9 February 2018
Speech - #2018002, 2018

‘Realising our year of opportunity through lower taxes and more open and competitive banking’, address to the Citibank A50 Australian Economic Forum, Sydney

Check against delivery

2018 is a great year of economic opportunity for Australia, for Australian businesses, and for investments in Australia.

In the past 12 months, the Australian economy has delivered solid growth, entering its 27th year of uninterrupted economic expansion, while diversifying its base as the non-mining economy continues to strengthen.

We have witnessed extraordinary jobs growth that smashed records across the board - with more than 400,000 Australians getting a job in 2017, and more than three quarters of those full-time positions.

Businesses are buoyed by the tangible optimism within our economy and encouraged by improved business conditions that are stimulating growth and spurring investment.

And of course, empowered by a government that is prepared to back our businesses; willing for them to succeed.

Consumer confidence has strengthened with the most recent monthly survey showing consumers were more confident than at any time in over four years, encouraged by the strength of our labour market and a sense of optimism about the economy.

Clearly, there is a formidable platform for the Australian economy to launch into 2018, building upon the momentum that stirred throughout 2017, and deliver better days ahead for households and businesses.

Today, I want to provide you with an overview on what we are doing to continue to secure our opportunities.

The critical importance of last year's record growth in jobs and the effect it will have on the economy and wages cannot be understated.

More than 1,100 jobs every single day, more than 300,000 of those jobs full-time. The records kept tumbling: the strongest calendar year result in over 40 years, the strongest calendar year growth in full-time jobs on record, the equal longest run of consecutive monthly jobs growth in history.

And a record that the Coalition Government should be most proud of - 956,500 jobs created since we first came to office.

This strength in jobs growth is eating into the slack in the labour market.

A continued tightening in the jobs market will see upward pressure, once again, placed on wages, as Dr Lowe reinforced again last night.

In sectors such as health care and education, where jobs growth has been considerably strong over the past few years, wages are growing faster than the national average. More than 100,000 jobs were created in the health care sector through the year to November, so it shouldn't come as any surprise that wages in the sector are growing at 2.7 per cent, compared to the national average of 2 per cent.

Normal transmission on supply and demand in the labour market is being restored.

And we are beginning to see the same pattern replicated in the services sector, with this week's AIG Performance of Service Index measure of employment accelerating to its highest level since December 2004.

In fact, this strong labour demand within the sector is reportedly leaving specialised fields with skill shortages, increasing the pressure on wage growth. The rubber band is getting tighter.

In recent months, we have seen this tried and true principle at work in the US. After a sustained period of strong jobs growth, wages in the US are starting to see some promising upward movement. Average hourly earnings growth in the year to January grew at 2.9 percent – the highest rate since June 2009.

Although it has big shoes to fill, 2018 is getting off to a good start.

Job ads jumped 6.2 per cent in January to be 13.8 percent higher over the past year.

This is the highest level of job ads since April 2011 and the best start to a calendar year since 2011.

Similarly, the NAB Quarterly business survey yesterday showed that the employment expectations subindex has risen to its highest level in almost a decade.

The show goes on.

The same could be said for non-mining business investment which dusted itself off last year to become a major contributor to economic growth, together with strong public final demand and exports.

The NAB quarterly business survey showed that expected new capital investment is at its highest level in over a decade.

Non-mining business investment is forecast to grow at a solid five per cent pace in both 2017-18 and 2018-19.

New private business investment is growing at the strongest rate since the peak of the mining investment boom in 2012, expanding by 2.0 per cent in the September quarter and 7.5 per cent through the year, to eclipse the 20 year average.

As I announced in the mid-year economic update, real GDP is expected to lift from 2.0 per cent in 2016-17 to 2.5 per cent in 2017-18 and three per cent in 2018-19.

This strengthening local economy is supported by a global economy that continues attract a steady stream of upward revisions from the folk at the IMF and World Bank, with the former now forecasting 3.9 per cent in 2018 and 2019, have edged their predictions 0.2 per cent page points higher already this year.

