A bit of anger over credit cards could earn Labour a bit of credit with voters, but there's a risk for a party that is still trying to prove its economic bona fides

Labour may just have stumbled on a wee goldmine. Former leader David Shearer has in recent days been taking some pot-shots at the banks. Not all out assaults, but he's been spraying bullets around at the 'big four' Australian-owned banks, complaining about their excessive profits and "rorting" of ordinary Kiwis.

It hasn't looked terribly coordinated, but it's an interesting tactic and reminiscent of Shane Jones and his attack in 2013 on the supermarket duopoly. What supermarkets and banks share in common is that we all need them, they make bucket loads of money in bad times and good, and they're owned largely by Australians.

They're an easy target. Boo! Hiss! Look behind you! And as the economy turns decidedly chilly this winter, people are looking for targets.

Shearer has raised the fact that the Australian-owned banks in New Zealand have a bigger profit margin than they do in Australia, which will grate. He also reckons farmers are starting to come under pressure from their banks, something the banks reject.

But the bullet most likely to hit the mark is his complaint about interest rates on credit cards. According to Shearer we Kiwis carry about $4 billion [corrected] of debt on our credit cards. And he asks a very telling question:

"Why is it that credit cards are still 17% and 18% when the banks’ lending has come from 8.5% right down to 3%? That margin has shrunk for the banks, but it hasn’t shrunk for the customers."

It's the sort of question a lot of New Zealanders won't have thought of, but when it's posed will go "yeah, why's that not come down?". In that way, it's like petrol prices and milk.

The banks say credit cards are covering unsecured loans, so the risk is high. They say most New Zealanders pay off their debt inside the interest-free period and don't pay a cent. That only 1-3% of New Zealanders pay only the minimum off their cards, which is much lower than most comparable countries.

But the banks made money eight years ago when their borrowing rates were around eight percent. So why do they need a bigger margin now? To that they seem to have no good answer. And it's one Labour can press for, and look like the champion of the little guy while they do it.

As with Jones' supermarket campaign, the party can latch onto existing disgruntlement (who loves their bank?) and show they care about things that hit people's pockets, not just the identity politics of yore.

It just has to be done with some tact, something that has not always been a Labour strong point. The risk is that Labour looks anti-business, anti-aspiration and wealth. That they don't appreciate the importance of a sound banking system, and so aren't yet the responsible economic managers voters need them to be.

Labour's performance has been patchy in recent months. Shrewdly, it acknowledges that no-one is really listening to it right now. Its strategy is to chip away at the government as much as it can while it strengthens internally and builds its competence for when people switch on again.

But Andrew Little's initial solidity has started to look a little dour. And the risk of doing so little now is that momentum is lost and people's preconceptions aren't challenged until it's too late. A few hiccoughs, like a bit of plagiarism here and some pretty tepid speeches there, raise fears amongst its supporters that the wobbly old Labour Party remains. But it's too early to tell. 

Perhaps the one thing being challenged is the sense that an Andrew Little Labour Party is a bit more confronting, a bit willing to work the centre and the populist line. The sense that it's closer to New Zealand First than the Greens these days tells you just how keen it seems to be to hug the middle. You can see that in its careful stance on the TPPA (riding the popular wave of scepticism without ever putting Phil Goff and the party's other free-traders in an impossible position) and its willingness to push ahead with its Chinese surname complaints, even in the face of anger from the left.

At the same time Little is working his way round big business and trying to show a friendly face to the corporate world, including the banks. Which makes you wonder whether Little's office signed off his releases on banks "rorting" New Zealanders.

Populism and drum-beating is always tricky when you're trying to look like you're ready to govern. Labour has to be careful to walk the tightrope between looking like responsible fiscal managers and using people's instinctive distrust of banks to win votes. But it's certainly an issue that could give it another bump in the right direction.

Comments (17)

by Brendon Mills on August 15, 2015
Brendon Mills

But what solutions do we expect Shearer to propose...???

by Alan Johnstone on August 15, 2015
Alan Johnstone

"According to Shearer we Kiwis carry about $4 million of debt on our credit cards. And he asks a very telling question:

That seems a shockingly small number, don't you mean $4 billion ?

by Murray Grimwood on August 15, 2015
Murray Grimwood

Tim still doesn't get it.

What happened 8 years ago is not the same as what is happening now - this is not a linear event.

As we go past the peak, the inability to repay increases exponentially. Banks know about the exponential function, even though the majority don't seem to. They also understand risk. 

Labour are a gone goose, floundering in history. Just as tyhose who thing the (recent, temporary) state of 'right/left' is somehow an immutable canvas.

