SUBJECTS: Stimulus, debt, supervision of Australia's financial markets, superannuation, commissions, NSW Government.
HELEN DALLEY:
The economic meltdown of the last few months has thrown a spotlight on financial regulation, among other things, the need for adequate controls to stop excesses. It's also thrown a spotlight on the government's stimulus spending on school buildings. And we're talking about those issues today with financial services minister, Chris Bowen. And since superannuation also comes under his portfolio we might take a look at that area as well.
Thanks for joining us this morning.
CHRIS BOWEN:
Good morning, Helen, it's good to be here.
DALLEY:
Let's talk stimulus package first. Now, there have been problems with the whole rollout of the stimulus package. New measures had to be announced to stop rorting of the free insulation program by Minister Garrett, on top of guidelines and rejigged moneys to cover the $1.5 billion shortfall in the schools' building program. Now, was the program not properly thought through in the beginning?
BOWEN:
No, not at all, Helen. What we're seeing is some parts of the stimulus package coming in under budget; other parts of the stimulus package costing a little more than expected, largely because . . .
DALLEY:
$1.5 billion is a little more than a little more.
BOWEN:
Largely because of increased take-up rates. So overall we're seeing the stimulus package being delivered at the same cost as was predicted because you're seeing some parts delivered cheaper than expected, other parts delivered more expensively than predicted, but overall, as you'd expect after a very big spending program, delivered in a very tight timeframe, for all the right reasons, as has been praised by international think tanks around the world, you are going to get calibration six months later.
It would be negligent of the government not to calibrate six months later and say well this bit has cost a bit more; this bit has cost a bit less, we'll calibrate it out over the total.
DALLEY:
All right. But with the primary schools' building program in particular I mean you're trying to characterise it as we're just rejigging the money around, money some which came in under budget, but really why on earth would the government think that only 90 percent of primary schools would want to take a free handout from the government? Surely it's common sense that 100 percent would want that.
BOWEN:
Well, it is about take-up rates largely but there are also other elements; there's new schools that have been built, et cetera. But also we've seen as I say the science and language laboratories costing less than expected. So it's appropriate . . .
DALLEY:
All right. Can we just answer the question about why would you not think that everyone would want it? Why did you think only 90 percent would want it because that was the assumption?
BOWEN:
Well, 90 percent is the normal assumption when you're planning the rollout of infrastructure to schools. Now, this has been a very popular program, that's something that we shouldn't be disappointed about.
DALLEY:
A free handout you should know that everybody would want.
BOWEN:
Well, talk to school principals as I do in Western Sydney and elsewhere, of course they are saying this is a great program which has the potential to really improve educational outcomes. So, yes, they are taking it up. And, yes, we have recalibrated the program to match demand.
There are some parts of the package which have had less than expected take-up. In insulation, for example, there are some parts of the insulation program which have had less than expected take-up. So after six months of course when you have, as I say, a very significant stimulus package you're going to get some parts that have been taken up less and some parts that have been taken up more.
DALLEY:
Doesn't this dent your fiscal credibility because in fact the Commonwealth Coordinator-General's report says that it's a combination of poor program design, inaccurate cost estimates and excessive prices by tenderers. Now, obviously the excessive prices by tenderers you can't necessarily control but you should have put in controls that would stop that happening. But poor program design, that's out of the coordinator-general's words.
BOWEN:
I don't accept that premise, Helen. What we're seeing, as I say, is the biggest school rebuilding program in Australia's history. It's going, if you talk to principals, very very well. I talk to principals all the time in Western Sydney and elsewhere. They say that this program is being delivered very well.
Now, of course when you have such a big program which needs to be delivered so quickly – I mean the good thing about Australia's stimulus package compared to overseas stimulus packages is that the timing is targeted, is being delivered very quickly compared to others because we wanted it spent at the time when the economy needed it, not in a couple of years time as the world was moving towards recovery. And that's what we're seeing elsewhere is that in other countries the stimulus package is only now starting to come into play, whereas in Australia a lot of it has already been spent.
Now, yes, you're going to get bumps along the road as you go. You're going to get things which need recalibration and that's what we've done, that's the responsible course of action.
DALLEY:
All right. You've said that a lot has already been spent a lot faster than other countries, is it time to start winding back the stimulus package, winding back your spending?