This is all evidence that the policy settings we have in place and continue to pursue, are encouraging growth and investment. That's our plan, it's working and we are sticking to it.

If we are to secure the opportunities ahead, we have to fight to keep our businesses competitive in the global economy.

Uncompetitive tax rates are a drag on economic growth.

Similarly, businesses cannot pay workers more, when the Parliament insists on them continuing to pay the Government more in higher taxes. This only leaves Australian workers being left out.

Making businesses pay higher taxes only makes it harder for the benefits of a growing economy to pass through to wage earners. It holds back the pay rise that Australians have been looking for, it delays it even further.

Our global peers have grasped the notion with both hands, slashing business tax rates and reaping the spoils, proving an unassailable economic reality: Lower taxes means more jobs. Lower taxes mean higher wages. Lower taxes mean investment and innovation.

Labor and the Parliament's refusal to support lower taxes means Australian workers will be left behind on wage rises, as the jobs and the wage rises they should be getting get sent to the Government in continued higher taxes, and also go offshore.

Australian workers will continue to be short-changed on wages by Labor and our Parliament's insistence that businesses pay Governments more rather than enabling them to pay their workers more.

It is often said to me, 'tax cuts for business are not popular'. That may cause the Labor Party to lose their economic nerve, to discard their core belief and 'wibble wobble' on their conviction for what is good for the economy.

But what I do know is that more and better paid jobs is both necessary and popular.

As a Government, you have got to be prepared to do the things that achieve the right economic outcomes, and not go to water the first time that someone makes a criticism of your policy. This government will not relent to that.

Over our summer, the case for lowering business tax has been boosted by President Trump's extensive tax reform programme.

The tax cuts have had a profound impact on the psychology of the business community, given the extent of the reform that passed the Senate that perhaps surprised on the upside.

In travelling through the US last week, the shift in sentiment was palpable and the results were clearly evident: companies restructuring and simplifying their systems. Businesses investing more in their employees, offering pay rises and bonuses. Corporations pledging to invest more money on innovation, R&D and technological advancement.

The benefits are real. Ask the millions of American workers who have a pay rise secured in recent weeks, or have held a bonus cheque in their hands.

The IMF last month confirmed company tax cuts would be a key driver for the US economy, and upgraded its global growth forecasts accordingly.

Professor of Economics at UNSW Business School, Richard Holden, citing a new empirical study published in the flagship American Economic Review, noted that "cutting the Australian company tax rate from 30 per cent to 25 per cent is not just good for business, and workers. It also helps redress economic inequality.''

"The benefits to workers,'' Professor Holden said, "tend to flow disproportionately to women, young people and the less skilled.''

This week we secured passage of the remainder of our enterprise tax plan through the House of Representatives.

Labor now have the chance to do the right thing, do what they used to believe in and back the only jobs and growth plan in the Senate that will increase investment, wages and jobs.

Another key part of our plan to ensure Australians can grab a hold of their own economic opportunities, is ensuring that our banking and financial system is as competitive as it is resilient.

That is why as a Government we are embracing financial innovation and disruption in our national economic plan.

There is no question Australia's banking and financial system remains both strong and resilient, a testament to the prudential measures employed to strengthen the sector and ensure it can once again, like it did a decade ago, stand tall in the face of a global financial crisis.

But while ever there remain barriers to new entrants, while ever power is shared by the few and not the many, and while ever innovation is not championed, the customer loses out and so does our economy.

Since elected, the Turnbull Government has delivered a raft of reforms geared towards unlocking greater competition in the banking and financial sector, to give Australians more choice and more opportunity to get a better deal on their loans and products and to access the finance and capital they need to realise their economic objectives.

This week saw the successful passing of our Banking Measures Bill through the House of Reps - a significant milestone on the pathway to a stronger and more competitive banking sector.

