FRAN KELLY: Treasurer, welcome to Insiders.
JOSH FRYDENBERG: Good morning Fran.
FRAN KELLY: The Prime Minister said the Westpac board has to be accountable for this breach. What does accountability look like?
JOSH FRYDENBERG: Well, there must be accountability and that will obviously involve decisions that they take about the futures of senior management as well as the board. But these are very serious issues, Fran, both in terms of the nature and the number of alleged breaches; we’re talking about 23 million alleged breaches of the anti-money laundering laws, we’re talking about a failure to adequately assess customers with links to child trafficking and child pornography. We’ve seen from Austrac a statement that there has been indifference by the board, that there has been a systemic failure by the bank and there’s been inadequate oversight.
FRAN KELLY: Given those findings, you say the board will have to take some action. If the CEO of Westpac and even the Chair of Westpac are still in place in six months’ time, would you be happy with that?
JOSH FRYDENBERG: Well, Fran, the first thing I would say is that history shows you, and don’t forget we had the Commonwealth Bank experience with, again, breaches of anti-money laundering laws – history shows you that these issues build a momentum of their own and where boards start is not necessarily where boards finish. Now, APRA has the ability under the Banking Executive Accountability Regime to disqualify boards and to disqualify executives where there is a failure to appropriately enforce and uphold the duties under the legislation. Now, that legislation came in to force in 2018, it’s not retrospective and some of those alleged breaches date back to 2013 but the anti-money laundering laws are a prescribed activity under APRA and I know that APRA is looking at it.
FRAN KELLY: So you would expect that to trigger those BEAR responsibilities? Some sort of disqualification of executives, would you expect that?
JOSH FRYDENBERG: Well, APRA is an independent agency like Austrac and they will determine their own conclusions. But what I will say is they are looking at it and obviously they have particular powers under that legislation that we introduced.
FRAN KELLY: You’re the Treasurer, you introduced those powers, you’re also responsible for the banks. The Prime Minister has said this incident has damaged people’s confidence in our banking system. As the Treasurer, what action do you want to see?
JOSH FRYDENBERG: The Prime Minister is not wrong there. There is a lack of trust and confidence among the public after the Royal Commission with some of our leading financial institutions…
FRAN KELLY: And now this
JOSH FRYDENBERG: And now this…
FRAN KELLY: And all we’ve got is a review so far. What do you want to see? Does there need to be more?
JOSH FRYDENBERG: As I said, these issues develop a momentum of their own, they’ve got an AGM on the 12th of December and, no doubt, there will be some very hard discussions between now and then.
FRAN KELLY: Have you spoken to the CEO or the Chair yet of Westpac?
JOSH FRYDENBERG: I have.
FRAN KELLY: What did you tell them?
JOSH FRYDENBERG: Obviously I made it very clear the seriousness of these issues, but they also made very clear to me that they have a process now underway where they are bringing independent experts in and they’re determined to provide a way forward. Of course, this is before the courts too.
FRAN KELLY: I know it’s difficult for you, but I am going to ask you one more time. What do you think? Should these people keep their jobs?
JOSH FRYDENBERG: Again, our position has consistently been decisions about who are on boards are matters for shareholders and who are on executive teams are matters for boards. That being said, these are very serious issues, there must be accountability. Austrac has been highly critical in their statement and now APRA is looking into it. So, I don’t think there is any doubt as to the seriousness of these issues and the Government’s position.
FRAN KELLY: Do stakes need to be raised even higher? Westpac will have to pay, the fines will be considerable in the billions almost definitely, which handily for you will go to your bottom line. But it is a big bank, it will be able to afford that. Should jail sentences, should criminal charges be introduced for individuals as Allan Fels was suggesting.
JOSH FRYDENBERG: Let’s wait and see how the Austrac court case plays out but let’s also be very clear that we have put in place criminal penalties, namely fines through the APRA process as well. We’ve beefed up the resources…
FRAN KELLY: So APRA can do more than just disqualify executives?
JOSH FRYDENBERG: That’s right. They can apply to the court for fines up to $500 million.
FRAN KELLY: For individuals?
JOSH FRYDENBERG: That’s for an organization of course. I don’t think many individuals could afford that.
FRAN KELLY: No. What about individuals, though? Is there the capacity?
JOSH FRYDENBERG: There is the capacity to disqualify and then there are fines that they can apply to the court to apply to an organisation where there has been a failure.
FRAN KELLY: The sheer dimension of the breaches is one thing, 23 million breaches worth $11 billion. But it really is much worse than that. Westpac were aware of the risks that some of these overseas payments could be abused by paedophiles in the Philippines. They were made aware of that. Seems they didn’t care enough to fix a breach when it occurred, that this was happening. What does that say about attitudes within the banking sector towards anything but profits, is that the problem here?
