Thursday, January 21, 2010

Thursday column: Message to Australia's banking industry, real estate industry, super industry...

It isn't about you

You've got to hand it to Australia's Federal Chamber of Automotive Industries.  It knows when to stop.

After enjoying its biggest-ever pre-Christmas sales bonanza as buyers from all over the country who could even loosely describe themselves as businesses raced against the clock to take advantage of the government's 50 per cent business investment tax break, it said "thanks" but no more.

"This was game-changing. It restored confidence in the marketplace and stimulated additional demand," said Federal Chamber of Automotive Industries chief executive Andrew McKellar. But when asked whether the tax break should continue he said "no," it had been there in the industry's moment of crisis and that was enough.

He wouldn't even complain about the January 1 step down in the tariff on imported cars from 10 to 5 per cent.

Contrast that to the Real Estate Institute of Victoria and an audacious press release in the past week entitled "success of first home buyer assistance shows it should continue"... The gist is that the emergency help the industry got from the Commonwealth first home owners boost and the state first home owners bonus boosted first home owner sales, they're withdrawal is hurting first home owner sales therefore they should be made permanent or replaced with an exemption from stamp duty.

The Institute probably wonders why government doesn't take it seriously.

The so-called "Voice of Super," the Association of Superannuation Funds is heading down the same path.

In a creative announcement headed "make Budget provisions now and end speculation for a super 2010" it says "whatever the findings or recommendations from the Henry Review" the government should lift compulsory superannuation contributions to 12 per cent in the May Budget.

In fact there's no speculation about such a move and the Association knows well what the Henry Review has found.

It reported last May that 9 per cent would be enough to give most Australians "a substantial replacement of their income, well above that provided by the age pension" when a complete generation had been through the system.

It said that while lower-income earners might still have to rely on the pension with 9 per cent , any increase beyond that ran the risk of damaging their working incomes. It elaborated on but did not change that finding in the final report that is with the government.

The super industry, more than any other, has lived off government largess. What other industry gets customers herded into its doors by compulsion and also compelled to hand it a fresh nine per cent of their income each year regardless of performance? What other industry enjoys the benefit of tax breaks that keep pushing extra voluntary dollars its way and away from competitors?

The super industry has become so used to government generosity it thinks it's an entitlement.

But the government was generous for a reason, and it wasn't about it.

Which brings us to banks.

Quite rightly during the global financial crisis the government did everything it could to keep the banks working. Australia's financial system looked like seizing up.

In co-operation with the US Federal Reserve it kept the foreign exchange spot market open when traders themselves had walked away, it guaranteed the first $1 million of every deposit in every Australian financial institution and it offered to guaranteed the overseas borrowings of Australian financial institutions without limit and without restrictions on what they used the money for. Along the way Westpac, the Commonwealth, the National Australia Bank and the ANZ acquired better credit ratings for their foreign borrowings than many foreign governments.

And it permitted takeovers that would have normally raised questions. It allowed Westpac to swallow St George and the Commonwealth to swallow Bank West. Just as importantly it let Westpac grab the Rams home loan business and let the Commonwealth buy Wizard and 30 per cent of Aussie.

Then it started throwing money at first home buyers.

The banks' share of what became an expanding home loan market soared to 92 per cent.

It was prepared to do more. Had RuddBank got through the Senate it would have also taken precarious-looking commercial loans off their hands.

But it did none of these things in order to help the banks. It did them to help the financial system.

That's why Westpac's action in pushing up its mortgage rates 80 per cent more than Reserve Bank cash rate in December has so infuriated it.

Westpac and the others that partially followed it are like the Real Estate Institute expecting continued support even though the emergency has passed. Like the "Voice of Super" they seem to think that what is good for them and was once good for the nation will always be good for the nation. Westpac's "Bananas" video as good as said so.

In truth now that the crisis has passed the government has no duty to protect the profits of banks, car dealers or anyone else from the discipline of the market. It's likely to subject the banks to even greater discipline.

Expect an announcement in the Budget or during the election campaign about new government-sponsored competitor that will offer banking services through branches of Australia Post. The new head of Australia Post Ahmed Fahour once ran the NAB's Australian operations and had been set to run RuddBank.

He knows how to put the big Australian banks under pressure and he knows the government believes it owes them nothing.

Published in today's SMH and Age

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