The RBA is doing its bit, who’s next?

Now we just need to find a brave and visionary government.

Now we just need to find a brave and visionary government. Photo: TND/ AAP

There is a level of pettiness unique to political animals, whether it be at the level of federal government or the local footy club committee.

Amid the worst economic crisis since the last world war, Scott Morrison and Josh Frydenberg couldn’t help displaying it on Thursday afternoon.

The Reserve Bank of Australia had advertised for days that a landmark speech by Governor Philip Lowe would be delivered at 4pm.

After a three-day drum roll, it was going to be big and it was.

So did the politicians give our central bank clear air? No.

Those media tarts, Morrison and Frydenberg, had to inject themselves ahead of the RBA, holding a media conference of their own in Canberra at 4pm, forcing the governor to wait, to know his place, and they stole his key metaphor about building a bridge over the crisis in the process.

It was petty and doesn’t matter.

Very few people would have even noticed. But it says something about the character and priorities of the individuals.

The press gallery might already regret their praise of Scott Morrison’s Wednesday media performance – it has only encouraged him.

What does matter is that our central bank is doing its bit, sticking to the script it outlined last year for unconventional monetary policy to help as best it can in an unprecedented crisis.

And Philip Lowe was clear and uncompromising: Nothing is off the table; the bank will do whatever it takes to ensure credit is available; rates will be low and kept low for years; the financial system will remain strong.

“Low for long time at Lowe’s” a headline might say.

For the monetary policy wonks, Australia now has QE with a twist, having learned from the mistakes other central banks made during the GFC.

As foreshadowed by the bank leadership when unconventional monetary policy was only considered a most unlikely possibility, the multibillion-dollar printing presses are rolling with defined targets.

The RBA will stand in the market to buy government bonds along the yield curve to keep the three-year yield at 0.25 per cent.

“I understand why many people will view this as quantitative easing – or QE,” said Dr Lowe.

“This is because there is a quantitative aspect to what we are doing – achieving this target will involve the Reserve Bank buying bonds and an expansion of our balance sheet.

“But our emphasis is not on the quantities – we are not setting objectives for the quantity and timing of bonds that we will buy, as some other central banks have done.

“How much we need to purchase, and when we need to enter the market, will depend upon market conditions and prices.

“Rather than quantities or the size of our balance sheet, our focus is very much on the price of money and credit. Our objective here is to provide support for low funding costs across the entire economy.

“By lowering this important benchmark interest rate, we will add to the downward pressure on borrowing costs for financial institutions, households and businesses. We are prepared to transact in whatever quantities are necessary to achieve this objective.”

There’s no shilly-shallying there. It’s clear. It’s solid. It’s whatever it takes. The RBA gets it.

Now it’s up to the federal government to do the same, but the Morrison/Frydenberg media show on Thursday afternoon was all show and no go on the economic front, starting with the Treasurer’s bold claim that: “Today, the Australian government, together with the Reserve Bank, have injected more than $100 billion into Australia’s financial system.”

Well, no, that’s not what actually happened.

Like its “$100 billion infrastructure investment” (small print “over 10 years”), the government loves sloganeering a big number.

And then it got worse.

(If you’re into a little masochism, read the next bit in italics. If you’re not, skip ahead.)

JOURNALIST: Just to explain to the viewers, listeners, in easy terms to understand, if you’re say, Betty, a hairdresser, and people, your business dries up. No one’s coming, because they’re scared of human-to-human contact or whatever happens in weeks ahead. Betty’s got no customers. How does this, how can she borrow money to pay the employees? How in practice would it work?

PRIME MINISTER: Well, let me make one point and then Josh I’m sure, will make further points. Now and already, what we decided over just over a week ago was through the measures that would enable small businesses to get access to up to $25,000 in grants that will support their small business cash flow. When in the case you’re talking about, that business would certainly have eligibility when it comes to those payments and that always can assist. That’s not going to cover all the bills. We understand that. But it is going to go some way to provide some assistance, because that payment is actually linked to how many people they employ, ultimately because it’s done through the BAS. What today’s announcements do, is actually making sure that the banks themselves are in a position to get access to money at a lower cost, which means they’re going to be in a better position and stronger position to be supporting small- and medium-sized businesses in particular, around the country. What they’ve said today to the banks is we’re going to let you get money at a much lower cost, and you know, if you go and help and support small business, you’ll be able to get more money at a lower cost. When the banks can get it at a lower cost, then obviously that’s good for those who are in a position to seek it. Now, not every business is going to be in that situation. And we will have more to say about the broader measures that we want to put in place to cushion the blow and to support small business and to support individuals directly impacted by the coronavirus’ economic impacts. Josh?

