14 November 2018
Transcript - #2018065, 2018

Interview with Kieran Gilbert and Laura Jayes, First Edition, Sky News

Subjects: $2 billion Australian Business Securitisation Fund; free trade agreement with Indonesia; housing market & Labor’s property tax; and divestment.

LAURA JAYES: Treasurer, thank you for your time. You've announced today the Australian Business Securitisation Fund. Why is it needed?

JOSH FRYDENBERG: Well, the first thing to say is that small businesses are the engine room of the Australian economy. There are more than three million small business people, they employ well over half all employees across the private sector and for them to be strong they need access to affordable finance.

And what the Reserve Bank and others have said is that small businesses are finding it sometimes tough to get access to that finance. So, this is where the Federal Government has a role to play to step in, in the securitisation market, to use its balance sheet, and we're talking up to $2 billion here, to make a difference and to ensure that bank lenders that are outside of the big four, so the smaller banks, as well as smaller lenders, are able to make loans to small business to keep them firing on all cylinders.

KIERAN GILBERT: Is there a market failure here because it is unusual for a Liberal Government to be making sort of intervention, isn't it?

JOSH FRYDENBERG: Well, the market failure is that we don't have a very developed securitisation market and that is important in ensuring that small business get access to finance from these smaller lenders and from some of these smaller banks, because the banks really have the market cornered, Kieran.

The big four have around 80 per cent or more of small business loans under $2 million and we want to ensure that that can be spread around and that we can have more competition, more liquidity in this important market and importantly, enable our small and medium-sized businesses to continue to grow and to continue to employ more people.

LAURA JAYES: Is there any cost to the budget or is this entirely off budget, Treasurer?

JOSH FRYDENBERG: Well, this is an asset for the Government. It will be treated in the same way that the Labor Party treated their foray into the securitisation market when it was the residential mortgage market and so in that way, it doesn't increase net debt.

KIERAN GILBERT: This growth fund idea looks like it will be modelled on a British growth fund initiative which has been actually returning profits to banks in the UK.

This seems to me to make a lot of sense for the big banks to get involved in this right now, particularly when their brands have been tarnished by the Royal Commission and the scandals which have emerged through that inquiry?

JOSH FRYDENBERG: Well, Kieran, this is the second initiative that we're encouraging and announcing today, which is a business growth fund, which will allow banks and perhaps superannuation funds and other investors to take equity stakes in small businesses where small businesses would prefer equity as opposed to increasing their debt.

And, as you say, there is a UK experience where more than $2.7 billion has been deployed to small businesses across a range of sectors to good effect and we've also seen it happen in Canada. So, we've spoken to the banks. I will be convening a round table during the next sitting period with the key stakeholders.

There's a lot of interest in this and obviously it does depend to some extent on what the Australian prudential regulator does with the treatment of equity on the bank's books as opposed to their current more conservative treatment of that form of finance.

LAURA JAYES: Treasurer, looking at the ASEAN summit now, the Indonesian free trade, or Trade Minister, has given an explicit warning now to Australia, putting himself on the record saying the deal is not going to be signed whilst this embassy move is still slated by the Australian Government. Are you going to heed that warning or ignore it?

JOSH FRYDENBERG: Well, there's a number of points to make there for you, Laura. Firstly, it is that we value deeply our relationship with Indonesia. It's a critical partnership at the strategic level, at the political level and at the economic level and I think we've done good work to progress the free-trade agreement to where it is.

At the same time, as Scott Morrison has reiterated, often publicly, we determine our foreign policy, we'll determine processes for evaluating where our embassies are located. That's not to be dictated to us by other countries and I think Australians would be side by side with us in that account.

So, we'll continue to talk to the Indonesians, work it through. We would like to bring the free-trade agreement to conclusion but at the same time we maintain our sovereignty and our flexibility with regards to our own foreign policy and, of course…

KIERAN GILBERT: Yeah, but that's stating the obvious. Obviously every government will maintain its approach on foreign policy but this was an attempt to turn that into a political win in the Wentworth by-election and has blown up in your face.

