Australia has less income disparity than the US (not that that is saying much, the US is the most extreme among advanced economies) by virtue of having relatively high minimum wages and cultural opposition to big pay packages. Australians are pretty egalitarian; for instance, they are skeptical that large paychecks are fairly earned (ie. they are immune to the US “talent” myth). Their “tall poppy” syndrome means they like cutting people who stand above the herd down (superstar footie players being a notable exception).
And the argument that lower Australian pay levels make it hard for Australian companies to recruit executives from overseas may be true, but appears to have not done the damage big search firms would like to claim, since the Australian economy has shown a much better growth record than other most other advanced economies. But Australian banks are reaping record profits, hence bank executives are pulling down sums deemed outrageous by Australian standards. As reader Skippy notes, the natives are getting restless. From the Herald Sun:
Not content with multi-billion-dollar profits, the big banks are coming after borrowers in response to what they argue is the “real cost” of the money they lend.
The banks have launched into a war of words with the Reserve Bank and Treasurer Wayne Swan as they pave the way to jack up interest rates as early as Tuesday.
Their powerful lobby group has issued a stern reminder that the banks – and not the RBA – set mortgage rates, and that the RBA’s official interest rate is “only one consideration”.
The warning comes ahead of a raft of profit announcements, with the “big four” expected to report a total profit for the year of $21 billion – almost $1000 for every man, woman and child.
Executive pay packets have exploded amid the mushrooming profits, with Commonwealth Bank chief executive Ralph Norris on a $16 million package this year, up 75 per cent from last year.
Economists say there is an even-money chance the RBA board will lift the official cash rate 0.25 percentage points to 4.75 per cent when it meets next week.
A string of economists and analysts told the Herald Sun if the RBA did lift the cash rate, the banks were likely to grasp the opportunity to hike mortgage rates higher still – by up to 0.45 percentage points.
That would add $88 a month – or more than $1000 every year – to the typical $300,000 mortgage, pushing many household budgets to the brink. [Yves here. Australian mortgages are floating rate, so rate increases translate directly to higher mortgage payments]
Mr Swan said this week there was “absolutely no justification” for any bank to raise interest rates beyond RBA movements.
But the Australian Bankers Association has returned fire, saying “the real cost of money” is different to the RBA’s official cash rate, and 30c in every dollar lent by the big banks is raised overseas.
Chief executive Steven M adinchenberg said: “The cost of that money has remained high and volatile, and is not controlled by the Reserve Bank. (The banks) have a responsibility to remain solid and healthy so that they can continue to raise money offshore from overseas investors to support the growing Australian economy.”
Christopher Zinn, spokesman for consumer group Choice, said the banks’ healthy profits more than compensated for the increased cost of overseas funding…
“It is really riling for customers, but every time it happens, the consumer anger grows, and that may one day lead to the Government moving against the incredible power of the banks,” Mr Zinn said.
Yves here. A reader comment on the article gives some insight into local sentiments:
Oh….of COURSE the Banks have to raise their interest rates. Norris gives himself a 16 MILLION DOLLAR package? Up 75 percent from last year? And we wonder why interest rates keep going up? There’s your answer, right there. So those criminals who run the show can get nice and fat on our money. The same as that woman exec who gave herself an 11 MILLION DOLLAR bonus. And they’ll keep on getting away with it, until someone has the balls to stand up to them. And this current Govt wants to go after the Mining Industry? Gimme a break. Tax those bank high-flyers 97 cents in the dollar for their extortianate salaries and bonuses. Then tax the Banks for their obscene profits. Problem solved. And don’t try to give me any of that bunk about the ‘real cost of money’. They never send anything our way when overseas does well. So why the hell should be tip in if overseas goes bad? Leeches and criminals are running this Country.