TOM ELLIOTT:
Our next guest as promised is the Federal Treasurer Scott Morrison. Mr Morrison, good afternoon.
TREASURER:
G’day, Tom.
ELLIOTT:
Are you prepared for the banking industry to go to war with your Government?
TREASURER:
I think that’s a pretty strong way to put it from their point of view…
ELLIOTT:
It’s the word that’s being brandied around.
TREASURER:
Yeah, by journalists. Not by, I think, the banks and not by the Government. We’ve announced, I think, what is a very fair and reasonable levy, a tax, on the banks on their liabilities which doesn’t include deposits up to $250,000. It’s not on people’s mortgages. It’s not even on the capital that we require the banks to hold to ensure they’re unquestionably strong. It’s coming in. It’ll be passed by the Parliament and today officials from Treasury and the senior people from the banks sat down to talk it through in the first round of those discussions, as is always the case in implementing a new measure.
ELLIOTT:
Ok. There was apparently a series of meetings this afternoon between senior bankers, the Bankers Association, your advisers - were you in those meetings?
TREASURER:
No, no, these were between the Treasury officials. So the people who are doing the technical work and the people from the banks who do the technical work – and that’s standard.
ELLIOTT:
Ok, well Anna Bligh who now heads up the Australian Bankers Association described the meetings as a shambles.
TREASURER:
Well, as far as I’m aware, I’m not sure if she was there or not - I don’t think she was, I think it was the technical people from the banks. But, the other thing I can tell you is one of the things they asked is, “Could we please pay less tax?” They wanted to shrink the base on which the tax was levied. That was, I assume, an ambit claim. But, the technical issues in just finalising the tax, well, that is the normal thing when you go through tax legislation. Of course, they’re going to come out and say that, Tom. But, I think, we’re seeing some of the banks take a more measured approach to this and in time it’ll be introduced and that it’ll be supporting the Budget and ensuring we can deliver important services that people rely on.
ELLIOTT:
Off-air I’ve spoken to a couple of senior people in the banking industry, and an ad campaign against the Government, against the tax is being contemplated – not dissimilar to the Resources Super Profits Tax ad campaign of seven years ago by the mining industry. Are you ready for that?
TREASURER:
Look, I think those sorts of reactions are overreactions. I think there’s a big difference between the super profits mining tax, which the Labor Party put in on top of the mining boom, and it didn’t actually raise any money, barely at all. So it was a pretty ridiculous tax and we’re not complaining anything like that. The banks are in a very different position to all the other big companies, Tom. I mean, they effectively have around a 20 basis point advantage, that’s what S&P’s say at least. Over everyone else, over all the other banks because of things like what is effectively the implicit guarantee which is provided by taxpayers. So that’s about a 20 basis point advantage over the smaller banks like Bendigo and others. So that’s why in many countries around the world they have these types of levies. Now, for a long time they haven’t had them here – well, now they will.
ELLIOTT:
Ok. Philosophically speaking, I mean, you want to cut company taxes over the next few years – correct?
TREASURER:
Yeah, that’s right and that would include a corporate tax rate for the banks in ten years from now at 25 per cent, not the 30.
ELLIOTT:
Alright, so we’re going to move all companies, including banks of all sizes, if you can get it through the Parliament, from 30 down to 25 per cent. How does it make sense then if on one hand you want to cut taxes for all companies including the banks, and yet on the other hand you want to increase a tax on the banks?
TREASURER:
Well, it’s just on the banks, and this is also what happens in other countries. In the UK, for example, they did exactly that. They brought down company tax rate but applied a slightly higher tax rate, about the same equivalence here, on the banks because of the unique role they have in the financial system. So this is not unusual, Tom, it’s actually very common. What’s unusual is that we haven’t been doing this up until now.
ELLIOTT:
Well, I think the British tax was more about, because the banks were perceived to have acted very badly during the global financial crisis…
TREASURER:
No, it’s not just that.