Galbraith (JK) once said that great leadership was tha ability to address the pressing issue of the time. Labour is apparently incapable of that, as appear to be all other parties. We have to assume that individuals - one went close to Green leadership recently, unless I miss my guess - must know this stuff. They're just muzzled, either by Party or - just as effectively - by fierce media silence.

by Charlie on August 15, 2015
Charlie

If it hadn't been for those sound Australian banks, 2008 would've been a whole lot worse for NZ. I've seen how Kiiwis run banks and it wasn't pretty.

As regards the interest rates on credit cards, it's a free market. If they don't like those rates, I suggest they either avoid credit card debt like I do or go to one of the non Australian banks...where they'll find the rates pretty similar.

 

 

 

by barry on August 15, 2015
barry

Labour still needs to learn to tell a consistent story.

It is still hard to discern what they stand for.  As you say they are chipping away at the banks to try to get heard, but they are afraid to frighten the horses, so are being very timid.  as a result they don't sound believable.

they same goes for the flag debate.  They are very strident opposing the thing that appeals to a lot of their supporters.  Sure anti-Nationalers will find reasons to hate anything the they propose, but the people that Labour has to appeal to are not them.  The flag debate is going to generate a lot of heat over the next 6 months and Labour are going to be chipping from the side-lines.  How to make yourself seem irrelevant.

For god's sake, agree a policy and go at it loudly so that people know where you stand.

 

 

by Tim Watkin on August 15, 2015
Tim Watkin

I do Alan, I do indeed. I'll fix that.

Murray, you're right I don't get what you're talking about. What is not linear? My only eight year reference was to profit margins. I've got no idea why you think Labour is gone (I've heard that song before about both main parties), what you think the pressing issue of the time is (as if there's just one?!) and what you mean by "fierce media silence". You're not making a lot of sense, to me at least.

by Tim Watkin on August 15, 2015
Tim Watkin

Charlie, you undermine your argument about a free market someone when you point out that rates are pretty similar all round. While it's unlikely to be collusion, as you know if everyone refuses to budget it's pretty easy for banks to leave those rates unchanged (and the profit motive is obviously strong) until enough people calls them out.

And yeah, it's easy to say 'avoid debt', unless of course you have little money in today's world, where marketing pressures to use debt and buy, buy, buy are so strong. No-one's saying the banks didn't make a big difference in the GFC, but the simple decision (or inability) to get deep into sub-primes hardly deserves a free pass on all other policies for all time, does it?

by Tim Watkin on August 15, 2015
Tim Watkin

Barry, I tend to agree. Timid is about right. But the timidity is a reflection of a considered strategy. They say no-one is ready to listen to them now, so why waste your time shouting at deaf ears? Timing matters and picking the right time to go loudly could be crucial... The risk of course is that you delay too long and people give up waiting.

by Charlie on August 16, 2015
Charlie

Tim

Allow me to explain how finance works in the big world outside of academia.

Show me that person who can't manage their credit card and I'll show you that same person has a $700 smart phone and a whole lot of other 'stuff' they don't need.

In other words they're financially incompetent.

And the rate for loaning money to financially incompetent people is much higher than for loaning money to sensible people who are say, investing in an asset. The mortgage rate from those same banks is currently around 4.8%. Doesn't that tell you something?

 

 

by Ian MacKay on August 16, 2015
Ian MacKay

"They say most New Zealanders pay off their debt inside the interest-free period and don't pay a cent."

When I pay my credit card the full amount owing the money disappears into a hole somewhere in the banking system. Then out it pops as a credit into account after about three days. Where has the money been, perhaps millions at any point in time? My guess is that the flowing in and out over days collects a big chunk of interest for the bank, otherwise why would they bother if it was just to catch the 1-3% who only pay the minimum?

by Murray Grimwood on August 16, 2015
Murray Grimwood

Tim - given the hassling I've given the NZ media increasingly over a decade, that's a frustrating reply.

Short form:

The planet is a finite cake, in 3 layers. There's finite resources, renewable resources, and pollution-absorption capability (some argue the latter is part of renewables, but it is better seen as separate. For long-term sustainablity, finite resource have to be recycled 100%, or left in the ground. Renewable resource have to be used at no longer that their ability to renew, pollution has to be dealt with 100%, real-time (as in: now).

(BTW - that means no burning of fossil fuels - at all. That means :) 100% sequestration of CO2 if you were burning them. And zero oceanic plastic soup.)

