SUBJECTS: Financial crisis; deposit guarantee; Centrelink; tax havens
HELEN DALLEY:
Our guest Chris Bowen took part in a global effort to crack down on tax havens, and he saw first-hand the impact of the financial crisis in Europe, and he joins us now.
Mr Bowen, welcome to Sunday agenda.
CHRIS BOWEN:
Good morning Helen, good to be here.
HELEN DALLEY:
Now before we talk about any of that, does the Government now have a handle on the bank deposit guarantee scheme?
CHRIS BOWEN:
I think the Government has handled this issue particularly well all the way through. As you say, I have just come back from Europe, where there is a lot of interest in how the Government has handled the bank guarantee issue, and other issues, and a lot of credit for the way the Australian Government has handled this issue. We have acted decisively, we acted clearly. Now we are dealing with unprecedented times, unprecedented turmoil in international markets and changes which are occurring not only on a daily basis, but on an hourly basis, with the way the financial markets are responding.
So, what the Prime Minister and Treasurer have done, on the advice of regulators, is acted clearly and decisively and early. I mean, the opposition is running around saying that we rushed into it - a couple of weeks ago they were running around saying there was to be reviews and not enough decisive action. They are really being quite hypocritical. What the Government has done, is restore confidence in the Australian financial system and ensure that in these very difficult times people can be certain that their bank deposits are safe.
HELEN DALLEY:
All right, can it stop the rush of funds out of investment funds?
CHRIS BOWEN:
Well, the Government has taken this action, we will continue obviously to monitor closely movements in the financial markets and with superannuation funds and investment funds over coming weeks. We will continue to respond, as we have, decisively as we need to.
But what we have done is respond to emerging circumstances, to the changing situation, in a way that has been welcomed across the board.
HELEN DALLEY:
But you would admit that in a sense it is policy on the run because it is an unprecedented set of circumstances that we are facing now.
CHRIS BOWEN:
Well, when circumstances change, you should change your response. You should respond accordingly. And that's what the Treasurer and Prime Minister have done. Acted decisively, but flexibly, in the face of changing situations and hourly developments.
HELEN DALLEY:
But there is no textbook on this, is their - so in a sense it is policy on the run by you and the Treasury and the Reserve Bank?
CHRIS BOWEN:
While as I say, around the world we are seeing governments grapple with these issues, some handling it better than others. And I think the Australian Government has handled it as well has, if not better, then governments around the world. And certainly as I say, there is lot of interest around the world in the way the Australian Government is dealing with this. They are seeking lot of feedback from the Australian Government to how we are going. Because on a number of issues we have taken decisive early action, which other governments are watching closely.
HELEN DALLEY:
Okay, are you as the government confident that the meeting between Treasury and ASIC and the non-bank sector tomorrow will actually solve the problem?
CHRIS BOWEN:
Of course, as I say, we will continue to respond flexibly to the circumstances as they arise. What the Treasurer has done, by making the announcement he did in the last couple of days, is ensure that we strike the right balance. Now it's important to note that the deposit guarantee was never meant to relate to market related investments. It's relating to deposits in APRA regulated financial institutions.
HELEN DALLEY:
All right, can you just make that that differential, because a lot of people don't understand. If the cash deposits are guaranteed, why not the investment funds, and then if you want to take it further, why not house prices, which may fall 10-20% over the next year or so?
CHRIS BOWEN:
When people make a deposit with their bank or other financial institution, they are looking for safety and certainty. People can decide to take more risk. But when you take more risk you make a higher return. That's a choice for people to make.
'I don't want to necessarily get the higher return, I will go for the certainty of a bank deposit. Or, I will take a bit of risk here, but I would get a much higher return'. Now that's the way our system works. Now it's never been the Government's intention to guarantee market related investments, because there is an element of risk there.
But where you are taking the safer approach, were you are saying I want to keep my money in a bank or financial institution which is regulated by APRA, which have, since APRA and the Reserve Bank have been regulating financial institutions in Australia, none have failed. There has been no loss to depositors. Then, I will take that choice.
If I choose to take a more risky approach, then you do not get the Government's guarantee. And that's been the situation all the way through.
HELEN DALLEY:
Was it a gaffe for Treasurer Wayne Swan to advise those people whose cash is frozen right now and may depend on it, to go to Centrelink for help?
CHRIS BOWEN:
Absolutely not. What the Treasurer was saying was very clear. Centrelink can take into account people's changed circumstances. Some people are on a part pension, some people are on a full pension, and they can take into account the changes in their income when determining how much of a pension they should get.
HELEN DALLEY:
Now we are talking about people who are into these investment funds. The ones that have been frozen, many of them, we are hearing, are self funded retirees and may never have been to Centrelink before.
CHRIS BOWEN:
There is no shame in going to Centrelink. If your income has changed, Centrelink can take that into a consideration. In fact, Centrelink is taking income changes into consideration at the Government's request on a general level, but they can also do it on an individual level. For the opposition to criticise the Treasurer for referring to that, and making sure people are aware of their rights, shows that they have some disdain for people who might need to go to a centre link office.
We have a different approach, the Treasurer has a view, and we have a view, that if your circumstances have changed. There is absolutely no shame in going to Centrelink.