TREASURER: Thanks, Prime Minister. Well, the interests of small business and the banks are aligned. The banks want their customers to be there on the other side of this and the small businesses want to survive and get through this and they want to continue to provide jobs to the millions of Australians that they employ. So the banks are working with their small business customers to ensure that that money is available. What today’s announcement makes clear is more money will now be available to the banks to lend. And the best illustration of the significance of today’s announcement is that the Commonwealth Bank has announced a reduction of a full percentage point in their small business lending rates, a full percentage point. Now, the bank, the Reserve Bank, has only reduced the cash rate, while significant, by a quarter of a percentage point. Commonwealth Bank has gone four times bigger than that today with small business lending, and that’s a direct result out of the announcements today.

A hairdresser was perhaps not the best example to posit at this stage of the health crisis – some people will still get their hair done.

An events caterer would have been better – their business has totally disappeared.

In any event (so to speak), after all the verbiage, the core of the question remains: What is the federal government going to do about it because last week’s package didn’t touch the sides?

The RBA can ensure there’s credit and that rates are very low for very long, but a business needs to have confidence in demand returning or other support to borrow and a lender has to see the strong probability of the loan being repaid before it will lend, however cheap money might be.

That’s the unanswered challenge for the government’s next attempt at a fiscal stimulus package. It’s a massive challenge.

The RBA has opened the door to unlimited funding for a brave and visionary government to use to save the nation from a deep recession. Now we just need to find a brave and visionary government.

The signs so far are not inspiring. Quite the opposite.

Either a kite was flown or a policy foreshadowed in Thursday morning’s Australian Financial Review that the government was considering a two-tier dole – something in between Newstart and the minimum wage for those who lose their job thanks to COVID-19.

It’s an execrable suggestion. The standard deficient Newstart for the “undeserving poor” and something better for the “deserving poor”.

The idea that any Prime Minister facing a serious recession with attendant rising unemployment would even countenance the idea is obscene. It would mark such a person unfit for office.

But when asked the obvious question on Thursday, neither Mr Morrison or Mr Frydenberg were capable of giving a straight answer:

JOURNALIST: Prime Minister it’s obvious from what the government’s been saying for a couple of days and what, certainly what you’re saying today, that income support is on the table for the next tranche of economic support. I deduce from what you, the answer you gave me yesterday that it’ll be delivered within existing programs, so for current beneficiaries, people who are currently on Newstart before this, before this crisis hit. Will, whatever the new arrangements are, also apply to current beneficiaries or only to a cohort of recipients who have lost their jobs temporarily as a consequence of this economic shock?

PRIME MINISTER: When we’ve completed the important work we’re doing at the moment, and we’re working through very carefully the design of these measures, what I know is that for those Australians who have been on what has been known as Newstart, going to the job seeker payment is that one of the things that has always been available previously in the economy with the very strong growth we’ve had in employment, is that the task of the government is to get people off the job seeker payment, off the Newstart payment and get them into a job where they are much better off. Now, we understand that certainly over the next six months, that is a very different looking economy. And when the facts change, when the circumstances change, you need to adjust your packages and the way you’re delivering support in the community to reflect that. So we’ll have a lot more to say about these things in the not-too-distant future. But just like last week, we’re working hard to get the detail right. So when we say something is going to be done, it will be done and it can be done and it won’t be attendant with lots of other different new forms and new processes and things that can go wrong. And we can ensure that the support and the cushioning impact of this can get to people in the best and the most effective way that is possible. But Josh did you want to add to that?

TREASURER: Well, obviously, the details of our package are being finalised right now. But as I said earlier, the situation has changed and it’s got much more difficult across the economy since even two weeks ago. But our focus has always been on getting to the other side and getting Australians to the other side.

That all might mean a temporary increase in the subsistence Newstart allowance while there are even more unemployed that available jobs, but it might not.

The AFR has interpreted it as meaning Mr Morrison has finally given in on increasing Newstart, but who knows?

Australia doesn’t need daily media shows by the Prime Minister.

It needs clear and unequivocal commitment to what is required and a shedding of ideological and political straitjackets.

The RBA has done its bit. Who’s next?

As The Doors put it:

Made the scene
Week to week
Day to day
Hour to hour
The gate is straight
Deep and wide
Break on through to the other side
Break on through to the other side

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