ROSS GREENWOOD:
Let's go and talk interest rates with the man who is at the helm of Australia's economy. That man is Scott Morrison the Federal Treasurer who is on the line. Many thanks for your call Scott, we appreciate it very much.
TREASURER:
Good to be with you, Ross.
GREENWOOD:
Just in regards to the Reserve Bank and this decision today. Does it really imply that the Australian economy is not performing as the Reserve Bank or indeed as the Government would like it to?
TREASURER:
No, not at all. I mean we are dealing in a low rate, low inflation, low wage growth world at the moment and low investment world and the big challenge all around the world is to find ways and to encourage private investment to go into productive exercises and productive investments to build things, to create business, to develop products, to open markets. This is the big challenge in the global economy today and our rates still remain higher than they are in many parts of the world. In Europe and Japan and places like that interest rates are negative. So, comparative to the rest of the world we continue to do very well. It is a very different world economy than the one we were in five, 10 years ago.
GREENWOOD:
Is that up to the central bank to actually do that? It has cut interest rates to almost 0. They have come from pretty much seven and a quarter per cent down to where they are now – 1.5 per cent over a period of time since 2008. At what point is it up to the Government to really try and make certain that it has got projects that are starting to stimulate the economy. We know about debt in Australia, we know about the Government debt that has risen and we know about the structural issues in Australia but surely at some point it comes to Government to try and stimulate, to improve, become more efficient – where does Government play its role in this?
TREASURER:
The critical role here, Ross, is getting private investment flowing in the country and that is why we put forward the policies we have on taxation. That is why we are lifting that threshold for small and medium sized businesses up to $10 million a year to give them better access to better tax concessions and investment allowances and things like this to get private investment moving in the country. In many other countries what many countries are doing is just splurging money from the tax payer which is increasing levels of debt. Now, I don't think the Australian public want to pass on even higher levels of debt to the next generation and we certainly don't want to do that. So, you have got to get your financial house in order which is what we are working to do in the Budget and working with the new Parliament to get the savings measures through that we have been advocating now for some years. But secondly, it is a matter of doing the things on economic policy which will drive private investment in this economy as it transitions out of the mining investment boom and into this more diversified, service based economy.
GREENWOOD:
I sort of get that but when I see the10 year Government bond rate this evening sitting at 1.8 per cent. So, the Government can borrow at 1.8 per cent, surely at some point you can create infrastructure that will generate a return that is greater than 1.8 per cent. In other words they will be pretty much self-fulfilling right from the get-go. Then you can sell those projects on in the future if you need to. Such as you have sold out Medibank Private, such as in the past; Telstra, Qantas, the Commonwealth Bank have been sold. At what point does Government have to start to build some assets and as a result incur some debts at these very low rates?
TREASURER:
Well, I don't know why you would assume we are not doing that and when you are looking at major projects, particularly in Western Sydney and around the airport and things of that nature and other projects we are considering these are the very options that the Government is working through very carefully to do exactly what you are saying.
GREENWOOD:
But aren't they state government projects that the Federal Government comes along with. Where are the Federal Government projects that we need?
TREASURER:
Well, the state governments are the ones that actually develop these projects and we work with them and we partner with them on these projects. That is how it works. That is how it has always worked and that is why we have the priority list of projects which we are working through. We have a $50 million infrastructure program which we have been rolling out now for the last two years going out over the next eight. So, the Government does have a very big infrastructure agenda and that is also now being supplemented by the types of arrangements that you have just talked about. So, these are the things that are actually happening, Ross.
GREENWOOD:
So, when we go to the actual Parliament itself and when the Parliament sits and when the Senate sits in a little while and you and I have spoken about it before, whether it is going to be easier or relatively more difficult than the previous Parliament to get legislation through. Of course it is there that you get the genuine reform. I mean your Government has tried before to have some reforms through previous Budgets, they didn't work, they weren't able to get through the Senate. At what point does Australia realise that it needs to actually have politicians who can get legislation through Parliament that makes breakthroughs to change our tax system, our industrial relation system and a range of others because that is the problem at the moment. Most Australians think that politicians are kind of stuck and they are the roadblocks to genuine reform.
TREASURER:
Well, in the last Budget and the Budget before that we put up taxation changes and some of those have already been taken up, Ross. I mean there are changes being made in these areas. I mean take for example the work we did on angel investing and on new start-ups and venture capital and all of this which was in the last Budget. I mean these changes are working their way through the Parliament and they will continue to and the Government will not be taking a step back when it comes to continuing to pursue those changes because they are necessary to drive private investment in our economy. That is incredibly important. That is what is going to secure jobs into the future. That is what is going to see the new projects come on line. Now, the Government has a role to play in this but ultimately it is private capital that has always driven the Australian economy and it is the trade that we have engaged with as an economy. It is the immigration that has supported the growing economy over 200 years and particularly in the post war period. This is where our economy will continue to go but we need to ensure that we are not burdening future generations with crippling debt. The debt projections at the moment are not projections that I am comfortable with and that is why we need to continue to get the Budget in order and that we will work closely with this new Senate. I am far more optimistic about this senate then I was about the last one and have been engaged in meeting with those senators as early as tomorrow.
GREENWOOD:
You would be very cognisant, along with the Finance Minister of trying to refinance as much Australian debt as you possibly can at these lower interest rates. Is that going to deliver you Budget savings as some of that old debt rolls off and you are able to refinance it?
TREASURER:
I think that is unlikely. I mean these things do roll over, that is right, but I mean the way that these things are managed and hedged over longer periods of times I don't expect any major material difference at that level. Look, we do live in a low rate environment and that does provide opportunities. They are the sort of opportunities that you have highlighted but it is not a blank cheque, Ross. It is not like the Government should or can just go out there and borrow unlimited to splash money around because the thing about borrowing money is you have got to pay it back. So the Government is very careful when it comes to making those decisions and we know that there's an opportunity to develop infrastructure using these types of vehicles but it's not a blank cheque.
GREENWOOD:
So when you heard this afternoon the Reserve Bank had cut interest rates by a 0.25 per cent and immediately the Commonwealth cut by 0.13 per cent, the National Australia Bank by 0.1 percent, the ANZ by 0.12 per cent and finally then Westpac late this evening by 0.14 per cent. Were you happy?
TREASURER:
The other thing you didn't mention was that they are also increasing the term deposit rates, it's not often as I said earlier today, that on a day when the cash rate falls, that there is actually good news for people with term deposits. Their rates are going up. So, the banks obviously provided a package back to their customers that deals with those who are saving money as well as those who are borrowing money. Now, whether those completely represent a full pass on of what happened with the Reserve Bank today, well, that's what the banks have to be transparent about. But, I'll say this, there is no reason for the banks not to fully pass on their improvement in their costs from today's Reserve Bank decision. There is no reason why that shouldn't be fully passed on whether it's by increasing deposit rates or by cutting the mortgage rates. Because there are no overseas funding cost pressures which would justify not passing that on.
GREENWOOD:
You and I both know that the banks standard variable rate loan now is about 5.2 per cent most of the big banks. But we also know that most in the market place out there are under four per cent for standard variable mortgages, so a person would almost have to be a mug wouldn't they if they were paying the banks 5.2 per cent these days.
TREASURER:
Well this is the great virtue of being able to switch banks and refinance and move around and shop around. That's one of the great virtues of the system that we have and people should do that and that's why I say it's for the banks to justify and explain the decisions they take in response to this. The Government isn't taking the position of either supporting what the banks have done here, I mean that's for them to justify to their customers and their customers will render a verdict on that.
GREENWOOD:
The Treasurer Scott Morrison.