While the Government offered assistance to those in need during the COVID-19 crisis, it's the banking sector that will really benefit, writes Kyle Mervin.
YOU REALLY HAVE TO hand it to Prime Minister Scott Morrison and co for some serious tenacity. They will knuckle down, dig in, rally the troops and any other metaphor indicating tenacity you can possibly imagine. ScoJo (think Brangelina but with Morrison and Treasurer Josh Frydenberg) is determined, capable and they will never, ever stop fighting for... their mates in the banking sector.
Economic decision-making is now more important than at any time in modern history and if ScoJo doesn’t throw out the conservative economic playbook in times like these, they will be condemning Australia to decades of pain. Austerity was a disaster when applied to economies in the recession that followed the Global Financial Crisis and its destructive capacity was barely tapped.
Recently, the Government announced some stimulus measures that were encouraging and were helpful in a couple of ways. Firstly, the size of the stimulus package announced gave some hope of a strong, direct intervention. But perhaps, more importantly, it signalled to the country that the Government thought this thing was a big deal, effectively quashing the apathy on the Right side of the political spectrum that was dragging us into an Italian scenario.
But old habits die hard and the conservative mindset is exceptionally resistant to intelligent reasoning. They brag about rejecting the views of scientists in matters of science, they brag about rejecting the views of economists in matters of economics. Informed sense is at the mercy of common sense and reason is at the mercy of dogma — and their champions are loud.
Worryingly, I get the distinct impression that the strongly conservative elements within the Government were never keen on the size and composition of the stimulus announced and are using the success of our society in flattening the curve as proof that COVID-19 was oversold as a threat. The announced stimulus was unjustified and no number of dead Americans will convince them otherwise.
Just as an aside, I recently used Google to trigger a few memories about conservatives and I came across this absolute gem.
Please read it, and then remember this: brilliant minds think alike.
Creating the economic foundations for revival
As a small business owner, I must say I felt significant relief when Josh Frydenberg announced the various stages of stimulus he would be applying to the economy to help keep it afloat.
I have always been a little bit Left-leaning and I had convinced myself that the stimulus would follow the long-held conservative approach of cutting the taxes of the wealthy and hoping that some of the coin would find its way to the pockets of the needy, but not really caring either way. That was the picture I had in mind.
So, as the various stages of the stimulus were announced and we consulted with our accountants as to if and how each measure might apply to us, I was genuinely surprised. JobSeeker, JobKeeper, grants, government-secured business loans, tax cuts and so on. The resemblance to the highly successful – and much maligned by conservatives – stimulus package designed by Kevin Rudd and Wayne Swan, in response to the imminent threat of the GFC, gave me some serious Twitter ammo. And I didn’t hold back.
Unprecedented generosity by ScoJo might just keep this economy of ours afloat, or so I thought. It still might, but there are some worrying signs.
Thumbing through the announced stimulus, there was one feature that piqued my interest. I didn’t pick up on it straight away, but as we were sifting through our financials with my long-suffering accountant, my long-suffering wife and I started to investigate some of the loans that were announced by the Government.
In particular, there is one where you can obtain a loan in support of your business up to $250,000. We enquired with my financial relationship managers as to our eligibility and the terms of the loans and here is where I became a little confused.
You see, I thought these measures were there primarily to help struggling businesses that were directly and severely impacted by the COVID-19 crisis, to remain viable to the benefit of their employees, their communities and the economy.
The banks, on the other hand, thought of them as an opportunity to rip off a struggling economy. Things are falling apart, let’s see if we can’t make a buck out of it.
But, bankers gonna bank. I’m more concerned with who is letting them get away with it.
My government gives them $250,000 at 0.25% interest to lend me, helping out in times of need and they want to charge me 4.5-5% per annum. I disagree with that. I get a six-month period of grace on repayments but at the end of the repayment, holiday interest is capitalised.
So, hypothetically, through no fault of my own, I assume a debt burden of $250,000 that three months ago I didn’t need. It helps keep my business afloat and protects my staff from unemployment. I don’t have to make repayments for six months, but at the six-month mark, my debt is now $256,000.
I’m saddled with repayments on a quarter of a million dollars in coming years to help the Australian economy in difficult times and the banks are charging me for the privilege.
Score out of this transaction:
- Me: –$256,000 + 5% interest per annum
- Banks: +$6,000 + 4.75% interest (on 250K) per annum
- Government: +0.25 % interest on 250K
I may be slightly biased, but that stinks.
Poor ethics have become a hallmark of the Australian banking sector and the LNP have become adept at running interference for them, as evidenced by the Hayne Royal Commission that unearthed some unconscionable conduct by the banks and then punished them with a slap on the wrist.
And now even that slap on the wrist has been deferred, to free up the banks to do what exactly?
Now the lies you are going to be hearing from the Government are that a strong banking sector is what got us through the GFC and we need it for the recovery ahead. Neither of those things are true.
A hungry and entitled banking sector will saddle constructive businesses with debt and that will stifle economic recovery for decades. If they cannot be controlled during this critical period, then Australia needs to establish a government-owned, not-for-profit commercial bank preferably enshrined in the constitution and never to be sold.
Getting the banks on side
I have a suggestion as to how to get the banks working with us as opposed to gouging us during the recession to come. I want the mum-and-dad investors with shares in the banks to stand up at the various AGMs and demand that no bonuses are to be paid and that any and all profits from banking during the upcoming recession be paid to the Government to pay down our national debt, until such time as the economy recovers and unemployment returns to under 6%.
I dare say that the banking sector would throw its mothers under a bus to get us back to 6% unemployment under that directive.
So, what’s the score?
If we give the benefit of the doubt to ScoJo and assume that they are putting the interests of working Australians ahead of the banks, then based on the stimulus announced to date, the banks well and truly saw them coming.
Morrison is many things, but a fool ain’t one.
Kyle Mervin is a married father of three, a dentist with a PhD in Neuroscience from the University of Sydney and has been in a relatively bad mood since 2001.
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