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

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

2 May 2012

Interview with Lisa Wilkinson

Today

SUBJECTS: Interest Rate Cut, Tony Abbott Talking the Economy Down

WILKINSON:

To begin with, is there any point having a Reserve Bank setting interest rates if the banks do their own thing anyway?

TREASURER:

Well, the two rate cuts at the end of last year were passed through in full. This is a 50 basis point rate cut. It's the one that small business and households have been hanging out for. I do believe that the banks should pass it through in full and they should do that promptly but if they don't do that then I think their customers are going to be pretty upset with them. There is a capacity, given the Government's reforms to the banking system, for people to more easily go down the road and seek a better deal. At the moment you can get a full percentage point below their standard variable rate from the major banks out there on the market. I mean, it is something that it would be worthwhile talking to Ross Greenwood about and I note that today Choice has been out there making this precise point that people can shop around because the banks will take notice of what their customers are saying and they should say it very loudly.

WILKINSON:

Well, apart from customers being upset and you giving them a lecture, what else can you do to make sure they pass on the cut?

TREASURER:

Well, we don't regulate interest rates in Australia and we haven't done so for many years. The fact is that at the end of last year there were two rate cuts. They were passed through in full. If we look at where the banks are at the moment their profits are robust. They are very profitable and the fact is that they do have the capacity to pass this through in full but these are decisions that they take, they're private organisations. What I say to the banks and what I say to their customers is very simply this: that the banks are very profitable, they have the capacity to pass this through. They should pass it through. If they don't pass it through, then their customers should look around for a better deal. They do have the capacity to go to other financial institutions and get a better deal right now.

WILKINSON:

But these are the banks that we all propped up during the GFC. You were instrumental in that as Treasurer.

TREASURER:

Too right.

WILKINSON:

It doesn't bother you that they're ignoring you?

TREASURER:

Well, let's make a couple of points here. When we moved to support the banks during the global financial crisis we didn't do it for the banks, we did it for the Australian economy, we did it to keep Australians employed and we've come through the global financial crisis and the global recession in far better shape than any other developed economy. In fact, this year we will grow faster than any other major developed economy. So that's why we moved then. We did guarantee the banks but we also had them pay a fee for that guarantee which they paid to the people of Australia.

WILKINSON:

You've described their profits as robust. Do you think they're robust or excessive? I mean, if they hold onto the rate cut in a way that the Bank of Queensland has – that's if they pass on any at all – they're all going to make $1.2 billion each. Isn't that excessive?

TREASURER:

Well, I've said that I don't believe that they should do anything other than pass this rate cut through in full. We're going to see some of the results from the banks coming out this week and next. They are very profitable. They have funding costs which they claim have been elevated, but the fact is that the Reserve Bank has noted that funding costs have eased and their profits are very robust. So my point of view is it should be passed through in full.

WILKINSON:

The other thing about a rate cut Treasurer, it's an acknowledgement that parts of the economy are suffering, so it's not all good news is it?

TREASURER:

Well, I know Mr Abbott and Mr Hockey have been out there talking the economy down. Our economy is the strongest of just about any in the developed world. If you look at the other major developed economies we're going to grow faster than any of them this year. Now that doesn't mean to say that there are parts of our economy which aren't soft, and the Reserve Bank talked about this yesterday, particularly those that are impacted upon by a higher dollar. But the fact is that these rate cuts would not have been possible if it wasn't for our disciplined fiscal strategy. It's provided the room for the Reserve Bank to deploy monetary policy to assist those sectors of the economy that are not as strong as others. That is a very good example of the way in which fiscal and monetary policy can work together.

WILKINSON:

The boss of the Commonwealth Bank says the biggest problem for our economy is the lack of certainty over government and confidence over Julia Gillard and her political judgement does seem to be at the centre of that. Your loyalty to the Prime Minister has been admirable but those poll numbers that we've just seen yesterday really don't lie. Is it time to get rid of the Prime Minister?

TREASURER:

No I'll tell you what numbers really matter: 5.2 per cent unemployment, a cash rate of 3.75 per cent, an investment pipeline of well over $400 billion. You see, our economy is in good nick and one of the reasons it's in good nick is because this Government got the big economic calls right over the last few years and we're getting them right again. That's what Julia Gillard is concentrating on. It's what I'm concentrating on. You'll get a lot of this breathless commentary. You'll get some people in the business community who want to be a bit political from time to time but the facts are that we have handled this economy in the correct way. A 50 basis point rate cut comes from good economic management but on top of that what we did during the global financial crisis to support our economy has made us the stand out economy in terms of developed economies around the world. That's something that Australians can be proud of and it's something that this Government works very hard on. I don't get too caught up in much of this breathless commentary either from some people in business or for that matter from many of the political commentators.

WILKINSON:

Okay Treasurer, Wayne Swan, we will have to leave it there but thank you very much for your time this morning.

TREASURER:

Good to be with you.