Fighting Joe's punch at banks may prove visionary

An illustration by Bill Leak.

THE shadow treasurer has a good grasp of economics. What he lacks is political nous.

JOE Hockey is making his pitch to the forgotten people: mainstream Australians who feel weighed down by fees, charges and general cost-of-living pressures.

I am talking about Hockey's musings on the banks, interest rates and whether a new paradigm in government relations with the banking sector is necessary after the global financial crisis.

It is shaping up as a fascinating debate with implications for all sides of politics, as well as the various personalities looking to fulfil their political ambitions.

Hockey's plan is to appeal to mainstream voters while correcting a moral hazard he believes has crept into our financial system.

Bank-bashing is popular and it isn't hard therefore to criticise Hockey for pursing a populist agenda. But banks are also becoming like utilities in the sense that the state is too dependent on their survival to let them fail.

Hockey worries that with the bank guarantee in place, the state is effectively underwriting potentially risky, profit-seeking expansions by bank chief executives without adequate public debate.

It's a fair point.

ANZ's chief executive Mike Smith slapped Hockey down on Thursday, snarling that he didn't see what all the fuss was about. Let me enlighten him. His bank posted a 33 per cent jump in profits, to $5 billion.

Yet the banks continue to claim they need to lift interest rates more than Reserve Bank adjustments to the cash rate because they are under financial strain.

Our big four banks are looking at potentially risky overseas expansions, yet the taxpayer is effectively underwriting any risk because of the presence of implicit and explicit bank guarantees.

Competition in the banking sector has dwindled courtesy of the GFC, so policy-makers would like to find a way to reintroduce that important element of the market to ensure consumers get the best deal.

It's pretty simple, really. But Hockey's banking play is as much about his own ambitions as it is about the ambitions he has for policy adjustments.

The shadow treasurer has already put his stake in the ground as a defender of workplace reforms, an article of faith for most Liberal Party members. That was a first step.

Now he is looking to appeal to the mainstream voter turned off, possibly, by his stance on the emissions trading scheme late last year.

Because Hockey believes climate change is real and a genuine market-based solution is the best way of addressing it, he won't give up that ground for fear that in future years he will look like an environmental dinosaur. If the sceptics are proved right, he loses nothing (he isn't out on a limb on the issue the way Malcolm Turnbull is, for example). If they are wrong, he won't suffer their fate.

In the meantime, Hockey needs to re-engage voters, not to mention Liberal Party members, who remain sceptical about climate change. They disproportionately represent Howard's one-time battlers.

Howard battlers are Tony Abbott's new constituency. Hockey needs to appeal to them, too, if he is ever to be given a chance of leading the Liberal Party.

However, it is important in doing so he wins the economic argument as well.

Being popular is always important for politicians, but they must be prudent also. Howard usually got the balance right.

Economic management at the federal level is the most important criterion for most voters.

Abbott has confessed economics doesn't particularly interest him. Peter Costello has confessed he isn't entirely comfortable with Abbott's economic management skills. And even Howard - Abbott's mentor - privately worries about his protege's grasp of financial matters.

When Abbott refused three times to support Hockey's nine-point plan for the banking system on Wednesday, it wasn't because he was questioning it; he just wasn't across its details.

Abbott had to come back later that day, once he properly understood what it was all about (enough to get through a press conference anyway), to show journalists that he supported his shadow treasurer.

Hockey is using the banking issue to position himself for the future, in a policy area he understands better than Abbott. But he must avoid being clumsy when doing so.

Suggesting the banks should be punished and levers should be used to cap rates is why Hockey has been dubbed "sloppy Joe" by the Labor Party. It was loose language on an important and detailed issue. Hockey's language made it sound as if he were advocating a return to the past in banking regulation: reversing reforms from the past 25 years in an anti-liberal approach to the markets. A detailed study of his ideas suggests nothing of the sort.

Turnbull didn't support Hockey's idea when quizzed about it on radio. West Australian Liberal MP Don Randall thought the ideas were part of a radical Greens agenda and said so. Oops.

There are suggestions Turnbull didn't support Hockey because he was trying to hang the shadow treasurer out to dry, keen to see him fail so he could move into the role. Maybe.

But Hockey hadn't properly briefed Turnbull on his ideas, which is Hockey's failing, even if Turnbull has to learn to deflect difficult questions a little better.

The confusion among Hockey's fellow Liberals about what he is advocating - still a reality - is a sign it won't be an easy road arguing for a fundamental shift in the relationship between governments and banks. But that doesn't make Hockey's suggestions wrong or not worth pursuing.

In fact the International Monetary Fund came out quite independently of Hockey's musings and said that banks supported by taxpayer-funded guarantees needed to be closely watched, as they could be "emboldened to take on riskier strategies" because of their strong profits.

It explicitly suggested the Australian Prudential Regulation Authority should monitor this. As Julia Gillard has told us, reform is hard, reform can be divisive.

Howard built his reputation as a politician of substance well before he became Liberal leader again in 1995. It was also well before he was credited with being on the right side of the debate. On this issue Hockey could suffer the same short-term fate. But if he is patient he may come out the other side, looking visionary.

Howard was one of the early economic dries pushing for industrial relations and taxation reforms. He was labelled a radical, a risk taker prepared to let the market run roughshod over people's lives. But as the global economic environment shifted, Howard's stocks improved. The times eventually suited him.

Hockey is not a dill, as some of his opponents (on both sides of parliament) like to claim.

He has a better grasp of economics than his leader, he is more popular and he is a creature of the Liberal Party. That should give him the three things necessary for success: economic understanding, popular appeal and political nous.

Hockey's problem is that the third criterion - political nous - appears to be lacking. The best example was when he called for a conscience vote on the ETS during the leadership showdown late last year. If Hockey doesn't start showing more political nous, his other skills will continue to be overshadowed.