It’s almost a year since John Howard parted the scene, but his mantra “Interest rates will always be lower under the Coalition” still rings in our ears. It was powerful, memorable and effective, except at the last election, when so many of the people stopped believing it, or just stopped listening.
It was always a misleading slogan. Howard himself knew that, he knew who set interest rates, but perhaps he believed that the economy that he had nurtured for so long favourably influenced the Reserve Bank’s decisions. Anyway, it served him well almost until the end. The fact that ten consecutive quarter percent interest rate rises occurred before the election did not deter him from endlessly repeating his mantra and using it in campaign ads. Since the election there have been two quarter percent rises, one quarter percent fall, and now a one percent fall, so that the rate is now three quarters of a percent below the last level under the Howard Government. So interest rates are not always lower under the Coalition after all.
So should Kevin Rudd now re-work the slogan to “Interest rates will always be lower under Labor”? I hope not, and I don’t think he will. It would be a dishonest thing to do. There would be few, even among the politically disinterested, who would not know that the Reserve Bank sets interest rates, and that the Bank has been deemed to be independent by all political parties, who have largely respected that independence. We know that there are numerous factors that influence Reserve Bank decisions, and that although the state of the economy over which the party in power has some influence is one, many international factors, over which no one in this country has any control, are often overriding factors.
The point of this piece is to point to the political dishonesty of the party in power making claims they can or will keep interest rates low. Quite apart from the fact that such claims are without foundation, such claims can blow up in their face, as has happened now. I don’t expect we'll hear anything from the Coalition about the now-apparent falsity of this slogan, but Labor may find it hard to resist the temptation to rub the Coalition’s nose in it.
Although the extent to which political influence can be exercised over commercial banks is debatable, Malcolm Turnbull has already expressed the view that it was his advocacy for mortgage holders, his “standing up” for home buyers and small business, that has resulted in the fairly high 0.75 to 0.8% passing-on of the rate cut. He has quickly taken credit for this, mind you not total credit. And in the process he has lampooned Rudd and Swan for “caving into the banks”. That their concern was to ensure stability among the banks in the face of steeply rising costs of borrowing drew no acknowledgement from Turnbull; he was hell-bent on extracting as much political capital as he could. How much his line was swallowed by the public only subsequent opinion polls will tell, but one can be confident that the banks will not be too pleased with him, and will not be impressed with his distortion of the decision making processes banks use to reach such decisions, and his belief that leaning on them bears fruit. With his merchant banker knowledge and understanding he would know his public rhetoric was disingenuous; if not, his competence in matters financial is called into question.
If Turnbull is prepared to embrace such populist positions in an attempt to bolster his position, even at the expense of his credibility, don’t be surprised if he repeats the Howard mantra, or something like it, sometime in the future when it suits him politically.
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