SUBJECTS: Building the Education Revolution, retail trade, housing finance, bank guarantee, executive remuneration
JOE O'BRIEN:
The Federal Government is coming under increase pressure over its school spending as sport of the stimulus program but it's determined to press ahead with it and the rest of the $4 billion plan. For more, Financial Services Minister Chris Bowen joins now from Canberra. Chris Bowen, good morning.
CHRIS BOWEN:
Good Morning Joe.
O'BRIEN:
The schools program is becoming a bit of an embarrassment isn't it, you're pumping money into the community but the process appears to be flawed?
BOWEN:
Well I would reject the completely Joe, this is the biggest school rebuilding program in Australia's history and as the Deputy PM outlined yesterday, there are thousands of projects going along across the country and if you look at the proportion of complaints about, that it's a very, very tiny proportion. And as an MP I can tell you, if you take 10 principals, 10 P & Cs at random, ask them about the program and they'll tell you how good it is.
O'BRIEN:
Okay, we'll move onto some economic news now. We had those negative figures on retail sales and home loans yesterday. They were down for July but there were positive figures on consumer confidence for the September survey.
Is the more recent figure a more accurate reflection of conditions right now and things are continuing to improve?
BOWEN:
These figures just underline what we're saying, we've done better than any comparable economy in the western world but we still have some way to go and these figures are patchy and that underlines the need for continued Government intervention in the economy through the stimulus package.
We saw housing finance down, retail trade down and confidence up and some very encouraging figures elsewhere but this just underlines the point we're making that there's still a long way to go through this; our economic growth rate is 0.6% which is better than any comparable country and is really encouraging but it's still a long way sort of the rate necessary to keep unemployment steady, that rate is around 3%. So if you say everything is fine, 0.6 is fine and everything else is okay now, we should withdraw the stimulus you're doing two things - you are saying that we'll have higher unemployment rate that is avoidable and you denying Australia that very important productivity enhancing investment in infrastructure and education.
O'BRIEN:
As part of the stimulus program or the reaction to the global financial crisis, you've given the banks this wholesale bank guarantee, we've heard this morning that the Commonwealth Bank has given pay rises of up to $2.7 million this year to some of its executives, are you comfortable with these figures?
BOWEN:
We have a whole review of executive remuneration going on through the Productivity Commission; we've also just last night carried through the House of Representatives our reforms to executive termination pay. Individual cases aren't and always the best to refer to. Australia's banks have been very profitable in compared to other banks and that's around the world and that's been a good thing for the Australian economy that we have good stable banking sector, so I think the whole issue of executive remuneration is one carefully considered.
There's a balance to be struck, the Australian people quite rightly are concerned about very high termination payouts in particular, but also we need to keep the system competitive to ensure that executives find Australia an attractive place to work. There's a real balance to be struck there and that's why we're going through, methodically, with the Productivity Commission, the most respected economic think tank in the country.
O'BRIEN:
So you're comfortable with a $2.7 million pay increase for one person?
BOWEN:
Well I'm not going to get into specifics. I haven't seen those figures in relation to individuals. I've seen broad commentary about the Commonwealth Bank's position. I won't get into specifics about what's appropriate for individuals, what I will do is say that the whole issue of executive remuneration is an important one, particularly in financial institutions. APRA has done a lot of work. We've been very involved in international discussions through the G20 on the executive remuneration sector and the important thing is sometimes not the quantum but linking the executive remuneration to performance in a way which doesn't encourage excess risk taking and that's the important thing that the G20 is working on.
O'BRIEN:
Do you concede that the bank guarantee has seriously skewed the market in terms of home loans being offered, with the big four totally dominating that market now and that guarantee needs to be withdrawn as a matter of urgency?
BOWEN:
No, the bank guarantee has been absolutely vital in ensuring the continued confidence in the Australian financial system and the sustainability of the Australian financial system. We need to remember the type of environment we are dealing with when we brought this guarantee in, it's been very important in ensuring that Australia is one of the very few developed countries around the world not to have a run on a financial institution.
There are two arms to the guarantee, the retail guarantee and the wholesale guarantee. Both of them have been very important. In relation to the wholesale guarantee, we've put a pricing mechanism in place so that banks won't use it for any longer than they need to because it is expensive. We did that on purpose so it would naturally wean off and we're been involved in discussions through the G20 about the future of the guarantee because you can't one off just withdraw the guarantee, it would leave Australia's financial system exposed if we simply withdraw it as a matter of urgency as you would suggest while other countries keep it in place.
O'BRIEN:
Okay, Chris Bowen in Canberra, thank you very much for talking to us this morning.
BOWEN:
Always a pleasure Joe.