CASSIDY:
Wayne Swan, good morning and welcome.
TREASURER:
God morning, Barrie. But first things first, can I just congratulate all of the medallists from yesterday, and particularly our rowers. They did the country proud.
CASSIDY:
You certainly can, and you have. Now, no matter the strength of your message to the banks, all of them are saying that they're independent and they'll make their own decisions, thank you very much.
TREASURER:
Well, they certainly are independent, but of course we do operate an independent monetary policy in this country. And of course, I think it's all pretty simple - when the official cash rate goes down, if it goes down, then borrowing costs should follow. It's really that simple. And as Reserve Bank Assistant Governor Lowe said earlier in the week, the banks have simply no excuse, no excuse at all for not following the official cash rate down.
CASSIDY:
Now, Ralph Norris from the Commonwealth Bank had something of a rebuke for you. He said we don't live in a communist country.
TREASURER:
No, but we do live in a market economy and we do live in a democratic country where we respect the importance and the stability of both fiscal policy and monetary policy. So, of course, when the Reserve acts independently to put rates up, that does put a lot of pain on households, ultimately on businesses, and also it puts a bit of a handbrake on the economy. So, I think the public have got a right to expect when official rates come down, then rates set by the banks come down as well. And the truth is this: the truth that a substantial proportion of their borrowing costs comes down when the RBA takes the decision to move rates down. So, as Assistant Governor Lowe said, the banks have no excuse for not following the Reserve down.
CASSIDY:
But even the Finance Minister, Lindsay Tanner, said during the week that he could understand why the banks won't give these rolled-gold guarantees because they're relying more heavily on overseas borrowings these days. He seems to have some sympathy for them that you don't have.
TREASURER:
Well, there's two issues here, Barrie. One is the changes by the Reserve Bank to the cash rate. The other issue is a more complex issue - this is borrowing costs on international financial markets. There's no doubt that they have been up substantially throughout the year and of course that has put additional costs on our banks, and that has moved our banks to put up their rates outside the cycle.
But I would note this point: that short-term rates in those markets are also coming down now. So, in the longer term, if those rates continue to come down then the banks should be passing on those benefits as well when it comes to their unofficial cash rate rises that occurred over the last few months.
But I do readily concede that in that area, the banks have a stronger case, but if the price of money is coming down then they should be following it there too in the long run.
CASSIDY:
So, in other words, because they put up rates above and beyond what the Reserve Bank was saying, that if this trend continues they should reduce their rates beyond what the Reserve Bank is saying?
TREASURER:
Well, there's no guarantee this trend will continue, and Barrie, that's why the situation is so complex. We face the most uncertain set of global economic conditions in 25 years. It's pushing up borrowing costs, it's pushing up costs particularly not only for households but for businesses, it's impacting on stock markets around the world, it's having a dramatic impact on confidence levels. All of these things are happening. So, I acknowledge that there are problems in that area, but if those costs were to come down on a sustained basis then there also would be no justification for the banks maintaining that margin that they put in there when those costs went up.
CASSIDY:
You've said all along that you have options, weapons available to you, if the banks don't tow the line. But I presume, though, you would never directly intervene in the mortgage market, that's not your intention, you don't see a case for permanent government intervention?
TREASURER:
No, we are not going to go in and re-regulate financial markets. We believe in competitive markets - competitive markets are quite important - and we also believe in stable markets. But I've asked the Treasury to have a good, hard look at all of the issues involved in the competitiveness of our banking system. That, for example, is one reason why we put in place our bank switching package so customers could vote with their feet if they were unhappy with their bank and shift banks. Now, that package will be fully operational in November this year. So, if customers are unhappy with the behaviour of their bank, they can more easily shift their account.
CASSIDY:
Yes, but what's the point if the variation between the banks, as it is at the moment I think 0.1 per cent, what's the point of going to the trouble of switching accounts?
TREASURER:
Well, it may well be that the variation is greater as we move through the rest of the year, and we have to give people the capacity to move. There's already been some changes in terms of competition. Take some of the mortgages that are out there now. Some banks have abolished exit fees for home loan mortgages, for example. So, those people who may want to take advantage of that may want to shift their bank to that particular account. So, competition happens at a variety of levels. There's the overall rate, but there's also the conditions for the loan. But I would hope to see the market become much more competitive, and the Treasury has got all of the options on the table, Barrie.
CASSIDY:
When you said that you've gone to Treasury and you've asked them to look at competition between the banks, is that because you need something to threaten them with right now?
TREASURER:
No, it's not. It's because we believe in competitive markets. One of the things that's happened out there, Barrie, is the non-bank lenders have had a terrible time, given the global conditions. So, the sort of competition that came against the major banks from the non-bank lenders isn't there at the moment. So, I think it's important we do examine what's occurred in that market and how, in light of that, we can make it all more competitive.
CASSIDY:
If you want competition between the banks, why would you allow the Westpac and St George merger to go ahead?
TREASURER:
Well, it's already been examined by the ACCC but I have to take advice from APRA and I have to take into account national interest considerations. Because it's market sensitive, Barrie, I don't speculate about the outcome of that decision. But we have our eye on financial stability in the system, as well as the competitive nature of the system, when I take that decision about national interest considerations.
CASSIDY:
It is market sensitive but you do accept that you can take the decision, and you can take the decision in the public interest to stop the merger?
