JOURNALIST:
I was interested in what you had to say about the role of APRA in helping a small business access finance. Can you elaborate on that? What do you see as the road blocks APRA is putting in the way of small business?
BRUCE BILLSON:
APRA has got a very important role in making sure our banking system is strong and stable and they do that extremely well. But one of the things we've heard back from lenders and small businesses is the weighting that is applied to small business finance in terms of the capital required to cover small business loans and the liquidity is actually a disincentive for lenders to put some of their loan book towards small business compared to say housing. So we just want to have a good conversation with APRA to discuss that implication that is being raised with us and also the challenges that the smaller banks have in trying to come up with a prudential framework that meets APRA's requirements but supports their requirements to be good small business lenders.
JOURNALIST:
With a heavy emphasis on risk in the post GFC environment I would imagine the banks are saying well we are being governed by Basel III.
BILLSON:
Basel III has had an implication and APRA has been quite careful and thoughtful and surefooted in its implementation in Australia. This really is about the within the banking system, being a particular type of loan being to small business, almost being conspired against by those prudential rules. So we want to have a conversation with APRA and key stakeholders, including lenders to see whether we have got those Basel interpretations right and to deal with what the smaller lenders are saying, the big guys can shape a particular prudential proposal that APRA can tick off. That takes resources, that takes scale. The smaller banks and lender can't do that, they have got to go with the default arrangements which they describe as particularly punishing.
JOURNALIST:
Are you saying that there is not enough thought going into the real risks for small businesses?
BILLSON:
Well we are saying lets have a conversation about the new normal. You have heard today about how small businesses not only need very competitive, very safe very low risk proposals to secure finance they then need to provide their house and their first born. So really the risk of default is down by the new normal of conservative lending practices and the cost of any default is also down because people's houses are on the line. So we are keen to just have a conversation about how that new normal is reflected in those prudential rules and to make sure access to affordable small business credit worthy proposals is in reach for those entrepreneurial people that want to have ago in our country.
JOURNALIST:
We're at a small business finance event. Now on our numbers today with the abolition of the MRRT on the other side the Government is taking away about a billion dollars in assistance to small business this year. As the Small Business Minister how you reconcile that?
BILLSON:
I wouldn't characterise it that way.
JOURNALIST:
Well the budget says that.
BILLSON:
I know your question, I wouldn't characterise it the way you have. What was being discussed today is the MRRT which was supposed to have bought in certain volumes of revenue which would be applied in certain way, some of which were relevant to small business. Now nothing like that revenue has been introduced so the money is not there to fund those measures. Some of them may have been attractive to some small businesses I understand that. But there are many things that are attractive to small business, e ones that we can implement, that are robust that are sustainable are ones that we can afford but right now we have got a budget restoration task. The tax loss carry back is a scheme that has been heralded widely by the previous government but most small businesses would yawn at it because it was of such little relevance to their particular circumstances and in fact some of the instant asset write off arrangements were sold as if they were great for cash strapped small businesses but you needed the cash to start with to make the purchase. We're not removing depreciation we're just returning to a more structured arrangement with assets pooling over three years, we don't think that is an impediment at all to small businesses wanting to invest, they've lost nothing, it's a rephrasing of the depreciation opportunities.
JOURNALIST:
I know the Australian Industry Group believes the instant assets write-off in its previous form of $6,500 would actually pay for itself with the increased spending and the increased tax revenue that is generated by that increased spending but you don't obviously don't agree with that?
BILLSON:
The previous Government didn't either. They attributed the cost of that measure and funded it through revenue from the MRRT which hasn't materialised, that's why it's not affordable at this time and I wouldn't have been at all surprised that if the Labor Government had been re-elected they would have also revisited this matter.
JOURNALIST:
To the report released today. You effectively rejected one of the central elements of the report which was a government backed credit guarantee scheme. What's your reason for doing that?
BILLSON:
Well largely because as I outlined in my comments today that the idea of the government or the taxpayer underwriting certain small business loans, if those loans end up defaulting, is not an idea that response to the mind of pressure that are being shared with us. The information we have had from the banks is that they don't want to make a loan that a risk of default even if somebody else make take a portion cost of that default. So our advice at this stage is that it won't change banking behaviour, it's an idea that has been operating in some jurisdictions so we a interested in the research, and as I said today we're infested in the conclusions this report presents but we haven't made any commitments to go down that path, we have in other areas to try to improve the access and affordability to small business finance, that particular idea of having the tax payer carry a portion of the risk for a small business loan isn't one we have embraced at this time.
JOURNALIST:
But if you are saying you're interested in the conclusions of the report and the ideas you've effectively drawn your own conclusion already (in audible).
BILLSON:
That's right I have. I have been quite upfront saying I understand the report has gone into this issue, we've also conducted some of our own examinations of this kind of idea mindful that it operates in a number of other countries, we have asked the lenders has this changed you lending practices. The answer we have got back is no. We will lend to credit worthy proposals is what is what the bank is saying and if we don't deem they are credit worthy, whether it's the taxpayers, the Government or anybody else underwriting the potential loss wont make a bank lend money they otherwise wouldn't consider credit worthy in the first place.
JOURNALIST:
So is there really a problem here? We've heard that this is a problem for 10 per cent of less of small businesses in the nation with access to finance. It is such a relatively small number of businesses and bank are saying it's just too risky anyway. It is a free market, should banks be able to invest where they will?
BILLSON:
A couple of things I would say to that. One is there is no clear data set that describes what is going on in the area of small business finance. Unlike housing for instances where we know about new housing loans, renovation, investment properties, first home buyers all these sort of things. There is a lot of data out in the market place that gives us a true indication of the health of our building and construction industry. Similar doesn't exist for small business finance. You heard some figures today about the number of small businesses that are having loan applications declined. But there are a number that simply don't proceed with their interest in finance because they are sensing lending institutions are disinterested. Only about 1 in 6 small businesses approaches a lender for finance the other 5 are they not returning to it, have they gone about it a different way, are they looking for equity investment rather then debt finance. These are questions we need to tease out more and that is what I touched on today about the need for a robust and dependable data set that we can track over time to gauge exactly what is going on in this space and what policy interventions are justified.
JOURNALIST:
Just on to one other matter. Then issue of the market dominance of the major supermarkets. You said today and on an occasion last week there are issues of concern there that need to be looked at. How often can you say there are issues of concern before you can say straight out now there really is a problem that needs to be address? Are you not at that point already?
BILLSON:
No what are seeing now is the ACCC are examining allegations that are concerning to see whether they are unlawful and whether further action can be taken using the current tool kit that is available to the ACCC. What I have also tried to make clear there are certain trends and certain market behaviours that appear not be supporting a competitive market place where efficient businesses big and small can be optimistic about their future prospects. Those other factors at play may not be unlawful. What we have said there is a need for a root and branch review of the competition law tool kit to see if there is a need for supplementation where the current laws are acting in the way they were intended, supporting the kind of pro-competitive, pro-prosperity, pro investment environment that we want to nurture in this economy.