SUBJECTS: Debt, 2009 Budget, bank competition
ROSS GREENWOOD:
The Assistant Treasurer, Chris Bowen, joins us on the line now. Chris, good evening to you.
CHRIS BOWEN:
Good evening Ross, good to talk to you.
GREENWOOD:
Now it is quite clear, the International Monetary Fund is very clear about this, yes Australia has an ability to get into more debt than the rest of the world; but you have got to show a clear plan to get Australia out of debt.
Is that clear plan as yet in place?
BOWEN:
Well we have said from the beginning, when we said we would need to go into deficit, we said that would also have a clear plan, as you put it, to return us to a surplus and we do. That clear plan has two elements.
Firstly we will keep government expenditure under control. We will keep it growing at less than 2% a year. That is difficult, that is a big call…
GREENWOOD:
…that is a big call because can I say I have the inflation rates in front of me today, and what were the things that were going up? Well okay fruit prices went up – that was seasonal - pharmaceuticals went up because you fiddled with the pharmaceutical benefits system, and on top of that it was government charges broadly that keep on going up.
BOWEN:
Well the 2% increase in expenditure will not be easy to reach; it often reached 5% under the previous government. But you need fiscal discipline in place and we certainly have that. And we have also said that as the economy returns to normal, when that occurs naturally as you understand Ross, tax revenue then goes up and more people go back into work and businesses are making more money, and we use that increase in tax revenue to help bring us back into surplus.
I think the IMF said: that fiscal stimulus, budget deficits in another word, are very important; and encouraged governments to continue on those – those governments that can afford to; said that that would be welcome in the financial markets, but did make the point and I think it was a point particularly targeted at some countries, but we are not immune…
GREENWOOD:
…but Chris Bowen you have basically there have already flagged to me and the Australian public that at some stage you are going to be raising taxes.
BOWEN:
Well no, what I am flagging is that as tax revenue returns to normal, I mean tax revenue will return to normal without any changes, necessarily, in Government policy settings as the economy picks up.
So as you have more people coming from unemployment into work, as you have company profits going up, you find your tax revenue going up. You and I would call that an automatic stabiliser.
GREENWOOD:
I agree entirely with that Chris Bowen, that is exactly how it works and that's the reason why now the deficit is going to be greater – because there are more people who are unemployed, fewer people working, fewer company taxes. But you may not be able to do it quickly enough in terms of the recovery of the economy to, if you like, satisfy the international financial markets and the International Monetary Fund, so therefore it is always tempting for a government to have a tough budget and raise taxes in some areas.
BOWEN:
Well we have said all along that this budget will be tough, we have to continue to stimulate the economy and at the same time we need to put the budget on a good solid long term footing. So there will be difficult decisions, we have said that all along. But in terms of returning the budget to surplus over the cycle, which we have committed to do it is a sensible thing to do, they are our two rules that we have put in place to ensure that we do this.
GREENWOOD:
Okay, superannuation is the one thing that people are paranoid about. Today the Treasurer said there will be no change to the dividend imputation system, that remains in place. I think a lot of people would applaud that. The superannuation taxation system is one that people are paranoid about right now because they recognise, if you like, that they have got a bonus by being able to retire and effectively live tax free. You start to fiddle with that and lot of people are going to become quickly very disgruntled.
BOWEN:
Well you are right to say that it is an area of some interest and concern in the community; there is no doubt about that Ross. What we don't do at this point is start ruling things in or out, you will…
GREENWOOD:
…but philosophically inside your party, coming particularly from the union funds and the industry funds you recognise that there is a philosophy that what Peter Costello did was against broad Labor party policy.
In other words, I am in work and I am paying superannuation - I pay 15% tax. The people who are retired, this is how the philosophy goes, who have actually got the money pay nothing in tax.
BOWEN:
No, I don't accept that Ross…
GREENWOOD:
…you don't accept that? So you wouldn't change that rule in that case…
BOWEN:
…we supported those changes when they came in…
GREENWOOD:
…I recognise that that as well.
