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

16 October 2012

Interview with Steve Austin

ABC Radio, Brisbane

SUBJECTS: ACOSS Report; IMF Annual Meeting; Australia's strong economic fundamentals; Interest rates; Banking competition reform; Debt; Housing.

AUSTIN:

I spoke to Treasurer Wayne Swan before coming to air this morning and I asked him if he agreed that there are that many Aussies living in poverty at one of the wealthiest times in our history.

TREASURER:

All of my life in politics I've been concerned with poverty and the indeed the reason I entered politics was to make sure that when we created prosperity we spread opportunity.  I've devoted a lot of time, the Government has devoted a lot of time, to putting in place measures which make Australia a fairer place. But unfortunately yes, we do have poverty in Australia. 

I did hear a little bit of your interview yesterday with the representative from the Queensland Social Services and one point he didn't make was that report makes very, very clear that poverty in Australia has come down between 2007 and 2009-10 after a very significant increase in poverty in the years before.  I think that tends to reflect the success that we've had in Australia in recent years at creating employment, but I also think that putting in place a range of measures which support people in our community, whether it's tripling the tax-free threshold which particularly assists those on low incomes, and our success in creating jobs over a long period of time, plus what we're doing particularly in areas of welfare reform where there is entrenched disadvantage.

AUSTIN:

So there are over a few years the number of poor people has actually dropped.  Are you still happy with that 2 million Australian figure? It seems very high.

TREASURER:

I'll never be happy when we have poverty in our community.  The whole purpose of being on the Labor side of politics is to make sure we make the country a fairer place.  But we've also got to make sure that we create the wealth to sustain the programs which are so important to giving people particularly social mobility in this country.

AUSTIN:

So to rephrase my question then.  Are you happy with the way we measure poverty in Australia?  Two million still seems like a very high figure. 

TREASURER:

There are various measures of poverty and I'm sure that the methodology those people have used in the report was professional.  There'll always be debates about the particular benchmarks and so on, but I don't dispute the fact that we do in our community have too much disadvantage and that's why the Government has put in place a range of policies to make sure we lift people out of particularly entrenched poverty, particularly those people who are caught in welfare dependency. 

AUSTIN:

You've just come back from overseas from the meeting with the International Monetary Fund.  They say that the US and Europe have to reduce their debt and that the global economy is faltering.  What was their analysis of the Australian situation?

TREASURER:

Well, people around the world see the Australian economy for what it is; which is the most successful developed economy.  In terms of the World Economic Outlook which was put out by the IMF over the weekend, Australia will grow faster this year and next year, faster than any other developed economy.  So, when they look at the Australian economy they see an economy with low debt, they see an economy with strong job creation and they see an economy which is growing strongly.  In that World Economic Outlook that came out over the weekend, the Australian economy is now the 12th largest economy in the world.  We've gained three spaces [up] from 15th over four years. 

If you look at the Australian economy we've grown by about 11 per cent since 2007.  That compares to the fact that most other developed economies have only just got back to where they were, or are well below where they were at the end of 2007.  So, by any measure when you're on the international circuit, people look at the Australian economy and see it as one of the success stories of the world.

AUSTIN:

And this was their analysis?  This is what they said to you about Australia's economy?

TREASURER:

Absolutely.

AUSTIN:

Australian banks, I assume they're still in the top 20 banks in the world.  Is that right? 

TREASURER:

I think our big four are probably even better than that.  I think they'd be in the top 10.

AUSTIN:

If they're apparently the most profitable in the world, they're not passing on the full Reserve Bank rate drop.  What are you going to do to get them to do so because clearly there's a pessimism at a community level about the economy, you see this where people are paying off their home mortgages at record levels and things like that?

TREASURER:

That's a very good question Steve.  Let's just look at a couple of points.  The cash rate is down to 3.25 per cent.  If you've got a $300,000 mortgage at the moment, you're paying something like $4,500 a year less than you were paying when Labor came to government.  So that basically points to the fact that interest rates are far lower now than they were at any time under the previous government. 

