The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

18 August 2008

Interview with Leon Byner

Radio 5AA, Adelaide

Monday, 18 August 2008

SUBJECTS: Interest Rates; Energy Security; FuelWatch; St George-Westpac

BYNER:

Wayne, tell me why you're in Adelaide.

TREASURER:

Well I'm down here - I've just been out in the electorates talking to local business, particularly down in Kingston this morning, just talking to some local business people there about the challenges of employment in the local area, the challenges of water, the challenges of what investment we can get in place in terms of the future of all those businesses that were engaged with the auto industry. All of these things are very much on the agenda.

BYNER:

Alright. Now I want to talk about FuelWatch because the Government is very convinced - and I've got to say to you initially I actually thought it was a great idea - but then, Professor Frank Zumbo from the New South Wales School of Business who used to advise Chris Bowen in opposition, he called me. And he said Leon, I want to present you some facts and what he told me was this, and I think Graeme Samuel, and you would know this because you're overseeing what the ACCC does, Graeme Samuel acknowledged that there is very little competition in the wholesale sector and because the oil companies can manipulate the wholesale price, having a retail facility where you list the price by 2pm every day and don't lift it - it's not an honest option and the reason it's not honest is because of two things.

The oil companies have got what's called informed sources which is something they pay for and it's very good, state of the art, up to the minute data. But secondly and more importantly, because they've got access to the wholesale price and know what they charge wholesale to the competitors, they can second guess successfully what they may or may not charge. So what that means is - it's like you or I going to an auction and knowing about all the financial business of all the people bidding, which of course wouldn't be on. So, because of that factor, I'm of the belief now that Price Watch (sic) without some very sincere regulatory change is a waste of time.

TREASURER:

Well I don't agree and neither does Graeme Samuel because Graeme Samuel is the competition watchdog. He looked at this in great depth and his recommendation was that FuelWatch will be very effective because it actually empowers consumers. I mean, at the moment the only people who know what the price variations are are the oil companies and nobody else and the last people to know are the consumers. So if we put in place the FuelWatch arrangement - and this is how it has worked in Western Australia - consumers can take advantage of the fact that on any one day you could have a price range across, say, the city of Perth, of up to 20 cents a litre. But at the moment the only people that have that information are of course the oil companies.

So what FuelWatch is about is empowering consumers to find the best price at any given time and that's why you have to lock in for that 24 hour period.

BYNER:

Yes, but you see in theory it's a great idea. I know you're going to do it, but what I'm saying to you is that the option is not an honest one because the oil companies, the multi-nationals, have got a lot of inside running because they control the wholesale sector and you can't separate what the retail price might be when you're actually manipulating the wholesale price.

TREASURER:

Hang on a sec. I mean in Western Australia where this has worked this has actually induced and empowered consumers to get cheaper prices. That's what the ACCC found. So it's not as if it's a theory. This has actually been operating in the state of Western Australia for some time where it has brought considerable benefits to motorists in that state. So we're not debating something that's some theoretical debate. It's actually happened in practice.

BYNER:

What are you going to do if in the Senate you get knocked back?

TREASURER:

It's got nothing to do with the independents. I mean, the Liberal Party can either support the consumers of Australia, and empower the consumers of Australia or they can back big oil. And at the moment the Liberal Party is backing big oil and what the Government is doing is getting behind consumer power and we're going to argue for our proposal in the Senate and of course it would be helpful if we could get the support of the minor parties and Mr Xenaphon. At the moment Mr Xenophon appears to be wandering all over the place. He did support, at one stage, FuelWatch.

BYNER:

Five years ago. Circumstances have changed though since then.

TREASURER:

Well I think his approach to this was pretty well unwound on Laurie Oakes the other day.

BYNER:

Well I put this to you. You've had, there's a connection here. The grocery enquiry may well deliver a code of practice where there's transparency from the grower right to the retailer. Fantastic if you do it. Good on you. Big tick to that.

