The chief executives of ANZ and Westpac have pleaded with the Federal Government to cut spending as a way of bringing down inflation and interest rates.
They appeared before a parliamentary inquiry in Canberra a day before Friday’s 25 basis point increase in variable mortgage interest rates comes into effect to reflect the Reserve Bank of Australia’s fifth interest rate rise this year.
ANZ CEO Nuno Matos argued the AI data centre building boom was an unprecedented inflation danger, especially with Commonwealth spending already at the highest level in four decades outside of COVID.
“It’s a dangerous situation for the world,” he told the House of Representatives economics committee on Thursday.
“So, in this context, administrations in the world will have to reflect how do they participate in this competition for capital, meaning how much can they spend versus the rest of players that are also competing for capital.
“It’s nothing seen in the past, so we have a very curious situation in the world where we have the equity markets at record highs, basically because of the tech wave and basically because of the AI wave but at the same time, you have record highs of interest rates.”
Under questioning from Liberal MP Cameron Caldwell, Mr Matos said government spending needed to be cut, with defence and transport infrastructure projects already competing for capital funding during an artificial intelligence-led tech boom.
“We always want the private sector to lead the investment and the spending in order to make an economy sustainable,” he said.
“I think that’s very clear. Now in the short term, in the specific cycle that you may have, there might be cycles where the public side has to jump in and support the economy, especially in recessions, COVID was a good example.
“Through the cycle, a market economy wants the private capital to be the one leading the spending and the investment.”
Anthony Miller, the chief executive of Australia’s second biggest bank Westpac, noted cuts to government spending would lead to lower interest rates, with September’s 4.3 per cent inflation pace marking the 14th straight month above the RBA’s 2-3 per cent target.
“If inflation is, yes, brought within the target range, the Reserve Bank is going for, that should then naturally follow that interest rates come back,” he told Liberal MP Simon Kennedy.
“The current inflationary challenge in Australia is fundamentally because the capacity of the economy to absorb the demand is not where it needs to be.
“So, therefore any pullback of any demand — public or private — will contribute to reducing the inflationary challenge that we currently navigate.”
But Mr Miller said solving Australia’s weak productivity crisis should be a “far more appropriate priority for the country”.
“That’s the only long-term, sustainable unlock in terms of solving inflation,” he said.
“I would argue, that again, we continue to focus everywhere in every way on the demand side of the equation — I think the whole country needs to be much more focused on the supply side and the capacity side of the economy and how do we therefore drive productivity.”
The annual, two-day House of Representatives inquiry into the big four banks began on Thursday, a day after Australian Bureau of Statistics data showed a 30.6 per cent plunge in investor loans during the September quarter as overall new mortgage demand fell by a record $15 billion.
Mr Miller said the worst may be over, with borrowers adjusting to the RBA cash rate now being at an 18-year high of 4.85 per cent.
“We are starting to see home loan applications begin to lift as buyers adjust to the environment,” he said.
But he said the supply of housing would be unlikely to grow at a faster pace despite an uptick in construction lending by Westpac.
“With construction, labour and material costs rising, greater investment is delivering fewer homes,” he said.
Despite ANZ’s full-year cash profit climbing by 31 per cent to $7.6b in the 12 months to September 30, Mr Matos claimed home mortgage lending was among the least profitable products it offered.
“I will be very direct to that question: the mortgage business, it’s one of the least profitable businesses in banking in Australia,” he told Labor committee chair Ed Husic.
“The banks are not getting better margins on mortgages. Actually, it’s the opposite so the problem is elsewhere and I can demonstrate that to you, mathematically.”
The CEOs of NAB, Andrew Irvine, and the Commonwealth Bank’s Matt Comyn are appearing before the committee on Friday.
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