Reserve Bank of Australia governor Philip Lowe has been copping a grilling. It isn’t hard to see why: nine interest rate rises over the last year have given the banks a green light to raise their interest rates too and rake in bumper profits.
The rate rises mean big pressure on huge numbers of mortgage holders and renters who are paying hundreds of dollars more each month to keep a roof over their heads. This comes on top of hikes in the price of electricity, gas, fuel, food, insurance and pretty much every day-to-day essential.
Lowe argues that interest rate rises are necessary to curb inflation and notes that inflation will increase inequality. Yet, at the same time, he praised the Commonwealth Bank of Australia (CBA)’s announcement on February 15 that it made a record half-yearly profit of $5.15 billion.
Claiming to be against rising inequality while supporting record profit-taking is nonsensical.
Lowe and the RBA continue to falsely blame wages growth for inflation and argue that workers should not chase higher pay to keep abreast of inflation. This ignores the fact that profiteering is driving price rises that is driving inflation.
The RBA’s theory is that raising interest rates can combat inflation. However, rate rises are a very blunt instrument and they mainly inflict pain on workers — the victims of the inflation cycle and not its cause. Small businesses are also hurt by rate rises, because they rely on workers having spare cash to spend.
Disturbingly, the RBA is actively seeking to raise the rate of unemployment as it hikes interest rates. If the RBA crushes the spending power of workers too savagely (on top of inflation), large numbers of people end up foreclosing on their mortgages and losing their homes.
If millions suddenly have no money for discretionary spending on haircuts, movie tickets and car repairs, businesses will close, unemployment will rise and the economy will head to a recession.
The RBA’s policy of forcing the working class to bear the pain of “fighting inflation” is excused by Coalition and Labor governments on the grounds of its supposed independence. However, the RBA has never been independent of the capitalist class and is dutifully carrying out its interests.
Progressive taxation needed
Conversely, if the RBA really was independent, as it claims, it would have the power to raise the company tax rate or the rate of the top income bracket — the 3% making more than $180,000 per year.
Progressive taxation is the most effective and fair way to put the brakes on profit/price-driven inflation.
Various sectors of capital are competing to capture and retain pandemic-era stimulus funds, which played a role in keeping workers fed and housed, and the pandemic from spreading, during the lockdowns.
This fight to capture stimulus money is a little like that children’s board game the Hungry Hungry Hippos. Without a united and large union movement leading the fight for a wage rise, workers certainly aren’t retaining those funds.
Pandemic stimulus and wage subsidy payments were never supposed to bolster corporate profits. However, in this trickle-up economy, that is what is happening. The current inflation run is hammering those same workers the stimulus money was designed to assist.
If Lowe and the RBA were independent, they would be pushing for that money to be recovered from corporate coffers, via progressive taxation. Instead they are spouting disinformation about wages driving inflation while ignoring the elephant in the room — record profits.
A temporary return to the sort of progressive taxation rates of the post-war period in Australia would allow pandemic-era stimulus money to be recaptured.
A more permanent return to progressive taxation would free up space in the economy for ongoing and non-inflationary public stimulus spending on climate action, building quality public housing and public transport, repairing the gutted health and education system, and raising welfare payments and public sector workers’ wages.
Lowe’s support for the CBA’s record profit while calling for wage restraint should come as no surprise: his own annual “wage” is around $1 million. As a part of the 1%, Lowe has an interest in helping corporations, especially banks, to maximise their profits.
“If you don’t fight, you lose”, should be more than a slogan. We need a united working class-led push for solid wage rises, or inflation will leave us worse off.