PRIME MINISTER:
Good afternoon. I am here with the Treasurer to announce important economic reforms relating to the accountability of the banking industry.
This week the Treasurer and I have called on the banks to pass on the full Reserve Bank interest rate cut. They have not done so. We have said that they must be fully accountable for this and they should, if they are not prepared to pass it on to the full extent, then they should explain fully and transparently to the Australian people and their customers why they have not done so.
The Treasurer and I are committed to improving the culture in the banking industry. We recognise, as all Australians do, that our banks - especially our big four systemically important banks - operate under a social licence from the Australian people.
They are built on a foundation of trust. They have to earn that trust through being open and accountable at all times. What we are announcing today is a change to the way in which the banks will be accountable.
The Treasurer will, as he will explain in a moment, will, once the Parliament returns and its committees are established, require the Economics Committee to bring the banks before it at least every year, to give a full account of the way in which they are managing their affairs, their dealings with customers, their interest rate policy and so forth. They will be regularly accountable to the Australian people through their Parliament in exactly the same way as the Reserve Bank is and APRA is.
So what this will do is create a regular and permanent method of accountability and transparency for the banks. We believe this is a great opportunity for the banks, because it's an opportunity for them to explain how they deal with their customers, explain why they make their interest rate decisions and in doing so, by being open and honest and accountable about it, what they will do is build confidence in their banks.
So it's a great opportunity for them but it's also an opportunity for our parliamentarians and that committee and the Australian people whom they represent, to hold them to account. This is an important step, a permanent step, a permanent change in the regular financial calendar that will require the banks to become accountable for their actions to the people through their Parliament.
Scott?
TREASURER:
Thank you Prime Minister. As the Prime Minister has announced, when the Parliament re-forms later this month, I will provide a terms of reference as Treasurer to the Chair of the House of Representatives Standing Committee on Economics.
That terms of reference will set out a number of issues which will we will be asking the House Committee on Economics to report at least annually to the Parliament on and in the process of completing their report - in the same way that the Reserve Bank and APRA currently appear before the committee on a regular basis - the heads of the four major banks, those systemically important domestic banks, will come before the committee to deal with a number of issues.
Now it is important to note the Australian banking and financial system is one of the, if not the most important asset when it come to our strong-performing economy. It is because of the strength of our financial system and our banking system that this country has weathered significant economic storms.
Most recently we saw one of those significant events fully absorbed by our financial system post Brexit. So the strength, profitability and health of our banking and financial system and how it supports its customers, its borrowers, its savers, as well as its shareholders and others is central to how we manage a successful economy going forward.
This provides the banks with the opportunity to come, as the Prime Minister said and give full explanation of its reasoning and its decisions when it comes to issues on interest rates or other matters in engaging with its depositors or with its borrowers.
In particular, the banks will be required to explain and comment on international economic and financial market developments and how they are affecting Australia. The banks have a perspective on this and a range of networks and contacts which can really contribute to our understanding of these issues, developments in prudential regulation including capital requirements and how these are affecting the policies of Australian banks.
Now those prudential requirements don't just relate to those here in Australia but obviously broader developments on that regulatory front, internationally. It is important we have an understanding of these matters and how they're impacting through the system, the cost of funds, the impacts on margins and basis for bank interest rate pricing decisions.
The comment that I and the Prime Minister have both made is there is no basis upon which the interest rate cuts from the Reserve Bank early this week could not have been passed on to customers, whether they be mortgage-holders or frankly other borrowers in the system, who are often forgotten in this context - small business borrowers, other borrowers - there is no cost of funds externally, issues associated with that, which would have prevented them from doing that in our view and in the view of many who are knowledgeable on these points.
How individual banks and the banking industry as a whole are responding to the issues that have been previously raised and form part of that package of cultural and other reforms that they announced in April this year will give the opportunity for a health check, a progress report on how those issues are being progressed within the banks and also to get the banks' perspective on the performance of the Australian economy including strengths and any risks that they see coming forward.
