Case for interest rate cut is overwhelming
FORECASTING the Reserve Bank's interest rate decisions is almost as dubious an activity as making long-term predictions of election results. Sometimes the bank's board seems almost to relish discomfiting economists who have confidently tipped a variation in the cash rate. This week's low inflation figures, however, have produced virtual unanimity among analysts, who expect that at its meeting next Tuesday the board will agree to the first of several rate cuts. The only question, the pundits insist, is whether the Reserve will announce a 0.25 per cent cut - the usual adjustment - or a more drastic 0.5 per cent.
The case for a cut is certainly a strong one, and the board would need to marshal some ingenious arguments in its defence if it were to decide to leave rates on hold. The Reserve has hitherto resisted calls to stimulate the non-mining sectors of the economy by lowering rates because of the need to check inflation. But that fear has no substance, as inflation measures released by the Bureau of Statistics on Tuesday reveal.
In the year to March the consumer price index rose by only 1.6 per cent - the smallest increase since the 2008 global financial crisis - and underlying inflation is running at only 2.15 per cent for the year. That is the lowest level in 13 years, and for three quarters underlying inflation has been running at 1.8 per cent, the lowest level in almost 50 years. Most importantly, it is below the Reserve's target band of 2-3 per cent.
These figures confirm what was already evident: outside the mining sector growth is negligible, and with the Gillard government insisting on cutting spending in order to deliver a surplus budget next month, there is scant prospect of reviving other sectors through fiscal stimulus. Of course there should be a rate cut, and, barring an outbreak of irrationality among the Reserve's board members, there almost certainly will be.
Nor should there be any real argument about the size of the cut, because economic activity in south-eastern Australia, in particular, is so sluggish that an adjustment of only 0.25 per cent would have little effect. Only a cut of 0.5 per cent would indicate a serious attempt by the Reserve to reverse the baleful effect of its having kept rates too high for too long, and it would have to be the first of several downward adjustments.
Unfortunately, the choice the board must make is being complicated further by the intransigence of the big four trading banks, which have substantially weakened monetary policy by decoupling their own interest rate adjustments from movements in the cash rate. There is no guarantee that a 0.25 per cent cut would be passed on to consumers, because the big four argue that their own borrowing costs are so high that their profits would be squeezed. On this scenario, to make allowance for the trading banks' reluctance to pass on a rate cut, the Reserve would have to announce a 0.5 per cent cut to gain the effect of a 0.25 per cent cut. And if the prospect of having to make that kind of calculation is not perverse enough, some analysts turn the argument on its head. A 0.25 per cent cut might be passed on, they say, but a larger one would almost certainly not be.
The trading banks should not be able to undermine the Reserve's rate decisions in this way, but there is no sign that either the government or the alternative government is willing to compel them to heed movements in the cash rate. Since the global financial crisis the big four have indeed faced higher borrowing costs on the long-term bond market, but only 20 per cent of their funds come from that source. Sixty per cent still comes from depositors. And, increased costs notwithstanding, each of the big four continues to be a highly profitable business - unlike other businesses that will languish if the expected rate cut is not passed on in full.
Extending quality schooling to all
THE stunning popularity of Melbourne's recently opened Albert Park College ought to debunk one damaging assumption that has swayed the education policies of successive state and federal governments in recent decades: namely, that well-to-do and aspirational families have an intrinsic and irreversible aversion to public secondary schools. Indeed, the burgeoning demand for places at the college, which opened last year with a select-entry accelerated learning program, music teachers from the nearby Australian National Academy of Music and the Andrew Gaze basketball academy, testifies to precisely the opposite. Given the choice, families will flock to a high-performing local government school.
The enduring problem, of course, is that the school closures of the Kennett era, coupled with the steady increase of taxpayer funds going to the private education sector, have served for too long to limit the schooling choices available, especially in the inner city. In its previous incarnation, for instance, a run-down Albert Park College could in 2006 attract only 200 of the 3500 eligible young people in its catchment zone. At the time, former principal Barbara Elvin lamented in a school newsletter: ''Currently there is a perception in the local community that questions Albert Park College's capacity to provide quality learning … Perceptions have taken a long time to build up and they will not change quickly or overnight.''
The experience of the past two years, however, which has seen the college reborn after an injection of funds and refining of strategy, suggests perceptions can change faster than we might envisage. These days the school has become a victim of its own success, forced to shrink its enrolment zone to cope with overwhelming demand. Southbank residents will be cut out of the college's new zone from 2013, while those living in South Melbourne, West St Kilda and Port Melbourne have been warned they will be the next to be excluded.
While this understandably angers families who moved into these areas to secure a place at the college, the potential exclusion of children living in South Melbourne's sizeable public housing estates is particularly concerning. As Albert Park MP Martin Foley observed, disadvantaged students benefit from high standards, but their parents are often less equipped to advocate their cause. Richer families can drift back, however reluctantly, to independent schools: the poor have even less choice. Quality education should be accessible to all, and not a lottery based on geography.