TREASURER:
Well, I accept that I have a decision to take. I most certainly do not speculate about the nature of that decision, but I will take into account all of the factors that are important here.
You might recall, Barrie, that earlier this year the Government made a statement reaffirming our support for Four Pillars, and we did that because of concerns about financial stability in the system, not just in terms of competition. Those same factors will apply when I take this decision in the national interest.
CASSIDY:
Now, it looks as if FuelWatch is in trouble in the Senate. Will you be glad to see the back of it if it is voted down?
TREASURER:
Barrie, I hope FuelWatch proceeds. I know some people turn their nose down a bit at the prospect that people could save $10.00 or so, on a tank of petrol, but we don't. We think it's a very important part of having a more competitive petrol market, and we intend to fight for it in the Senate.
The Liberal Party appear to be siding with big oil who don't want consumers to know where they can get the cheapest petrol at any price cycle. Well we do, so we are going to get up there and fight for this measure. It's an important measure, and we think it's important because it can help people save a small amount of money, admittedly, from time to time. But that's important to a lot of people who are under financial pressure.
CASSIDY:
A small amount of money for them, but its costing the Government quite a lot of money?
TREASURER:
Well, not in terms of the savings that consumers can make over time from FuelWatch, Barrie. I think it's a very important initiative in terms of competitive markets. And if you believe in competitive markets, whether it's bank or whether it's groceries or whether it's fuel, than you should put in place measures which can empower consumers. That's what the Government's been doing, and Barrie, we make no apology for doing it.
CASSIDY:
Well, as Treasurer, are you startled by the figures that Steve Bracks has come up with to save the car industry - an extra one and half billion dollars?
TREASURER:
Well, we have to take decisions based on Steve Bracks' report so I can't pre-empt Cabinet discussions. But could I just say that we have been through substantial structural reform in this country over the last 20 years. We have liberalised trade, we have brought down tariff barriers and all along the way we have always provided some transitional assistance.
That's how we have kept the consensus about making our economy more efficient in the long run and therefore making us wealthier. And there's nothing particularly different about the proposals from Steve Bracks to provide transitional assistance, particularly to lift the level of innovation in this very important industry for Australia.
CASSIDY:
Well, perhaps the one difference is it's very long-term transitional assistance?
TREASURER:
Well, of course it is but it's a very big employer, 60,000-odd people - a very big exporter. We've got to give this industry a chance. We just can't throw it on the scrap heap.
We do believe in liberalising trade. We have one of the best records in the world when it comes to fundamental structural adjustment. But part and parcel of that has been to provide transitional assistance as we bring down tariffs, and that's what the Government's going to do.
CASSIDY:
Now, on pensions, and I know you have an inquiry underway there, but do you accept that the pensions are inadequate?
TREASURER:
Yes, I do and the Government made that very clear at Budget time. We said that we simply can't undo in one budget what had taken 12 years to develop. So, we said we'd have a fundamental look at the level of the pension. We also, in the Budget, paid the bonus for the aged pensioners, we increased the Utilities Allowance and said we'd go away and have a serious look at this issue of pension adequacy, and that's what the Harmer review is doing.
And we expect it to report no later, I think, than February next year. But I, for one, came into politics because I thought a lot of people on low and fixed incomes were getting a raw deal. It's one of the reasons why I'm a Labor politician.
And I think it is important that we have an adequate pension system, because decisions in this area do cost an enormous amount of money. And whatever we do has to be affordable, Barrie, but also in the long-run it has to be sustainable.
CASSIDY:
But why does it take so long? You put GroceryChoice together in a hurry, FuelWatch together in a hurry. Why does it take all of this time to raise the level of the pensions?
TREASURER:
Well, Barrie, GroceryChoice, FuelWatch are issues to do with competitiveness in the market. What we are dealing with here when you are dealing with the adequacy of the pension is a very big structural change in the budget.
We brought down a budget which I think struck the right balance a few months ago between building a big surplus to tackle inflation, to provide a buffer against international uncertainty, and on the other hand putting aside the money we needed to invest in the future to get the growth that we required.
We think in those circumstances what we should do, and we did do, was put in place a fundamental review, because the implications for the budget long term are serious. We're doing it in a responsible way and we don't make any apologies for that either.
CASSIDY:
And you will do it in a budget framework, so in other words, if there is to be an increase it won't happen before May next year?
TREASURER:
Well, most certainly we are going to look at all of the issues. We are, to some extent, in the hands of the Harmer committee. We'll look at their report when we receive it and we'll take our decisions in a sensible way.
CASSIDY:
Just finally, what do you think Peter Costello will do?
TREASURER:
Well, Barrie, most of his supporters now seem to indicate that he's going to stay in the Parliament. Well, we'll look forward to debating his contribution to many of these issues we've been talking about today, particularly WorkChoices, but also interest rates and inflation.
CASSIDY:
And if he is suddenly sitting opposite you as a frontbencher you would regard him as a more formidable opponent than those that sit opposite you at the moment?
TREASURER:
Well, Barrie, I will welcome the debate about the long-term national interest, how we secure prosperity for the future, how we tackle inflation and how we make the investments for the future. I'll also look forward to a debate about climate change.
All of those things will be fairly and squarely on the agenda, whether it's Brendan Nelson, Malcolm Turnbull or Peter Costello.
CASSIDY:
Thanks for your time this morning.
TREASURER:
Good to be with you.