The Government campaigned on a platform of surplus. “Superior economic management,” they claimed. Now, with the economy tanking, they are asking people to spend. Will people do what they are saying, or what they are doing? The banks have already thumbed their noses, ramping up their speculative property risk. Michael West reports.
The big message in the Budget speech was “surplus, surplus, surplus” yet the Government is urging Australians, despite steep household debt, to get out there and spend.
For some, the $1080 bonus from the Government’s tax cut package will drop in a few weeks. Will people follow the Government’s lead as “superior economic managers” and use their $1080 handout to pay down their mortgages?
Many will recall the spike in poker machine revenues which came in the wake of previous government cash splashes. To be fair, that is spending, albeit unproductive, but a good chunk of it comes back to state governments via pokies taxes.
With Australia’s household gearing – debt to disposable income – at record levels, and with the economy tanking, many households will be tempted to be prudent, batten down the hatches, pay off their debts.
The Government’s “trickle down” economics entails two leaps of faith then; one, that people will do what they are told and spend, and two, if it ends up with the banks, that the banks will do what they are told.
The immediate aftermath of the rate cuts shows the banks are thumbing their noses at the Government. Commonwealth Bank has passed on only a 0.19 per cent rate cut to its principal and interest customers but its interest-only customers get the full 0.25 per cent.
Greedy Westpac has moved up the risk curve too, offering its owner-occupiers 0.20 per cent – keeping a tidy cut for itself – while interest only customers get 0.30 per cent.
The bank regulator APRA, having tightened up on interest only lending in the wake of the Hayne Royal Commission, changed its mind a couple of months ago and relaxed its stance on interest only. Now, with the property market off more than ten per cent – but with economic growth contracting and household leverage at record highs – the banks are having a lash again.
Perhaps, in part, they may use it to refinance those interest only customers who are maturing three years ago (those who have been on interest only and can’t afford to pay down the principal on their loans).
Only ANZ, among the Big Four banks, did what the Government wanted. It dutifully passed on the full 25 points.
By and large, the banks have said thanks but no thanks to the Government’s program. It is yet to be seen what the people will do.
- the Government’s claim of superior economic management versus the reality,
- the Government’s claim of superior economic management versus a doubling in government debt since the Coalition has been in office.
- its claim of a strong economy versus the reality of shrinking economic growth,
- the banks, although underpinned by taxpayers, refusing to pass on rate cuts in full to their taxpaying customers,
- Government pursuing “prudent fiscal management” while the banks take on extra risk.
It would seem that, besides the “wing and a prayer” economics that tax cuts will trickle down and deliver a fillip to the economy, that the Government does not have much up its sleeve in terms of economic policy. It will be fascinating to behold Plan B, should the rudimentary Plan A fail to deliver.
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