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8 Sep 2023 - Hedge Clippings | 08 September 2023



Hedge Clippings | 08 September 2023

Yesterday marked what will probably be Philip Lowe's final speaking engagement whilst RBA Governor before handing over to his deputy Michele Bullock on 18th September.

Free from the shackles of his position and convention, the outgoing governor took the opportunity to set the record straight on what he had (and had not) promised, whilst also taking a few shots at the level of reporting and attention his previous statements and comments had received. Of course, whilst in the role he had carefully avoided having an all out war with the media (Eddie Jones, take a lesson in humility) understanding that one rarely gets the last word in - no doubt remembering the old adage "never to argue with the person with the microphone".

Whilst being pretty direct in his comments and opinion of the media, he was somewhat more subtle, but equally correct in also having a go at government in his speech entitled "Some Closing Remarks". Lowe stated the obvious: Government should carry some of the can for inflation and interest rates, and thus the property market and mortgage stress. In reality the RBA is very much the messenger, in spite of the so called independence.  It is the government of the day that has the authority and ability, plus a wide variety of potential policy tools to steer the economy, instead of leaving it to the RBA and the blunt instrument of monetary policy to do the work for them.

Fat chance of that happening! As Lowe said, it would require some "innovative thinking" which is a rare commodity in politicians, particularly once they're elected, and don't want to lose the benefits of office - even the unofficial ones, such as membership of the Qantas chairman's lounge, (which really should have been renamed Joyce's Jolly long ago).

History has shown we've had multiple examples of "innovative thinking" over the years - think Mark Johnson's 2009 report, Australia as a Financial Centre, or Ken Henry's 2010 Tax Review with its 138 recommendations, most of which are still gathering dust. The major item from the Henry Review which was implemented by the then Rudd Government was the move to create a resources Super Profit Tax. The proposal was highly controversial, and has been suggested as the main reason why Rudd lost power.

Both were announced with great fanfare (even if then Minister for Financial Services, Chris Bowen released his response in mid January, 2010, hardly likely to get anyone's serious attention) but neither Johnson's and Henry's efforts or recommendations resulted in little to no "Committed Action".

Bottom line - don't trust politicians to actually do anything innovative, even if it is clearly in the national interest, if it also involves personal risk - as Paul Keating said "in the race of life always back self interest - at least you know it's trying".

During his term as RBA Governor, Lowe did exactly what was required with the tools available to him, and given the cards he was dealt by the global economy, and policy of the day. He lowered rates to zero in response to COVID and government policy, which resulted in households and corporates being awash with cash, which along with Russia's invasion of Ukraine led to an outbreak of inflation. Like all central banks, he tightened rates (less than the US or UK) to stifle inflation, hopefully without choking the economy in the process.

The government takes the credit for low unemployment, but is happy for Lowe and the RBA to take the blame for high interest rates and mortgage stress, to the extent they declined to renew his term in office. It's the government's responsibility to ensure there's sufficient housing to accommodate an immigration level of 300,000+ this year which is helping to keep house prices high, but they won't take the blame when it hurts those under mortgage or rental stress.

Lowe will leave with a record of having set and kept to his narrow path, and what may shape up to be a soft landing - no mean feat. He should be applauded.

Meanwhile the government has been left with a mess of its own making with - whatever the outcome - a divisive referendum campaign, and egg, or worse on its face over the Qatar fiasco, as has the Qantas board.  Alan Joyce is probably public enemy Number 1 in Australia at present, and most people would be lining up to give him the following treatment:

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