It would be hard to have laws regulating interest rates alongside an independent central bank conducting monetary policy, the head of Treasury says.
Opposition treasury spokesman Joe Hockey on Thursday called for the treasurer to legislate if necessary to ensure banks don’t raise mortgage interest rates higher than adjustments by the Reserve Bank of Australia (RBA).
Treasury secretary Ken Henry told a Senate estimates hearing that regulated interest rates ended in 1986, and monetary policy since has been set by the RBA.
“It would be rather difficult to have a central bank independently operating monetary policy through interest rates at the same time another body – the government – regulating those
interest rates,” Dr Henry said.
“It doesn’t sit too well together.”
Earlier, Federal Treasurer Wayne Swan accused the opposition of threatening Australia’s prosperity with the demand the government regulate bank interest rates.
But Hockey has received support from an unlikely quarter, in the form of left-leaning advocacy group GetUp!
Labor has made political capital out of opposition treasury spokesman Joe Hockey’s call for the treasurer to intervene to prevent banks from raising borrowing levels before Reserve Bank moves on the cash rate.
In an unusual day in politics, the Australian Greens and the left-leaning political lobby group GetUp are backing the coalition’s stance on regulating banks.
Labor has continued to advocate free-market economics in the finance sector, as a West Australian Liberal defended comments he made that appeared critical of Mr Hockey.
Fronting parliament’s question time, Mr Swan said former Liberal prime minister John Howard and his long-serving treasurer Peter Costello would wince at Mr Hockey’s suggestions.
“It’s an attack on the very pillars of our prosperity and therefore an attack on prosperity itself,” Mr Swan told parliament.
“Because they risk fracturing that economic consensus that has been so important to confidence domestically and confidence in the international economy.”
Swan stands by RBA
Mr Swan said he would defend the independence of the Reserve Bank to set interest rates “no matter how uncomfortable that may be for any of us from time to time”.
As question time resumed, Australian Greens leader Bob Brown issued a statement outlining his party’s bill, already in the Senate, to control “unfair” mortgage increases.
“This means that the interest rate payable by the consumer will rise and fall in line with changes to the lender’s cost of funds,” he said.
Variable mortgage borrowers expected rates to move in line with official interest rates without being varied at the whim of banks, he said.
GetUp! Backs Hockey
GetUp! national director Simon Sheikh said he applauded Mr Hockey’s stance.
“Mr Hockey is right to say we need to wrest control back from the banks, who are currently free to price-gouge to massive profits,” he said in a statement.
“There’s no way that the banks need to exceed Reserve Bank rates nor charge unfair and debilitating fees.”
The opposition was put on the defensive earlier on Thursday when West Australian Liberal MP Don Randall lampooned the idea as one typical of the Australian Greens.
“This is just another one of their … lunatic fringe-type ideas,” he told reporters in Canberra.
Mr Randall later retracted his comments in a statement to parliament, saying he was not referring to Mr Hockey’s idea but to a Greens stance on a super-profits tax on banks.