BOWEN:
No. To reduce the stimulus package now would be to pull the rug out from under the Australian recovery and to throw more Australians into unemployment. You know to keep unemployment static you need to create about 20,000 jobs a month; you need the economy growing at 2 percent a year. And that's very difficult in the current economic environment internationally.
The stimulus is a very important part of making sure that no Australian, more than necessary, is on the unemployment line, and so to reduce the stimulus now or to withdraw the stimulus now would, a) put more Australians on unemployment and, b) deny Australia infrastructure investment and deny Australian schools much needed investment in their educational resources. We won't do that.
DALLEY:
All right. But at a time when there are signs that the economy is strengthening, and we had very good business investment growth in the June quarter, so the private sector is investing, why does the government have to spend so much? Isn't it time now to pull back on some of that and let the private sector take it up?
BOWEN:
No, because we are still to see some way to go in this international economic crisis. There are still dangers . . .
DALLEY:
What, you're saying things are going to get worse?
BOWEN:
I'm saying there are still dangers in the international economy. As the secretary of the treasury said, there is still a danger of a second wave. There's still a lot to go yet. We still are going to see more increases in unemployment. There's still some way to go. And so this was a very carefully designed and calibrated package which was timed to wind down as the economy recovered. And that's what we've done. But we need to see it through, we need to stick to the strategy.
DALLEY:
Do you think you risk being labelled fiscally reckless if you keep spending at a time when the Reserve Bank will most definitely, probably, be starting to lift interest rates fairly soon?
BOWEN:
Well, we've seen interest rates at their lowest level in almost 50 years. We've said, and the Governor of the Reserve Bank has said, that you should expect more increases over time. But the Governor of the Reserve Bank has also praised the government's fiscal stimulus package, said that it's been very important and will continue to be very important. So we're going to stick to the strategy, Helen, to do otherwise would be the irresponsible thing.
DALLEY:
All right. So you don't think you're working against monetary policy and the Reserve Bank's strategy with your fiscal policy?
BOWEN:
No, no we don't. We think that it's very important to keep that stimulus in the economy because there is some way to go in this economic crisis.
DALLEY:
Just turning to general education funding, are you comfortable with the fact that some private fee-raising well off schools in New South Wales possibly might get up to $15 million more than their normal entitlement for funding under the socioeconomic status formula which your government is continuing? Are you comfortable that you can justify that?
BOWEN:
Well, Helen, we went to the election, we went to the people, with a commitment to keep that funding formula in place for the term of this agreement. Now, we have an old fashioned view that we should meet that commitment. Others have a different view, we respect that, but we promised to keep it in place.
We also promised to review the funding formula as the agreement runs to an end and we'll do that in 2010 in preparation for the new funding agreement coming into place. And everybody will have their say and we'll work the issues through. But we won't . . .
DALLEY:
So do you think the SES should be scrapped, the socioeconomic status should be scrapped or changed?
BOWEN:
Well, we'll work that through. The Education Minister will work it through and bring it to the cabinet and we will work it through in as open and transparent way as possible.
DALLEY:
All right. Turning now to superannuation; you do wear a lot of hats. The review going on now, now it might clamp down on stock lending, which of course helped the short sellers during the market crisis, and it might also clamp down on trying to ensure that fund managers and trustees work in the very best interests of investors. Now, do you support those sorts of changes?
BOWEN:
Well, there are a range of issues and there's a number of issues that we're looking at both through the Cooper review that you're referring to; there's also a parliamentary inquiry into financial advice more generally for other products. And there are issues. And I've said there are issues and I've said that fees and commissions are problematic and that we need to have a good look at fees and commissions and that commissions . . .
DALLEY:
So that's the main area you really want to attack?
BOWEN:
Well, I do think that commissions, not only provide a potential conflict of interest but also a perception of conflict of interest. And I've said that the Financial Planners Association have done some good work, but I've also said that we leave the option open for legislation to enshrine those changes and to go further if necessary. We'll work those through with those two reviews that are going on; the Cooper review into superannuation and the parliamentary committee into financial advice more generally, and we will leave no stone unturned to ensure that Australians get the best financial advice possible, and that means often going to financial advisors but that there's no conflict of interest and no perception of conflict of interest.
