TOPIC: INTEREST RATES
E&OE - PROOF ONLY
LANE: Minister, good morning and welcome to AM.
WONG: Thanks Sabra, good to be here again.
LANE: None of the big four banks have moved yet. The indications are they won’t pass on the full amount. Is there any justification for them to pocket some of it for themselves, given the uncertain environment and their increased funding costs?
WONG: Can I say first I think everybody would say to the banks: time to front up. No point in hiding and not telling people what your decision is. And the second point I’d make is this: I think their customers expect them to pass the rate on.
The reality is governments don’t regulate interest rates, as you know. And there’s a reason for that – when governments did then obviously the supply of credit was constrained. But what we can do is what we’ve done, which is to increase competition. And we would encourage people to shop around.
Since our banking reforms have been put in place we’ve seen actually more Australians swapping banks or looking at different institutions, and that’s the best way to make sure you get the best deal.
LANE: They might have swapped banks but that competitive banking package hasn’t actually had much impact on the banks themselves being more competitive. And every time the Reserve cuts rates you’re just now reduced to jaw-boning them.
WONG: I don’t accept your proposition, actually. I think there has been an effect. And you’ve seen, for example, the banks’ removal of exit fees. What I’d keep saying to people is just make sure you’re getting the best deal that’s available. There are a number of deals out there, there are a number of arrangements with different institutions – obviously you need to get financial advice, if you require it – but if you’re not happy with what your bank is offering, you should go somewhere else. And I would hope that the big banks understand that, that they are in a market where people do have choices.
LANE: Well, the official cash rate now is near the emergency levels nearly of the global financial crisis. They’re at three and a half per cent, just a half a percentage point higher than what they were during the GFC. But variable home loan rates aren’t anywhere near the lows of that time – they’re nearly two percentage points higher now than then. Is that just price gouging?
WONG: I’m not going to defend the banks, unlike some. I think it’s up to them to explain to customers and to the markets why their –
LANE: Well, what do you think it is?
WONG: – why their funding costs increased. But the Reserve Bank has said certainly in the previous decision to cut interest rates just prior to the Budget that they obviously look at what the market rates are being paid and they factor that in.
But I would say, let’s remember this is good news for home owners and borrowers. We see interest rates, as you said, the cash rate at three and a half per cent, lower than at any time under the previous Coalition Government. And a rate cut before the Budget, a rate cut after the Budget, demonstrate what the Government was saying.
We want to bring the budget back to surplus because it does give the Reserve Bank the flexibility to move should it want to do so, and it has.
LANE: The Reserve Bank statement noted that despite low unemployment and modest growth, consumers are still exhibiting a degree of precautionary behaviour. Are consumers just so scared because of the approaching carbon tax?
WONG: There are a number of things weighing on confidence. I think the primary thing is what people see on the TV and what they read in the papers about what’s occurring in Europe, and that’s obviously weighing on confidence.
People have also made the choice, a pretty sensible choice you would think, to not return to the levels of dis-saving, that is spending more than you save or spending more than your income, that we saw a number of years ago. So households have made a decision to improve their savings – that’s not necessarily a bad thing, but obviously it has an effect in terms of the economy.
But we’ve got to remember also, despite the best attempts by the Coalition to talk down the economy – which is not good for anybody except Tony Abbott, it’s not good for working families – despite their best efforts, we have to remember we have some pretty solid economic data here in Australia, including a very big tick of confidence from the world in terms of the investment pipeline. I mean half a trillion dollars being invested in this country. That shows –
LANE: The Opposition –
WONG: – that shows what the world thinks of our economy and our prospects.
LANE: Well, the Opposition says the only reason the Reserve Bank moved was because of the deteriorating world picture, not because of this Government’s economic management.
WONG: Well, Joe Hockey should be reminded of what he said to the international press a couple of days ago where he acknowledged that a surplus does give central banks like the RBA the room to move – a rare moment of frankness in which he acknowledged it.
The reality is we’ve had interest rate cuts prior to the Budget, we’ve had an interest rate cut since the Budget. It demonstrates what the Government’s saying, which is that in an economy that’s returning to trend growth you should give monetary policy the room to move and the way you do that is to implement the fiscal strategy. That is, the Budget settings that the Government has.
LANE: The Prime Minister is hosting an economic forum next week. Will anything concrete come from it or will it just be a talkfest?
WONG: I think it’s really interesting – I think I’m not sure if you asked me that, but others asked me that before the Tax Forum and I thought we had a very good discussion last year at the Tax Forum which included a working group out of it to look at business tax reform, and one of the recommendations was picked up in the Budget. That’s the flexibility in terms of lost carry-back where people, small business particularly, but businesses can offset profits against past losses. It gives people a bit of flexibility at this time of structural change.
I’m in for more dialogue. We’re undergoing a pretty massive change in our economy at the moment because of what’s happening globally, the shift from economic power towards Asia. We should keep having business leaders and political leaders talking about and implementing the things which are needed to ensure prosperity for this generation and the next.
LANE: Minister, thank you very much for joining us this morning.
WONG: Good to speak with you again, Sabra.