The federal government’s pursuit of a budget surplus could threaten fragile consumer confidence and set back any economic recovery, the head of Australia’s largest credit union says.
Chris Whitehead, chief executive officer of CUA, has also called for a review of Australia’s financial system.
He says the May 8 budget is the ideal platform to foreshadow an investigation of the big four banks’ market dominance and barriers to competition.
The budget had to restore consumer confidence, which had been undermined by economic uncertainty, rising fuel and house prices, and political instability, Mr Whitehead told AAP.
“The economy needs stimulus, not contraction, and downside economic risks suggest that continuing government support through expenditure is necessary,” he said.
“There is no point being one of the best performing economies worldwide if consumers are not purchasing and investing.”
A small surplus would have “zero effect” on interest rates because inflation was under control, he said.
The government had a choice between a political and an economic budget outcome “and CUA hopes that it is the latter”, he added.
Mr Whitehead, whose organisation has $9 billion in assets under management and 417,000 members, said a broad review of Australia’s financial system was needed.
“The major banks are entrenching their position by utilising the perception of size and strength as a barrier to competition, reinforced by aggressive marketing and customer retention strategies,” he said.
“Most recent ABS (Australian Bureau of Statistics) data shows that the banks still dominate the mortgage sector, accounting for 89 per cent of new loans in February by number and 92 per cent by value.”
Any review should examine using the Trade Practices Act to prevent dominant players misusing market power, Mr Whitehead said, “including the use of multi-branding to confuse consumers by hiding ultimate bank ownership”.
Mr Whitehead said customer-owned mutual organisations, such as credit unions, were also disadvantaged by not being able to return franking credits – credits for tax already paid on profits by the organisation – to customers, while shareholder-owned financial institutions are able to issue franking credits to their stakeholders.
