LAURA JAYES:
Treasurer Josh Frydenberg joins us from Canberra. Treasurer, thank you for your time.
JOSH FRYDENBERG:
Good to be with you, Laura.
LAURA JAYES:
A Royal Commission didn't force the banks to do the right thing in your words, and the Government's view. Why will the ACCC be different?
JOSH FRYDENBERG:
Well, the Royal Commission was into the misconduct in the financial institution sector, and what we have seen out of that is a number of recommendations which the Government is implementing, as well as a tougher approach by the regulators. This inquiry that we have instigated with the ACCC is somewhat different. It's focused on the residential mortgage market and particularly why the banks have not passed on these rate cuts in full. And I think, Laura, the Australian people are sick and tired of the merry dance where the Reserve Bank reduces the cash rate, the politicians and the Bank itself call on the Big Four pass on the rate cuts to their customers and that advice is ignored. And ultimately, it's the consumers who are worse off because if these three most recent rate cuts had been passed on in full, then someone with a $400 thousand mortgage would be paying $500 less a year in interest payments.
LAURA JAYES:
This is not illegal nor unusual as one of the RBA Board Members put it. You sound like Wayne Swan back in 2010.
JOSH FRYDENBERG:
I sound like Josh Frydenberg in 2019. I wouldn't be taking any advice, instructions, or seeking to mimic Wayne Swan in any way, because we know how that ended for him and for the Labor Party. The reality is the banks have seen their cost of funds come down to historical lows, that's what the RBA have said. And the banks have said rightly that they've got many sources of funds. They need to balance the needs of depositors, shareholders, as well as borrowers. So, let's see when the ACCC lift the hood on the internal workings of the banks, let's actually see what is happening and why these rate cuts have not been passed on in full.
LAURA JAYES:
You just identified some of the complexity in all this. One of the problems at the moment is the banks' reluctance to lend. If you're dictating what an interest rate should be, aren't you in some ways exacerbating the problem we have?
JOSH FRYDENBERG:
Well, I think you're conflating two separate issues. One is in relation to responsible lending which is the legislation around the due diligence the banks need to do before they lend to customers, and we've been quite open in respect of that saying that the regulators need to get the balance right, and there shouldn't be too much of a red tape burden on the banks. But when it comes to passing on rate cuts, then ultimately consumers must come first, and the banks have not been passing on the rate cuts, even though their cost of funds have come down, and we need to understand why is there such a big difference between what is charged to a loyal customer and what is charged to a new customer that the banks are trying to win over.
LAURA JAYES:
Is there any justification for the banks to have an interest rate above that of the official cash rate?
JOSH FRYDENBERG:
Well, of course. Because there's going to be a net interest margin and then they've also got higher sources and different sources of funds, like depositors. So, right now, you'll see some of the banks advertise their standard variable rate at around 4.8 per cent, but then they'll pay a term depositor about 1.4 per cent and the cash rate is at a record low of 0.75 per cent. And it's that gap that we need to investigate and to properly understand and that is why the ACCC, Laura, who have special powers to get documentation from the banks that other organisations wouldn't be able to get, they will be able to cooperate with the RBA, cooperate with ASIC and APRA, and provide the Government with a clearer picture of what is actually happening.
LAURA JAYES:
So, what power does the ACCC actually have here? Or will it just provide you with more information as to what interest rate we should actually be paying at the moment?
JOSH FRYDENBERG:
Well, they can actually compel documentation to be provided and sensitive documentation from the banks and so that is an important lever that they have to pull. But our focus is not on higher levies on the banks, indeed the Labor Party seems to think every answer to every question is higher levies and higher taxes. We actually think the answer is more competition. So, one of the things that this inquiry will look at is how easy it is, or how difficult it is for people to switch their business from one bank to another and we want to remove that red tape burden so that switching is easier and so that customers can vote with their feet if their banks don't give them the best possible deal.
LAURA JAYES:
It is difficult. Have you tried?
JOSH FRYDENBERG:
I haven't. I have been happy with my particular lender, and like many Australians I've got a mortgage. You know, trying to pay back over time. But, you know, what I understand is that people want to be able to vote with their feet, but if the banks are tying them in red tape then that's not a good outcome for the consumer nor the economy. But what we have seen is more smaller lenders move quickly to reduce their interest rates in full following the RBA's decision, whereas the big banks have actually dragged their feet.
LAURA JAYES:
Would you countenance introducing big stick legislation for the banks like you're about to do for the energy companies?
JOSH FRYDENBERG:
We're not going down that path. What we have introduced for the energy companies is particular for that sector, and what we have seen is the ACCC provide advice about a graduated series of solutions or reforms that the Government could introduce, which we have, which is trying to penalise misconduct by the energy companies with infringement notices, fines, contracting orders, and ultimately we're going down the path of divestment, only as a means of last resort which, hopefully we don't need to arrive at, but ultimately it's up to the companies to do the right thing.
LAURA JAYES:
But you wouldn't use divestment, for example, as a last resort for the banks? Why not? Why are the energy companies and the banks different?
JOSH FRYDENBERG:
Well, they're actually very different sectors and there are different sets of issues here.
LAURA JAYES:
Okay.
JOSH FRYDENBERG:
We think the best answer in the banking sector is more competition, more transparency, and empowering consumers, which is what we're doing with the Consumer Data Right, which is ground-breaking legislation recently passed by the Parliament.
LAURA JAYES:
And if the RBA cuts rates on Melbourne Cup Day and the big banks don't pass it on, Treasurer, what will you do?
JOSH FRYDENBERG:
Well, again, it will be up to the banks to explain to their customer their actions, if there are further changes to the interest rates. But, as you know, it's for the independent Reserve Bank of Australia to make decisions on monetary policy and we'll stick to fiscal policy.
LAURA JAYES:
Treasurer, thank you for your time.
JOSH FRYDENBERG:
Good to be with you.