Why can't we do that in the oil industry? Why can't we say now - a great analogy and this came from Andy Fischer from SA Farmers Australia who of course has a vested interest in getting more competition. Now Telstra have to let opposition companies use their infrastructure and as you know, in a retail sense they can undercharge what Telstra charges. Great. Good competition.

Why can't we do that for the oil sector and invite the oil companies by regulation to share their terminal facilities with competitors. That would bring down the price of fuel according to Andy Fischer by three or four cents a litre.

TREASURER:

Well I haven't seen what Mr Fischer has had to say so I'm not going to comment on that in detail. I'll look at what he says.

BYNER:

But if a convincing case was put to you, would you consider something like that?

TREASURER:

Well I'm always open to a convincing case in any area of public policy but without prejudice I'll read those remarks and give you a considered response at some later date. But I'm not going to respond without having seen those remarks.

BYNER:

Okay, but one thing he did say was that in Australia we don't even have 30 day storage for the whole country and as a national interest issue I would have thought that that's something that ought to be of concern to the Government.

TREASURER:

Well I was listening before when the gentleman made the remarks about energy security and of course we are completing a national energy security audit at the moment. And there's no doubt that we have not been searching for oil in this country the way we should have been searching for it.

BYNER:

(inaudible)

TREASURER:

Well there's a whole debate about how we provide extra incentive for exploration and it's very important, given the volumes of oil that we are importing, that we put in place a national energy security policy.

It is simply stunning that for the past twelve years the previous government didn't come to grips with all of the questions involved in energy security.

We're very serious about doing that which is why we've got that audit in place on the way to producing a national energy security policy.

BYNER:

I'm hearing what appear to be good vibes from you Mr Treasurer because if Andy Fischer is right and we have a deep sea port in Noarlunga which at the moment in controlled by Mobil and sitting there not doing much except a de-sal plant, because what he wants to do is open that up for storage and he reckoned that could happen if there wasn't the spectre of Mobil making the commercial decision to knock out the competition and maybe reopen that refinery. And of course that means that investors won't lend the money to people who want to come in and build their own terminal which wouldn't be cost effective.

TREASURER:

Well I'm not sure that that's factually correct. I'm just not sure that that's the case but I'll have a look at what he has had to say. I'm happy to give you a response in due course.

BYNER:

Wayne, I want to talk about the banks. Have you approved a merger between St George and Westpac?

TREASURER:

No I haven't approved a merger between St George and Westpac. That's before me at the moment. There's been a recommendation made by the ACCC. It is a positive recommendation but I have to take into account national interest considerations. I will receive further advice from APRA and in due course I will take a decision on that proposal. But it's a decision that I take, and I don't speculate about it at all because it has market implications.

BYNER:

I wouldn't expect you to speculate. The reason I ask that first is because we've now been faced with a fascinating spectre where Glenn Stevens of the Reserve Bank has basically said that we are probably going to have a substantial rate cut sooner rather than later. That's had a profound effect on the Aussie dollar as you know - great for exporters, not good for travellers or people buying imported goods.

But nevertheless, the real whammy was last week, when after Glenn Stevens made his proclamation the banks almost came out and said, 'Well, we won't necessarily pass on the reductions'.

Now this is in the spectre of the banks already, without any Reserve Bank increase, putting their rates up more. What is your reaction to this and the second part of that question is, the press articles that I read today nationally suggested that you had something in your arsenal that might be of surprise to the banks, or something you could wield as a big stick. So I'd love to know what that is, but firstly what your reaction is to the banks who have put the rates up above Reserve levels arguing that the cost of money is more. Those costs have come down according to economic and others like David Koch, yet the banks are saying we won't even pass on necessarily all of what Glenn Stevens might do.

TREASURER:

Well this is a very serious issue. It's a very serious issue for households, it's a very serious issue for business and it's a very serious issue for our national economy. There is absolutely no excuse for banks not to pass on an official rate cut from the Reserve Bank in full should that occur. Absolutely no excuse because if the official rate comes down, the borrowing costs of banks come down and they should bring down their rates and provide the relief for households and the economy.

You see monetary policy has to work both ways. You know the banks have always followed the cash rate up in a nanosecond. Immediately.

