ROSS GREENWOOD:
Treasurer, many thanks for your time.
JOSH FRYDENBERG:
Good evening to you, Ross, and to your listeners.
ROSS GREENWOOD:
Do you believe this is sufficient for people to regain their faith, their trust in Australia's financial system, our big banks and insurance companies?
JOSH FRYDENBERG:
I do believe this will make a significant difference to the quality of advice and the performance and behaviour of our financial institutions and their senior executives and in doing so I do think it will lift the public's confidence and trust in this vitally important sector. We have to bear in mind that Commissioner Hayne did say that two recurring themes he found during the course of his Royal Commission, namely dishonesty and greed, and that a number of these financial institutions were putting profits before people and, as a result, misconduct was occurring that fell well below community expectations. So we have said that we'll take action on all 76 recommendations and what we've announced today is an implementation plan which will see the most comprehensive reforms for the financial system in three decades take place in record time.
ROSS GREENWOOD:
Okay, I'll play the devil's advocate here, isn't that what they're supposed to do? Aren't they supposed to put their shareholders at the very forefront as the stewards and the custodians of these public companies? Isn't that their role to actually make the profits that they possibly can for their shareholders? Now, I do recognise all of the ethical and other cultural issues that have gone on, but effectively, that was their job, that's what they were supposed to do.
JOSH FRYDENBERG:
No one begrudges a profitable company. No one begrudges a business that goes out and tries to win more customers. But if the behaviour and the conduct of the executives and the institutions fall below community expectations and, indeed, break the law, then the relevant people should be held to account. And what Commissioner Hayne found was that the relevant people weren't being held to account. The regulators were preferring negotiation over litigation and there was a position that they took where people weren't taken to court and weren't, you know, made to pay the price for their misconduct. So the answer to your question is, yes, it's fine for the sector to be profitable but no, it's not fine for them to break the law.
ROSS GREENWOOD:
Okay. So then we go to another aspect of this do you believe now, given the changes you have made to our corporate cops, to APRA, the banking regulator, and to ASIC, do you believe that they now have the ammunition to be able to take on the biggest companies in Australia, without fear, without favour and to be able to bring them to justice when they do the wrong thing?
JOSH FRYDENBERG:
I do believe we've put in place record funding for these organisations, a very substantial increase in their capability and their resourcing. At the same time, we've appointed new judges to be able to deal with the backlog of cases. We're expanding the Federal Court to have a criminal jurisdiction and we've strengthened the penalties so that when misconduct is identified, that the culprits pay a very significant price, they just don't get a slap on the wrist. All of these changes are good news for consumers, because, as you know, the financial sector is the single largest sector across the Australian economy. You've got 15 million Australians with a superannuation account, more than 3 million Australian households have a mortgage and more than 2 million Australians met with a financial adviser over the last 12 months. So it's critically important that this sector is working in the interests of all Australians.
ROSS GREENWOOD:
Do you believe that the whole issue of conflicted remuneration, in other words, largely commissions or big bonuses if people hit sales targets, do you believe that that has now been eradicated from the financial services industry to the extent at which that person, the representative, be they a mortgage broker, a financial adviser, somebody working for a bank or an insurance company is ultimately going to put the customer first and their own financial interest second?
JOSH FRYDENBERG:
Well, as you know, the way we've dealt with so called conflicted remuneration in the mortgage broking sector is to put in place a best interest duty and we've announced that we'll be introducing that legislation before the end of the year and then in three years' time we'll be conducting a review to look at how that best interest duty has performed and what should be the position going forward in relation to upfront commissions and trailing commissions. In relation to financial advisers, we have, you know, banned the conflicted remuneration and we have legislation before the Parliament to do that. So we are tackling conflicted remuneration but when it comes to mortgage brokers, it's a much more different exercise because the role mortgage brokers play is critical to competition in the market.
ROSS GREENWOOD:
Yes, 60 per cent of all mortgages now written by of all mortgages written by mortgage brokers in this country.
JOSH FRYDENBERG:
Correct.
ROSS GREENWOOD:
So just then take me to the politics of this. Labor, of course, says you're dragging your feet and all this should have been done earlier. They continue to go back and point out to the Government, or the previous government resisted the Royal Commission. In terms of trying to get this through the Parliament, do you believe you're on strong ground?
