1 October 2018
Transcript - #2018023, 2018

Interview with Ross Greenwood, Money News

Subjects: Sulawesi earthquake and tsunami; Banking Royal Commission interim report; ASIC; Final Budget Outcome; and energy prices.

ROSS GREENWOOD:

It’s such a serious situation, of course, the Government no doubt will respond. I know one of those people who will be amongst our Cabinet will be considering what sought of aid Australia can provide, is our Treasurer Josh Frydenberg who is on the line right now. Many thanks for your time, Josh.

JOSH FRYDENBERG:

Nice to be with you.

ROSS GREENWOOD:

Have you discussed this with the Prime Minister and the Cabinet at this stage?

JOSH FRYDENBERG:

Look, I continue to talk to the Prime Minister about all manner of issues including the tragedy in Indonesia and we have a wonderfully close and important relationship with our near neighbour and we will continue to support them in any way we can, particularly through these tragic circumstances.

ROSS GREENWOOD:

Has there been any discussion as to what assistance or aid Indonesia has been called for or needs at this time?

JOSH FRYDENBERG:

I know the Prime Minister has been in touch with the Indonesian President and I will leave it to him and the Foreign Minister to respond in due course.

ROSS GREENWOOD:

So it is a serious situation and no doubt resources from Australia will be required at some stage.

I want to also take you to clearly some of the issues of the day. I note today that property prices continue to fall in the major capital cities, Melbourne and Sydney, which as a result some would suggest of regulatory action taken by financial regulators to cool down housing markets. Have they done the right thing or are there any dangers – these property markets could over shoot and have an impact on the broader economy?

JOSH FRYDENBERG:

Well, as you know APRA took action in response to investor loans in the residential market and I think we have seen prices come back down to a sustainable level. That being said, we continue to watch the housing market and certainly Bill Shorten’s new property tax with his attack on negative gearing will not help people maintain the value in their homes and that is a real danger for them.

ROSS GREENWOOD:

Okay, but given what you have heard in the Royal Commission and in particular the response of regulators, both APRA the banking regulator and ASIC the corporate regulator, given the fact that APRA now has now put out these policies to try and cool down housing markets, do you have confidence in APRA and its actions given what you have had with the regulators response in the Royal Commission?  

JOSH FRYDENBERG:

I do have confidence in our regulators but I do think they need to do better, and that was a clear message out of Commissioner Hayne’s interim report. It had a very strong message, particularly for ASIC, that they should not be pursuing negotiation at the expense of litigation when it comes to providing proper enforcement of the laws that we have.

ROSS GREENWOOD:

They were soft, weren’t they? That is the real conclusion of the Royal Commission and this interim report, that they weren’t prepared to take on the biggest in town, they negotiated around them because they were fearful of or didn’t have the resources to take on the legal action that other agencies like the ACCC might have taken on.

JOSH FRYDENBERG:

Too timid is the way that I would like to put it. It was clear that the tail was wagging the dog. These financial entities were deciding how they obeyed the law, rather than responding to the rulings and to the laws put down by the courts, the Parliament and ASIC. That is certainly something that needs change going forward. Having spoken to James Shipton, the head of ASIC, he is very conscious of the need for ASIC to have a good look at the way it approaches its enforcement, because only with a big stick and the moral suasion that comes with proper enforcement do you actually get a cultural compliance in the sector.  

ROSS GREENWOOD:

But Josh, the one thing that has come out of this Royal Commission time and again, is an imbalance of power if small business or an individual or a farming family, or somebody who is on the wrong end of an insurance claim, tries to take on a big bank or even a big insurance company, they end up being heavily penalised simply because they don’t have the financial muscle to take on the big insurance companies or the banks. The same is actually true of governments, if you consider your own regulators, they do not have the same resources that the banks have, the multi-billions of dollars in profits every year. Even if they are fined, let’s call it $1 billion or penalised $1 billion out of all of this, well really that is three months profit for most of the big banks. Sure, it’s a heavy penalty, but it is not necessarily a crushing penalty on those organisations.    

JOSH FRYDENBERG:

Well, you are right. Commissioner Hayne made it very clear that some of the penalties handed out when they were handed out, were immaterial to the banks and did not reflect the great deal of hurt that they caused to their victims. So clearly, business as usual is not an option. The banks have been putting profits before people, greed has been a motive and the basic standards of honesty and fairness have gone out the door. 

ROSS GREENWOOD:

So you’re treasurer, so what happens to actually change that culture, to change that attitude?

JOSH FRYDENBERG:

We have already taken an action on a number of fronts. We have beefed up the resources of ASIC, we have put in place a prosecutor, Daniel Crennan QC, with a specific responsibility for enforcement action, we have put in place the Banking Executive Accountability Regime, we are setting up the Financial Complaints Authority, and we will respond effectively and quickly to the recommendations from the Royal Commission in its final report expected in February.