But you're right to point out that on a number of occasions the big banks have not engaged in full pass through of the Reserve Bank rate cut.  For that reason the Government has put in place a comprehensive range of measures for competition.  For example Steve, we abolished mortgage exit fees some time ago on new home loans so people could move between financial institutions.  We've put in place, starting on 1 July this year, a tick and flick system that makes it much easier for people to move their deposit accounts.  So, I say to people who are unhappy with the banks that are not engaged in full pass through, shop around, there are better deals out there than are on offer from the bigger banks. 

AUSTIN:

But the problem is actually mortgage insurance, as I understand, it's the mortgage insurance problem that holds people in their current mortgage?

TREASURER:

That is one of the issues but we're working out way through those issues.  It is now far easier to move than it was a long time ago.  Indeed more and more people are actually moving because consumers know they have a greater capacity to move now and they are indeed moving and that's what the overall figures show.  That's what the big banks ultimately understand.  Let's be very clear, even though the big banks haven't passed through in full and I have made it very clear that I don't think the arguments they've put forward are valid.  But even if you are with  them, you are still paying $4,500 a year less on a $300,000 mortgage.  So rates are down and you can get better rates than that from other banks and other smaller institutions and make bigger savings if you switch around, which is far easier to do now than it has been in the past. 

AUSTIN:

The banks argument is that their cost of borrowing is why they're not passing on the full rate cut, but that appears to be a very thin argument now.  Are you doing anything about that?

TREASURER:

It is definitely a thin argument.  I'm making it publicly because not even the banks who haven't passed through on this occasion in full are now making that argument - because it's not true.  The fact is, as you pointed out, their return on equity does make our four big banks the most profitable in the world, or among the most profitable in the world.  And the fact is that we have now put in place measures to make them more competitive so people can get better deals and people are increasingly moving.

AUSTIN:

Treasurer, what is Australia's current debt level?

TREASURER:

If you want to have a look at net debt at the moment 2011-12 it is $147 billion.  Net debt is about 10 per cent of GDP - that's around about a tenth of the level of the major advanced economies, very low by international standards - a point that the Reserve Bank Governor made in Tokyo over the weekend.

AUSTIN:

Is it manageable if the global slowdown continues?

TREASURER:

Absolutely.  Our debt in international standards is very, very low. It's like someone earning $100,000 a year owing a modest $10,000 a year. 

AUSTIN:

What about private debt?  Are you at all concerned about private debt levels in Australia? 

TREASURER:

Well Steve, you've got to have a look at the fact that one of the reasons we've got a cautions consumer in Australia is that at the moment people are saving a lot more.  Our savings ratio is up at 9 or 10 per cent.  We do by international standards carry a relatively high level of private debt.  But we've also got a high level of savings, not just in terms of the savings that people are making through putting money in the bank and so on, but also through our superannuation system.  So when people look at the Australian economy they see as well as a higher level of private debt, they also see a higher level of private savings. That's a good thing.

AUSTIN:

Most of us, sort of the cynicism of private debt, it is listed to their house mortgage…

TREASURER:

That's right. 

AUSTIN:

But the prices of houses are declining.  Will that decline continue?  

TREASURER:

I don't necessarily think it's true to say that Steve.  You have to have a look at a variety of data.  There's no doubt that the increase in housing prices tapered off in Australia.  In some parts of Australia they're down.  But they haven't gone down greatly if you look at the average figures, they just haven't -

AUSTIN:

Between 6 and 8 per cent -

TREASURER:

They haven't continued to increase like they were for a long period of time and in parts of the country they are softer, but I don't think it's true for you to make the claim that somehow they've decreased significantly. 

AUSTIN:

I'll move on then.  Farms in Australia have very high levels of debt and I'm told that some will go under by the end of this year.  You're holding a farm debt summit in Brisbane I think tomorrow.  What will you be telling them? 

TREASURER:

I'm having a consultation with the Agriculture Minister, Joe Ludwig and Bob Katter just talking to the farmers about the challenges, and it's not just levels of debt that we're talking about, but that will certainly be on the agenda.  Certainly in some sectors there is concern that some farmers are carrying a lot of debt and there is concern that their relationship with the banks may put them in serious jeopardy.  I'm having the forum to hear from them directly about their concerns.  I'm holding it in that spirit.

