It is one week into 2010 and most people will already have broken their New Year's resolutions. Promises of less chocolate, less alcohol and more exercise have gone the same way as Kevin Rudd's pre-election commitment to be a fiscal conservative.
When confronted by the temptation of a slice of birthday cake at the year's first office morning tea, many will utter Saint Augustine's famous plea "give me chastity and continence -- but not yet".
For all their good intentions politicians face not dissimilar temptations. In the next 12 months a federal election, plus state elections in Victoria, South Australia and Tasmania, mean there's going to be a higher than normal percentage of good policy sacrificed to populist temptation. And there'll be many popular but bad policies announced, too.
At the moment there's one particularly bad policy that stands out It's the idea that the government establish, own and, operate a "People's Bank". Last year some Australian economists floated the concept, and speculation about it reignited in December with the appointment of former National Australia Bank boss Ahmed Fahour as chief executive of Australia Post.
The suggestion is that the nation's post offices be turned into bank branches. Supposedly, a people's bank would compete against the Big Four and fill a market niche in regional and remote areas.
There's a nice historical symmetry to this debate. Next Thursday marks the 50th anniversary of one of the few significant economic reforms of the Menzies government. On January 14, 1960 the commercial banking and central banking functions of the Commonwealth Bank of Australia were separated, and the Commonwealth Bank Corporation, and the Reserve Bank of Australia were created. Menzies understood that a central bank shouldn't also be a trading bank in competition with privately owned banks. Paul Keating, when he sold the Commonwealth Bank in 1991, understood that governments shouldn't own banks in the first place.
The political temptations of a government bank are obvious. What could be more popular with voters who are sick and tired of uncaring, profit hungry banks? There's lots of precedents. Kiwibank is owned by New Zealand Post, which in turn is owned by the New Zealand government.
Kiwibank's advertising is shameess and its description of itself on its website is revealing: "The movement began in 2002 [when Kiwibank was established] -- a little Kiwi-owned bank [actually a bank owned by the government] taking on the Aussie banks. New Zealand needed a better banking alternative -- a bank that would provide real value for money, that had Kiwi values at heart, and that would keep your money where it belongs -- right here, in New Zealand. And so the resistance was forged ... The resistance to foreign bank ownership grows stronger every day."
That's strong stuff. If the New Zealand government is so concerned about foreign-bank ownership it could simply ban foreign banks. It's been done before. If ever we had a Koalabank it's interesting to speculate who it would bash. The Americans? The Dutch? Maybe it would just bash the other banks for being too big.
There are numerous philosophical and practical reasons why governments shouldn't own banks. For starters, if Australia Post became a bank, the cross subsidy and transfer-pricing issues would be mind-boggling. Australia Post is now trying to increase the price of basic postage stamps by 5¢. What might the reaction be if in the future its customers had to pay more for stamps so that Australia Post could offer cheaper home loans? It would be a tragedy to reintroduce these sorts of rorts in public corporations after we've just spent two decades trying to get rid of them.
Do we really want Rudd's government (or Tony Abbott's) running a bank? A government-run bank is susceptible to the political pressures that apply to any government activity.
Anyone in doubt about how the current government runs its financial operations can simply read the Auditor General for Australia's report into the OzCar affair. Or they could investigate the history of Rudd Bank and the failed efforts to bailout over-leveraged property developers. Or they could ask the Prime Minister why the government is undertaking the largest infrastructure building program in the country's history without having first done a cost benefit analysis. The list goes on.
Instead of fantasies of government-run banks or making post offices into bank branches, we should contemplate real reform. Like selling Australia Post and exposing it to genuine competition.
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