good idea for banks to fulfil their social obligations by forcing them to lend to low-income borrowers. This enlightened piece of social policy helped contribute to the US housing crisis as banks made loans to people who couldn't afford to repay them.
It seems that in Australia none of this history matters. No one likes banks and no one (except their shareholders) likes their profits.
In July this year, the Institute of Public Affairs commissioned a survey of public attitudes to the banks: 1052 voters across Australia were asked whether they supported a super profits tax applied to banking and investment banking - 59 per cent said they supported such a tax, 28 per cent said they didn't and 13 per cent didn't have an opinion. What's interesting is that 71 per cent of Labor voters and 63 per cent of Greens voters supported the tax, and 47 per cent of Coalition voters supported the tax. Support for a super profits tax was roughly consistent across all age groups, income groups and locations. It's clear it's not only farmers who want to punish the banks. On this issue, white-collar workers in metropolitan Sydney have the same attitude as their country cousins. Bizarrely, what opposition there was to the super tax was stronger among Greens voters than Labor voters - 21 per cent of Greens voters, 19 per cent of Labor voters and 41 per cent of Coalition voters opposed the tax.
So it could have been worse. Hockey could have proposed a super profits tax on the banks and he would have had overwhelming public support. And he would have had a precedent, which of course was Kevin Rudd's resource super profits tax (As yet, no one in the Labor Party has explained the reason for taxing the super profits of some companies and not others.)
It's not just the liberals who have a problem. The country has a problem. The positive response Hockey has received on talkback radio and through the popular press is just a little alarming. We've seen another manifestation of Australians believing that for any problem there is a solution the government can - and should - provide. The financial commentators hated the notion of regulating interest rates but everyone else loved the idea.
Too many people, and unfortunately too many politicians, automatically assume that the answer to high interest rates and billion-dollar profits is more regulation and more bureaucratic interference in the operations of business.