AUSTIN:

It's a major issue in Queensland obviously.  There's real evidence that the northern beef trade is on its knees.  A combination of both the shutdown of the live cattle exports and the drought prior to that.  Are you coming with anything to put on the table to say look we may be able to assist you in this?

TREASURER:

I'm going along to listen.  I'm not going to pre-empt any of the outcomes of the meeting, but I just make the point that there is no instant solution that you can put in place in these circumstances.  But I'm going along because I think in some areas there are serious challenges which have been raised with me.  I'll be there listening to what they've got to say. 

AUSTIN:

The Australian economy's fundamentals are apparently sound.   But we know that the Reserve Bank has dropped their bill rate because their worried about what's coming around the corner.  This is damaging people like self-funded retirees and those who are trying to live off their savings.  What can self-funded retirees do in this scenario where they're getting very, very low interest rate returns?

TREASURER:

Can I just correct what you said.  I don't think it's quite true to suggest the reason the Reserve Bank is adjusting rates all the time is solely driven by a view that the economy is weak, the fact it …

AUSTIN:

No the international economy is weaker now, that will have a flow-on to us.

TREASURER:

Sure, they certainly expressed that view.  But one of the reasons the Reserve Bank is in a position to adjust monetary policy is precisely because of what we're doing with budget policy, that is bringing the budget back to surplus, and also because inflation is contained. And if we get to a point where we can give the Reserve Bank maximum flexibility to adjust rates, that's a very, very good thing.  Of course that has a benefit for people with mortgages and it also has a very substantial benefit for businesses and it will also do more to promote growth.  It'll do more for example to stimulate the property sector which is something that is particularly important for South East Queensland. 

It is also true to say that those people who depend upon their savings that have them in the bank, they also receive lower interest rates and the consequences will have an impact there.  In terms of self-funded retirees, they are a very significant beneficiary of a major reform we put in place to triple the tax-free threshold.  I don't think this one gets aired enough on radio programs because many of those [beneficiaries] are on relatively low and fixed incomes.  So if you put the tax-free threshold up significantly that's a very big benefit for self-funded retirees.

AUSTIN:

Do you agree that they are being hit hard by the low interest rate levels at the moment? 

TREASURER:

In recent times deposit rates at the banks have been far higher than they were for a long period of time, so I think they benefited there, and it is true this will bring them down somewhat and will have an impact on them.  The fact is that over time rates do go up and they go down, but I don't think anyone in Australia would want to see us go back to the time we had under the Liberals where interest rates went up ten times in a row, because that had a very, very savage impact on the economy and it may have benefitted savers, but it hurt a lot of other people.  And many people who are retirees also have families, they have mortgages.  So there are swings and roundabouts and what we've got to do is get a balance. 

AUSTIN:

So summing up as Australia's Treasurer, you believe that the market fundamentals are sound, that are house prices aren't declining – they're plateaued, you're going to listen about farm debt and you don't have any concerns about the private debt levels of the public debt levels at all in Australia?

TREASURER:

My concerns in Australia relate to the impact on the international economy on Australia.  We have some challenges in our domestic economy as you would have heard me say on many occasions.  We have a patchwork economy, not everybody is a significant beneficiary of what's happening in mining for example – we do know the consequences of that.  There are many businesses who aren't in the fast lane of mining.  We've also had in Queensland a very savage attack on public sector workers, which has meant that many people have lost their jobs.  I think there are challenges there.  We also note particularly in Queensland, because property has been weak, that's had a significant impact on many people throughout the south eastern parts of the state.  So I'm not saying everybody is in the fast lane, or that everybody is necessarily doing well. 

Also, I acknowledge there are pockets of poverty in Australia that are disadvantaged and that we have to do everything we can to resolve.  But when you compare Queensland, when you compare Australia to the rest of the world, we're doing far better.  Most other developed economies have unemployment rates far higher and their businesses have far bigger struggles.  But there are still people in Australia that are impacted by a higher dollar, people in retail are doing it pretty tough.  That's why we've got to keep the economy growing and get the fundamentals right.

AUSTIN:

Australia's Treasurer and currently Acting Prime Minister, Wayne Swan.