BYNER:

Newton's Law of Gravity sadly doesn't apply to the finance sector.

TREASURER:

Well it certainly should when it comes to monetary policy because if we want a broad consensus about monetary policy and about fiscal policy in this community it's got to work both ways and there's no excuse, as the Assistant Reserve Bank Governor said last week, for the banks not to pass on any official rate cut because there is a very significant reduction in their costs across a very significant proportion of their loan books. So that's the decision from the Reserve Bank.

Over and above that, the banks have also increased their rates in recent times as you correctly identified - I think something like 55 basis points. Why did that happen? Because the cost of borrowing on international capital markets in recent times has gone up substantially and for some of that increase I believe there was some justification. But as you have correctly pointed out, in recent times the cost of borrowing money short term has come down and that is a considerable benefit to the banks. And what that does mean over the long term [is] that the banks should be in a position to provide some relief on those additional increases that they imposed over and above the cash rate.

BYNER:

Mr Treasurer, I appreciate what you're saying - but the banks have been somewhat recalcitrant, to use a Paul Keating term, and it was St George who was quite feisty, and I'm not going to ask you to speculate here but they happen to be one of the banks who were quite quick in coming out and saying, 'Well we don't have to do what you tell us to do. We have to make our decisions according to what we think is appropriate and we only advise you as a courtesy'.

So whilst the public are going to love what you have just said I have no doubt, the banks are saying, 'Well pity you. This is what we do'.

TREASURER:

Well first things first. Firstly we have not had a decision from the Reserve Bank yet. As I've said repeatedly, I do expect, the Australian people expect, that the banks will pass on that cut should that decision be taken by the Reserve Bank. And what I've said is that we are always looking at the competitive extent, or the extent of competition if you like, within the mortgage market and if the banks don't move, I've said the Treasury are examining a range of options and all options are on the table.

BYNER:

Which means possible regulation?

TREASURER:

No. There's no way in the world that we can return to a situation where the Federal Government regulates interest rates, but I believe we do need a competitive market out there and I'll wait and see what the banks do if and when the Reserve Bank takes it decision and I'll respond at that stage.

BYNER:

So you've got a sword but you're holding it behind your back at moment.

TREASURER:

No I don't like to talk about it like that. I'd like to think that our banks will pass on official rate cuts if that decision is taken by the Reserve Bank because you see, in terms of the stability of our economy, in terms of the effectiveness of fiscal policy and monetary policy, we need a degree of community consensus about this and I'm very hopeful that the banks will pass on any cut should the Reserve Bank decide to do so.

BYNER:

I know you have to go and I thank you for coming in and giving us some time when we can talk about these really important national and state issues.

One question though which starts back at what we began with. Given that we want transparency right across the retail sector for groceries, would it not be reasonable that we should expect it for oil and fuel - that we should get transparency from where it starts to where we buy it, the same way.

TREASURER:

Well there is a degree of transparency out there where the world-traded price is available for all to see. There's a lot of debate about the extent to which price rises and price cuts are passed on. That's one of the reasons why we want FuelWatch out there because it does ..........

BYNER:

There are some margins though in...

TREASURER:

Of course there are, but the thing is we don't have the knowledge the consumers need to actually take advantage of the price savings that are potentially there and that's the reason behind FuelWatch. It injects that transparency that you've been calling for particularly when it comes to the banks into the fuel market.

BYNER:

I think if we get it across the sector it will be far more useful a tool than just saying, 'Well here's the retail, pity the wholesale'.

I want to thank you for coming in and where are you going from here?

TREASURER:

I'm heading off to Sydney this afternoon.

BYNER:

So you're flying out pretty quickly?

TREASURER:

Yep.

BYNER:

You don't ever get to stay and have a meal somewhere, go to the Barossa? No?

TREASURER:

I was here for the Cabinet meeting only a few days ago and all of the briefings on water and the importance of that to the State.

BYNER:

Well thank you for your time and we'll keep in touch on these important issues.

TREASURER:

Good to be with you.