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

8 February 2012

Doorstop interview

Canberra, ACT

SUBJECTS: Reserve Bank decision; Liberals' confusion on surplus; interest rates; competitive banking system; retail trade

TREASURER:

Well, the Reserve Bank left the official cash rate on hold yesterday. This follows two cuts to the cash rate at the end of last year. So if you've got a $300,000 mortgage you are now paying $3,000 a year less than you were paying under the Liberal Party. Now I know that many people will be disappointed with the decision yesterday but the fact is that the Reserve Bank said that they were striking a balance between global uncertainty on the one hand, and the strength in our domestic economy on the other.

The fact is that we've got low unemployment at 5.2 per cent. Our public finances are in very good nick and that does give flexibility to the Reserve Bank in the future. We've got a strong investment pipeline and we've basically got an economy which is much stronger than just about any other developed economy in the world.

Just on another matter I notice overnight the farce of the Liberal Party's fiscal policy continues, or lack of it. Mr Hockey was continuing to crab-walk away from their commitment to a surplus. Nothing could be more important in the current environment to give both the Reserve Bank flexibility, but also given what's going on internationally, for there to be a really firm fiscal policy in place in Australia.

As the International Monetary Fund and other organisations have noted, Australia's fiscal policy is one of the best in the world and that's because the Government has been implementing that fiscal policy to come back to surplus in 2012-13. The reason the Liberal Party are in so much strife over the surplus is they've got a $70 billion hole, a $70 billion crater in their budget bottom line. Mr Hockey said so on Sunrise and he can't continue to deny that he said it and that's why they're walking away from their surplus commitment.

JOURNALIST:

There's every chance that the banks later this week or next week could push up rates. What's your reaction to that? Is it justified?

TREASURER:

Well first and foremost let's just wait and see what they do but I want to make a couple of points and I want to make them very strongly. Our banks are very profitable. We have a strong and profitable banking system and that is a very important asset for Australia but we also need a competitive banking system and that's why the Government has been putting in place over the past 12 months a raft of reforms to make our banking system much more competitive. By the end of this year there will be than 1million households with mortgages that no longer have mortgage exit fees. This is a critical competition reform put in place by the Government which commenced last year which gives customers the capacity to walk down the road if they're unhappy with their banks.

So what we've done is we've empowered the consumer. We've empowered the consumer so if the bank takes a decision with which they disagree they can walk down the road and get a better deal. The standard variable rate on average from the major banks at the moment is 7.3 per cent. You can get far better deals than that elsewhere in the financial system right now.

JOURNALIST:

But Mr Swan is it fair that homeowners should be living in fear that their rates will go up. I mean, isn't it time that you actually do something about this?

TREASURER:

Well, we don't regulate interest rates in this country. We haven't done so for a very long period of time. But that's why the Government has been so determined to put in place a series of reforms which empower consumers to deal with banks if they're unhappy with what the banks are doing. Now bear this in mind: we've had two rate cuts at the end of last year. These have been very important for many people under pressure; certainly a very substantial amount of relief for a lot of people out there. Now the banks are beating the tom toms behind the scene. I know that. That's why I'm saying to Australian consumers that you have the power to walk down the road and get a better deal if you're unhappy with our financial institutions. Let's just wait and see.

JOURNALIST:

(inaudible) we need a strong banking sector or people should be better looked after in terms of not worrying about their mortgages. What's more important?

TREASURER:

Well, let me just make this point. The official cash rate is 4.25 per cent at the moment. We've just had two rate cuts at the end of last year. If you've got a $300,000 mortgage you're paying $3,000 less per year than you were paying when the Liberals left office.

JOURNALIST:

But from the Government's point of view, are you more concerned about having a strong finance sector or people being able to afford their mortgages?

TREASURER:

We need both. We need a strong finance sector but we also need a competitive finance sector. You might recall that when I announced the banking competition package at the end of the year before last there were cries and howls from the banking sector. The Government moved ahead and methodically implemented that program right through last year and we now are getting to the point by the end of this year when there will be 1 million customers who will be free of mortgage exit fees so if a bank takes a decision whether it's next Friday or next month, they've got the capacity to walk down the road and get a better deal from another financial institution.

JOURNALIST:

Just to clear, when you talk about banks being profitable would you say that there's no excuse for them to raise their rates outside the cycle?

TREASURER:

What I'm saying is that they are extremely profitable. Their net interest margins are back to where they were prior to the global financial crisis and secondly they now have a return on equity which is far higher than just about any of their peers elsewhere in the world. So the notion that our banks can cry poor in this environment is simply not credible. Now they will make choices about their business model. What consumers can now do is make the same choice and that's what's important.

JOURNALIST:

Do you not concede that there's no excuse for rates to be lifted outside of the normal cycle?

TREASURER:

What I'm saying very clearly is the banks can take their decisions and their customers can now judge them and that's the important thing. We've seen some competitive pressures out there in recent times with people slashing their rates, trying to increase their mortgage book, we've strengthened the mutual sector, we've strengthened the credit unions, we've strengthened the smaller banks, what I want to see is red hot competition out there. That's what we need in this system.

JOURNALIST:

Mr Swan, now quickly on jobs; what do you make of Westpac and Macquarie Bank's decision to offshore jobs given that the banks as you say are fairly profitable?

TREASURER:

Well, once again I think their customers will judge them whether it's on interest rate pass through or whether it's on their employment practices. I know there is a strong desire among the Australian population to see that as many of these jobs as possible are located here but once again that will be a decision which will be judged by their customers.

JOURNALIST:

Do you agree with retailers that the decision yesterday not to cut rates will cost jobs in that sector?

TREASURER:

Well, as you know, I don't reflect on Reserve Bank decision whether they go up or whether they go down. The point I would like to make is that we've got a strong economy here. Parts of it are soft, there's certainly softness in retail. There are certainly soft parts of the economy when it comes to manufacturing and so on. If you have a look at the retail figures the other day they were pretty patchy. Some of the results were somewhat puzzling given the commentary from retailers for example over Christmas. Like department stores appear to have done better in those figures than the commentary would have said but other categories are down like food, cafes and so on.

I think we've got an economy which has got an unemployment rate of 5.2 per cent but we do have softness in parts of our economy. That softness flows particularly from the Australian dollar. This explains why our reform program is so important. For example, our commitment to give a very big tax cut to 2.7 million small businesses is very important in this environment. That's why it's so puzzling that the Liberal Party would want to give a tax cut to Gina Rinehart and Clive Palmer but not give a tax cut to 2.7 million small businesses, many of which are impacted by a higher dollar. It just shows you how twisted their priorities are.

JOURNALIST:

Do you concede Treasurer that some homeowners are doing it very tough?

TREASURER:

There are always homeowners who are doing it tough. No doubt about that. Thanks very much.