ROSS GREENWOOD:

Is it a problem right now that many of the executives who may have been responsible for some of the behaviour in the past, and no matter what the recommendations of the Royal Commission, they have left the organisations, they have left the insurance companies, they’ve left the banks. They are not accountable and new management comes in and says “oh, that wasn’t us, that was somebody else,” the problem is that the people who have been potentially the perpetrators of some of the issues that have been investigated by the Royal Commission, they have simply just walked away and in some cases, with many millions of dollars. 

JOSH FRYDENBERG:

There have already been some casualties of the Royal Commission…

ROSS GREENWOOD:

But what my point is that they are not real casualties, they’ve actually walked away scot free, that’s what I am trying to get at…

JOSH FRYDENBERG:

Well, let’s wait and see, Ross, what is in the final report because, as you know, this report looked at the misconduct and the inappropriate behaviour, tried to unpack the reasons for it. The final report, though, will be making specific recommendations as to the way forward and could potentially make referrals to the appropriate law enforcement agencies. So, it is not for me to pre-empt the final report in any way, but clearly that is the process that one would expect to go forward. 

ROSS GREENWOOD:

If Kenneth Hayne, the Royal Commissioner, requests more time from the Government, will he be given that time?

JOSH FRYDENBERG:

Yes, he will.

ROSS GREENWOOD:

He will be given that time. So, in other words, if it needs to go beyond the next federal election before the final report is handed down, you would be prepared as Treasurer to accept that?

JOSH FRYDENBERG:

Absolutely. The Prime Minister has made similar comments. Bill Shorten seems to think that he knows better than the Commissioner. The Commissioner, if you read through his one thousand page report has been extremely forensic and rigorous in his analysis but he also points out that the existence of the Royal Commission does sap away some the confidence in the financial system, so his responsibility is to work through the issues as quickly and effectively as he can. If he does need more time to perform his work, he will be given it. If he doesn’t, then we expect the final report in February. Bill Shorten has his own political reasons why he potentially wants to prolong this.  

ROSS GREENWOOD:

Okay, a couple of bits and pieces here. The Final Budget Outcome came out last Friday. It showed an improvement over the past year of $19.3 billion, the underlying cash deficit $10.1 billion. So, the budget is improving quickly, I mean there is speculation as to whether you can get back into a surplus next year or the following year. Just putting that aside, so the budget is improving significantly and rapidly, and employment, which has improved significantly over the past 12 months. You’ve got interest rates at record lows in Australia. It would appear as though financial conditions right now are as good as they get. Given all of that, why is it that so many families and businesses appear to be feeling so much economic pain right now?  

JOSH FRYDENBERG:

Well, there are pockets of pain throughout the community, particularly the drought stricken communities in Queensland and New South Wales, which has also had knock on impacts into other states. You’ve got the long term unemployed and we have seen real wages growth, are lower than what we would hope.  At the same time, the economy overall is showing very strong momentum. The Final Budget Outcome for 2017/18 was the third bit of good news that we have had in a few weeks. We had the National Accounts, which you and I discussed Ross, which showed that the economy was growing at its fastest rate since the height of the mining boom in 2012. We’ve created around 1,000 jobs a day, with record jobs growth with more women, seniors and young people coming into the workforce. We had Standard and Poor’s, one of the world’s leading rating agencies, reaffirm our AAA credit rating. So, the economy is working well but it doesn’t run on autopilot and that is why our political opponents, Bill Shorten, pose a real risk with their $200 billion worth of taxes and their high debt and deficit.       

ROSS GREENWOOD:

One thing to finish off with, given all of that good news that you have just given me and given concerns that you might have on the other political side and I understand where the polls sit right now. Why is it that some people feel as though things are tight, things are tough for them, what is that about? Is it a case of people are whinging, that they don’t recognise how good things are, is that people are actually hurting because of electricity prices, private health insurance premiums, education fees and so forth? Where does it come from?   

JOSH FRYDENBERG:

Well, you are right that higher energy prices have affected the household budgets and we are very focused on driving down the cost of living. That is why we have got a laser-like focus from now on, on driving power prices down and we have seen them drop recently in Queensland, South Australia and New South Wales and that is just the start of what we are hoping to achieve. We have also introduced significant child care reforms because that is a major cost to some household budgets, and we are seeing more people come into jobs so that is reducing our welfare bill, which in fact, the number of working age Australians who are on welfare is now at the lowest level in 25 years. So, we are taking action across the board and we are very conscious that those who are doing it tough need a hand up, not necessarily a hand out, and that is what drives our Liberal Party and National Party philosophy.

ROSS GREENWOOD:

There is Josh Frydenberg, the Treasurer. Many thanks for your time on the program this evening.

JOSH FRYDENBERG:

Always good to be with you and your listeners.