20 October 2015
Transcript - #2015026, 2015

Interview with Ross Greenwood, 2GB

SUBJECTS: The Government’s response to the Financial System Inquiry.

ROSS GREENWOOD:

The Federal Treasurer Scott Morrison is on the line right now. Thank you for your time, Scott.

TREASURER:

Pleasure, Ross.

GREENWOOD:

First question for you has got to be why did this report sit on the former Treasurer's desk for 11 months?

TREASURER:

There had been a very comprehensive consultation process that both Joe and Josh Frydenberg had been working through. So, it had got very close to the point of release when recent events occurred and we were able to pick up from that work. We have made a few further additions to that response, particularly in the area of the surcharge in our announcement we made today but also in some of the superannuation areas. So, we have built on the work that they had done. As you say it's a very big inquiry, Mr Murray has done an extraordinary job in pulling all of that together. It is the biggest review of the financial system since the Wallis Inquiry, which was responded to by the Howard/Costello Government. We have got to remember the response to that fortified our financial system to deal with one of the biggest challenges we had ever had to our economy in the GFC. So, you get these right and it provides protections for the future.

GREENWOOD:

Any irony for you that, of course, this is the day that Joe Hockey resigns from our Parliament. He will see out this week and then he is pretty much gone and of course this is one of his major pieces of work, the review of the financial system inquiry. You are the new Treasurer, you have been there a couple of weeks and you release this information.

TREASURER:

Well, you just get on with the job. I think the transition that has occurred over the last month or so has been very smooth and Joe has been very helpful in that process in the handover and the transition and I wish him all the best. One of the other initiatives we've also seen through was the changes to multinational taxation avoidance and the issues on how we are going to ensure that hundreds of millions of dollars will be raised to ensure that those countries pay their fair share of tax in Australia. He also did a lot of work on that. We are both Liberals and we are both carrying on with good Liberal policy.

GREENWOOD:

Ok, let's go to the very heart of this and that is the thanks being required to put more capital aside to back their balance sheet. So, what you are really trying to get to the heart of here is that Australians are, large or small, wealthy or not wealthy, that they do not look to the Government to be the guarantor of our banks. In this regard you also have to make certain that the banks are strong enough that in the worst of circumstances they will not collapse. That is important, isn't it?

TREASURER:

Well, it is absolutely important and as the strength of our banking system and our financial system more broadly demonstrated when it was under so much pressure during the GFC. So, you do have to get that right. What you will know, one of the areas where Joe did announce the response was that we weren't going ahead with the previous Government's policy of the bank deposits tax. That was in there previously as a way of trying to deal with that liability, if you like, to the system. We have decided to go down this path which has APRA, which they have already moved on some time ago, to increase the capital adequacies of the banks. Now, you would know that some $12 billion or so is in the process of raising or is being raised by the big four banks and the average CET capital levels currently are sitting around about 9.2 per cent and the Murray Review is suggesting that get over 10 per cent.

GREENWOOD:

Yeah, they have got to get to 10 per cent. So, it means, really, they can either a) hold dividends back a little, dividend growth. They may not necessarily need to go to the shareholders, there are other ways they can try to top them up but of course we still need to get the international response, don't we, to see just how much international banks might have to also raise more capital and as a result that will need a further response from Australian banks.

TREASURER:

We are currently below that top quarter internationally in terms of what we hold in capital. So, this would put us into that top quarter for the international standard and that is where we believe we need to be. So, the banks are already moving in that direction, have been for some time. The commercial decisions they take about how they deal with the cost of doing that is entirely up to them.

GREENWOOD:

I was going to ask you about that because last week Westpac raised interest rates as it raised capital also. Of course that got the ire of a number of people including yourself. The banks are going to find ways to raise capital and the truth is a response may be to raise interest rates in the future.

TREASURER:

Well, when and if they do that, I note that the others who raise capital, particularly NAB and Com who both had capital raisings of over $5 billion didn't do that for their variable home owner mortgages. There was a change in what was done for investor rates and that also followed some APRA decisions there. But at the end of the day banks have to explain to their customers what they are charging them and they are also accountable for the term deposit rates. So, I acknowledge Westpac in lifting by 25 points what they are doing to term depositors - that is good news for self-funded retirees who have accounts there. They also did some work on the first home buyers cash back scheme basically. But they did put up the mortgage rates, the variable rates by 20 points and that is a lot larger than what the Murray Review was suggesting would be sufficient.

