SUBJECTS: US Presidential election, Fuelwatch, cartels, deposit guarantee, interest rates
PAUL BONGIORNO:
Welcome back to the program Assistant Treasurer Chris Bowen
CHRIS BOWEN:
Good morning Paul, good to be with you.
BONGIORNO:
Well some commentators are saying that the presidential election could be the circuit breaker needed to restore confidence, that essential ingredient needed to overcoming the crisis.
Would you share that view?
BOWEN:
Well you do see around the world a tendency for confidence to increase after elections. People when they are uncertain about the result of an election tend to stop spending, but once the election is over, regardless of the result, confidence, sometimes, gets a boost out of that. And we may see that out of the US presidential election and of course, the important meeting out of the G20 will occur after the presidential election and I saw some reports during the week that President Bush would consult with the President-elect about what he takes to that meeting, and that would be a welcome circuit breaker as well.
BONGIORNO:
If you take any notice of the research worldwide that shows support for Obama and the rest of the world is up around 60% to 70%, would it not follow then that an Obama win would do an enormous amount to boost confidence?
BOWEN:
Well as I say there tends to be, once an election is out of the way, regardless of the winner, you see a boost in confidence. Now, there’s no doubt that around the world there are strong views about who should win this election, but of course American confidence will be affected regardless of the result.
BONGIORNO:
Okay, when we return, high octane protests put pressure on the Government … [ad break] …Welcome to our panel, Jennifer Hewitt from The Australian and from the Sydney Morning Herald, Phillip Coorey.
Motorists in Sydney flocked to eleven independent service stations during the week. For a protest with a difference, the owners were prepared to lose thousands of dollars by selling petrol for under a dollar a litre. In the end, cheap publicity for their cause.
Independent service station owner: There’s no cost to the industry you know, but in the long-term, it’s going to cost the industry enough if they can’t do what they are supposed to do. The politicians need to get behind us and give us a ‘fair go’.
BOWEN:
Phillip Coorey?
COOREY:
Minister, petrol prices are obviously still a concern out there. Can I ask about Fuelwatch. The original plan was to have it in place by December 15. There’s no sign of any support from the Senate, we haven’t even seen any legislation. Is it a dead duck or are you still going to persist with it?
BOWEN:
Well, of course, it’s been passed by the House of Representatives. It will be considered by the Senate shortly. We will continue to argue vigorously for it. I saw recently that the only Liberal Treasurer in Australia, Troy Buswell, that he had been convinced about the benefits of Fuelwatch. It would be good if his federal counterparts would listen to the only Liberal Party government in the country – which has endorsed Fuelwatch – it offers more information to consumers and deals with what effectively has been labelled ‘collusion’ by the ACCC.
COOREY:
That’s an argument you need to get past the Senate. Even if they pass it in the next week or so when parliament resumes, would you conceivably be able to have it in place by December 15?
BOWEN:
It would be very difficult to have it in place by December. We wanted to have it in place by Christmas, but because of the delays in the Senate, that will be extremely difficult. But we’ll obviously have it in place as soon as we possibly can, once it is passed by the Senate, if it is.
COOREY:
If it is. Are you confident it will be?
BOWEN:
It will be a challenge. Some crossbenchers have indicated that they have some concerns, the Liberal Party indicated that they oppose it, despite the fact that it has worked effectively in Western Australia for eight years. It was introduced by a Liberal Government and has been supported by both Liberal and Labor governments as an effective measure, and as I say, it would be helpful if Mr Turnbull would listen to the only Liberal Government in Australia and get behind Fuelwatch.
HEWETT:
Minister, in light of this, are you prepared to tighten the definition of ‘collusion’ under the Trade Practices Act?
BOWEN:
I saw the NRMA call for that this week, and this week we put out the criminalisation of cartels, our draft legislation, a very important step, to introduce 10-year jail terms for cartels, which the previous government said they'd do and then didn't do.
Now we also indicated that there's a problem with the definition of collusion and cartels under the Trade Practices Act. We indicated that some time ago, so we're working that through as well.
The criminalisation of cartels is a big and complex reform which introduces 10-year jail terms in Australia for the first time for collusion, but in addition, we do need to deal with the definition of cartels and the definition of an ‘understanding’ which some courts have ordered down and we'll be dealing with that as well.
HEWETT:
Minister, the other thing you're obviously working through is the economy going into a downturn. Do you expect that you'll actually have to run down the surplus and maybe go into deficit?
BOWEN:
We'll be releasing the MYEFO - the Midyear Economic Statement - soon which will contain projections in it, but we'll continue to respond flexibly.
