Wounded Hockey faces a nasty choice on banks
The Murray Inquiry is likely to hand the government an
invitation to a fight with the big banks — and Treasurer Joe Hockey is
in no state to lead it.
Treasurer Joe Hockey managed to do it again, this week: open
his mouth and stick his foot in it. And Labor are over the moon about
it, because in doing so he has served up a line that they will quote for
the rest of the life of this troubled government.
“We’ll find any way we can to take the money out of the universities,” he told The Australian Financial Review’s Phil Coorey
yesterday, if the Senate declined to approve the government’s
slash-funding-and-deregulate-fees higher education policy. Within hours,
the Labor party had turned the statement into a poster.
The line perfectly illustrates the perception Labor has been trying to
create of the government — that it is ideological, punitive and
determined to destroy core activities voters take for granted.
Hockey has previously left open the possibility of finding
savings in other areas if the Senate refused to pass all of his
budget — a clunky statement that Labor rapidly built a scare campaign on
and which left Hockey’s colleagues wondering what he was playing at.
Now he has gone further in identifying university education as a target
and expressing a determination to do whatever it takes to slash funding.
Hockey’s statements are, on a rational level, utterly
innocuous. As Treasurer, it’s his job to manage fiscal policy in
conjunction with his Finance Minister. If savings fail to materialise,
or revenue falls short, for whatever reason, the Treasurer is the key
minister charged with determining whether they need to be offset or not,
taking into account both fiscal requirements and macroeconomic policy.
Currently — despite all the rhetoric — Hockey is running a highly
stimulatory fiscal policy, and is in no hurry to curb that stimulus,
because he knows it will undermine economic growth. But he’s also aware
that the path back to surplus will be long and challenging — longer and
more challenging than it seemed from the opposition benches — and he
will need to keep finding savings and cuts just to stick to the
long-term path he’s on, let alone move more quickly.
But politics of course is anything but rational, and Hockey
has repeatedly showed a poor grasp of how his statements will look to
voters and be exploited by the opposition. For a bloke who used to be so
popular and at ease in the media, it’s a surprising but highly
problematic flaw in his political make-up.
Treasurer would frame the debate as being about making the banks more
responsible … A strong treasurer would lead such a debate. But “clever”
and “strong” are about the last things you’d call the Treasurer
And it’s particularly problematic because David Murray looks
likely to dump in Hockey’s lap a particularly nasty policy problem
before the end of the year, when the Financial System Inquiry headed by
Murray reports. The inquiry is Hockey’s baby: he pushed hard for it in
opposition and, in doing so, incurred the wrath of the banking cartel,
and especially ANZ chief Mike Smith, who compared Hockey to the late
Venezuelan leader Hugo Chavez. And while the appointment of Murray as
the inquiry head, and the watered-down terms of reference, initially
appeared designed to nobble the inquiry, Murray has, at least so far,
exceeded expectations. The focus on the cartel’s capital buffers, and
the likelihood that Murray will recommend, in some form, an increase in
the requirements for the big banks to hold assets against lending, means
a stoush is looming between the government and the cartel.
The increase in capital requirements serves two
purposes — to strengthen the banks in the face of future financial
crises (and there will be future financial crises, because that’s
capitalism) and to resolve the “too big to fail” dilemma whereby the
likes of Mike Smith use the fact that no one seriously doubts the
government would intervene to prop up the big four, in order to fund
riskier activities in other markets and see off competition from smaller
But the banks are already engaged in preemptive blackmail,
warning that any increase in capital reserve requirements will curb
lending, send interest rates soaring and, in Smith’s words,
“come at a cost to the economy through lower growth, fewer jobs and
lower tax revenue”. That is, the usual Four Horsemen of the Apocalypse
stuff from an industry facing regulation or higher taxes. No mention,
naturally, of the lower economic growth that comes from having a banking
cartel at the centre of our financial and wealth management systems.
But the cartel isn’t just another industry. Even more so
than the mining industry, this is a sector accustomed to getting its way
with governments. The Coalition has already demonstrated its
willingness to go to the wall for the cartel, restoring conflicted
remuneration to the retail super sector controlled by the cartel and
AMP. Murray’s expected recommendations (note that the Australian Prudential Regulatory Authority
this morning released its new residential mortgage lending
requirements, which will need to be digested first) will leave the
government, and Hockey, in an invidious position. It will need to either
ignore its hand-picked review panel on an issue where, outside the
cartel, there is widespread agreement about the need to fix “too big to
fail”, or have a stoush with a key ally.
Neither is a good outcome for a politically wounded Hockey. A
clever Treasurer would frame the debate as being about making the
banks, currently bringing in record profits, more responsible in the
face of future threats, and less likely to call on taxpayers. A strong
treasurer would lead such a debate. But “clever” and “strong” are about
the last things you’d call the Treasurer currently. Perhaps Hockey will
spend the next few months “considering” the inquiry’s recommendations in
the hope that, between now and the middle of 2015 (Hockey being too
busy preparing MYEFO and next year’s budget to fully focus on it before
then), something will turn up. Namely, his political touch.