JOSH FRYDENBERG: Well, Kieran, I've said it to you before. The same people who would criticise us for running a process to look at where we locate our embassy in Israel, with the decision made a week before the by-election, will be the same people that would criticise us for making that same announcement a week after the by-election.

They just don't like Australia to determine the potential for putting our embassy in Jerusalem. Now, Scott Morrison has said we haven't made our final decision on that, we're just beginning a process and I think that's a reasonable thing to do.

LAURA JAYES: What's more important, though, an embassy move in Israel or a free trade agreement with Indonesia?

JOSH FRYDENBERG: They're not mutually exclusive.

LAURA JAYES: Indonesia says they are.

JOSH FRYDENBERG: As I said, Australia will determine its own foreign policy decision and in terms of the location of the embassy in Israel, that is a process that Scott Morrison has kicked off.

KIERAN GILBERT: There's a UBS report, the investment bank's done these scenarios, there's five scenarios. The worst is a suggestion that there could end up being a recession, the first in three decades, and a 30 per cent drop in house prices under their worst case scenario, this assessment by UBS. What's your view on their analysis?

JOSH FRYDENBERG: Well, in terms of the housing market, Kieran, prices have come down for the last 12 months in the capital cities and the RBA has said this has seen the housing markets settling at what is a more sustainable level.

That being said, we do not want to see house prices fall substantially further as a result of Labor's policy which is to abolish negative gearing as we know it and to double the capital gains tax on property investments. That would be terrible for the property sector and as the Master Builders Association have said, would cost 32,000 jobs and see 42,000 fewer homes built.

So, we've seen economists from across the board criticise Labor's policy. Labor is digging its heels in but when it came up with its policy to abolish negative gearing as we know it, the market was very different. Now, prices are declining, it's time they cut their losses, change their policy, as they have done in other areas that went against the trend and where the public were sick and tired of their tax and spend approach.

LAURA JAYES: Treasurer, are the Liberals still as wedded to the ideology of free market as you used to be because today you have this announcement about the Australian Business Securitisation Fund, which is a market intervention, you're also flagging a divestment of power companies that don't bring their power prices down. Have you lost faith in the free market?

JOSH FRYDENBERG: Well, what we're doing today is backing small business and you only have to look at Sir Robert Menzies' so-called Forgotten People address more than 70 years ago and it was about the farmers, it was about the skilled artisans, it was about the professionals, it was about those small business people that are the backbone of our economy and they're facing challenges when it comes to access to finance.

So, we'll back them all the way including with tax cuts, changes to employee share ownership schemes and the $20,000 instant asset write off. When it comes to energy companies, I think we all realise that the public have lost their patience, that the energy companies have been doing very nicely, indeed, because customers have been presented with very complex bills and the energy companies have being using the system to their advantage. So we want to create a more level playing field.

We're on the side of the consumer. Labor seems to be taking the side of the big energy companies, not a very good place to be when people have been have been dealing with…

KIERAN GILBERT: On what basis would a business be broken up, though? On what basis would a business be broken up in terms of Laura's question there on divestment?

JOSH FRYDENBERG: Well, it's the final step that the Government has at its disposal after enforceable undertakings, after fines, after a series of things that could be used in order to get the energy companies to reduce their prices.

LAURA JAYES: But by how much?

KIERAN GILBERT: But it's only prices.

JOSH FRYDENBERG: Well, what we've seen is the ACCC ask for energy companies and for the Government to move to a situation where we have a standard benchmark price from which discounts can come.

That's one thing that the energy companies could implement, rather than taxing their customers with the so-called loyalty tax which sees them penalised for sticking with them as opposed to shopping around and getting a better deal.

KIERAN GILBERT: It's a big stick on price. Thanks so much. We'll talk to you soon, Treasurer. Appreciate the time.

JOSH FRYDENBERG: Always good to be you.