2 August 2016
Transcript - #2016092, 2016

Interview with David Speers, Sky News

SUBJECTS: RBA interest rate cut; economy; budget

DAVID SPEERS:

Treasurer thanks for joining us this afternoon. What's your reaction to this new record low interest rate?

TREASURER:

It's a matter for the Reserve Bank taking it to that position of 1.5 per cent. They would be aware of all the same factors that their counterparts all round the world are. We're now in a very different global environment. Low rates, low rates of inflation, low rates of investment, export trade growth is very, very low around the world and this is a global phenomenon. Now what's important here today though, particularly in response to the banks; is we've seen a mixture of a response, both to reduce mortgage rates but also to increase deposit rates for depositors. That I think is a sign that banks will be looking to build up their own domestic sources of funds, and that can hedge against what you have from offshore. But there's certainly no argument for banks not to pass on rates on the basis of their cost of funds overseas at the moment. I mean that is certainly not the issue.

SPEERS:

Well just on this, so far we've had the Commonwealth Bank and NAB announce, as you say, two things. They're going to lower their standard variable rate and put up the rate for term deposits. But on the standard variable rate they're not passing on the full amount. Should they?

TREASURER:

It's for the banks to explain that, not for the Government. What I'm saying is that they have lifted deposit rates and that obviously comes at a cost as well for them in terms of what they pay out. So they've got a package of response to this rate announcement. Now in a very low rate environment, which we are clearly in, then for the banks to be able to actually say something to depositors, it's not often when you get a cut in the cash rate, that depositors actually get a bit of good news. It's usually the opposite to that so…

SPEERS:

Mortgage holders out there, I'm sure they'd all love to see the full amount passed on.

TREASURER:

Oh no doubt.

SPEERS:

Previously we've had Treasurers, Prime Ministers say banks must pass it on.

TREASURER:

Look I believe they should, of course I do…

SPEERS:

They should pass on the full amount?

TREASURER:

Because there is no real argument based on cost of funds that would mean that they shouldn't pass those on. But I do note that they have actually taken another action and that is to lift deposit rates. So you've got to look at the deposit rate increase and the mortgage rate decrease as a package of response from at least the two banks that have done that. But it's for them to make that decision…

SPEERS:

Just to be clear, is the Treasurer of Australia saying to them; you should pass on the full half of a point cut?

TREASURER:

I'm saying it's their decision and they have to explain their decision to their customers and I'm saying there is no cost of funds issue offshore that would prevent them from passing on that full rate.

SPEERS:

But you don't have a problem with them doing what they've done?

TREASURER:

But what they have done is actually done a mixture of cutting the mortgage rate and increasing the deposit rate…

SPEERS:

You don't have a problem with that?

TREASURER:

Well again that's a commercial decision…

SPEERS:

I'm just asking for your reaction.

TREASURER:

Well it's not for me to judge them one way or the other. It's for me to ensure that do I believe that the banks are making a case to make mortgage holders pay more on the basis of cost of funds from overseas. If that's what they're doing well, I don't believe they have a case for that whatsoever.

SPEERS:

Not you, but some of your predecessors when Labor was in Government, accusations of a wet lettuce, they were letting the banks get away without any real pressure when they didn't pass on the full cut.

TREASURER:

Of course we would like to see them pass all of these things on. But what we've seen from at least the two that have made a decision, is not the traditional response. It's not like they didn't pass it all on and did nothing else. What they have done is they've cut their mortgage rates and increased their deposit rates. And I think one of the reasons for that David, and this is why we can't get caught in the same merry-go-round of all of those sort of opportunistic responses that happen after a rate decision by a bank, which oppositions are famous for. What you need to look at…

SPEERS:

Including Joe Hockey.

TREASURER:

Is what is the global environment in which we are operating right now? It is very different to the environment of five years ago, ten years ago certainly or even three years ago.

SPEERS:

So is this a sign of a struggling economy, a one and a half per cent cash rate?

TREASURER:

No I don't think it is. We are growing at 3.1 per cent. Name me five advanced economies that are doing better than that, you won't. So three point one per cent growth which is coming off the back of strong household consumption in a very tough trade environment, good export growth particularly in the services sector, a transitioning economy that is coming off the biggest mining investment boom in our history. Now when other economies have gone through that they have typically crashed. Now we have not done that and that is to the marvel of the rest of the world. But what we are faced with in this low inflation environment – and I heard what Stephen Koukoulas said earlier about inflation and its impact on the Budget and he is right about that –

SPEERS:

There is an impact on the Budget?

TREASURER:

Well of course there is on revenues and wage growth is very low..

SPEERS:

What sort of impact?

TREASURER:

Well let's take the difference between the real GDP rate and the nominal GDP rate - we are at 3.1 and 2.1. This is the difference in what we are seeing in this environment.

SPEERS:

Are you talking billions of dollars?

TREASURER:

Well we will have our update to the Budget at the end of the year and there will be many things that happen between now and then. It wasn't that long ago that people said an iron ore assumption in the Budget of $55 was outrageously optimistic. Well the price today is over $56. So it moves around.

SPEERS:

But you can't afford any slippage on budget repair here can you, on superannuation, on the measures that you took to the election?

TREASURER:

Well of course not. That's why we put them forward. It is absolutely critical that the Budget repair measures that are in the Budget and that we have refashioned from earlier Budgets and re-presented, as we will with this Senate, these are all critical to ensure that Australia has all the opportunities we have, particularly over the next three to five years, to build up the most economic resilience we possibly can.

SPEERS:

And just going to the Reserve Bank's statement, it does point to China's growth appearing to be moderating, it does talk about a very large decline in business investment here in Australia. Do you share those concerns?

TREASURER:

Look I do. That is why we are so focused on corporate tax rates. We need to drive investment in this country. The world needs to drive investment. When you have negative rates in Germany, negative rates in Japan, negative rates from the European Central Bank – that is all talking to a global situation where private capital is not investing in productive things. They would prefer to just have the money sit with someone for ten years and get it at the back of the ten years' with nothing.

SPEERS:

Does your government take any, does the Turnbull Government, take any responsibility for that situation, for the large decline in business investment in particular?

TREASURER:

Well that is why the Budget actually set out the plan to actually encourage that investment with the reduction of the tax rates particularly for businesses with turnovers of up to $10 million, the instant asset write off being extended for those businesses, the extension of the depreciation pool provisions that are there for those businesses. That was the point of what we put to the election, a strategy was based around driving private investment. Now what other economies are doing is they are deciding to let the taxpayers fill the gap of that investment in their economies. Now if you do that you are just buying intergenerational debt and punishing future generations and what we need to do at the moment and continue to focus on is try doing everything we can to support private investment and private capital coming into our economy to support jobs. Now jobs are growing at about 2 per cent, that is good healthy jobs growth in this sort of an economy. The economy is growing at 3.1 per cent but it is a low inflation world. It is a world where trade growth is very, very soft, where investment growth is very, very soft so this is the new norm.

SPEERS:

Treasurer Scott Morrison thank you for joining us this afternoon, appreciate it.

TREASURER:

Thanks David.