TOM ELLIOTT:
Joining us on the program right now, the Federal Treasurer Josh Frydenberg. Mr Frydenberg, good afternoon.
JOSH FRYDENBERG:
Nice to be with you, Tom.
TOM ELLIOTT:
Have I summed this up correctly? I mean, are small businesses struggling to get finance for various reasons?
JOSH FRYDENBERG:
Certainly that is the feedback from them in official surveys and the Reserve Bank of Australia has pointed out that in contrast to large businesses, young small businesses find it more difficult to fund their expansion plans.
And often small businesses will tell you that when they take a loan they're asked to put up their home as collateral and even then, the interest rates that they are charged, the Productivity Commission has said could be up to four percentage points higher than were the same person to take out a home loan from the bank.
TOM ELLIOTT:
Yeah, that's been my experience. You can get a home loan for well less than 5 per cent, in some cases 4 per cent, but a business loan will cost you 7, 8, 9 per cent. Okay, so what do you propose to do about this?
JOSH FRYDENBERG:
Well, what we've identified is a market failure in what is called the securitisation market. So these small lenders, or small banks that are not the big four, will loan money to the butcher, the baker, the candlestick maker, then they will put together those loans and have them securitised and rated by a credit rating agency and then try to on sell them.
And there has been a reluctance from the big banks and other investors to buy that package debt. What the Commonwealth is saying is we will enter into the securitisation market to the tune of up to $2 billion and to purchase that securitised bunch of loans and in doing so, provide more funds to those small lenders and those banks that are not the big four, to offer more competitive rates to small businesses.
TOM ELLIOTT:
Okay, look, I see what you're doing but, I mean, is it the role of the Federal Government to be a moneylender to small business? I mean, you know, it just seems to me that's going well outside the remit of what we normally expect a government to do?
JOSH FRYDENBERG:
Well, it's important for your listeners to understand that the Government has been there before. In 2008, in the wake of their Global Financial Crisis, the Commonwealth did enter into the securitisation market for residential mortgage-backed securities to the tune of up to $15 billion.
It ended up making money because at that time the banks were constraining credit and we still wanted people to get access to affordable finance for their homes. This time we're extending it into the small business sector and we're hoping to attract other investors into this market and in doing so enable the market to stand alone in a few years' time when there's more confidence, more liquidity, more competition.
TOM ELLIOTT:
Do you expect to make money out of it then? Like, if the Government extends this $2 billion line of credit via small banks to small business, do you think that as occurred ten years ago you will actually make money out of it?
JOSH FRYDENBERG:
Well, absolutely we could and the Australian Office of Financial Management, who are expert in this area and conducted the same work and intervention back in 2008, will be the ones who will be responsible for working with the credit rating agencies and doing the appropriate due diligence on the securitised debt to ensure that the Government's balance sheet is appropriately risk managed.
TOM ELLIOTT:
But don't you run the risk, though, let's just say that there's a reason a lot of small businesses can't get credit because the banks actually don't think they're a good credit risk. If the Government steps in with taxpayer funds isn't there a risk that you might actually lose money because the sorts of people that will be borrowing it are precisely the sorts of people who can't get a loan anywhere else and possibly for good reasons?
JOSH FRYDENBERG:
Well, it's actually important to understand that the banks have cornered this market and that they have more than 80 per cent of the loan- the small business loans under $2 million. So, what we're trying to do here is to create more competition to the banks and in doing so not seeking out bad debt but actually seeking out good debt and debt that is credible and worthy.
But because the banks have set the standard so high and because for them they're in such a dominant position, they haven't been able to or they haven't been willing to provide the level of access to finance that small businesses need and expect.
TOM ELLIOTT:
Okay, so what is a small business? Have you thought how you would define a small from a medium and from a large? Like who is eligible and who is not?
JOSH FRYDENBERG:
Well, APRA, which is the prudential regulator, says that small businesses are those that have a turnover of under $50 million and, as you know, we recently passed tax cuts for those types of businesses that, you know, make up a big bulk of the employers across the Australian economy.
That's a good guide but both Treasury and the Australian Office of Financial Management will work with key stakeholders on these details in the lead up to the release of the legislation.
TOM ELLIOTT:
Okay, just a question without notice. Your parliamentary colleague Dr Kerryn Phelps I note now is now the Independent Member for Wentworth. She replaced Malcolm Turnbull a few weeks ago. She's a doctor and a former head of the AMA. She has recommended that Australians opt out of the Government's My Health Record scheme. What are you going to do? Are you going to opt out or stay in?
JOSH FRYDENBERG:
Look, that will be a private choice that I make and that my family makes. But I do point out that over 6 million Australians already have a My Health Record and you've got about 14,000 healthcare professional organisations that are connected.
Now, it was back in 2015, Tom, that you actually had the legislation to enable My Health to become an opt out system was actually passed by the Parliament and Greg Hunt has been able to get the support of State and Territory Ministers, the AMA has been supportive, it seems a range of people in the market understand this, see the need for it and it's designed to improve access to information.
So, I'll make my own individual decision, like every one of your listeners should as well. I don't think that should be a matter of public record but certainly I do think that My Health, as an initiative, is one that could make a difference to people's overall lifestyles.
TOM ELLIOTT:
Josh Frydenberg, thank you for your time. Josh Frydenberg is the Federal Treasurer and the Member for Kooyong.