DAVID SPEERS:
As we have been discussing this to afternoon some significant changes unveiled to banking and superannuation unveiled by the Government today and its response to the Murray Review into the financial system. With us now to discuss more on this and what the Government's doing Treasurer Scott Morrison, thank very much for your time this afternoon.
TREASURER:
G’day David.
SPEERS:
Let me start with interest rates, because a lot of people will be nervous, about this we just heard the Australian Banker's Association say that what you are doing is going to mean an extra cost and in the words of Steven Munchenberg, some of it is going to be paid for by our customers. So, will this mean higher interest rates?
TREASURER:
Well, that's a commercial decision for the banks at the end of the day. The Murray Review indicated some 10 basis points of what may be involved if that's what banks choose to do. This is the point, banks are not unlike any other business, they have changes and impacts on their cost base from time to time. In small businesses it happens all the time. You know what small businesses usually do, they don't pass it on.
SPEERS:
What do banks normally do?
TREASURER:
Banks tend to pass it on in many cases.
SPEERS:
If it is 10 basis points will that be passed on?
TREASURER:
It will all be up to the banks as to what they want to charge their customers.
SPEERS:
Do they have a reason to blame you for this?
TREASURER:
No, they don’t. They have absolutely none whatsoever because banks need to make commercial decisions about how they comply with the various regulations that are necessarily in place. I think one of the key points we have to discuss when we talk about this issue is having a strong financial system is incredibly important. It touches almost every part of our lives. Our strong financial system, was, we believe, the key factor that actually saw Australia prepared and to be able to move through the Global Financial Crisis. It's been 15 years since we have had this scale of reform and change and the change hasn't been about just technical issues, it's been about making the system stronger, more resilient.
SPEERS:
We all want that, the banks want that too no doubt.
TREASURER:
Of course.
SPEERS:
As Treasurer what is your message to them, they’re saying some costs will have to be passed on are you saying it is justified under these changes or not?
TREASURER:
It's for them to explain every decision they make. If they are going to make a commercial decision in relation to these issues then it's their customers they have to explain it to, because their customers can choose to go somewhere else.
SPEERS:
Does this change mean that they are facing a higher cost?
TREASURER:
There is always a cost of raising additional capital. Again, there are all sorts of things that happen in businesses and impact all sorts of businesses, and then businesses make their own commercial decision. They must own their own commercial decisions and they must explain them to their own customers. So, no, I don't accept that the banks or anyone else for that matter can go around and say, well, the Government made us do it. No, they have made a decision about how they will absorb costs in relation to these issues and how they will relate to their customers.
SPEERS:
On these card fees, I think a lot of people will be relieved to hear when they go to use an ATM from another bank they cop a $2 or $2.50 charge…
TREASURER:
Well, that’s a separate issue.
SPEERS:
Ok, because I want to break these apart – is anything happening on that front?
TREASURER:
No, that's a completely different issue, that's a fee for service issue between the provider and the customer.
SPEERS:
So, what we are talking about here is the interchange fee?
TREASURER:
Yes. There is an interchange fee which the provider of a card, often a bank or whoever makes a charge to a merchant where you have gone into their shop. Normally that's about 0.5 per cent, on average of the transaction…
SPEERS:
That the merchant pays.
TREASURER:
That's what the merchant on average faces. I accept that there are variations to that. Then you will get a surcharge fee which is what you, as the customer, has to pay. That is on average anywhere for most cards between 1 and 3 per cent. But in some cases it's over 10 per cent. Now, the businesses can charge their customers what they choose to charge, but what we are saying is you don't get to profiteer on these things. If you want to charge people more, well you have got to be providing a service and there's no service there. So, what we will be doing is working with the Payment System Board and others, particularly we'll work specifically with those affected by these transactions and over the course of the next six to nine months we’ll be able to make sure they [inaudible].
SPEERS:
So, they have got to come up with a figure, I suppose, that is reasonable to charge here, then it's up to the ACCC to go in and look at when someone is charging something that is unreasonable. Could we end up with a lot of disputes going on or a lot of businesses tied up with the ACCC in dispute?
TREASURER:
Well, I hope not, I would think the way we mitigate against that is getting the consultation phase right. The principle is what is important here which we are basically banning profiteering on these fees. Where people have legitimate costs that are involved in actually being able to extend this service to their customers as merchants, well, it would need to recognise that. But the other thing we are doing...
SPEERS:
Smaller businesses will face a higher cost, won't they?
TREASURER:
No, why would they? They are still getting charged exactly what they are by the card providers and then they are seeking to pass on costs, four, five, 10 times what they are actually charging them. That isn't because they are selling a different product or any service, it's just the transaction mechanism. Now, what we are doing for merchants with the Payment System's Board they are going to be looking at the charges that are being put on the merchants. We are dealing with it at both stages, what are the merchants getting charged by the card providers and what are the consumers getting charged by the merchants. In the latter we are saying no to the profiteering.
SPEERS:
Let me turn to superannuation, I suppose one of the more contentious things that you are doing is trying to open up to more competition, the selection of a default super fund, this is in an enterprise agreement where those who don't choose their own fund get put into a default fund at the moment. It’s usually the industry super fund that’s chosen here. How will you actually crack this open to more competition?
TREASURER:
Well, we will legislate, the unions and employers shouldn't be able to lock people out of choosing where their money should go. It is their money.
SPEERS:
So, how would it work in practice though?
TREASURER:
Well, enterprise agreements going forward would not be able to prescribe a worker from choosing where their money should go.
SPEERS:
There are a lot of workers who don't go to the trouble of looking at all of the fund options and choosing the best one.
TREASURER:
Well, that’s why…
SPEERS:
….they go with the default one.