JOSH FRYDENBERG: I don’t think anyone condones and certainly people within these financial institutions that I’ve met, and no one condones the trafficking of children and child pornography. They are the most abhorrent…
FRAN KELLY: I’m not suggesting they condone it…
JOSH FRYDENBERG: But they are the most abhorrent of crimes. But what we do know is money laundering precipitates dangerous crimes and that’s the issue here. And clearly, Austrac has said that there has been a systemic failure at Australia’s oldest bank.
FRAN KELLY: Are you worried that this kind of failure for these kind of sex trafficking crimes and paedophilic crimes could be slipping through other banks? Are you going to take any steps to try make sure the banks have another look at this?
JOSH FRYDENBERG: Well, deeply concerned about the nature of these alleged breaches and very focused on ensuring that Austrac have all the resources necessary to ensure that every bank, every financial institution in our country upholds the law.
FRAN KELLY: Do you think Australians will be happy if at the end of this in six months’ time or twelve months’ time, no one has lost their job over this?
JOSH FRYDENBERG: Again, I don’t think you should reach that conclusion at this point in time. They’ve got an AGM on December 12th, there will be some tough conversations between now and then. The board management, they’re all seized of this issue and they’re now going through a process. But, with APRA providing additional focus as well as Austrac, certainly the heat is on the company.
FRAN KELLY: Treasurer, let’s go to the economy more broadly. Is the announcement this week of $3.8 billion of infrastructure being brought forward an admission that the economy has stalled and it needs some stimulus from the Government?
JOSH FRYDENBERG: The economy continues to grow and in fact, the OECD…
FRAN KELLY: Then why are we bothering putting out $3.8 billion?
JOSH FRYDENBERG: Because we believe that investment in infrastructure is a pathway to higher growth and to more jobs and to boosting the productive capacity of our country. Now, the Prime Minister wrote shortly after the election to state premiers and leaders to offer an opportunity to work together to bring forward projects. Now the end result is $3.8 billion of projects that have been brought forward - $1.8 billion to be spent over the next 18 months on major projects, Fran, like in South Australia it’s the North-South corridor, it’s the North-East Link in Victoria, it’s the Tonkin Highway in Western Australia, it’s the Princess Highway in New South Wales…
FRAN KELLY: Sure, but you’ve only brought them forward because, as you say, the economy continues to grow but it’s pretty sluggish growth; the slowest growth in GDP in a decade at 1.4 per cent, pretty slow. Unemployment went up this month, employment had the biggest monthly fall in three years, retail sales fell, we haven’t had retail sales this bad since 1990. Things aren’t good.
JOSH FRYDENBERG: You give me those figures and let me give you a few others.
FRAN KELLY: Okay.
JOSH FRYDENBERG: When we came to Government, unemployment was 5.7 per cent, today it’s 5.3 per cent. We have a record number of Australians in jobs. We’ve just produced the first current account surplus since 1975. We’ve got the lowest welfare dependency in thirty years. We’ve provided the biggest tax cuts legislated through the Parliament in more than twenty years. The budget is back in balance, already delivered, for the first time in eleven years. And we’re going to deliver a surplus and that means paying down Labor’s debt. Right now we have an interest bill of around $19 billion a year. That’s more than double what we spend every year on childcare and nearly the same amount that we spend on schools. So what we need to do is build the resilience of the Australian economy to face those domestic and global economic headwinds that all countries are facing, particularly the trade tensions, but here at home, a punishing drought as well.
FRAN KELLY: Do you accept though that households don’t have faith in the economy? Because if they did they would have splashed their tax cuts, not banked them, not paid down debt?
JOSH FRYDENBERG: There’s no doubt that households are paying down some of their mortgages. Most families are now ahead of their mortgage payments but it’s not for me how to tell the Australian people how to spend their money…
FRAN KELLY: No, no. I’m asking you to accept that that is a reflection that people don’t have much faith in the economy?
JOSH FRYDENBERG: I accept that when people look globally, particularly with the trade tensions and some of the challenges here, that they would pay down some of their mortgage, but at the same time, they are spending. They’re spending throughout the economy and we have seen, for example, the housing market start to stabilise, prices have started to go up, mining investment is coming back, and of course we have a record number of Australians in a job.
FRAN KELLY: Yeah, but they’re spending, but they’re not spending as they were. Retail sales are at their lowest point since 1990. Have the Reserve Bank cuts in interest rates backfired? Have they damaged consumer confidence?
JOSH FRYDENBERG: Look, I don’t think they have. But, as you know, the Reserve Bank has a triple mandate. Not only price stability and the prosperity and the welfare of Australians, but also full employment. And the Reserve Bank has been very conscious of what has happened globally with more than fifty central banks reducing their interest rates. And they don’t want to see the Australian Dollar appreciate, because if it does, then that will affect jobs. But when we point out the retail sector, it’s a bit unclear as to how much is cyclical and how much is structural, because there’s a lot of disruption taking place, and that’s a good thing.
FRAN KELLY: Okay but in terms of the rate cuts? Economists are starting to factor in a further rate cut. Would that help? Is that a good idea?
JOSH FRYDENBERG: Well again, matters of monetary policy are matters for the Board of the Reserve Bank.
