SABRA LANE:
Joining us now to explain why is the Treasurer, Josh Frydenberg. Welcome back to AM.
JOSH FRYDENBERG:
Nice to be with you Sabra.
SABRA LANE:
Is this one of the side effects of the Royal Commission? That in the spotlight of the inquiry, big banks have tightened up their lending to small businesses, further creating a credit squeeze?
JOSH FRYDENBERG:
Well it is certainly true that in the context of the Royal Commission, we have seen some tighter lending from the big banks. But small businesses do it tough when it comes to access to finance because often they are asked to put up their own home as collateral and the rates that they pay are often higher than what a borrower would pay on a normal home loan.
So, we want to bridge that gap, which the Productivity Commission has said could be up to four percentage points. We want to increase the liquidity in the market, increase the competition for the big banks by entering into the securitisation market which, dare I say, governments have done before when it comes to residential mortgages back in 2008 in the context of the GFC.
SABRA LANE:
Have you been in touch with the big bank CEOs to urge them to cut a better deal for small businesses?
JOSH FRYDENBERG:
I certainly have made my views very public over the course of…
SABRA LANE:
Have you talked to the big banks?
JOSH FRYDENBERG:
I have and I have talked to them about the importance of ensuring that their loan books remain open, that they remain very conscious of the public good where access to finance is available and I have to say, Australia hasn’t had the experience the United States has had with the Fanny Mae and the Freddie Macs, where loans were given to people who couldn’t afford to meet the servicing costs. We have had a very different experience here, where we haven’t had the bad loans that you have seen in the United States.
SABRA LANE:
We’ve seen in the Royal Commission where banks have lent to small businesses, especially for people buying franchises and some of those cases have ended really badly and the banks have been criticised for that. Is it understandable that banks are being so cautious?
JOSH FRYDENBERG:
Well, banks have to get the balance right. Of course, they need the right documentation; they need to be very conscious that people can service their loans. But they also need to be aware that small businesses are the engine room of the economy.
More than 3 million small businesses across Australia are responsible for around 70 per cent of total private sector employment. So, we need to continue to ensure that the banks’ books are kept open, that access to finance is maintained and it is affordable and this is where the Government’s $2 billion Securitisation Fund can make a real difference.
SABRA LANE:
But by setting up the Securitisation Fund, implicit in that, you’re saying that the big banks haven’t got the balance right?
JOSH FRYDENBERG:
Well, I’m saying we need more competition. We have a very under-developed securitisation market for small business loans, particularly un-secured loans, whereas in contrast, we have quite a developed residential mortgage-backed securitisation market.
So, we do need to see governments play a role here. We do believe we can do so in a way that doesn’t risk our balance sheet and we will use the Australian Office of Financial Management which have experience in this regard, particularly in the residential mortgage backed market, back in 2008.
SABRA LANE:
But it is another Government intervention by providing this $2 billion fund. You are effectively guaranteeing these loans. If they go sour, the banks won’t be exposed to the loans, it will be the taxpayer.
JOSH FRYDENBERG:
Well, the taxpayer’s risk will be very carefully managed with sufficient due diligence and obviously AOFM, the Office of Financial Management, working closely with the rating agencies and they have a lot of experience in this regard. So, I am confident they will get the balance right.
We will be looking for the best quality debt available and we will be ensuring that some of these smaller lenders and smaller banks, that are not in the big four, get an opportunity to compete with the lower cost of capital and therefore lower interest rates that they can offer their customers.
SABRA LANE:
How many businesses does the Government anticipate will take advantage of this and is there any modelling on how many extra jobs will come from it?
JOSH FRYDENBERG:
Well, let’s wait and see how many businesses take it up. But certainly…
SABRA LANE:
Have you done any modelling?
JOSH FRYDENBERG:
Well, what we have done, obviously with Treasury, is they have looked very closely at this particular proposal and it will be important in generating more confidence in the sector. We’ve talked to the stakeholders about it. In terms of the job creation, well, as I say, small business is absolutely critical. If they don’t have access to finance, then they can’t create more jobs. That’s why we’re doing it.
SABRA LANE:
Alright, I’d like to quickly run through some other issues. Woodside Energy says it’s time for the Government to impose a carbon price. Will you heed that call?
JOSH FRYDENBERG:
No, we believe that we need to get prices down and the best way to do that is without the carbon tax that the Labor Party is again proposing.
The best way to do that is to follow through on the recommendations of the ACCC to put in place a standard price from which the energy companies can discount, to ensure that we get more generation into the market by standing behind new providers that are outside the big three energy companies, particularly for industrial customers. They’re the things we’re doing.
SABRA LANE:
Peter Coleman is being very critical of the debate that’s been happening in the Government, saying if we reduce the debate on climate change to a showdown between coal and renewables, we lose sight of the options for a more balanced approach.
JOSH FRYDENBERG:
Well, we’re not saying its coal versus renewables. We’re actually saying it’s an all of the above strategy and that you can’t be ideological about it. Whereas, the Labor Party are very happy to turn their back…
SABRA LANE:
Sorry, have you told the rump of the right within the Coalition?
JOSH FRYDENBERG:
Well look, I’ll leave that commentary and that partisanship to you Sabra. What I’m saying is that we as a party are not being technology specific.
What we’re saying is we need an all of the above approach which sees a role for thermal generation, particularly coal and the gas that Woodside is renowned for, as well as renewables which have increased more on the Coalition’s watch than they ever did under Labor.
SABRA LANE:
Treasurer Josh Frydenberg, thanks for joining the program this morning.
JOSH FRYDENBERG:
Always good to be with you.