TREASURER:
What we are tasking the Productivity Commission to do is to provide advice on a mechanism and a process which can assist people in this situation make choices about what they...
SPEERS:
That's what I'm asking about, what sort of mechanism do you envisage that could work?
TREASURER:
That's what we are tasking the Productivity Commission to advise on and to develop. So, I look forward to them and the report.
SPEERS:
Could we end up with a situation where you have got all the super funds in there, tendering for the right to be the default fund in each workplace?
TREASURER:
Potentially, but I mean there are over 60 different products which people could potentially choose as a default product in these situations. All we are saying is we need not just the right to have the choice, which they are currently locked out of. An employer and a union can lock you out of what fund you put your superannuation in. We just think that is a violation of a fairly important principle. Now, that's going. That's what we’ll legislate to remove. But what we will also do then is work with the Productivity Commission to provide a good set of tools so people can make good choices. Now, that doesn’t mean they, they will put them in whatever fund they choose to. If it's a great industry fund – fantastic, put it in that. But what can't happen is someone being prevented from having their super in a fund that best suits what they are looking for. That seems to me to be a fairly and obvious right that people should have.
SPEERS:
And when we get to the retirement phase in superannuation, again it comes down to choice and a lot more retirees want it, annuity, an ongoing income stream. I suppose from a Government point of view you don't want everyone taking a lump sum, blowing the money and then going on welfare, on the pension. So, what are you proposing here?
TREASURER:
You make the first point at the end there, I think, quite well. That is the Murray Review suggested let's define the purpose of superannuation and put in the legislation particularly as far as it extends to taxpayers incentives going in to support this. He suggests quite plainly that it's about ensuring when people hit the retirement phase that they're not going on the pension, they're not going on a welfare payment and I think he makes that point extremely well. I have an enormous amount of sympathy with what he is saying. Now, what is recommended in Murray and which we have agreed with is effectively creating a system bias towards annuity type products.
SPEERS:
Through the tax system?
TREASURER:
Through the way that you are choosing products and what is set as default products and things of that nature. What that would mean is that you can opt out of that if you choose, you can't be bound by it. We're very keen to make the point that it is your money.
SPEERS:
At the end of the day… that's exactly right.
TREASURER:
It is your money.
SPEERS:
And Government can't tell someone they can't take a lump sum.
TREASURER:
Absolutely, that is absolutely the case. We want to create, if you like, a system's bias which reflects the purpose of why we have gone to all of this trouble of having people save for their retirement. That is we don't want to see them being on the pension at the end of the day. If we're not achieving that outcome you have really got to ask yourself, well, what's the point?
SPEERS:
How do you do that? If not through a tax incentive?
TREASURER:
Well, tax incentives are, and should be designed over the course of the contribution and accumulation phase to get people into a position where they can be self-sufficient in retirement. When they reach retirement they're on a super product which is producing an income stream over a much longer period of time.
SPEERS:
So, it is through the contribution phase, through your working life, that you would set in, are you going to have annuity, and there would be some sort of incentive to do that.
TREASURER:
Well, there is a system bias towards that outcome. That's what you are building into the choices process.
SPEERS:
What does that mean though? A system bias?
TREASURER:
Well, it means that it would default more towards annuity products than to the alternative. Now, if you want to opt out of that bias you can.
SPEERS:
All right, you are also, as part of the changes today saying financial advisers have to hold a degree, pass an exam, undertake continuous professional development and so on. You want better qualified financial advisers. Can I ask you, did the Government get it wrong when it first came to office in winding back some of that?
TREASURER:
What is important now is that we get it right. I don't plan to go over that history but I think with people who are advising on some of the most important decisions you make about your retirement incomes, your life insurance and all these sorts of things. Standards have been raising right across, I think, the financial services sector. We expect that of the ambulance officer who is going to turn up at the incident that they have gone through a – my brother is a paramedic and he works in that area, I tell you those guys work very hard to make sure they are always on top of their game. That applies, I think, right through, security traders and all of this sort of area. It is important that we continue to raise the standards. Now, we have worked through this with the sector, it's prospective but for those who are already in the sector, and they may be well advanced in their career, they may have well run their business for the last 30 years, I have no doubt, there is a process of transition and a longer time lag for them to be able to line up with... they don't have to go out and get a degree tomorrow. For those who are starting out in the business today, that's where we are setting the standard.
SPEERS:
The final one, you were asked in question time when is the Budget returning to surplus? I know your answer.
TREASURER:
When expenditure is less than revenue – it is the same answer, David.
SPEERS:
When will that be?
TREASURER:
When that happens.
SPEERS:
When will it be though?
TREASURER:
When that occurs.
SPEERS:
What do the Budget papers say?
TREASURER:
It puts it in the out years on the projections as they are currently there but those projections and those forecasts will be revised in MYEFO and refreshed.
SPEERS:
At the moment it says 2019/20 is when we will get to balance – is that still the plan?
TREASURER:
Well, we will have to see in MYEFO what the projections and the forecasts say at that time. That is when that work is…
SPEERS:
We have got used to it slipping and slipping and slipping under successive governments.
TREASURER:
The Prime Minister has said over the course of the cycle on these sorts of issues what is important is when we get there - my answer was not glib today, it was actually, it had a point and that is we have to get expenditure less than our revenue. That is an ongoing process and it's a laborious process. The next update we’ll have on that is in MYEFO that is the time when these things will be assessed again and that will give us an indication of what is happening out in 19, 20 and so on. Then there will be obviously the Budget. So, as a new Treasurer…
SPEERS:
You can't say right now that it's still on track for balance in 2019?
TREASURER:
What I am saying is that's the current projection.
SPEERS:
Ok, Treasurer Scott Morrison, thanks for joining us this afternoon.
TREASURER:
Thanks David.