So this is an opportunity for transparency. It is an opportunity for accountability. It is an opportunity, through a measured and I think a very responsible way, to have this very open discussion with what are the pillars of our economy in many respects and to improve understanding of public confidence in these issues. What we announced today comes on the back of some very significant reforms that were announced over the last few years but particularly in the last 12 months. There was the Murray Financial Systems Inquiry, initiated by the Coalition Government, responded to by the Turnbull Government, and the ongoing implementation of those recommendations.
The committee will have the opportunity to monitor the progress of those recommendations being implemented. There is of course the significant announcement we made in April of this year in relation to ASIC and the increased powers and resources that we have made available to ASIC to deal with any malfeasance in the sector and there will be opportunities to track the progress of those initiatives.
The committee will be able to call whoever they believe appropriate and to do that both in public hearings as will be the case with bank CEOs, but also in private hearings as is necessary to provide the Parliament, and the Treasury and the Government more broadly their very considered view on the strength and resilience of our banking and financial system and what we need to continue to do, those who operate in it, those who regulate it and those responsible for it, to ensure the public can have the confidence it must, in what is a very difficult global economy.
JOURNALIST:
Prime Minister, are the banks being too greedy?
PRIME MINISTER:
The banks should have passed on the full rate cut. As the Treasurer said, there is no basis for them, no commercial basis for them other than to improve their profitability. I wouldn't use precisely the language you did there but I think it's very plain that they had every cause to pass on the full extent of that rate cut and, the Government does not set the banks' interest rates. We don't run the banks. But, as I said yesterday, they must provide a full account of why they have not done so. They owe that to the people and what we will do now is institutionalise regular accountability and transparency so this will become, if you are a bank chief executive appearing before the House Economics Committee, will be part of your regular annual schedule. You'll appear at least annually. The committee may have further hearings and may call people back. It's got the power to do that. This is going to be, as a Treasurer said, a regular health check and I believe this will help drive a stronger culture of accountability on the part of the banks and they will be there in the Parliament giving evidence, taking questions from the people's representatives.
TREASURER:
I should have stressed Prime Minister also, in coming and making this decision today, obviously there's been consultation in bringing us to this point. We've clearly communicated what we intend to do with the major banks and they have been advised of the process, also consult would the Governor of the Reserve Bank and ACCC and advised APRA of this. So there's been an appropriate assessment and consideration of how this process will work and obviously informing the terms of reference will be speaking to the incoming chair of the committee as well and getting the feedback of the committee about how they believe this can be worked effectively as well.
JOURNALIST:
There will be some who will say why not have a Royal Commission into the banks. Why not do that?
PRIME MINISTER:
Let me respond to that. Royal Commissions are inquiries. The only power they have is to investigate matters and then write a report and they are best employed to look into specific issues, specific events or problems. What we have here with the banks, in our view, is a need for cultural change and ongoing accountability. The virtue of the proposal, of the announcement that we're making, that we will - the Treasurer will undertake with the committee, that this will become a regular part of the House of Representatives Economics Committee's calendar so just as the Reserve Bank turns up a couple of times a year, the banks will turn up and it will become part of their regular program of accountability. A Royal Commission - apart from being hugely expensive, and that is very important factor - a Royal Commission makes an inquiry, it might go for a year, it might go for several years, it can go for quite a few years but then it comes to an end, writes a report. What we're setting in place here is ongoing, permanent cultural change and change that will make the banks ensure that they are accountable and the committee will, seized with this reference, will just as it has done with the RBA and APRA, you will get this change in culture so the banks will know then that if they decide not to pass on an interest rate cut from the Reserve Bank they will know that they're going to have to front up to a House of Representatives committee and explain that and take questions about that and justify their actions in front of the elected representatives of the Australian people and that will - I tell you, that will drive some cultural change at the banks.
TREASURER:
I should stress and this is in addition to, as we announced in April of this year - I mean, ASIC has more than the full powers of a standing Royal Commission to go and investigate, to initiate matters, to extract evidence, to prosecute, to investigate, to do all of these things. So the Government has been reacting practically and focusing on the issues that need to be addressed so whether it's the transparency and accountability of decisions, as the Prime Minister has just said or the need for investigatory and prosecutory power – that has been addressed through ASIC. The issues that we've dealt with systemically in the financial systems through the inquiry that was undertaken by David Murray and the implementation of those recommendations so what we are doing is practically addressing the things that need to be addressed. Others may wish to engage in populism. What we are focused on are the practical issues that support customers of banks, that support those who are saving in banks, support those who are investing in banks and most importantly the broader economy which depends on the resilience and the strength of the banking system.