BOWEN:
What I am saying is that I don't accept that there is a broad philosophical position…
GREENWOOD:
…I would say it there's a pretty broad philosophical position from the one I've heard. In other words some people say that you should split it, have a 7.5% tax on those people in retirement, and 7.5% tax on the workers who are putting their money into superannuation.
BOWEN:
Coming from inside the Government, the Caucus, the Ministry, the view that you are putting, which you are suggesting, would be our firm philosophical position, is not one I have heard expressed – that we would die in a ditch to overturn these changes. I am not going to get into specifics but if you are suggesting some broad ideological campaign I would have to disagree.
GREENWOOD:
Okay, but you do not discount that there could be changes to taxation in superannuation?
BOWEN: Well across the board Ross, I am not here to rule things in or out in this budget or going forward. We have said that our budget will be responsible, but as the Treasurer said today he is not going to rule things in or out, I am not going to rule things in or out.
GREENWOOD:
Can I get you to answer a question, you may not have it on hand, I do recognise that, but I will put you on the spot a little bit. Robert from [inaudible] rang me up and said can you please ask the Assistant Treasurer why his department can't credit co-contributions payments directly to bank accounts or send checks? His wife has been waiting since November last year for her payment and as it is not going to a super fund, she is now retired with an allocated pension, the systems can't cope with direct payments. Is there a problem there?
BOWEN:
Look I would need to have a look at that Ross, I am not aware of that detail.
GREENWOOD:
I will shoot you that email and let you do that, because clearly that is a little area of frustration.
BOWEN:
I understand that, I understand where it is coming from – without having looked at the issue couldn't really comment.
GREENWOOD:
No problems, we will get an answer to that a little bit later on.
BOWEN:
I will come back to you and maybe you could give an update on a future show, but I am more that happy to do that.
GREENWOOD:
No problems. Another area in your portfolio right now is competition. In the last little while we have seen banks quite clearly, if you like, not putting interest rates down as far as they could have, moving fixed rates up, not moving the rates on businesses, in particular, down. The whole issue I guess is whether because you have given that guarantee to the banks over their deposits and money has poured into them, whether you have really created the situation where there is not enough competition in banking and as a result of that consumers are being adversely affected by the banks behaviour.
BOWEN:
Look I'd say this Ross; I don't think you can link the bank guarantee to competition issues in banks …
GREENWOOD:
…except for one thing, everybody put their money into the banks at that time, they were flooded with cheap money.
BOWEN:
The bank guarantee was, and continues to be, very important in terms of ensuring the ongoing stability of the financial system. Now the competition issue, I am not disagreeing with your broad point, the competition issues we have seen in the banking industry have come about by foreign banks, for example BankWest was owned by a foreign bank, what we are seeing is foreign banks returning to their own markets. They have nothing personal against Australia, but for a couple of reasons…
GREENWOOD:
Well BankWest was bought by the Commonwealth, Westpac bought St George, so you have basically number 5 and 6 bank in Australia being bought by, really number 1 and 2 now?
BOWEN:
What we are seeing, as I say, is foreign banks withdrawing from the market both directly and through their subsidiaries. Now the ACCC has said for example in their comments they will be looking very, very closely indeed at any further proposed bank mergers. Because they have a view that competition, and I would strongly agree as the Competition Minister it is something I spend a lot of time on trying to promote more competition, that competition in the banking industry going forward is very important and that they think, in a broad brush sweep, that the envelope has probably been pushed as far as it can be and that we need to ensure ongoing competition within the banking industry.
Of course we need to have ongoing competition, but the important thing about the Australian banking system at the moment is that it has been stable and that we haven't had to bail out had the sorts of bails of deposit taking institutions that lots of other countries around the world have had to do.
GREENWOOD:
I do recognise that. Chris Bowen, Assistant Treasurer, thanks very much for your time and I look forward to talking with you in the future.
BOWEN:
No problem.