One of the pillars of the bill was to allow wider use of the term 'bank', giving all Authorised Deposit-taking Institutions (ADIs) the opportunity to officially market themselves as a bank and compete on fairer terms with our current banks.

Not only will this allow these smaller lenders to attract more customers, it will open up the lending market to a raft of innovative new players.

They won't be your traditional bricks and mortar banks or credit lenders but they will still be regulated. Perhaps online platforms and tech start-ups capable of offering competitive rates and prices on banking products will put pressure on the incumbents to match or better, or lose customers.

Off the bat, that gives the green light to more than 55 current Australian lenders to call themselves 'banks', let alone the new online lenders that will take advantage of the change and set up shop.

Our moves to bolster, create room for, and champion Australian FinTechs will also be pivotal in boosting competition in the financial sector.

Australia punches above its weight on FinTech, ranking fifth in the world in the 2017 EY FinTech Adoption Index, proving we have fertile soil for innovators and creatives to not only survive, but thrive.

Digital disruption in financial services is changing the world, and importantly, that means putting power back in the hands of consumers.

Costs are coming down, speed and efficiencies are going up, as FinTech's continue to interrupt and push the establishment at pace with the creation of innovative peer-to-peer lending platforms, RegTech, data and analytics and personal finance apps.

Our enhanced regulatory sandbox, introduced in new legislation this week, will provide FinTechs with a place to safely test new financial products, we are supporting blockchain technology to drive innovation, and we have legislation before Parliament to extend crowd-sourced equity funding to proprietary companies, in addition to public companies legislated last year.

Competition is also being fostered through the Government's $1.1 billion National Innovation and Science Agenda, with 19 of the 24 measures having been implemented.

Showcasing our commitment to increasing competition through innovation, NISA has poured more than $700 million into innovation funds that are investing in companies that are busy creating the next generation of technology and innovation breakthroughs.

I'll give you a few compelling examples:

  • Our investment in Morse Micro to build the next generation of Wi-Fi chip, through the CSIRO Innovation Fund which aims to commercialise our research.
  • Our investment in Silicon Quantum Computing to support the development and commercialisation, as the name suggests, of silicon quantum computing technology.
  • Our $75 million investment through the CSIRO to help Data61 look for opportunities for Australians to capitalise on the data revolution, and
  • Our grants to smart SMEs to harness innovative ideas and help them take it to the market.

As part of the broader NISA agenda, we have legislated tax incentives for angel investors and venture capitalists which we recently enhanced by allowing innovative financial service businesses to access these sources of funding, to get our innovative start-ups over the hump.

These are all liberating measures for our economy.

Yesterday, I released the exposure draft legislation for the mandatory comprehensive credit reporting regime - a game changer for consumers, leading to better deals on mortgages, personal loans and business loans.

And a game changer for increased competition in the sector.

The major banks will be required to report 50 per cent of their credit data - both positive and negative data - by July 1, increasing to 100 per cent a year later.

This transparency will open up the lending market to new players by enabling them to better assess the credit risk of customers and at the same time reduce their exposure to defaults.

The lenders will be able to calibrate their lending according to risk.

We are also recognising the role of customer owned banks and credit organisations, giving them the ability to raise capital and provide another avenue for competition.

That was yesterday.

Today, I am launching the Report I commissioned into Open Banking.

Open Banking will revolutionise the financial services sector, completely transforming the way Australians interact with the banking system, by giving consumers the right to share their data with other banks, other institutions and innovative FinTechs and get themselves a better deal.

After all, it's your data. You deserve the right to maximise its value and use it to your advantage.

Granting third-party access to your data will allow rival providers to offer competitive deals, products that are tailored to your needs, and enhanced services that meet the customer where they are at.

Banks won't be able to afford to take customers for granted, and lock other competitors out. Innovate or watch your customer walk out the door, armed with their data.

This disruption to the major bank stronghold on data will make the process of switching between banks less painful and help overcome the 'hassle factor' that sees customers stay with their current bank even when there are better deals on offer. Importantly, Open Banking will lift the lid on competition and encourage a new wave of FinTech innovation and product development.