JOURNALIST:
Mr Morrison, the latest retail trade figures show spending is at its lowest annual rate in three years. Isn't this a sign that the economy is slowing?
TREASURER:
The figures that have come out just today do show, again, a rise in retail spending over the course of the year and we welcome that. They are at the lower end of the market expectations for the figures today, but we also welcome the figures that also came out this week which shows that confidence and consumer sentiment in the economy continues to be well above the norms and it's an economy which is facing difficult head winds. We all understand that. That is why it's so important in this economy, again as the Prime Minister said earlier this week, that you have policies that drive investment, and policies that drive investment are not policies that increase taxes on investment as the Labor Party propose. The way you drive investment in this country is to give businesses the confidence and you give the tax incentives for business to invest and the biggest challenge, whether here in Australia or overseas, is encouraging businesses to invest in productive activities in our economy. Australia is not alone in this challenge but I can tell you I would rather be the Treasurer in the Australian economy than any other economy in the world.
JOURNALIST:
To what extent do you believe the banks not passing on the full rate cut is pulling back the economy or damning us to [inaudible] lowering rates?
TREASURER:
Well, clearly the intention of the Reserve Bank in cutting those rates was to see it pass through and follow through into the broader economy. And so obviously the extent to which that is not achieved actually frustrates the intention of the bank in making that decision.
JOURNALIST:
So basically pulling back the economy?
TREASURER:
This is why we're frustrated. This is why we think it's important that we do practical things to actually ensure that the transparency and other measures we talked about can further improve these outcomes.
JOURNALIST:
How will you compel the banks to appear before this committee and what happens if the committee doesn't like what they have to say?
TREASURER:
Well I've spoken to all the banks and they have all agreed to participate in this process.
PRIME MINISTER:
The Parliament obviously has powers -
TREASURER:
That won't be necessary.
PRIME MINISTER:
That won't be necessary. The banks will certainly appear.
TREASURER:
And they have been cooperative in forming this.
PRIME MINISTER:
And to the second part of your question, I mean, parliamentary committees hear evidence from witnesses regularly and form conclusions and write reports and make statements about it and they can be very critical. So the banks will understand that when they're called- they will be accountable, they'll be regularly accountable. It will be institutionalised and they will be getting the attention of the Parliament, of the committee and of course the committee's report is then presented to - tabled in the Parliament and the Government, through the Treasurer, then responds to it.
So what we're doing here, and this is without additional expense to the Government, this is using the machinery of Parliament to promote a stronger culture of accountability and transparency which I believe will - the banks, if they embrace this, they can use this to build confidence because, as the more people understand about what they're doing and the more open the banks are, then they've got the opportunity to build confidence or they might, when they contemplate being more open and more accountable, they might contemplate changing some policies and practices as a consequence.
JOURNALIST:
To your meeting Mr Turnbull this morning with Mr Shorten, did he give you any assurances about constitutional recognition?
PRIME MINISTER:
We had a very good and constructive meeting on a number of issues, both of us are committed to - both the Government and the Opposition, as you know, are committed to constitutional recognition of our First Australians. There is a Referendum Council that we're awaiting advice from and that's really the next step.
JOURNALIST:
Is a May 2017 referendum realistic?
PRIME MINISTER:
We are very much waiting for the advice from the Referendum Council.
JOURNALIST:
On Indigenous issues, do you have confidence that Nigel Scullion has the respect of the Aboriginal leadership in the country and is his position tenable?
PRIME MINISTER:
Nigel Scullion is a very committed Minister for Indigenous Affairs and he certainly has my confidence and the confidence of his colleagues. I know he's been subject to criticism recently. I regret to say that is the nature of political life. We all get plenty of criticism, but I can say to you that Nigel's commitment to his work as the Minister is absolute. He understands the communities that it is his job to support - the Indigenous communities in Australia, Indigenous Australians - he understands that area very well and of course he understands the Territory very well. He is a Northern Territory Senator.
Thank you all very much.