Politicians can’t be trusted to do what’s right on rates

Politicians could never be trusted to do what’s right, as opposed to what’s popular, when it comes to interest rates, as Dan Andrews and Chris Minns clearly demonstrate.

Victorian premier Dan Andrews.

Thank you, Victorian premier Daniel Andrews, for explicitly reminding us why politicians should never be let near the ‘interest rate lever’ – a reminder, that was seconded so to speak by newboy premier, NSW’s Chris Minns.

As Andrews explained – and Minns echoed, ‘hear, hear’– politicians will always, and I mean always, choose the popular vote-winning option over the more generalised and often unpopular public (and indeed, actual people) interest.

So, there was Andrews attacking the Reserve Bank for supposedly “smashing voters” - sorry, correction, families - with Tuesday’s rate rise and the other ten before it.

While Minns piped up with his query whether the RBA was “actually fulfilling its remit”; that he also was “very concerned” about the impact on voters. Sorry again, families.

I liked the bit about Minns opining on the RBA’s ‘remit’, as it showed him faithfully ‘doing an Albo’ – that’s to say, not having a clue.

Just as the PM was unable to nominate the RBA’s absolutely fundamental and these days almost in your face cash rate, Minns clearly hasn’t a clue what the RBA’s remit is.

For future reference for the trainer NSW premier, the RBA’s remit is explicitly to keep inflation in the 2-3 per cent band; and when it’s dramatically above that band as is today’s 7 per cent inflation, to get it back down there.

Doing so, with the one - and experience has shown, the only effective – weapon it has: raising that cash rate.

A cash rate that, by the bye for the benefit of the premier – and indeed the PM – is now 3.85 per cent. Repeat after me, premier and PM: three point eight five per cent, 3.85. 3.85.

This predilection for the populist over the public interest is almost hardwired into the political brain, mostly on an entirely bipartisan basis.

In over 30 years in public political life, while being overall our second-best ever PM, John Howard nevertheless never saw an interest rate cut that he didn’t like and never saw an interest rate hike that he didn’t hate.

Except of course when he was sitting on the opposition benches, and the exact reverse applied.

Howard met what might be called his ‘interest rate – or RBA - Karma’ , when the RBA lifted its cash rate smack in the middle of the 2007 election campaign and Howard lost his premiership and indeed his seat.

The two critical things about keeping rate decisions out of the hands of politicians is both the basic willingness to raise rates, sometimes punishingly – which is not the case today; at least not yet – and to do it on a timely basis, which is to say early.

Yes, I’ve criticised the RBA for being too slow to start, and for then raising more timidly than the RBNZ.

But at the end of the day, Governor Philip Lowe, like all his modern-day predecessors, has been prepared to ‘do his job’. He was always going to break that ‘promise’ if he had to.

As both Andrews and Minns have so publicly announced: they simply could not be trusted; and the consequences would be far, far more pain and serious harm to those very voters – there I go again, families – they so pathetically claim to worry about.

If Andrews and Minns had their hands on the ‘rate lever’, the consequence would be much higher, much more entrenched inflation and much higher and more long-lasting punitive interest rates.

But they would be long gone by then; it would be someone else’s problem.

I should note in closing there are exceptions to what I might dub my ‘pusillanimous populist polly rule’ – most notably Labor Paul’s Keating who urged the RBA to go-a-hiking in the 1989-90 period.

But also more quietly the Coalition’s Peter Costello.

Originally published as Politicians can’t be trusted to do what’s right on rates