Mobile apps that allow customers to not only manage their finances, but get real-time budget and investment advice from experts over live chat. Real-time product comparison services.

And a dramatic shift in customer experience, with nimble FinTechs capable of offering more intuitive interfaces, personalised services and tailored products.

More choice, more competition, more innovation, more inclusion.

Having committed to introducing Open Banking in the 2017-18 Budget, I asked Scott Farrell to report on the best way to put in place an Open Banking framework in Australia.

Mr Farrell and his team have prepared a first-class report, which maps out a practical and sensible model that is positively customer-focused and encourages competition.

Critically it spells out the need to build strong safeguards that protect customers' privacy and give Australians confidence in the system.

The report suggests that "markets work most efficiently when: customers are informed; there is transparency in pricing and in the quality of available products and services; there is a level playing field between competitors; and where the costs of switching between providers and barriers to entry for new providers are low''.

Open Banking seeks to reduce those barriers.

One of the most pleasing aspects of the report is the acknowledgement that Open Banking is likely to make life easier for small businesses, who often have less documentation and shorter financial histories that inhibit their chances of securing a competitive loan.

"A bank that has an established relationship with a small business,'' the Open Banking Report states, "is at a significant advantage over its competitors in the supply of data-related services.''

The review makes key recommendations on the scope of the model, and suggests banks supply at the request of the customer not only the data that has been provided to them by a customer, but all their transactional data and potentially outcomes of identity verification.

As well as increasing their ability to get a better deal or have products tailored to spending habits, giving customers the ability to share their transaction data with another party will ease the process of applying for new loans and credit cards.

Any data that has been enhanced by insights and analysis should not be included in the scope of Open Banking, the report suggests. The Bank has done the heavy lifting on this data, and deserves to keep it for its own commercial gain.

Which leads us to who should be required to share the data, and with whom.

The review suggests all ADIs other than foreign banks should be captured by the regime, and due to transitional costs that may disproportionately affect smaller players, participation should be phased in, starting with the major banks.

Subsequently, it only seems fair that all ADIs should be automatically accredited to receive data under Open Banking. If customers trust you to deal with their money, they likely trust you to deal with the data about their money.

For non-ADIs and new entrants to the market, the review suggests a graduated, risk-based accreditation standard to be employed, based on stringent security and governance rules. And going to my point on fairness before, if you are approved to receive data, you should be obligated to share data when asked by your customer.

Perhaps the most significant opportunity goes to implementing Open Banking as part of the broader Consumer Data Right.

That is significant because it's a first for Australia — a trailblazer for other sectors.

As Mr Farrell said in the report, banking is not the only sector where customers stand to benefit from greater data sharing, with the Government looking at customer-driven data access being extended to energy and telecommunications.

A successful adoption of Open Banking could also lead to `write access' reforms, where third parties would be able to make payments from a customer's account on the customer's behalf - similar to the reforms we have seen in the EU's PSD2.

This would open up the possibility of peer-to-peer payment platforms that bypass traditional banking platforms, with money transfered simply by sending a text message; and services that integrate multiple accounts from different banks on the one interface.

And of course there is the obvious link between Open Banking and the development of comprehensive digital identities.

The Turnbull Government recognises this potential beyond Open Banking and, in November last year, we committed to legislate the Consumer Data Right following the Productivity Commission's recommendation.

So as you can see, this is a great opportunity to put the Australian consumer exactly where they belong - at the centre and in control; and I'm delighted to invite comment on the report's recommendations on Open Banking.

In conclusion let me simply say that the Turnbull Government has a strong economic plan for jobs and growth that is getting results.

We will continue to stick to our plan for jobs and growth, because we know that it will continue to deliver the results that will enable Australians to realise their opportunities in 2018 and justify the investments that have and continue to be made in our economy.

The Coalition has always had a strong compass when it comes to issues of economic management and the Turnbull Government is no different.

We will stay the course.