Josh Frydenberg's latest move against the banking sector is nothing but political theatre, writes Tarric Brooker.
IN RECENT WEEKS, Treasurer Josh Frydenberg has once again attempted to create an image of a Government that has a broad agenda to pursue in the coming parliamentary term, rather than the ongoing haphazard policy moves that have come to define the Morrison government.
On Monday, Frydenberg ordered the Australian Competition and Consumer Commission (ACCC) to investigate the banks for not passing on the three recent Reserve Bank rate cuts in full.
Well, I hear you say, that certainly is out of character for a man who voted against initiating the 'Banking and Financial Services Royal Commission' 26 times.
And you’d be absolutely right.
While on the face of it this seems like a perfectly reasonable move to once again pull our wayward banks back in line after another round of ongoing bad behaviour, in reality, things are quite a bit more complicated.
For many Australians, their savings accounts have been paying about 0 per cent interest for quite some time now. This means that when the RBA cuts interest rates and the banks go to lower deposit rates in line with mortgages, it’s quite literally impossible for savings’ rates to go any lower.
On balance, this effectively means that when the RBA cuts interest rates by 0.25 per cent, there isn’t a sufficiently large group of savers they can pass this cost on to in its entirety.
This is why the banks have only been lowering mortgage rates by approximately 0.14-0.20 per cent per RBA cut. Otherwise the additional cost would start to severely impact their net interest margins and overall profitability.
But who cares about bank profits?
The answer is the global financiers who make our banking system possible.
Unlike some other countries, Australia’s household debt pile has grown to be so enormously large, as a nation we are unable to fund mortgages and other forms of credit entirely from domestic deposits.
Instead, we rely on offshore investors to make up the rather sizeable shortfall to the tune of tens of billions of dollars.
If the profitability of the banking sector was to fall and the banks had their credit rating downgraded, they would face higher borrowing rates for this offshore capital needed to support our highly indebted nation.
Essentially thanks to having the second most highly indebted households in the world, Australia is stuck between a rock and a hard place, in a no-win scenario where households will end up footing the bill either way.
As the former "Director of Global Banking" at Deutsche Bank, all of this relatively basic financial jargon would be common knowledge to Treasurer Josh Frydenberg.
Yet instead of offering genuine solutions to the struggle faced by everyday Australian households, the Treasurer has commissioned a long-winded and expensive 12-month inquiry into the rate cuts not being passed on, despite the fact that he already knows exactly why.
One can’t help but feel that this entire inquiry is nothing more than yet another smokescreen from the Morrison Government. It is used to distract the Australian people from its complete lack of a plan for the economy, beyond the platitudes we have consistently heard from the Prime Minister and the Treasurer.
In the face of a struggling economy and any number of global economic risks threatening our nation’s prosperity, the Morrison Government remains committed to its promise of surplus. Despite the fact that one in four workers fear they could lose their jobs in the next 12 months, Scott Morrison and Josh Frydenberg remain fixated on getting "back in the black".
Ultimately the Morrison Government’s distractions and Josh Frydenberg’s pointless inquiries are just more political theatre, from a Government that has two and half years left until the next election and very little real agenda to speak of.
Tarric Brooker is a freelance journalist and political commentator. You can follow him on Twitter @AvidCommentator.
