Like every treasurer before him, Wayne Swan waited less than half an hour to claim credit for the RBA’s surprise decision to cut rates by 50 basis points.
“This rate cut would not be possible unless there was very good fiscal policy in place … that is what gives the Reserve Bank maximum flexibility to adjust rates,” he told the ABC yesterday.
“You wouldn’t have an inflation outlook such as we have here in Australia at the moment if it wasn’t for the fact this Government has got in place a very good fiscal policy, a policy of return to surplus, of not adding to price pressures in the economy, thereby giving the Reserve Bank maximum flexibility.
“People are paying a cash rate here substantially less than they were under the previous government. This is a significant benefit in whatever form, not just to households but to small business and we shouldn’t talk it down.”
We’re not talking it down at all, Wayne. In fact, it’s hard to think of a more welcome rate cut in the last five years. The economy is clearly stalling right now, and the small business community is getting hammered.
This rate cut – provided at least 35 basis points are passed on to mortgage holders and business borrowers – will provide real relief. Perhaps, more importantly, it should also lift confidence.
But while politicians of all persuasions are famous for taking credit for low rates – the Howard Government even campaigned with the slogan “keeping interest rates low” in 2004 – it can be a little dangerous.
Swan says the Government has provided the fiscal policy – a return to surplus – that allows the RBA to cut.
A more unkind reading would say that the Government’s policy settings have helped slow the economy to the point where the RBA has been forced to step in and cut hard.
That is the sentiment that comes through from the RBA’s statement – an economy that is slowing much quicker than the central bank expected.
Internationally, the picture is clouded. Europe, which the bank seemed to think was improving a few months ago, is once again “skittish” and likely to “remain a potential source of adverse shocks for some time yet”.
Growth in China has moderated in line with moves by the Chinese Government to take heat off the economy and will remain at a “more measured and sustainable pace in the future” – in other words, China might not be steaming ahead in the way Australia has become accustomed to.
But it’s the domestic economy that must be providing the RBA’s staff economists with the most trouble. Yesterday, the bank pinpointed the high Australian dollar as a major issue and again highlighted structural change as the wild card in the domestic economy.
The size of yesterday’s cut has left many asking whether the RBA will need to cut further in the coming months if the economy keeps slowing.
Hopefully we see a pick-up in conditions that will mean more interest rate cuts are not required. But it is comforting to see the RBA is prepared to act decisively.
Murdoch’s ugly day
Rupert Murdoch’s News Corporation has been very quick to dismiss the British Parliamentary report into phone hacking as “partisan” and containing little new information, but surely there has rarely been a more public slamming of someone considered a global business leader.
Murdoch has been contrite about the disgusting culture of hacking that existed at News Corporation’s British subsidiary, but the report suggests that Rupert and his son James should have done much, much more to stop it developing in the first place.
The report uses the lovely phrase “wilful blindness” to sum up the culture of corporate governance that Murdoch, as the company’s ultimate leader, allowed to flourish.
And it’s this culture, the report says, that makes Rupert “not a fit person” to lead a global company.
Here’s the key excerpt in full:
“On the basis of the facts and evidence before the Committee, we conclude that, if at all relevant times Rupert Murdoch did not take steps to become fully informed about phone-hacking, he turned a blind eye and exhibited wilful blindness to what was going on in his companies and publications. This culture, we consider, permeated from the top throughout the organisation and speaks volumes about the lack of effective corporate governance at News Corporation and News International. We conclude, therefore, that Rupert Murdoch is not a fit person to exercise the stewardship of a major international company.”
Murdoch might try to brush that off. His investors might ignore it. But this will surely come back to bite Murdoch.
Next time – every time – he does a major deal that requires approval from a regulator, that report will be brought up.
Those words – “not a fit person” – will follow him and News Corporation everywhere.