American lawyer and politician Gideon J Tucker once observed that ‘no man’s life, liberty or property are safe while the legislature is in session’. Given the ceaseless rapacity of Australian governments, one could say that truer words have rarely been spoken.
We therefore should be grateful the Prime Minister has decided to delay parliament by a week, giving the people a reprieve from nasty proposals to upend Australia’s rental market for goods needed by everyday Australians.
The Turnbull Government’s draft bill concerning consumer leases targets Australia’s $596 million rental market for household goods such as furniture and electrical appliances. Among the ham-fisted changes are price caps, income tests and a suite of new red tape requirements on operators like Radio Rentals, 1st Choice and Mr Rental.
Under the government’s plan, the amount charged by providers would be limited to four per cent of the base cost of the item rented. Treasury’s report into consumer leases – the recommendations of which have formed the basis of the government’s bill – claims that price controls of this nature are necessary to stamp out ‘very high cost’ leases, pointing to ‘problems associated with excluding consumer leases from caps that apply to all other forms of finance’.
But what Treasury and the government fail to understand is that consumer leases are unique financial products. Providers are subject to costs and overheads that are incomparable to anything else in the financial sector.
Unlike ordinary loans, consumer leases obviously involve the transfer of tangible household goods, rather than just cash. That means that unlike ordinary loans, consumer lease providers have to factor in costs like sourcing and warehousing goods, maintenance, repair, delivery and then, once the lease is completed, collecting the goods and restoring them for re-rental.
In addition, consumer lease providers are subject to unique capital costs. Unlike cash loans, which are returned with interest, rented goods incur substantial depreciation over the life of the lease.
Consumer lease providers claim that a cap of just four per cent on top of the base price of goods rented won’t come close to covering their costs. Many could be put out of business.
Worse still is the fact that the government’s proposals would put draconian limits on consumers as well as providers. If the government gets its way, consumers will be prohibited from taking out a lease if monthly repayments would amount to more than 10 per cent of their net income.
An income test of this nature would be unprecedented and paternalistic in the extreme. Unlike schemes like cashless welfare cards, this requirement would dictate how all Australians – including the majority who do not receive a cent in welfare payments – spend their own money. All Australians – even those on modest means – should be able to decide what is in their best interests when it comes to how much to spend servicing debt obligations.
The rationale for this measure, according to Treasury’s report, is the need to promote so-called ‘financial inclusion’, a concept based on ‘the relationship between high charges and broader social consequences, such as financial hardship’.
But by focusing solely on the ‘high charges’ involved, Treasury ignores the many reasons why people make the rational choice to pay more to rent furniture and appliances rather than buying them. For one thing, leasing allows consumers to enjoy all the benefits of ownership with none of the risks, with costs like maintenance and depreciation falling on the lessor.
And for many disadvantaged Australians, renting is often their only option. Manageable rental payments are an affordable alternative for consumers without the cash to buy household items upfront. For many such people – often deemed to be too much of a credit risk by other providers – consumer leases are a vital source of finance
The consumer lease industry, therefore, has an important role in the household goods marketplace, allowing many Australians to enjoy basic household necessities that would otherwise be unavailable. It would be sad to see policy-makers render it unviable with punitive red tape. The Turnbull Government must rethink this highly illiberal policy.
Gideon Rozner is a Research Fellow at the Institute of Public Affairs
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