Barry Soper: Jim Anderton's Kiwibank creation hardly setting the right example

Was the late Jim Anderton right in his claim that Kiwis were being ripped off by the Aussies? Photo / Supplied

COMMENT:

The late Jim Anderton stood on street corners yelling with a megaphone at passing motorists during the 1999 election about how they were being ripped off by Australian-owned banks.

The then Alliance leader was good to his word. He was sick of profits flooding offshore and once he became Deputy Prime Minister in the new Labour-led Government he dragged Finance Minister Michael Cullen kicking and screaming to start Kiwibank.

Such was Cullen's disdain for the bank that he refused follow Anderton as the bank's first customer with a healthy deposit.

Unfortunately for Anderton, it didn't really see a flood of New Zealanders doing likewise.

Since then the four big Australian banks - the ANZ, Westpac, the BNZ and ASB - have put billions of Kiwis' dollars in their bank vaults across the ditch.

This year they're on track to make a billion dollars each in profit, with the exception of the ANZ which is looking at double that.

This week the central bank in Australia dropped their cash rate to a record low of 1.25 percent from 1.50 percent - the same amount our Reserve Bank dropped its rate to last month.

The banks there matched the drop through their mortgage interest rates, meaning home owners will have extra cash in their pockets to spend on other things, providing the economy with a shot in the arm.

The money freed up in Australia isn't all that significant, considering their interest rates weren't that much higher in banking terms than the cash rate: Just over double at the lowest end of the scale of around 3 per cent for variable rates, rising to the highest of about 4 per cent.

Here, when the rate was dropped last month, the flow-on to interest rates didn't come within cooee of matching the drop. The margin between the OCR and what home-owners have to pay is much more significant - variable rates at 5 per cent at the lower end, rising to more than 6 per cent.

So was Anderton right in his claim that Kiwis were being ripped off by the Aussies?

Having lunch with a respected, eminent economist, his answer was no.

It's all about market forces, he intoned, about demand for product and, because of Australia's size, there's greater demand, greater competition and therefore the banks there are able to cut a better deal for their customers.

Yeah, said uninformed comment, but the banks in both countries are the same, they even have the same name.

The answer: The Australian banks may be the parents, but the Kiwi branches are their children, and they operate as separate entities.

Is there any wonder then why people struggle with mortgages in this country given we're struggling to come anywhere near Aussies' wages?

Anderton's creation is hardly setting the example he would have wanted set though - their variable mortgage interest rates are around the same as the big boys.