ELLIOTT:
And the idea of the tax was to put aside a capital sum in case there was another crisis in the future…
TREASURER:
No.
ELLIOTT:
Do you think the Australian banks acted badly, you know seven, eight, nine years ago during the financial crisis?
TREASURER:
No, I don’t, and I don’t accept the comparison they’ve used because there are similar measures in: Austria, Belgium, France, Germany, Hungary, Iceland, Netherlands, Poland, Portugal, Slovakia and Sweden. This is a fairly normal measure. A couple of years ago, the Labor Party sought to put in an arrangement, but they did a tax on bank deposits. Now, we thought that was pretty daft, and what we’ve done is do one on liabilities which isn’t on those things and I think it’s far better constructed on this occasion. And at the end of the day, it’s $1.5 billion, Tom, a year, and their profit pool is $30 billion…
ELLIOTT:
About five per cent of their profits.
TREASURER:
It’s $30 billion in profits.
ELLIOTT:
But obviously you accept as any believer in free markets does, that banks are out there to make a profit and to maximise their profits – correct?
TREASURER:
Yeah, well if they're getting a 20 basis point advantage against everybody else in the market. Well, you know that seems to be a bit of a leg up as well when you think…
ELLIOTT:
Well, let’s say for example…
TREASURER:
And this is on 6 basis points by the way, not 20.
ELLIOTT:
Yes, our financial commentator Scott Hayward said today that he reckons the banks might look to, for example, increase interest rates in credit cards as a way of clawing back some of the tax that you’ll be raising from them. How would you react to that if that’s what they did?
TREASURER:
Well, if they did that and they didn’t tell them, the customers, then they’d be lying to them because there’s no reason for them to do that to credit cards, because it doesn’t go on credit cards.
ELLIOTT:
Well, what if they said we’re just going to increase the interest rates on credit cards?
TREASURER:
Well, banks put up fees and charges all the time.
ELLIOTT:
Well, I know my bank put up my interest rate 0.4 of a per cent last night.
TREASURER:
Well, there you go, I mean, and they announced it straight away. There’s one commentator saying today where and when the banks would charge and price and do things like this. They do this all the time, I think that’s one of the reasons why frankly your listeners get very frustrated with them.
ELLIOTT:
Ok.
TREASURER:
They're quite used to the way that banks, you know, draw more money out of them, all the time. And my message to them is if you don’t like what your bank’s doing, go to another one.
ELLIOTT:
Ok, well, my bank is the Bank of Melbourne and as I said they put up my rates 39 basis points, it was actually the night of the Budget, it wasn’t last night, it was the night before. Would you now go and investigate them? Just to make sure that they haven’t done it to try and offset the tax that’s being imposed?
TREASURER:
Well, from memory the Bank of Melbourne isn’t a – unless they're a subsidiary of one of the four big banks?
ELLIOTT:
They're a subsidiary of Westpac.
TREASURER:
Well, if they are a subsidiary, and therefore if they’ve done that as a result of this levy, well, it hasn’t even come in yet and the ACCC – unless they're suggesting they're doing that as a result of this levy. Well, I mean, they're just basically taking a bit more out of you mate.
ELLIOTT:
Are you going to get the ACCC to investigate these sorts of things though? I know there’s extra money being given.
TREASURER:
They are being tasked and funded to investigate and monitor these things as well.
ELLIOTT:
Alright, do you think that the ACCC will be able to find out if indeed the banks are putting up the price of loans, for example, to try and recoup this tax?
TREASURER:
They’ll be a watchful eye and they’ll be reporting back to me.
ELLIOTT:
Alright, I mean, I listened intently to an interview this morning that Neil Mitchell did on this station with Andrew Thorburn – who’s the CEO of the National Australia Bank – and he is obviously very upset, he wants to talk to you and say, “Let’s work out a way together that we can fix up the Budget.” Would you talk to him about that?