DALLEY:
Are you personally in favour, or do you see leaning towards legislating so that financial planners have to act in the best interests of their clients?
BOWEN:
Well, look, you need to be very careful in this, Helen, we've seen for example a submission from ASIC. We've also seen a submission from the Treasury. Those submissions are different, they have different points of view and there can be unintended consequences of any actions, so you do need to work these issues through very methodically and that's what I'm doing. I'll then take a recommendation to the government and the government will work it through very methodically. But our intention will be that Australians get the best financial advice possible with no conflict of interest in the best interests of the person receiving the advice, the individual.
DALLEY:
All right. On another side of that you've also this week announced taking away some regulatory powers from the Stock Exchange and handing them to ASIC. Now, was that more a case of you couldn't have the ASX, which is a listed company, regulating other companies that might be in competition with it when you open it up to competition, more than a comment on how the ASX acted or didn't act during the financial crisis?
BOWEN:
There were two reasons for this change, Helen. One, you would expect the government to be reviewing the regulatory environment. We took the view that this was a body in any circumstances, this was a role best undertaken by a government body, by ASIC, that this would be the best place.
Also, as you intimate we do have some applications before us for competitors to the Australian Securities Exchange. We want to be able to consider those on their merits. Therefore we need the regulatory framework in place to do that. That means it was unsustainable to have the ASX supervising their own operators, their own market participants, when you might have other operators under a different environment or being supervised by ASIC. That would be an unlevel playing field. It would be unsustainable to have the ASX doing it for the others and we didn't feel comfortable with the entrants having that supervisory power to themselves as well. So this was the best model for those two reasons.
DALLEY:
All right. Looking at another area that's going to come up in cabinet; you'll consider the book imports issue very soon. Are you in favour of the Productivity Commission's recommendation to allow books - supposedly the big end of town says that they will become cheaper - and to lift the import bans?
BOWEN:
Well, Helen, this is a complex and nuanced issue. I was the minister in my previous portfolio who commenced this review by the Productivity Commission…
DALLEY:
Where are you leaning, very quickly?
BOWEN:
Well, look, Helen, there'll be a cabinet discussion. We haven't even had a cabinet discussion about this yet…
DALLEY:
But you must've had some thoughts on it.
BOWEN:
I've read media reports about cabinet members' views and I thought that was interesting as we haven't had a cabinet…
DALLEY:
And you're supposed to line up on the view that says open the doors up to competition.
BOWEN:
Look, I will say this, Helen, this is a complex and nuanced issue. There'll be a good cabinet discussion about it because there is no simple response to this. The Productivity Commission's recommended that change. They've also noted that there are cultural issues which need to be considered and we'll be having a very good look at it and working it through in the methodical, considered way that you would expect for a complex and nuanced issue.
DALLEY:
All right. One final one, New South Wales politics, now you worked for the Carr Government as a chief of staff for a long time. You're a senior figure in the New South Wales Right, why are you allowing this really disgraceful and embarrassing performance in the New South Wales people who have been given the right by voters to govern this state?
BOWEN:
Well, Helen, two points; firstly I've got plenty of federal issues to keep me busy. I don't spend too much time thinking or working on state issues.
DALLEY:
So what you've given them up, have you?
BOWEN:
Well, no, I've got a very important federal job to do. But as a New South Wales citizen I would say this, the people of New South Wales are looking to the New South Wales Government to get on with the job and that means delivering services, delivering infrastructure and not engaging…
DALLEY:
All right. Internally should Eddie Obeid and Joe Tripodi and people like that be forced to shut up and get back in their boxes or be sacked?
BOWEN:
Well, I've seen media reports of both of them this week supporting the premier and so I know what I read in media, I know what I see on television and I've seen people mooted as possible leadership candidates saying they're not leadership candidates and they have no interest in being leadership candidates.
So I do think the media often gets themselves into a frenzy of speculation about these matters.
DALLEY:
Ahh, it's all the media's fault.
BOWEN:
No, I don't think but I do think the media often get themselves into a frenzy of speculation and I think the people of New South Wales aren't interested in that and they're interested in the New South Wales Government getting on with the job, not in more leadership speculation but simply delivering services.
DALLEY:
Chris Bowen, we'll leave it there, thanks for joining us.
BOWEN:
A great pleasure, Helen.