FRAN KELLY: Okay. In terms of stimulus, we’ve had the $3.8 billion. There’s been plenty of people calling for you to bring forward the next tranche of tax cuts, which you’re resisting. But you’ve left the door open. When will you decide? What’s going to make up your mind on whether you do bring that forward or not?
JOSH FRYDENBERG: Well, I must say, I had a bit of a chuckle to see the Labor Party ask us to bring forward tax cuts that they oppose. We’ll always be the party of lower taxes, and as I said, we’ve implemented significant tax cuts, not just for income earners but also for small businesses. We’ll continue to consider our policies, both at MYEFO and in terms of the Budget, but what we have focused on is implementing the tax cuts as legislated by the Parliament. Which…
FRAN KELLY: But they haven’t had the effect you were hoping for.
JOSH FRYDENBERG: But they’re going to continue to play out, Fran. But I’ll tell you….
FRAN KELLY: So what sort of numbers will you be looking for that might suggest to you and Mathias Cormann that you better bring these forward?
JOSH FRYDENBERG: Well, as you know, in early December we’ll see the results of the September National Accounts. But, I want to point out that we are growing faster, according to the OECD in 2020, than the United States, than Canada, than Japan, than European countries. What we will not do, what Scott Morrison and myself will not do is impose $387 billion of higher taxes, which is the Labor Party’s policies to…
FRAN KELLY: The Labor Party has gone, that’s gone. That was the last election. They’re gone. That’s not coming in anywhere. Why are you still talking about it?
JOSH FRYDENBERG: Well, because they are the alternative Government in this country.
FRAN KELLY: But that’s not even their policy anymore.
JOSH FRYDENBERG: Well, is it? That’s news to me. I mean, they’ve had an election loss, they’ve had a review, they’ve had a couple of headline speeches, and the only thing that’s survived is their $387 billion of higher taxes. So, you know, you’ve got Anthony Albanese, Jim Chalmers, talking about tax cuts, when they’ve got on their books $387 billion of higher taxes.
FRAN KELLY: Why are you still talking about Labor?
JOSH FRYDENBERG: Because Labor has the alternative approaches that they’re putting to the Australian people. They’re always relevant to this debate, but what we will not do is go down that path. Nor will we go down the path of reckless spending which would be a sugar hit for, pretending to be a sugar hit for the economy. What we will focus on is considered, stable government and ensuring that the Australian economy continues to grow.
FRAN KELLY: Okay. You gave a speech about growth and levers for growth this week to CEDA. You talked about population, participation and productivity as the drivers for growth. You talked about the challenges of the aging demographic. That’s in the context of, we got your plan this week for the Retirement Income Review. That discussion paper was released on Friday. Is the Government still committed to lifting the superannuation guarantee to twelve per cent by 2025? Is that still a guarantee?
JOSH FRYDENBERG: Well it’s legislated and we said we haven’t any plans to change it. We’ve been very clear, both the Prime Minister and I, on that. The key point…
FRAN KELLY: So you’re committed to that? You think that’s the best plan?
JOSH FRYDENBERG: Well, we said we’re not changing that. It’s already legislated. Now, the key point here though, is that we do have an ageing of the population. It’s a wonderful thing that people are living longer, but we also need to plan for it. And it’s a demographic shift that we need to plan for. And it’s not about asking people, forcing people to work longer. What we’re saying here is people should have an opportunity and the choice, if they so choose, to engage in further skilling and other activities.
FRAN KELLY: That’s all very well but there’s 175,000 people over the age of 55 on Newstart. They don’t have the choice. They’re looking for jobs and they’re not there.
JOSH FRYDENBERG: And the programs that we have put in place like Restart, which involve…
FRAN KELLY: They’re tiny though.
JOSH FRYDENBERG: Well, no. It offers up to $10,000 to an employer to take somebody on who’s actually been on income support.
FRAN KELLY: And how many people have they taken on?
JOSH FRYDENBERG: Well, they’re taking on people as well as we’ve got other skilling programs, as well as the Pension Work Bonus, where you can earn up to $300 a fortnight without affecting your pension. So, the key point here is we’re looking for opportunity and choice. Whether it was Wayne Swan, Peter Costello, former Treasurers, have all raised this issue about the workforce participation implications of an ageing population.
FRAN KELLY: It’s a challenge, no doubt about it. Just finally, Treasurer, do you back the calls from some of your colleagues for a former Chinese spy to be granted asylum in Australia?
JOSH FRYDENBERG: Well, I saw the comments from Andrew Hastie. He’s a respected colleague and he’s entitled to his view, but this is obviously now in the hands of our law enforcement and intelligence agencies. I won’t comment on the specifics of an ASIO operational matter, but what I will say is that the Government makes no apologies for the laws that we’ve introduced around foreign interference and foreign influence and the fact that we’re now providing record resourcing to our agencies.
FRAN KELLY: Josh Frydenberg, thank you very much for joining us.
JOSH FRYDENBERG: Good to be with you.