3 August 2018
Transcript - #2018157, 2018

Australian British Chamber of Commerce Q&A

Subjects: Consumer powered competition in our banking sector

QUESTION:

Treasurer, thank you very much for those reassurances about strengthening the Australian economy. I'm Elizabeth [inaudible] the Chief Executive of an Australian-British company. One of the ambitions for us is actually growth and exporting and the UK has the British Business Bank which offers an alternative – a patient capital alternative – to VC funding which sometimes creates additional stresses and pressures for a business that doesn't want to grow at a particular rate. Is there going to be a similar initiative to support the growth and the export ambitions of Australian companies?

TREASURER:

We are quite aware of that initiative and I've had a number of discussions with British officials about it. I think it's an interesting idea – I mean, the Government, the Turnbull Government is not one that wishes to be a bank or become a bank. We believe those roles are best performed in the private sector but equally, we have been looking very carefully at this issue of the capital that can be accessed by many of the new lenders and more innovative lenders in this space. I do think there's a much bigger opportunity for super funds in Australia to commercially engage in the sort of things that you're talking about. I think there are big opportunities here in Australia for that to happen. It is puzzling why it doesn't but, to be frank, that's another issue of competition in the superannuation sector when funds basically sit there at the end of a firehose full of money which is mandatorily required to flow into their accounts every week and month. Why do we get surprised when they don't behave innovatively? But that's a topic for another day and actually for my colleague Minister O'Dwyer, but I think the problem that you have noted is also one that we understand and we do look at things like this with an open mind.

QUESTION:

[inaudible]

TREASURER:

Now I'm in trouble.

QUESTION:

Treasurer, Warwick Smith – lawyer from Launceston – thank you for your comprehensive speech and I'm sorry we missed the one about football. Treasurer, the fundamental issue really around banking – and I haven't read the report – is a protection mechanism that allows only four banks. If there is to be digital transformation that's taking place in the financial services sector at the pace that it is globally and supporting challenger banks and other models that are in the marketplace that you spoke about today. If you describe the banking policy as like four big cows in a locked paddock, differentiated by their different colours but all doing the same thing, why isn't it that we can't challenge the four banking policy?

TREASURER:

The PC actually addressed this, they sort of formed the view that the four pillars policy had become a bit outdated but then didn't recommend it be changed as they thought it was moot, effectively. I don't know if the actual, the fences around that paddock, they're all in that paddock – you're right – but the fence that used to be there is not electrified and if you [inaudible], [laughs] I think I'll stop with that analogy. I'll stick to football. The challenge in that – this is why much of what they focused on and what I focused on today are the other things that drive competition. I mean, our colleague, the Attorney-General Christian Porter has this wonderful analogy he uses to talk about the federation. I don't know how many meetings I've been to – "why does it have to be states?" and all the rest of it – Christian's answer is, "The states are like the mountains in Switzerland. They will always be there." And, similarly, the way of the conglomeration of the banking sector around four players – I mean, people have put to me that if that wasn't there, there wouldn't be four players, there'd be three. But the thing that probably ensures that there are just four or three, it'd be more driven – I would argue – by foreign investment rules more than anything else. I mean, people really, really, really want to have a very open and competitive banking system by allowing anyone to own your banks and pretty quickly, I'd say, not one bank would have Australian ownership majority in this country – not one, not one. I don't think that's something the Australian public would ever contemplate and the Government certainly is not. So, I think – you think back to the airline industry, there was the two-airline policy and they abolished the two-airline policy and guess what? There was two airlines. That was what the market was going to support and maybe with large banks, as some have argued, it would be three, some say, "Well, it might be five." But largely, I don't think that would see a major transformation in the dynamic of what's happening in the banking sector, what's more important I think is the point we're trying to make today, the strength of the consumer, the customer, is what's lacking in the Australian banking system and this is truly the competition policy more broadly. Competition should not be confined to just being defined as strong if there are lots of competitors – that's actually not the point. The point is how strong is the customer in any market? And where a customer is strong in a market, you've got a competitive market.

QUESTION:

Good afternoon, Treasurer. Just changing the subject slightly, my name is Bernard and I run a small business…

TREASURER:

I'm trying to find you.

QUESTION:

I want to ask you about compliance. Obviously this time of year, we're doing our tax returns, both for a corporate and individual, have you considered – or would it be an idea – instead of taxing as we do at the moment, instead of just taxing gross revenue and just letting everything run from there and [inaudible] deductions and so on and so forth to increase compliance and also the cost of doing business with you?

TREASURER:

Look, the question can be applied equally in the corporate sector. If you want lower, simpler, fairer taxes or lower and simpler taxes then that means for a lower rate you're then going to have virtually your deductions – there are some jurisdictions that have gone down that path and that applies as much to the corporate sector as it does, I think, in the personal income tax space. You've also got to have some consideration of what the legacy and culture is of the economy of what you're operating and in this country, particularly around the issues of deductions and how people plan their arrangements and so on, that system is built up over a long period of time. There's been a number of inquiries into this recently and, I must say, there hasn't been a wild enthusiasm from taxpayers to go down that path. There really hasn't. The current system is one using deductions that are currently available is one that they've become very familiar with. We're always looking to try and simplify it wherever we can and we constantly look at these issues – as you know, in the last time that Parliament sat, we actually put through the biggest reform to personal income tax rate schedules that we've seen since the GST. It was a massive change, abolishing a whole schedule out of the tax system and we're able to legislate that in what has been a very difficult and challenging political environment at Parliament. So, I think we've been making some very good progress in this area with some very big changes to personal tax. The Turnbull Government has been taking tax down and I won't get partisan too much this afternoon other than to say that the Labor Party's answer to this is to put taxes up. They're not looking to make them simpler or lower. They're just planning to make them higher.