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

1 September 2008

Interview with
Mike Carlton & Sandy Aloisi

Radio 2UE

1 September 2008

SUBJECTS: Interest Rates; Bank Switching; Global Economy; Surplus

SANDY:

Treasurer, good morning.

TREASURER:

Good morning, Sandy.

SANDY:

Is there anything you can actually do if the banks don’t follow the Reserve Bank’s lead tomorrow?

TREASURER:

Well, what we’ll do is we’ll see what the Reserve Bank has to say tomorrow.  I’m not going to pre-empt any decision that they may take.  But I’ve made it very clear – and so has the Reserve Bank – that the banks have absolutely no excuse for not passing on any rate cut which is decided upon by the Reserve Bank of Australia.  So, I expect them to pass on any official cut.  You see, Sandy, when rates were going up the banks put up their rates in a nanosecond and of course, when rates go down, their funding costs come down and their rates should follow.  It’s pretty clear, and I’ve made that very clear to each and every one of the banks.

SANDY:

It’s no wonder they have such a bad reputation, Treasurer.

TREASURER:

I don’t think it’s great PR, but this is not about PR.  You see, families out there are really struggling.  Under the last government they had 10 interest rate rises in a row.  There’s been something like eight interest rate rises in the last three years.  There’s a lot of work to be done.  We’re not out of the woods yet.  But if the Reserve Bank were to take that decision, I’m sure it would be welcomed by a lot of families out there who are not only struggling with high interest rates, but also high prices when it comes to petrol.  And of course, we’ve got the fallout from the international credit crunch which is pushing up borrowing rates from time to time internationally, and that affects rates here for both businesses and households as well.

MIKE:

There is a danger to his here, isn’t there, that the Reserve Bank uses interest rates – up or down – as a way of managing the economy, doesn’t it?

TREASURER:

Exactly.

MIKE:

If the big banks ignore that, they’re almost taking control of the economy away from the Reserve Bank and grabbing it themselves, aren’t they?

TREASURER:

Well certainly Mike, I think it is a challenge to the efficacy of economic policy.  You see, economic policy has twin pillars of fiscal policy and monetary policy.  And if the banks are challenging the authority of the Reserve Bank and the authority of the Governor, that’s a challenge to the authority of monetary policy.  And I also think what it does is undermine public confidence in the banks themselves.

SANDY:

If they band together there’s no competition either.

TREASURER:

Well, I’m determined to see that we have a competitive market.  I’m very hopeful that all the banks will pass on any rate cut should the Reserve Bank take that decision.  But over and above that, I am concerned about competitiveness in the market which is why, for example, at the beginning of the year, I announced that I was going to be working with the banks to put in place a bank switching package so that customers could easily vote with their feet and switch their bank if they were dissatisfied.

MIKE:

It hasn’t worked very well at all.

TREASURER:

Well, that’s not true, Mike.  Don’t believe everything that you read in the newspapers from time to time.

MIKE:

It’s still hard to switch banks and when you do it, I mean, you’re going from the frying pan into the fire.

TREASURER:

We are putting in place over time, it will be fully operational in November, there will be sanctions for banks who don’t follow the procedures they have agreed to, and there is a great variety out there.  It’s not just the question of the big four banks, it’s also the question out there in the market you’ve got a lot of products from credit unions, building societies and so on.  We are determined to ensure that customers do have the choice to shift their institution if they’re unhappy with it.  That will be fully operational.  It will be supervised by a variety of regulatory bodies, and I think it will be effective.  But there are other measures which may need to be put in place if competition isn’t evident in the market.

MIKE:

Such as?

TREASURER:

We’ll wait and see what they do.  I’ve got all options on the table.  I’ve asked the Treasury to have a good look at all competitive aspects of the market and we’ll just see how it goes in the next month or so.

MIKE:

I want you to punish them, Treasurer.  We’ve got a stick.

TREASURER:

I don’t think they’re very happy with me at the moment, Mike.  I don’t think they’re very happy with me making the very important observation that those people out there who are struggling under 10 interest rate rises that occurred under the Liberals, eight interest rate rises in the last three years, expect the banks to pass on any interest rate cuts should that occur.

SANDY:

What sort of sanctions would they face if they made it hard for me to switch banks, for example?

TREASURER:

Well, those are sanctions which are being developed by the industry ombudsman.

SANDY:

What do they involve?

TREASURER:

Well, they could involve being fined if they don’t actually adhere to the procedures they said they would.

SANDY:

Substantial fines?

TREASURER:

Well, I’m not going into the fines this morning.  But look, we are very concerned about the competitive nature of the banking market.  It’s terribly important.  It goes to the core living standards of so many families out there who are battling to make ends meet and we’re determined to ensure that the market is competitive.

MIKE:

How much of an economic slowdown are we going to see, say, between now and Christmas?  An increase in unemployment?  A rise in inflation?

TREASURER:

Well certainly Mike, the economy is slowing on the back of all of those interest rate rises over a long period of time.  It’s also slowing on the back of a slowing world economy and the fallout from the world financial crisis, which has hit stock markets particularly.  All of those things are slowing our economy.  I was upfront and frank about this in the May Budget.  We said the economy would slow, employment growth would slow, and there would be a slight tick up in unemployment.  But we’ll see all those figures when they come out on the National Accounts on Wednesday.

SANDY:

Do you think if the Reserve does cut interest rates tomorrow that we could have another interest rate cut before Christmas?

TREASURER:

Well, I don’t interfere with Reserve Bank decisions, nor do I speculate about them. I will welcome any cut if and when it comes, but what I will do from our perspective is use every available policy lever to put maximum downward pressure on inflation and give the Reserve Bank room to move.  That’s what the May Budget was all about.  It was all about creating room for the Reserve Bank to move and also giving relief to families who are struggling under higher prices and high interest rates via the tax cuts.  And as you will well recall, there were plenty of people who were very critical about the decision the Government made to deliver those tax cuts in the May Budget.

MIKE:

You could argue they were inflationary.

TREASURER:

No, they weren’t inflationary because we cut back elsewhere in the Budget, Mike, and we’ve had that discussion on this program on a number of occasions.  We made room for the tax cuts in our Budget and we brought down a Budget which gave the Reserve Bank, I think, some room to move in the future.

MIKE:

Alright.  But how much of a roadblock are you going to find with the new Senate, if for example, the Liberals refuse to go along on the alcopops thing, etc, etc?

TREASURER:

It’s just the height of irresponsibility for them to try and blow a hole in the surplus which is so important on the one hand, for fighting inflation, and on the other hand, to act as a buffer against global uncertainty.  That surplus is absolutely critical.  And it’s just the height of hypocrisy for someone like Brendan Nelson to be blowing a hole in the surplus, and at the same time, to be calling on the Reserve Bank to cut interest rates.  He will cripple the capacity of this Government over time to take pressure off inflation and create room to move for the Reserve Bank if he continues to try and blow holes in the surplus.

MIKE:

Alright.  Good to talk you.  Thanks for your time.

TREASURER:

Good to talk to you.