Swan won't be taking on the Big Four banks any time soon, writes ALEX MILLMOW
The Gillard government now resembles the ill-fated Scullin labour government of 1929-31. Caught in the throes of responding to the Great Depression, James Scullin saw his government disintegrate into three warring factions.
Caucus meetings became so unseemly and tumultuous that everyone within the confines of Old Parliament House was made well aware of it.
Journalist and broadcaster Warren Denning, who wrote the classic account of this government in Caucus Crisis, noted how Scullin would emerge walking out of party meetings ''profoundly distressed''. The current government, too, is split asunder with one third of the party for Gillard, one third for Rudd, and one third undecided.
The resemblance does not end there. The big banks are running circles around the Gillard government as much as they did against Scullin's. Labor governments always have problematic relationships with the big end of town. The recent development where two of the big four banks have thumbed their noses at the Treasurer and the Reserve Bank about determining their lending rates raises a matter of public controversy. Certainly Labor has always been a bit supine and subservient about the banks.
The big four banks are attempting something they would not have done when Peter Costello was Treasurer. Costello's jawboning was far more effective than Swan's. So what did Costello have up his sleeve that Wayne Swan doesn't?
The banks, of course, blame their burst of self-determination when it comes to interest rates on the post GFC environment and the European debt crisis. They argue that their funding costs have risen. It sounds plausible enough and even the RBA concedes it but then just look at the profits on their operations. One of the largest finance houses in the world, Societe Generale, has stated that the rate rises by the Australian banks were ''very dubious'' with the action ''aimed at protecting their high profit rates''.
The Big Four average rate of return is well above most other Australian enterprises, bar the mining sector. Also, we hear that more and more Australians are saving these days and you'd think the stronger dollar might put a lid on the rising cost of funds. But no, those damned funding costs keep rising! So we're told. Our precious banks simply do not contemplate making a little less profit.
Since the electorate always see the Labor Party as poor economic managers they have to tread carefully and be even more conservative than the Coalition. There have been two exceptions. Ben Chifley wanted to nationalise the lot of them.
When he was Treasurer during the 1980s, Paul Keating lambasted the Australian banks for their inwardness and conservatism and applied the blowtorch of competition by opening up the industry to foreign players. He even sold off the Commonwealth Bank. Looking back you might say he created a Frankenstein given what we have ended up with. You might say, too, that the Rudd government by extending guarantees for the fund-raising activities of the financial sector during the GFC made the Australian banks all the more powerful.
Last week Mr Swan had a long conversation with the new chief executive of the Commonwealth Bank, Ian Narev, about business. Narev had earlier complained about the Treasurer's claim that Australian banks were immensely more profitable than their overseas counterparts. In that same week the ANZ Bank announced a slight increase in mortgage rates and, a few days later, axed 1000 jobs. Then the tabloids caught light of an ANZ Bank executives' retreat on a cruise ship. The banks are supposed to be masters at mitigating community outrage but they clearly are not.
There has not been a squeak of protest from economists, bar an ensemble of University of New South Wales ones who noted how banks were making, by any criterion, excess profits. They proposed that the government impose an excess profits tax on the big four. It met with stony silence.
One cannot seriously entertain this fractured and weak Labor government acting on it. A period of opposition would probably do the party a power of good in terms of giving it a newfound sense of resolution.
Alex Millmow is a senior lecturer in econmics at the University of Ballarat.
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