We've needed to stimulate the economy and we have. That will flow through when the payments that begin in December as well as the payments that have already begun and we'll continue to deal with the situation as we need to do whatever is necessary to ensure continuing positive growth.
COOREY:
Speaking of the MYEFO there - JP Morgan predicted last week, recession in the last quarter of this year, and first quarter of next year - can you tell us now without giving away the figures - but will the growth figure in MYEFO be positive?
BOWEN:
Of course, around the world, we're seeing the IMF predict 0.1% growth for the developed growth. The lowest growth for 25 years.
We're seeing negative growth in the United States and the United Kingdom officially, so we are seeing a major slowdown around the world. That will affect Australia. All the international projections for Australia are positive, amongst the highest growth in the world. But we recognise that there will be effects for Australia. We've been upfront and honest with people that there are difficult times ahead and that the world slowdown will affect Australia.
BONGIORNO:
Do you think that the Australian voters would accept going into deficit after so many years of surplus?
BOWEN:
I think the Australian people would expect the Australian Government to do whatever is necessary to ensure robust growth and I think they'd expect us to continue to respond flexibly as we need to. We've indicated our position, which is that we're fiscal conservatives and we will have a Budget surplus across the cycle. But the Australian people would want us to deal with the emerging situation flexibly and decisively.
BONGIORNO:
The Opposition Leader has now condemned the Government's handling of the unlimited bank deposits as a mess created in haste.
MALCOLM TURNBULL (Wednesday): I accept that he did it with the best of intentions, but he made a terrible mistake. He took too long to correct it. A lot of the damage will be difficult to correct.
HEWETT:
Minister, the Funds Management industry is in crisis. We've had Gail Kelly came out and said that the guarantee should be reduced to $100,000. Do you accept that that is necessary?
BOWEN:
Isn't it interesting - Mr Turnbull made those statements when we announced the bank guarantee. He said, ‘We welcome it, we support it and we'll give the Prime Minister every assistance’. If this is his assistance I'd hate to see him trying to make life difficult.
The bank guarantees is a very important policy development for us. We have seen the biggest share market collapse in the United States in many generations on that Friday, and despite all the indications from Government and APRA, that the Australian banks were safe, that the Australian banking system was sound, there were growing signs that people were very concerned in Australia about the sustainability of the banking system, so we needed to respond decisively, and we did.
HEWETT:
But in fact, the big Australian banks didn't want an unlimited guarantee. They weren't asking for it. Do you think that you exacerbated the problems by having that in the first place?
BOWEN:
Not at all, and if you talk to bank chief executives, small and large, Australian banks, they've told us publicly and privately that they support the guarantee as a very important measure to restore confidence in the Australian banking system.
COOREY:
Would you accept that the run on the funds accelerated after you announced the guarantee, unlimited guarantee, and when the $1 million threshold was introduced it had no effect?
BOWEN:
We saw 10 funds freeze redemptions before this guarantee was announced. And for those funds that froze their redemptions after the guarantee was announced there had been significant withdrawals before. They didn't just all occur after the guarantee. They had seen significant withdrawals before the guarantee and they continued to see that.
Now, of course the bank guarantee has made bank deposits very attractive, there’s no doubt about that. But we've seen around the world, a flight to stability, a flight to certainty, or if you like, a dash for cash. People looking for more certain, stable and liquid investments - and Australia is no different.
HEWETT:
Well, do you think that the $1 million threshold that we still have is still too high, as obviously Gale Kelly was suggesting?
BOWEN:
No, the $1 million is a very appropriate level for the threshold to be free. What we see, of course, is if we had a lower threshold for example, $100,000, you would still be excluding many deposits of great value, so it is very important to have ongoing stability in the system.
We're one of the few developed countries who has got through this crisis without a major run on a financial institution. We need to put this in context. If we continue to get through the crisis, that will be in large part because of the bank guarantee that the Government put in place.
COOREY:
Minister, the markets are rating it a 100% chance of an interest rate cut on Tuesday of 50 basis points - half a percentage point. Should the banks pass it all on in full? Are they now in a position to pass it all on in full?
BOWEN:
Phil, our position is clear. The banks should pass on as much as they can of any increase at any time.
BONGIORNO:
So, is that in full this time?
BOWEN:
Of course, there have been interest rate reductions outside of the official rate reductions and the banks indicated that in large part, it is due to the confidence that has been restored in Australian banking due to our bank guarantee. We continue to talk to the banks and say that they should pass on as much as they can at all times.
BONGIORNO:
Chris Bowen, thanks very much for joining us.
BOWEN:
Great pleasure.