Interest rate barney barely even rates as interesting
Stop all the cheering, cut off the champagne. Prevent the pollies from barking and silence the drums. The piddling interest rate cut didn’t even happen.
Today’s widely expected drop of 25 basis points was the catalyst for plenty of chest beating. Treasurer Wayne Swan tried to unleash righteous fury, the banks tried to cry poor, the unions said the banks are squeezing ordinary Australians, and not in a good way. Nothing happened. The Reserve Bank of Australia decided to keep the cash rate steady.
But was all the hullabaloo justified in the first place?
Interest rates speak to the Great Australian Dream and are an economic indicator and so and on and so forth. But in terms of cash in the pockets of most people, it means diddly squat. For our sins, let us look at the figures.
According to the Australian Bureau of Statistics, about one in three households has a mortgage.
A cut to interest rates on a 30-year mortgage of $300,000 (about the average), IF the banks passed on the full cut, would save a household about $44 a month. About $10 a week.
Every bit counts. But the average household spends $223 on housing. They also spend $161 a week on recreation, $32 on booze, and a whopping $193 on transport.
So a minority of people who can already afford to buy a house would score … just enough for a burger and a milkshake somewhere cheap and cheerful.
They would arguably have lost a bit of that on the other end, in their shares or super funds or savings accounts.
The way Australia fights over interest rates is like a lovers’ tiff over whose turn it is to scrub the toilet. A gutful of unrelated bitter pills, swallowed over the preceding months, explode over a petty incident.
The actual issue is housing affordability and the broader economy – and as Ant pointed out last year, we froth at the mouth over interest rate cuts while placidly accepting an overpriced housing market.
But the frenzy is maintained by all parties involved, who every quarter go through the same sparring moves.
Treasurer Wayne Swan said, predictably: “customers would be rightly angry if their bank decided to withhold any cut”. He gets to bash the banks, look like he’s sticking up for the little people, mention again the Government’s exit fee reforms and sound a little bit tough. Win.
The Australian Bankers Association say they need to keep banks on an even keel, for the little people. “If we fail to do that we won’t actually have the money to lend to the households and small businesses,” chief Steven Munchenberg said.
The unions get to do what they do best: stick up for the little people. “Last year the big four banks made profits of $25.2 billion - easily more than the rest of the banking sector combined,” ACTU president Ged Kearney said.
So everyone gets to look like they’re sticking up for ordinary Australians when really they’re just rattling their sabres in the wind.
Meanwhile, the one in three Australians with a mortgage would barely notice the difference - cut or no cut. The one in three Australians who own their own home outright won’t care.
And then there’s the final third who barely get a look in; the renters, the perspiring aspiring homeowners, the homeless, the housing commission dwellers. They’re the ones for whom $10 a week might have actually made a difference.
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