HELEN DALLEY:
As you understand it, will people have access to their funds that are frozen in these funds, or at least access to some regular income from the funds?
CHRIS BOWEN:
In most cases, Helen, while deposits have been frozen - so the ability to take money out has been frozen - the income stream has remained. In most cases, not all, but most cases. The income stream has remained the same, but the institutions have put a freeze on you taking your money out.
HELEN DALLEY:
All right, so that should be some comfort for people. As long as they don't want the lump sum, they can get some income.
CHRIS BOWEN:
And even in those cases, there is no indication of course that this is an indefinite or permanent freeze. It is in relation to these very turbulent times, partly in relation to the guarantee on bank deposits but also in relation to these other very turbulent changes across the board. So we have a different situation with different funds.
HELEN DALLEY:
In a sense it is the last thing the Government needs. It was a story in the Weekend Australian yesterday that super funds are losing up to $1 billion a day. Now, this is people's wealth is just disappearing before they eyes.
CHRIS BOWEN:
Well, we are seeing stock market falls across the world. We are seeing pension fund falls across the world and Australia is no different, we will continue to see, as we have seen, turbulence in superannuation returns because they are very closely linked to stock market returns around the world.
HELEN DALLEY:
But you had been saying, or the Government had been saying up to now, that we won't be immune, but we won't be in as bad a situation as the rest of the world. And now you're saying we are the same as the rest of the world.
CHRIS BOWEN:
We are not immune, but we are still much better off than most nations of the world to getting through this crisis. That situation hasn't changed Helen. It's a very serious situation around the world, but I can tell you, after having had discussions with finance ministers in Europe, the OECD, the European Union, that is not a view only of Australia - it's a view around the world that - Australia is better placed than most countries to get through this crisis.
HELEN DALLEY:
Well, with people's super disappearing, with worries about jobs, jobs being lost, now inflation rising, won't this be really a very bleak Christmas for a lot of people? How are you going to get them to spend because that's what you wanted just a few weeks ago with the stimulus package?
CHRIS BOWEN:
Well, as you say, we brought down the stimulus package, which provides payments to people doing it tough in the community, pensioners and families with children. So these are real measures that the Government is taking decisive action to put money in people's pockets when they need it most.
HELEN DALLEY:
You been overseas for a lot of this, but the row between the opposition and the Government over the attack, particularly on the Secretary of the Treasury, and the Reserve Bank. Did you think Malcolm Turnbull went too far in his criticism?
CHRIS BOWEN:
Yes I did. I think we are seeing a very disturbing trend with the opposition. And that trend is, if there is anybody who doesn't support their narrative; anybody who says something which doesn't 100% support what they say; then they trash their reputation, and question their integrity.
Now, we saw that this week in the Senate estimates process with Liberal party senators, questioning the integrity of the Secretary of the Treasury, which saw it earlier in the year with Graeme Samuel, with the Liberal party questioning the integrity of Graeme Samuel.
And now we are seeing it with Ken Henry and Glenn Stevens. This is a very disturbing trend. Now I will challenge anybody in 12 years in opposition to point to an instance where the Labor party questioned the integrity of a public servant who didn't happen to support what we were saying.
We have always supported in opposition and in Government, the independence and integrity of the public service, and it is particularly disturbing to see this trend from the opposition under Malcolm Turnbull's leadership.
HELEN DALLEY:
Alright, we only have couple of minutes left and I want to ask you - you have just come back from a finance ministers meeting on transparency and exchange of information, where 17 nations agree to be more transparent, particularly about tax havens. Now, Australia was particularly keen on greater coordinated defensive measures. Briefly, what are they?
CHRIS BOWEN:
Well, this was a very good meeting Helen. Where the finance ministers of some of the world's biggest countries got together and talked about how we can best coordinate our response to tax havens. Tax havens are well-known as places where Australian and other nations taxpayer's money is diverted to avoid paying tax.
We have agreed to some actions, which involve cracking down on these nations. For example, the Australian Government recently reduced our withholding tax rate to foreign nations. But we exempted from that, tax havens. We said, if you don't sign an agreement with Australia to share your information, you will not get the tax cut.
Now, what we have put on the table is a coordinated approach to that across the world. Because Australia doing that is fine, but if we do that across the world of course, it will have much more impact and the finance ministers were very receptive to that approach, and we saw the OECD head of tax describe this to me as more progress in two hours than he'd seen in 10 years, at that meeting of finance ministers.
That's not me talking that the head of taxation matters at the OECD. In relation to the actually naming tax havens for the first time, the French, German finance ministers, together with myself and the British Financial Secretary and other European finance ministers held a press conference, where for the first time these finance ministers actually named tax havens. Which is actually quite a diplomatic event for a finance minister to actually highlight the negligent actions of another finance ministries around the world. And to say, we are putting these countries on notice, coordinated action is coming unless you give us the information we are seeking from you.
HELEN DALLEY:
So we may actually see some money coming back from tax havens to Australia, which would be a good thing.
CHRIS BOWEN:
Well, all the evidence is that the tax havens were paying a lot of attention to this meeting, and took on board very seriously.
HELEN DALLEY:
Okay, Chris Bowen, we are out of time, thanks very much for joining us.
CHRIS BOWEN:
My pleasure.