The Reserve Bank of Australia (
RBA) should lift the cash rate soon to avoid a potential debt catastrophe, said former treasurer Peter Costello.
Costello, now chairman of the national Future Fund, warned that low rates were contributing to “massive imbalances” in the economy.
“We have to normalise interest rates, and the longer you leave it the more unbalanced your economy is going to get,” he told
The Weekend Australian.
Australians weren’t currently concerned about debt because of the low interest rates, he suggested.
“Once (the price of) money returns to more normal levels, what is going to happen to asset prices and the housing market?” he asked, adding that this would lead to a “big problem” if prices reversed.
The big four banks had “enormous advantages,” Costello said.
“Because they can’t be taken over, because they can’t merge, because they have a government guarantee … the best analogy [for them] is regulated assets.”
“And even here they have an amazing advantage because regulated infrastructure can be subject to foreign ownership,” he added.
Currently, federal law prevents foreigners from owning more than 15% of an Australian bank without approval from the treasurer.
In a separate interview with
The Australian, former Business Council chief Tony Shepherd agreed with Costello’s comments to the paper, including the recommendation to allow foreign ownership of the big four banks and increase competition.
“[Costello] makes very good sense and has had deep involvement in the finance sector,” Shepherd said. “We would probably need to retain majority Australian ownership and nationals on the board though.”
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