The Melbourne Cup has been run and won for another year. Congratulations to everyone who backed the winner, Australian owned and trained Vow and Declare!

The other big event yesterday was the RBA’s November board meeting and their decision to hold official interest rates at the historic low of 0.75%. The decision to pause after the October cut was largely expected, given a marginal improvement in unemployment and a modest up-tick in inflation.

However, RBA Governor Philip Lowe noted in his post-decision statement that the outlook for the Australian economy is little changed from three months ago and on Friday this week  the RBA is expected to again cut its forecast for GDP growth, so in the final instalment of our Interest Rates series we say:

Part 3: A Different Approach is Needed

We are of the view that the Government can learn from lessons in the medical profession. When a patient has a medical condition, the medical professions considers a number of reports – X-rays, MRIs, Blood Tests and CT Scans just to name a few.

The Government appears to be relying solely on the Reserve Bank of Australia to “prescribe” the medicine – trying to give the economy a shot of Viagra, but it isn’t working. Like any stimulus, you have to look at a multitude of things, not just the prescription of a drug and hoping that is the only solution. In this instance, the Government is relying on the RBA to prescribe the Viagra, but hasn’t checked the other vital signs to see what is stopping the drug from working. A good professional would take a holistic approach and review everything before making a decision.

If we use the Spring Racing Carnival theme, it is like having your leading horse jumping swiftly out of the barrier, running 2,500m of the race and being out in front and ready to win, but then the track stewards put up a big barrier leading into the home straight with 400m to run, and closing down the track. After all of that, you may as well have called-off the race. That is what the Government has effectively done.

In our view, the Government needs to do more in terms of encouraging banks to lend, and for customers of banks to be responsible and accountable for their own financial decisions. This should lead to more economic activity and lending to property owners, property developers and new home owners.

Regulators need to have a framework to ensure that illegal activity is being stopped, but that people are not having to be protected from themselves. This was evidenced by the Federal Court recently in ASIC v Westpac, in which the Judge stated that people could change their lifestyles if required, to meet their loan repayments.

Stimulus in the form of incentives to assist not only first home buyers, but also those wanting to upgrade their property or house. Access to other forms of capital like Superannuation to assist in buying a property by using it as a deposit, needs to also be considered. We have had a number of situations where clients have been through a marriage divorce or separation, and then had to start again. But, in the asset split, one party has more superannuation than the other. The superannuation is unable to be accessed until age 60 or above, so they are unable to get the deposit needed to buy a property, and be able to set themselves up financially for their eventual retirement.

A full analysis and investigation into the way that our regulators work will be more beneficial than more “bank bashing” or higher regulation for an already over regulated industry such as the finance broking and financial advice industry.