JOSH FRYDENBERG:
I've said today that we'll make sure the Treasury Department briefs the opposition in terms of the legislation being presented to the Parliament and the implementation plan because it's important to have their support given that they have said publicly that they will act on the Royal Commission's recommendations. So we'll hold their feet to the fire, so to speak, and we don't expect any undue delays but we have the most comprehensive suite of reforms that this country has seen to the financial services, sector, as I said, in three decades, so it will require the Parliament to act constructively and with a degree of urgency and I do point out to your listeners, that the contrast, in terms of the speed in which we're moving here, Ross, is when Labor was last in government, they introduced changes called the Future of Financial Advice reforms and it took nearly two years, 23 months, between when they first got the report from the committee about those changes and they introduced the legislation to the Parliament. We've moved really much more quickly than they ever did.
ROSS GREENWOOD:
Okay, so while I've got you on the line I just want to ask you about the reports last week suggesting a global recession is on the way as a result of the trade war between China and the United States. Do you believe that Australia is well prepared if there was a global downturn or indeed a global recession?
JOSH FRYDENBERG:
We wouldn't want to be in any other country other than Australia when it comes to tackling the economic challenges that the world faces.
ROSS GREENWOOD:
What, even with interest rates very close to record lows approaching zero, you believe Australia still has enough ammunition to be able to get through the other side of any other global downturn?
JOSH FRYDENBERG:
Firstly, low interest rates in Australia is not unique. I mean we have seen low interest rates in the advanced economies across the world.
ROSS GREENWOOD:
I agree with that but the only problem is, given the fact that they're already close to zero, if there were any global downturn we haven't got that much more to cut to support the economy so what other measures could be taken?
JOSH FRYDENBERG:
Well, the point is that the fundamentals of our economy are strong in the sense that our employment growth, at 2.6 per cent, is significantly above the OECD average and more than three times what it was when we came to government. We have a triple A credit rating. The economy continues to grow, we have a budget that's coming back into surplus and our net debt to GDP is about a quarter of what it is in the United States or in the United Kingdom. So we're very well placed.
ROSS GREENWOOD:
So that tells me that you've got the capacity to borrow money. You've got a AAA credit rating, you could borrow money. You have a budget coming back into surplus, you can borrow money. You've got interest rates close to zero, you could borrow money if there were a downturn, a global down turn. Are they some of the options that you have as the Treasurer if things got bad?
JOSH FRYDENBERG:
Well, I want to point out to you and to your listeners, Ross,that actually there is more money coming into the pockets of Australians in recent weeks and months with the passage of the tax cuts. We've had over $11 billion come into the pockets of Australians with that tax relief. We've got $100 billion worth of infrastructure spending and we're having a look at what particular projects could be potentially brought forward, where it's appropriate to do so. You've got the interest rate cuts which are helping the housing market. So there are a number of things that are happening right this moment which are going to increase the economic activity across the economy.
ROSS GREENWOOD:
I get that, I understand that, but that's what you're doing now to help protect the economy, but if there were a global downturn, I'm asking what you would do then in the event that already you fired these bullets at the economy but there's still a global downturn coming if that were to transpire?
JOSH FRYDENBERG:
I'm not going to get into the realm of hypotheticals because our view is that the Australian economy, and this is Treasury's view and, indeed, it's the Reserve Bank of Australia's view, is that the Australian economy will continue to grow and we've seen strong employment growth. But we're not complacent in any way, and we'll continue to monitor international events very closely because the biggest downside risk to the Australian economy is the continued global trade tensions between China and the United States. So the best thing that could happen for us in that regard is that for cool heads to prevail and China and the US to negotiate some of their differences.
ROSS GREENWOOD:
Okay, in the worst-case scenario, would you be prepared to go to the Australian people and say we would sacrifice the surplus because we believe that we've got to get more money into businesses hands, into the public's hands, to offset any negative impacts of a global financial crisis? We can do that because we have the head room to be able to borrow, we have the ability to be able to put people money into people's hands. Would you be prepared to have that frank conversation with the Australian public if it came to pass?
JOSH FRYDENBERG:
Ross, we will deliver the surplus as promised and in a matter of weeks, we will release the 18/19 final budget outcome which will be a significant improvement on what was forecast in April of this year. So what we believe we can achieve is a budget coming back to surplus but at the same time maintain the economic activity across the economy so that the labour market continues to remain strong and employment growth remains strong and that GDP growth continues to move in the right direction.
ROSS GREENWOOD:
So no recession coming for Australia?
JOSH FRYDENBERG:
Well, you're the one getting into the speculation of that word. I'm saying that the Australian economy will continue to grow and we'll take the necessary actions to ensure that that is the case.
ROSS GREENWOOD:
The Treasurer, Josh Frydenberg, always great to have him in the program. Many thanks.