SUBJECTS: Global Financial Crisis, mortgage and investment funds, cartels, petrol
PHILIP CLARK:
We have Assistant Treasurer Chris Bowen on the phone this afternoon.
Chris Bowen, good afternoon.
CHRIS BOWEN:
Good afternoon Philip.
PHILIP CLARK:
A big day of course, this business of the mortgage investment funds and cash management trusts and your announcement on cartels, plenty to talk about.
Can go with [inaudible] are we any further down the track of resolving this issue?
CHRIS BOWEN:
These are very turbulent times, and there will continue to be turbulence. There were some meetings today between the regulators and fund managers - I think they would be close to finished - I haven't heard from them yet. We will obviously continue to respond flexibly to the situation as it emerges...
PHILIP CLARK:
There's not an easy answer to this is there?
CHRIS BOWEN:
No, there isn't. And can I say Philip, that I had the opportunity to meet last week with the Finance Ministers of France and Germany, the OECD and the EU. This is a global problem of massive proportions and there is a lot of interest in what the Australian Government is doing, overseas, there is a lot of credit for the Australian Government - other Ministers saying 'what have you done?' and 'how have you done it?' because it seems to be working.
There are a lot of complex issues to work through and there will continue to be turbulence, which we will respond to; day by day, hour by hour. But we have acted decisively to restore stability...
PHILIP CLARK:
That's true but people who have their money in mortgage trusts and cash management trusts are feeling nervous about it and saying why can't the government help us? Can the government help?
CHRIS BOWEN:
Well I can completely understand that and it is important to say that in most cases the income flow has continued, so the payouts to investors have remained the same. The ability to withdraw your capital has been frozen, but the payouts have stayed the same - in most cases, not all, but in the majority of instances.
Now we've made the distinction Philip, and it is an important one, to say that when you are looking at bank guarantees, you are talking about APRA-regulated institutions, which are not market-related. So when you have someone who is looking for the stability and certainty of a bank account then the Government will guarantee that because its regulated by APRA; and the guidelines are set by APRA so the banks or the financial institutions must meet them.
Then you get into the other realm of market-linked investments in non-APRA regulated institutions, where people say I want to take more of a risk here, but the Australian system is very stable and risks are minimal anyway. But you have the situation where some people have said 'I want a higher return for a bit more of a risk'. Now is it appropriate for the taxpayer to guarantee those investments? That's a much more complex environment...
PHILIP CLARK:
Yes it is and I agree with you. But you would have to say that there is merit in this argument that people say 'hang on, that's true, I did accept higher risk, that is, when the market was what we accepted it to be, and the idea that the bank deposit guarantee has skewed the market - which it has - maybe for good purposes, but it has created a situation where the government may owe me a duty of care'.
CHRIS BOWEN:
In these turbulent times, you would have seen I'm sure and I think the fund managers agree, you would have seen some movement from these investment funds anyway. You would have seen people say 'oh look, I'm normally happy for a higher return with a bit more risk but I think I'll just take the safer option and go with the banks' even if we hadn't guaranteed the. So that's an important point now. Has the guarantee had an effect? I'm not going to argue that it hasn't, but what we are seeing in these turbulent times is all sorts of factors having an impact and the guarantee is not the only cause - by any stretch of the imagination - of people wanting to move to more stable investments at this time.
But as I say, there have been meetings between the regulators and the fund managers today; we'll continue to do what we can. We want to help where we can and respond as flexibly as we can. But you do have to be very careful when you are using taxpayers funds to guarantee certain types of investments.
PHILIP CLARK:
I agree with that. Okay, this is Chris Bowen, he is the Assistant Treasurer. Now you have also announced some new cartel legislation - 10-years jail, $10 million fines - a tough new anti-cartel proposal from the Federal Government. Now this stuffs all very well, but no one ever seems to get prosecuted?
CHRIS BOWEN:
There have been some high profile cartel cases under the civil prosecution stream...
PHILIP CLARK:
The cardboard box case yeah.
CHRIS BOWEN:
I can't comment on individual cases but...
PHILIP CLARK:
How do we have a crack at the oil companies?
CHRIS BOWEN:
Well what this legislation does is send a very important message and that is: 'if you are thinking of running a cartel, whatever industry you are in, and you are thinking of saying to your so-called competitors let's not compete, let's just have a cosy arrangement between us where you get this business and we get that business and we'll just cream some off the top.
Well up until now, that has just been a financial consideration. Up until now they've been able to say 'well we might have to pay a fine if we get caught doing this but we stand the chance of making a lot of money. Well not the consideration is 'we stand the chance of going to prison for 10 years if we do this so we better not do it'. So it's a very important message to send. Most developed countries have had jail terms for cartel conduct for a long time; Australia hasn't. It was recommended in 2003; we are doing it. It will send a very strong message - 10 years is the equal-longest jail term in the world for this, the United States has a ten year imprisonment and it has been shown to have a significant deterrent effect...
PHILIP CLARK:
I agree with you but the question is that you actually need to get people up there. Back on oil prices, over the last few weeks, I know the dollar has declined but the oil barrel price has declined further and there is a gap there, that is not being passed on and people want to know why. The ACCC has long since just given up on this, they just don't care.
CHRIS BOWEN:
Happy to talk about petrol in detail. If you look at the price of the Singapore oil price, which is our benchmark, since it peaked in July, it has come down by about 16 cents a litre in Australian dollar terms. It would have been about 40 cents a litre if the dollar had stayed where it was; it has come down by about 16 cents. The fall in Australian petrol prices has been about 14-and-a-half cents so we do have a gap there; it is about two cents a litre.
The Petrol Commissioner has been talking to the oil companies over the last few days and saying 'I want these cuts passed on' and he expects an explanation as to why its not. We have increased his powers of course, he doesn't have to [inaudible]... he can say 'I want to see your books, I want to see more evidence of that, etc'.
He has made comments that he expects to see further falls this week and he'll be holding the oil companies to account if they haven't passed on further falls this week. So you've got
PHILIP CLARK:
What do you mean you are holding them to account? Can you send them to jail?
CHRIS BOWEN:
Well what he can do is say I want to see the full reason...
PHILIP CLARK:
No, no, more than letters Chris.
CHRIS BOWEN:
What we don't do in this country is fix prices; we don't have the government or the Petrol Commissioner saying this should be your price, but what we do have is the Petrol Commissioner saying 'well hang on a second, if the price oil has fallen by 16 cents a litre and you have passed on 14 cents a litre, I want to see the reason'. And I will say publicly whether or not I think the reason is justified and we have seen that have some effect, where the oil companies...
PHILIP CLARK:
We've got to go to the news; I don't want to get rid of you because I'd love to keep talking. But we have got to go to the news. Alright, thanks for that
CHRIS BOWEN:
Thank you.