TREASURER:
Well, I’d talk to anyone who wants to help me on that front and Andrew has my number and he knows how to reach me.
ELLIOTT:
Ok, well on that basis, I mean, I didn’t see anything in the Budget which was really hacking into spending. Spending now…
TREASURER:
There’s $1.5 billion on social services savings for a start.
ELLIOTT:
Yeah, but overall, the…
TREASURER:
$1.5 billion, that’s the same amount we’re taking out of the banks each year.
ELLIOTT:
Ok, but the overall proportion spending as a proportion of GDP doesn’t seem to be changing very much?
TREASURER:
No, it’s going down. It’s going down, Tom.
ELLIOTT:
Well, is it?
TREASURER:
No, it is. It’s going down to 25 per cent of GDP.
ELLIOTT:
From 25.5?
TREASURER:
Well, it was actually when I became Treasurer. My first briefing, it was at 26.2 – so it has come right down. We’ve had to reverse some savings that the Parliament wouldn’t pass, and so it clips up slightly in the next year and the year after that and then it goes down to 25 per cent. And it hasn’t been at 25 per cent for quite some time. And the other point is this, Tom, expenditure is only growing at less than two per cent – at 1.9 per cent. When we came to Government, the Labor Party were running at over 3.5 per cent. So expenditure growth is at the same, we've kept it at the same low levels now, for quite a few years and that didn’t change last night.
ELLIOTT:
No, but I…
TREASURER:
On Tuesday night.
ELLIOTT:
No, but I noticed forecasts on Tuesday night. You're assuming that economic growth will rise to over three per cent in the next few years.
TREASURER:
We actually revised that down from our forecasts in December, Tom. So in the Budget we took an even more conservative position.
ELLIOTT:
Yeah, but even so, at the moment growth is around two per cent. Isn’t it the case though? That, yes, if you only grow spending at two per cent but the economy grows at three per cent, that will solve your problems. But the problem is that might not happen?
TREASURER:
Well, the forecasts that we have are actually more conservative than what the IMF is saying. Our growth forecasts are consistent with what is being said around by – in fact, the major bank economists. So I don’t think we’re out of step with that, we will look at these things every six months. When we do our statements – and so far I’ve done four of these now – two updates and two Budgets and in every single one of those, I’ve said we’d have a projected balance in 2020-21, and what I announced on Tuesday night was that again. And that balance is actually higher than the one I announced in December at $7.4 billion. And this is another important point, in 2018-19, just over a year away, when you take out the capital items on infrastructure and those sorts of things, which have a long payback period. We won’t be borrowing any new money to pay for everyday expenditure in just over a year in 2018-19. Now that’s called living within your means.
ELLIOTT:
Well, that is a relief. For a final question, you mentioned how difficult it is to get things through the Parliament.
TREASURER:
Yep.
ELLIOTT:
And obviously you’ve got what, I think 29 Senators out of 76 or whatever it is? So it is tough. Is the reason you’ve chosen this banking tax, because you know that Labor and the Greens will support it?
TREASURER:
You’ve got to craft your Budget to get things done. I mean, that’s the new political reality. It’s the age of the achievable. There’s no point putting up a Budget that won’t get passed or you don’t have a reasonable prospect of passing, because you know what the rating agencies do when they see that? They just write it off and they downgrade you. Now all the major bank economists and others today, it’s for the ratings agencies to make their own decisions, but all of them have pointed to the fact that there is nothing in this Budget which they believe would lead the ratings agencies to change anything. But ultimately, that’s a matter for them. I’m not predicting that one way or the other, but in December we retained the AAA rating from all the agencies and six months later we’re in even a stronger position.
ELLIOTT:
Scott Morrison, thank you very much for your time.
TREASURER:
Thanks a lot for your time, Tom, and the opportunity to talk to your listeners.
ELLIOTT:
Federal Treasurer, Scott Morrison.