If they want to create and preserve jobs, both Kevin Rudd/Wayne Swan and Malcolm Turnbull/Julie Bishop are getting it wrong. Indeed one could argue that Swan is an Australian job destroyer.
These are major statements, but I can back them up.
Without going into too much detail, small and medium business is Australia’s largest employer and/or contractor of labour. And right now, thanks to Government ignorance, supported by the Opposition, our major employer is being brutally mauled. And state governments are also helping in the job destruction process, again because they are out of touch with what is happening.
Yesterday a medium sized business operator I know, who carries a relatively small overdraft and employs 55 people, went to see his bank because he was being charged 10% for his overdraft including fees, charges and add-ons. When he threatened to go elsewhere he was politely invited to leave. There were no choices. He had to stay.
That story is being repeated around the country. Sometimes small businesses have to pay much more than 10%, including fees and charges. Other times rates are lower. There have been some business rate reductions, but the rates are always far higher than home loans and often the money is hard to get – especially if the business borrower wants more money or business is tough.
All the politicians will cry as one – “those dreadful banks, it’s their fault!”
No. It is the politicians who are the main cause of the problem.
Every time the Reserve Bank reduces rates, Wayne Swan and Julie Bishop lead the cry for banks to “pass on” the full interest rate cut to home loan borrowers.
Banks get high praise if they can win the race to be first to cut their mortgage rates. NAB won an earlier race and Westpac won the latest. The banks are simply too frightened of the public backlash not to bow to the demands of politicians.
But the simple fact is that bank costs do not magically fall by the amount of the Reserve Bank rate cut. They have term deposits carrying much higher rates. They must borrow overseas where the rates are higher, even with the Government guarantee. They therefore have two choices available to cover the Swan/Bishop housing rate subsidy – slug small-to-medium business and credit card holders or reduce bank profits.
Banks will, of course, chose to slug small-to-medium business and credit card holders. Credit cards are another story, but the high small-to-medium business interest rates are in the main paid for by enterprises that are in the process of reducing headcounts. These retrenchments, plus the fear of retrenchment, slashes consumer retail demand and creates a vicious circle.
One-off cash hand-outs do not break it. But even if banks were forced to take a profit hit, I am not sure that would serve the community well at this time. Australian banks have to play a big part in covering the loss of banking power caused by the withdrawal of overseas banks. To do this they will continue to require capital.
Destroy their profits and their shares will fall further and they will be like the US and European banks, unable to lend to the community whether it be for housing or business. I should add here that small enterprise loans carry a much higher risk and they should always be at a premium, but they don’t have to subsidise housing.
Somebody must explain to Swan and Bishop that while there are votes in advocating the “passing on” of Reserve Bank rate cuts to householders, when you use business to subsidise the housing sector you do so at the cost of jobs. The benefit of lower rates must be shared between all consumers and job creators, not just home owners.
And state governments? When state governments want to attract big employers they make payroll tax concessions. They now have a massive problem retaining jobs in the medium-sized business sector. So what about arranging a one year payroll tax holiday, funded by Canberra as part of the $42 billion package? It would create twice as many jobs than the huge cash hand-out.
In this kind of environment it’s very hard to expect Greens, Family First and other independents to come to grips with a situation that has completely eluded both the major parties so far.
This first appeared on Business Spectator
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