We ramped into all three at an exponentially-growing rate (inflection-point being about 1800) meaning their stock/capacity collapse-point approaches with exponentially-increasing rapidity.

More cake gone every year than the year before.

Left/Right was a temporary fight over who got what part of the fossil-fuelled cake. The trading system we put in place became our religion, unchallengeable. Child Poverty, is actually 'Child can't access parts of the planetary cake'. At the base-line, it's 'Child can't access energy'.

Labour represented 'workers' wanting some of that temporary cake hogged by 'bosses'. Work got offshored, workers deluded themselves they were 'richer' by swapping houses and writing ever-bigger numbers. Essentially, they became bosses - their demand for cheaper goods just an arms-length repressionof others.

So in the Global North (us) the worker vote dried up. That left an altruistic intelligensia, aging. And no raison d'être.And a total - believe me, I've tried - inability to research what is ahead. Leadership is about 'ahead', so they have relinquished the field; it's vacant.

I have a litany of stuff I've sent (mine and references) to the media. Here between the brackets   (                      ) is pretty much all that has seen the light of day. That's a good impression of repression, and - tellingly - there's been no rebuttal. Just avoidance, Silence.

The Pope stated that our way of life is based on a lie. No NZ media went anywhere near that. Lack of investigative grunt? Discomfort? Fear? Denial? Ignorance? Regardless, the result is than no reader/viewer/listener encountered the comment.

by Alan Johnstone on August 16, 2015
Alan Johnstone

"And the rate for loaning money to financially incompetent people is much higher than for loaning money to sensible people who are say, investing in an asset."

Yes it is, there is a price premium to justify increased risk. You can work out the price lik

interest rate (X) = Base rate (Y) + Risk Premium (Z)

When "Y" falls, "X" should move down in lockstep, because "Z" doesn't change. If it doesn't profits increase.

by Tim Watkin on August 17, 2015
Tim Watkin

Wow Charlie, patronising and wrong. I don't know who you're talking about re academia. And I'm interested that in your real world you can make sweeping generalisations that anyone who pays interest on their credit cards (because those are the people I was writing about) is "incompetent" and how they all have $700 iphones. That sounds to me like a lazy old stereotype about how poor people are only poor because of their own failings rather than anything to do with the real world.

As for the mortgage rate comparison... by that argument, if you have a mortgage you're are by definition financially competent. There are a couple of ways you can read that comparison. Obviously, bricks and mortar are lower risk and easier to get money back on, hence the lower rate.

But there's also the obvious question at the heart of Shearer's point, which is that the banks are simply keeping credit card rates high because it's making them a lot of money for their shareholders and no-one's calling them out on it. We lack evidence either way, which is why it's a question worth asking.

by Tim Watkin on August 17, 2015
Tim Watkin

Murray, I understand those arguments. While you say no-one reports what you have to say, the 'finite resources' argument in economics and resources is made pretty eloquently in all sorts of arenas. And the idea that Labour parties are fading because the workers/boss paradigm is a 20th century thing has been well touted as well.

I have some sympathy for the first argument (is that what you think is the great issue of our time? You're still not being clear), though I suspect we'd disagree on some of the implications of that. As for the political point, it's not one I think had much heft. I may be proved wrong in the next decade, but National/Tories etc were the parties of the "bosses" and has adapted well. Labour parties an adapt/is adapting as well. So don't agree with you on that one.

But with either of those points, I don't get what they (or the Pope) have to do with this post.

by Tim Watkin on August 17, 2015
Tim Watkin

Alan, of course you're right. But that doesn't mean the banks aren't writing the formula like this:

interest rate (X) = Base rate (Y) + Risk Premium (Z) + a bit more, depending on what we can get away with (Z+++!)

by Murray Grimwood on August 17, 2015
Murray Grimwood

What underwrites money, Tim?

What underwrites interest, Tim?

And if the supply is curtailed, Tim?

Cultures with little energy available, don't practice usury. Ever wondered why? Why one desert religion bans it, and another threw the money-lenders out of the temple?

Can't charge it if there isn't the energy, and/or arent the resources to trade.

If interest is charged in a supply descent, someone else must suffer, because the correct rate across the top of the gaussian is zero, and on the down side they have to be negative.

 Perspective. Is everything.

by Charlie on August 22, 2015
Charlie

Tim,

I can't be both "wrong" and "generalizing" at the same time. But OK, I'll go for generalizing thanks.

Bear in mind we're still recovering from the 2008 GFC, the cause of which was the banking industry's failure to understand the risk associated with unsecured lending to people with poor credit records.

 

 

 

 

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