Banks Treat Swan Like A Mug: Liberal

The Age

Tuesday January 15, 2008

By Michelle Grattan, Political Editor

NEW evidence of an inflation surge is pointing to fresh pressure on official interest rates, as the Federal Opposition accuses Treasurer Wayne Swan of letting the banks treat him like a "mug" over this month's rises.

The TD Securities-Melbourne Institute monthly inflation gauge rose by 0.6 percentage points last month, taking it to 3.7% in the 12 months to December.

If confirmed in the December quarter CPI figures released later this month, this is bad news for interest rates before the Reserve Bank's February 5 meeting, and reinforces the complex economic outlook as the Rudd Government puts together its first budget, to be delivered in May.

The ANZ job advertising survey and the Olivier job index measuring ads on the internet, also released yesterday, both showed the labour market is tight, reinforcing the message about inflation.

Joshua Williamson, senior strategist at TD Securities, said the inflation gauge showed that not only had inflationary pressure remained strong, it had intensified in December. The Reserve Bank would be "particularly uneasy" with both headline and underlying inflation above 3%. The bank's target range is 2 to 3%.

Petrol, loan facilities, rents and overseas holiday travel contributed most to inflation. The price of petrol rose more than 17% in 12 months and rental accommodation increased by 8.6%.

Working against a rise in official rates is mounting fear that there could be a recession in the US, although Mr Williamson doubted that the concerns would be enough to head off a February increase.

Shadow treasurer Malcolm Turnbull said Mr Swan could have prevented or limited this month's interest rate rises, which were separate from any official rise.

Instead the banks had treated the Treasurer like "a mug".

Mr Turnbull denounced Mr Swan's performance on rates as "dismal".

But ANZ chief economist Saul Eslake said Mr Swan could not have stopped the rises by the banks, which have ranged from 0.1 to 0.2 percentage points.

All four major banks have raised their standard variable home mortgage rate.

The banks held off rises late last year - apart from the flow-through of the Reserve Bank's November increase in the cash rate - partly because they thought they might not have been necessary and partly because of heavy pressure from then treasurer Peter Costello not to act before the election.

Mr Turnbull said Mr Swan should have pre-emptively demanded the banks give detailed justifications to him and the public for the latest rises.

But when the National Australia Bank had increased rates, Mr Swan "defended them with an eager enthusiasm that made him sound like a public relations officer from the Australian Bankers Association".

Mr Turnbull said he had "no doubt" that had Mr Swan demanded the banks put a full justification out in the public arena they would not have increased rates or would have increased them by a lesser amount.

Federal treasurers had "enormous moral influence" in such situations, Mr Turnbull said.

But Mr Eslake said Mr Swan had been right when he said that in a market economy these were commercial decisions for the banks to make without government interference. They had to justify these decisions to customers and the public, he said.

Mr Swan is waiting on a report from the Treasury on how to make the banking system more competitive. At present customers face substantial fees if they change lenders to get a better deal.

Mr Swan said: "It is important that if people want to change their account, in a competitive market, that they can do that with relative ease.

"What many people say to me is that they can't vote with their feet because there are unreasonable roadblocks which prevent them from shifting banks."

? Victoria will receive $34.2 million of the Rudd Government's $150 million for elective surgery. The decision, made at a Brisbane meeting of treasurers and health ministers yesterday, gives which Victoria 22.8 per cent of the funding allocation, while on a proportional basis Victoria would have got 24.8 per cent.

The money means that about 5900 people waiting for elective surgery in Victoria will be treated faster than they would otherwise have been.

© 2008 The Age

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