I was laughing my guts up I until I realised that mortgage rates were going to rise.
Tuning into all the budget stuff this morning, I had to have a bit of a giggle.
Banks just copped one square in the nuts. The big 5 (CBA, WBA, NAB, ANZ and MacQuarie) are being slugged with levy of over $6 billion over the next four years.
(Cue Funniest Home Vidoes sound effect – Honk!)
But what’s funny about it is that you can see how the politics of this played out.
Going into the last election, Labor was pushing hard for a Royal Commission into the banking sector. Systemic weaknesses, opaque governance systems and a string of scandals had focused attention on just how powerful – and untouchable – the banks had become.
A Royal Commission was the only way to bring them to heel.
The Coalition spent a lot of time arguing that it was just a few bad apples, and a Royal Commission was unnecessary. In the process, they made themselves look a little bit like puppets and/or muppets.
But the Coalition won the election and a Royal Commission was averted (a pity in my opinion).
The Coalition might have expected the banks to be grateful. But no. What did they do? They went and appointed former Labour Queensland Premier Anna Bligh as CEO of the Australian Banker’s Association.
Effectively they were saying, you mob are dead ducks, and we need to get an inside running with Labor to divert some of this heat. Come the next election, there’s no chance that you’ll still be in government, so we won’t even bother trying to appear impartial.
Word on the street is that Coalition parliamentarians were outraged. “Have they no manners!?!”
And none more so than Scott Morrison, who had nominated his chief of staff Sasha Grebe to the role, and right up until Bligh’s appointment, thought it was a done deal.
And so now we have revenge served up on a bed of a $6bn tax hike – and legislation that allows APRA to intervene with executive remuneration and to hold executives personally accountable for transgressions.
It’s just such a childish farce. Never mind how appalling it is that the ABA appoints former politicians to become highly-paid figured heads. Never mind that politicians have generous pension plans to avoid exactly this kind of conflict of interest after they leave office. Never mind how shameless influence peddling has become these days.
The real joke here is that the only way you can get good policy off the ground in Australia is if some political party is so pissed off that they’re willing to institute good policy out of spite.
I reckon APRA oversight of governance structures is good policy. Holding executives personally accountable (something that never happened in the GFC – no one ever did jail time for that) is good policy.
And it never would have happened if ScoMo didn’t have a personal axe to grind.
(If you didn’t laugh, you’d cry.)
And the tax itself… well this is where it starts to get interesting. At first I thought it was funny. But then I realised that its probably going to mean increased mortgage rates across the book.
The thing about the tax is that it targeted on the way banks do business.
Normally a tax is levied on profits. That leaves the banks free to decide for themselves how to cover the expense.
But that’s no the case here. The tax is being levied on liabilities. In that sense, it is directly influencing where and how banks source their funds – and specifically, penalising wholesale borrowing (much of it off-shore) relative to deposits.
In that sense, we should see more competition for depositor funds, which means banks will pay a higher rate to savers – so maybe a little good news for retirees here.
However, so far, wholesale funding has been the cheapest source of funds for mortgage lending. That’s about to change, and so the ‘cost of business’ associated with mortgage lending just went up.
So there’s no way I don’t see this impacting on mortgage rates. No way at all.
And the government says that it will be watching banks closely to make sure they don’t unfairly pass the cost on. But there’s nothing unfair about it. It will be very easy to show how it has affected funding costs, and unless you’re asking banks to take a hit to their profit margins, higher mortgage rates are exactly what you’d expect.
And since APRA and the RBA would like to see higher rates anyway (and a shift away from offshore wholesale funding), no one’s going to get in the way of it.
Rates will go up, and it will be, “fair play, play on.”
But coming so hot on the heels of macro-prudential 2.0, I’m really wondering if we’re pushing the mortgage market too far, too fast.
There must be a limit.
And there must be a limit to how far individual investors can wear the expense of all this – how much they can cop just to pay for ScoMo’s vendetta.
Suddenly, it’s not looking that funny at all.
What do you make of the politics in the budget?