4 June 2018
Transcript - #2018103, 2018

Interview with David Speers, Sky News

Subjects: AUSTRAC and CBA record penalty agreement; the Turnbull Government’s plan for a stronger economy.

DAVID SPEERS:

Treasurer, thanks very much for your time this afternoon. CBA was late in filing reports on transactions above $10,000 on more than 53,000 occasions, it didn’t comply with its obligations to monitor transactions on more than 778,000 accounts, nearly 150 suspicious matter reports were either filed late or not at all, and it failed to report millions of dollars of suspected money laundering. Now, the Bank CEO says these breaches weren’t deliberate but it seems like a lot of accidents don’t you think?

TREASURER:

It was egregious in terms of what was done here and that’s why they have now faced the stiffest penalty in a commercial environment that we’ve ever seen in this country, $700 million is where the settlement has landed, as it should. Austrac did their job, they pursued this and the prosecutors did their job, and this is where the arrangements have landed today. I think that’s a very good outcome on a number of levels but one is to send a very clear message whether it’s intentional or otherwise, this sort of thing, we’re not going to cop.

SPEERS:

What do you say then to shareholders and customers of the Commonwealth Bank because it’s not just this Austrac finding. The same bank, CBA, that was the subject of a scathing APRA review as well which found quite widespread complacency overconfidence, excessive complexity and insularity in the CBA. How much faith should customers and shareholders have in this bank right now?

TREASURER:

As you know, this Austrac matter, when Austrac announced that they were going to pursue this, what followed then, was I met with the chair of CommBank the next day. What then followed that was the Laker Review which was initiated by APRA, which had the findings which you’ve just recounted and both this issue and a number of other matters led to that review. But what should shareholders do? Shareholders should be very tough on the board of the bank, because that’s who is supposed to ensure that what happens in that bank is done appropriately. At the end of the day, I find the boards accountable for all of this. They are ultimately responsible for the governance of these very important institutions. Now, I wouldn’t be surprised that shareholders would be rightly pretty cranky about this and they should be, because it has been the conduct of the banks that has led to this outcome. Now, in terms of customers I made another point today and that was customers shouldn’t be punished for this. This is something the banks should wear because they are the ones that put themselves in this situation and it’s their omissions that have led to this outcome. It should not be customers who pay for that, and if they did, then I think their customers would be very within their rights to hurriedly take their business somewhere else.

SPEERS:

And indeed, if it’s not customers paying for this, it will be those cranky shareholders. When you say they should be tough on the board, what do you mean by that? Should they be demanding changes on the board?

TREASURER:

They should hold them accountable. That’s what AGMs are for. That’s the way that corporate democracy works. Shareholders are represented by the board directors and as the Laker Review found, there are a lot of questions to answer there. I know a number of those board members have moved on, and others are moving on, but I think this highlights the fact that at the end of the day, when shareholders’ interests have been prejudiced here by this behaviour, well, at the end of the day the board is responsible. There is nowhere to run and nowhere to hide on this. They can blame the executives all they like, but they appoint the executives, so they are responsible.

SPEERS:

Well, indeed. A bigger question here I suppose, do some board member sit on too many boards? This has been a bit of an issue lately. What’s your view on it?

TREASURER:

I am concerned that there’s a bit of a club when it comes to directorships in this country and that can create a cosiness which I don’t think is very helpful. I think these are very important questions that individual directors should be reflecting on, and I think investors, shareholders should be looking at who are on boards and are they on too many boards. I think that’s the sort of transparency that is very much warranted. I don’t think it’s at all inappropriate for those questions to be raised about any board member if the view is that they are on too many boards. I think the boards themselves need to keep that into account. They’re not there on some sort of holiday, as I know thousands of board members do not think they are there on a holiday, but it’s important that I think that balance that you’ve just raised is carefully assessed.

SPEERS:

Is there a role for government there to say, some are stretched too thin here, you can only sit on so many publicly listed boards?

TREASURER:

I would prefer that the companies and shareholders and institutional investors which also have a big stake in all this, that they be the ones that actually ensure that this works properly. That’s my preferred approach and I think that’s why it’s important to have the transparency around it. The reason you have AGMs, the reason you have elected board members is to ensure there is this accountability. That’s how it should work.

SPEERS:

Let me come back to this particular case, $700 million penalty if approved by the Federal Court, of course. This will go to the Budget bottom line. It’s a handy sum for next financial year you said today. Is it possible, I’ve got to ask Treasurer, is it possible, because there have been some better than expected results just in the last month as well, that you might be able to get back to surplus even in 2018/19, year earlier than your forecast in the May Budget?

TREASURER:

I think that’s a very enthusiastic analysis, David. I can assure you this; we will get back to balance as soon as we can. We’re able to bring that forward to 2019/20 with a very modest amount in this year’s Budget but we will continue to do everything we can, every decision we make, to ensure that we are getting back into that position, and strongly back in to that position. As of this year, 2017/18 when our net debt peaks as a share of the economy, we start paying debt down from 2018/19 over the forward estimates down $30 billion over 10 years over $230 billion. So, we’re in the paying down debt business now and it’s taken us almost four, five years to get there. I’m very enthusiastic about getting into that task.