GREENWOOD:

What was the Murray Review suggesting?

TREASURER:

They were saying 10 but there is a spectrum of advice which sort of says that's anywhere up to about 15.

GREENWOOD:

So, in other words 0.1 per cent to 0.15 per cent is what they are looking at. Do you want to take it to something else which I think is also sensitive? It is something a lot of people won't even know about. That was the ability for a person to choose their own superannuation fund. I think this is absolutely key because a lot of people will not be aware if they are in certain awards, or in certain enterprise bargaining agreements they don't get the choice of superannuation funds, they have got to go into the one that is dictated by that particular award. Now, you, as a result of the recommendations have said, that has got to change. Is that easy to change politically? Is it easy to change from an industrial point of view?

TREASURER:

Well, obviously we will have to legislate for it but I would like to hear the argument as to why someone isn't allowed to put their hard earned super into the fund that they would like to see it go into. What really troubles us about the current arrangements is unions can get together with employers and lock you out of the fund that you would like to put your money in. I just find that absolutely an anathema.

GREENWOOD:

I think a lot of people listening would also find it rather confusing but they would not understand this.

TREASURER:

Then there is how the default funds are set up and we want to give more choice to people about what the default funds are under these arrangements and there is also the issue of when you get to your retirement phase creating a system bias in favour of annuity products. The other thing that Murray said and this is really important to how we look at superannuation - why does the Government give taxpayer incentives to superannuation? Well, what the Murray Report said was, so people don't end up on welfare on the pension when they hit retirement. Now, if you define that as the objective of superannuation then I think that provides a real context for all these other decisions. So, a systems bias towards annuities is encouraging people to ensure they are drawing an income from their superannuation over their retirement. Now, if they choose to opt out of that, of course, that is their choice - it is their money which is really our point, Ross. We as a Government recognise that the super you have contributed, that you have saved for, that you have worked for - it's your money and a union shouldn't be able to tell you where that has to go.

GREENWOOD:

Alright, let's go to one other one that I think a lot of people will feel the effects of, potentially more quickly than many of these other changes and that is credit cards and also getting out those surcharges that many people already hate; maybe taxis, ticketing agencies, airlines - some of them up to 10 per cent, despite the fact that the cost is a fraction of that.

TREASURER:

Yep, the game is up, basically. We're calling the whistle on that one. I mean the average interchange fee which many of your listeners would know, that is the fee that is charged to the merchant by the card provider - the average cost of transaction on that is around 0.5 per cent over the spread of the sort of fees that are charged. Just normally with the sort of cards that most people would be familiar with, the surcharge fees that are being required are 1 to 3 per cent but then you say there are others of 10. Now, we have got to end that profiteering that goes. If businesses want to charge customers more, well they are at liberty to do that but they can't do it hiding behind some suggestion that it is as a result of the fees that are being charged to them as merchants by the card providers. We are also going to ensure that the payment system board of the Reserve Bank has a really close look at the fees that are also being charged to those merchants. I was very pleased to see the support from the Australian Retailers Association to this initiative as well as Choice and others. The game is up, it is time for people to pay only what should be a fair price with these sorts of things.

GREENWOOD:

I have got to say, great with his time, Scott Morrison the Federal Treasurer after this very big initiative today the Financial System Inquiry, it has been a long time in the making. Just before I let you go Scott, new job - the Treasurer - how are you enjoying it? Have you got your head around it?

TREASURER:

Well, it is a great privilege. You just go to work every day and it is a great privilege and I have a great team and we are just getting on with the job. We had the meetings of state and territory Treasurers last Friday and we are working now on competition policy reforms which will give Australians greater choice. We are still working through and have a lot of work to do on the tax system changes. Now, I know your listeners would be frustrated that in 16/17 if you are on an average wage you are going to be on the second highest tax bracket. Now, that is not a sustainable position and we need to fix that so we can get jobs and we can growth and that is why we are looking at those issues.

GREENWOOD:

Well, on behalf of my listeners here who will be no the board no doubt ringing right now - that is they want their Government with action and of course this is one very good step. Scott Morrison is our federal Treasurer. Scott we appreciate your time.

TREASURER:

Thanks Ross, I look forward to doing this on other occasions. Cheers.