Tuesday, August 20, 2013
Record profits & growing hardship
The Reserve Bank of Australia (RBA) has again reduced the official interest rate, a reflection of its concerns with domestic and global economic developments. The reduction to a low of 2.5 percent is aimed at generating economic activity and serves to counter the contractionary impact of cuts to government spending. Economic conditions look set to deteriorate further, in particular, with higher unemployment, suppression of wages and mining investment slowing down. Bankruptcies continue to rise as businesses are hit by a slowdown in demand and thousands more workers are being sacked. But not everyone is doing it tough. Midst all the hardship and pain, the Commonwealth Bank of Australia (CBA) has reported a record net profit (after tax) of $7.8 billion. And, according to the bank’s CEO, it’s “a good thing” for all of us!
“Once you’ve had one record profit, the next record profit just means you’ve grown. And I think it’s to everyone’s benefit in this economy for all the major banks to be growing,” CEO Ian Narev said.
“So I hope to continue to deliver record profits, because it will just mean we continue to grow. I think that’s a good thing for our customers and our shareholders and our people and I think the community more broadly.”
Really? A stable financial system is important. But obscene private profits, enough to fund federal budget items? The CBA’s profits have risen rapidly with only a small dip of one percent in 2009 (not a loss – just a smaller profit) over the past 10 years.
The 2013 result is up 10 percent on last year, and returned shareholders a whopping 18 percent on their investment. It is not a one-off exercise in profit-gouging. In 2012, profits rose 11 percent, in 2010 by 12 percent. Ten years ago they were $2 billion.
Who really benefits?
But where do these profits go? The CBA is distributing $3.4 billion of these profits through dividends to shareholders, the rest it retains for further expansion and as reserves. The top shareholders are mostly financial institutions/nominee companies – HSBC Custody Nominees (Aust) Ltd, JP Morgan Nominees Aust Ltd, National Nominees Ltd, Citicorp Nominees Ltd, Cogent Nominees Pty Ltd, etc.
As nominee companies, we have no idea who really pockets the profits when distributed or even if they are kept in Australia. But the 216 largest shareholders pocket 47 percent. Some of this would go into superannuation funds, adding to workers’ retirement savings.
As for the “mums and dads” shareholders, the bottom 582,237 shareholders own 12.3 percent of shares.
Where did CBA’s profits come from? Mostly from its customers – interest margins (the difference between interest on loans and interest paid on deposits) and fees – and some from other sources such as overseas investments and currency trading.
As Narev pointed out, the CBA pays tax on its profits, $3 billion in 2013. But, if the CBA had not been privatised, then the $7.8 billion could also have been government revenue, or much of it. This could have really been of benefit to the people, providing the government with income for affordable public housing and low income and other families with decent accommodation.
In addition, it could have been used to increase the dole, aged pension, sickness and other benefits, restore and increase benefits to single parents, fully cover dental care under Medicare, fund mental health, speed up the introduction of the national disability insurance scheme as well as eradicate homelessness.
It is a perverse “logic” that profit gouging by the CBA or for that matter other big banks or mining corporations is heralded as great for everyone, but governments and media turn a blind eye, don’t even question a system where people are thrown out of their homes and their electricity is cut because they are unable to pay the bill.
A system which impoverishes families through no fault of their own, and cannot provide basic social needs for the people and rejects a genuine super profits tax on the mining sector.
Housing is not the only cause of financial trauma. Privatisation and marketisation of electricity have seen electricity prices more than double in recent years.
A report released this month by the NSW Energy and Water Ombudsman found that 3.5 million low-income and low-wage families always have trouble paying their bills. The energy companies are showing less tolerance with late payers, sparking a huge rise in disconnections.
Lynne Chester from the University of Sydney estimates that the poorest 20 percent of households paid close to or more than10 percent of their income on power bills. This is on top of massive rental payments which consume more than 30 percent, in some instances as much as 60 percent of income. It leaves little for food, medicines, education, clothing, transport and other basics.
The Communist Party of Australia is calling for the establishment of a publicly owned People’s Bank with a strong social charter.
The People’s Bank would provide cheaper (for customers) services with low fixed interest rates for home loans, small businesses and family farmers. The bank would be government guaranteed and some of its deposits available for public housing and other public infrastructure.
Any profits would be returned to the government, not to private shareholders. The People’s Bank would benefit everyone. Affordable housing would reduce pressure on family budgets and help stimulate the economy and generate jobs with increased demand for goods and services.
At the same time the government needs to regulate rents, interest rates and the currency and plan economic development. The “markets” have failed the people. The public sector needs to rebuild its skills base and expand to resume building and providing public housing as an alternative to home ownership and private rental. Real competition from the public sector would soon bring down the cost of rent and housing as well as wiping out the waiting lists for public housing.
Posted by Alter P at Tuesday, August 20, 2013