SPEERS:

The head of Austrac pointed out today her organisation has about 300 staff, but about 14,000 entities they need to watch. Is there an argument that some of this money, $700 million, should go to beefing up Austrac’s resources?

TREASURER:

I personally want to commend them again for the work that they’ve done here and the outcome that they’ve been able to secure as well as the prosecutor. But the process for people bringing forward proposals for these things is well-known, it’s called the NPPP, sorry the NPP – the New Policy Proposals process – and that comes through the normal ERC program and where there are those cases to be made, I’m sure they will be, and the Government will consider them carefully.

SPEERS:

Alright, it sounds like they probably have a decent case given what they’ve just done to help the Budget bottom line as well as hold the CBA accountable. Look, let me just ask you about this, as you say, egregious behaviour by the bank. Yet as Labor says, you’re still keen to give them the company tax cut. Can you understand why some might say, “well, hang on, why does the Commonwealth Bank after all this deserve a company tax cut?”

TREASURER:

Well, I think that’s a very superficial analysis by the Labor Party which doesn’t surprise me, which is all about politics and has nothing to do with economics. Let’s just go from first principles, by the time large banks actually come into the Enterprise Tax Plan, about $16 billion would already have been raised from the bank levy and that’s a levy that’s raising over $2 billion a year. So, effectively, the bank levy is almost entirely and certainly without a [inaudible] amount already completely offsetting any benefit they would receive from that corporate tax reduction. The purpose of having a lower corporate taxes right across the board is to ensure that our companies, all of them, are more competitive. We know that as you reduce the tax burden on business that they are in a stronger position to invest more and employ more people and ultimately support higher wages. So, that’s why we’re doing it. The Labor Party wants to see Australian businesses pay some of the higher tax rates in the world. Now, how that helps investment, jobs and wages, I’ve got no idea. I mean, the economics just don’t stack up.

SPEERS:

We had a ReachTEL poll yesterday show actually more support for the company tax cut than opposition, particularly in a couple of the marginal seats up for grabs in these by-elections. Will you stick with the policy, the company tax cut, even if it doesn’t get through the Senate later this month?

TREASURER:

Of course we’ll continue to prosecute our views on this, David. We’ve always believed that lower taxes, more competitive taxes, is good for business. So, just look at what we’ve done for the last two years, David. Does it look like we’ve been backing away? We’ve been actually pressing ahead. So, you can expect us to continue to do that because we believe it’s the right thing to do for the Australian economy. I mean, Labor is playing a very cheap political game and what I’m pleased to see is that the economics of common sense is really trumping the politics of envy which Labor has been playing so hard for quite a period of time now. And as our economy continues to strengthen, as you know we’ve had some really further encouraging data today on the economy, on everything from wages to the performance of companies, to retail trade improving in the month of April and the jobs figures on employment. We’ve got the highest level of jobs advertisements – that we’ve seen in the ANZ survey – now for around seven years. So, a strong labour market, retail trade picking up, as well as both company profits and what people are getting paid all improving. Now, we want to see that continue, you don’t see that continue by taking it for granted and taxing the living stuffing out of the economy which is what Labor’s proposed to do.

SPEERS:

Well, I wanted to ask about that finally. Better retail trade figures out today, better job advertisement figures in the ANZ series. We’ve got the actual national accounts coming out on Wednesday. We’ll get the latest snapshot of economic growth. Do these figures today point to a better figure coming on Wednesday?

TREASURER:

I think they point to the fact that the forecasts that we had in the Budget are very sound. I think that’s what you can take from these. We’ll wait to see what the National Accounts say on Wednesday. Let’s take wages and salaries for example, I mean, that’s up 0.8 per cent in the quarter, 5.1 per cent over the year. Now, for that March quarter, the growth in employment was 0.2 per cent but we’ve got a 0.8 per cent growth in the amount paid out in wages and salaries. Now, that is encouraging when you see it’s not just more people actually getting into jobs but clearly more people who are getting these jobs, getting paid better wages in those jobs or indeed a start of a further improvement in what people are getting paid. Now, that is what is encouraging in these figures. I know we’ve still got a long way to go yet on the level of wages across the economy but I take some real encouragement from that and it just underscores everything we set in the Budget. The Budget was a plan for a stronger economy and without a stronger economy, you don’t get to pay for hospitals, National Disability Insurance Schemes, Medicare – all of these things depend on a stronger economy. So, what we’re saying – whether it’s in the by-elections coming up in Braddon or up there in Longman or Mayo – about the commitments we’re making, our promises are backed up by a plan for a stronger economy. Bill Shorten’s promises are just his words and he’s not believable.

SPEERS:

Treasurer Scott Morrison, we will have to leave it there. Thanks for joining us this afternoon.

TREASURER:

Thanks a lot, David. Great to be with you.