THE DISTILLERY: RBA inspection

It appears the Reserve Bank of Australia won't be cutting interest rates today. The question is, when will it drop its ‘prepared to cut’ bias that has mortgage holders thinking that another reduction could still be on the cards?

Also in this morning’s edition of The Distillery, the government’s plan to hack into the superannuation industry for funds to rescue the budget gets an absolute shellacking.

Firstly, Fairfax’s Elizabeth Knight writes that the good news for homeowners is that Australians have been paying down their mortgages and increasing their savings while interest rates have been down. A hike won’t hurt mortgage holders as much.

“The overwhelming majority of experts expect rates will be kept on hold when the Reserve Bank meets...New data out of the St George-Melbourne Institute Household Financial Conditions Report suggests that after more than a year of rate cuts Australians have been busy paying down debt and reducing the size of mortgages. That portion of the population who own their house outright (without a mortgage) has increased to 45.6 per cent against 40.2 per cent in the previous quarter to December. Historically, about a third of households were renters, a third had a mortgage and a third owned their house unencumbered.”

The Australian’s Henry Thornton, the nom de plume of a “prominent economist”, is with his fellow economists in believing that the Reserve Bank should keep rates on hold. But what about those funds flowing into Australia keeping the Australian dollar up?

“My proposal is to introduce a broad-based tax on capital inflow, applied to all inflows of capital so as to reduce the currently excessive and damaging currency to more sensible levels. But evidence, rather than the feelings of senior Reserve Bank officials, is urgently needed. If [deputy governor Philip] Lowe's view that industry can handle current levels of the exchange rate is correct then the tax may not be needed, or the rate can initially be low. But if the evidence is that a lower level of the Australian dollar would help enterprises in industries including manufacturing, tourism and education, indeed is urgently needed, then a moderate tax will be indicated. Such a tax may prevent, or ameliorate, serious damage to much Australian business and by extension to many Australians.”

The Australian’s economics editor David Uren looks beyond the question of whether the Reserve Bank should cut rates to whether it should cut some of its language.

“Following the last two Reserve Bank board meetings in which rates were held steady, the formal statement from governor Glenn Stevens said that with demand below its long-term trend, an accommodative setting of monetary policy was appropriate and that "the inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand". However, the bank can express a bias or inclination to move rates one way or the other for only so long without acting on it before it starts to lose credibility.”

Speaking of lost credibility, there’s a lot of discussion around this morning about Labor’s plans to tinker with the superannuation system in an effort to raise revenue for the bottom line of the embattled budget. The Australian Financial Review’s Jennifer Hewett savages them for it, as it threatens a great deal of the legacy from the Hawke-Keating era.

“Simon Crean’s loud No, for example, can’t be dismissed as merely a display of temper from an abruptly ex-senior minister who wanted Gillard replaced by Kevin Rudd. Crean, along with other ex-union leaders such as Martin Ferguson and Bill Kelty and former Prime Minister Paul Keating, are all warning about the risks of fiddling with a scheme they helped establish decades ago as one of Labor’s greatest reforms. It’s impossible to accuse such figures of favouring the fabulously wealthy or being hostage to vested interests.

The Australian’s Glenda Korporaal similarly comes to the defence of Crean, who is one of the few members of the current Labor caucus that was in the Hawke-Keating government that the current leadership so often invokes.

“One way or another this government has become obsessed with making constant changes to superannuation – many of which have made it less attractive as a retirement savings option – and there is no real telling what is coming next. One of the architects of Labor's compulsory superannuation scheme from his time in the trade union movement, the former minister for regional affairs and one of the most experienced politicians in Canberra, Crean has a deep knowledge of the superannuation system and the debates around it.”

Fairfax’s Adele Ferguson looks ahead to the incoming government and finds that shadow superannuation minister, Mathias Cormann, plans for a big shake-up of the $1.4 trillion industry if the Gillard government is defeated in September.

In company news, Ferguson argues in a separate piece that the longer the Australian Competition and Consumer Commission delays approval of the Virgin Airways purchase of majority stake in the beleaguered Tiger Airways, the less likely the deal is to go ahead.

The more time that passes, the worse Tiger becomes and the less favourable the terms become for Virgin boss John Borghetti.

Meanwhile, The Australian Financial Review’s Chanticleer columnist Tony Boyd says Telstra is well positioned to benefit from the Coalition’s alternative NBN policy of keeping the hybrid fibre coaxical networks active.

The wildcard is the ACCC. If the regulator declares the networks should be opened for access, which would be a departure from previous indications, Telstra would start playing serious hardball.

The Australian’s Barry Fitzgerald has an interview with Russian oligarch Oleg Deripaska. For aluminium industry watchers, this is a must read.

In economics, Fairfax’s Malcolm Maiden tries to put the recent string of stories about a return in business lending activity into some sort of context.

His argument is that the industry is aware the unconvincing state of the economy and the market isn’t going to improve to deteriorate rapidly. So the tempo in business lending is cautious exploration – it’s not surging, but people are talking.

The Australian’s economics editor David Uren says two small words added to a rule holding the government’s spending increases to a limit last year make it harder to Treasury to do that.

And finally, with the help of think tank Per Capita, The Australian’s Judith Sloan tries to debunk the idea, reinforced by consistent polling, that Australian’s would happily pay more tax if it meant increased government services.