SENATOR THE HON PENNY WONG

MINISTER FOR FINANCE AND DEREGULATION

TRANSCRIPT

4 December 2012

ABC NEWS 24 THE DRUM WITH JOHN BARRON, QUENTIN DEMPSTER AND PETER COLLINS

TOPICS: ECONOMY, INTEREST RATES

E&OE - PROOF ONLY

BARRON: The Finance Minister Penny Wong joins us from our Canberra studio. Senator Wong, welcome.

WONG: Good to be with you again.

BARRON: It wasn’t a great surprise, I suppose. Certainly it seemed from what you were saying this morning and what the Treasurer was saying that you were anticipating that the banks wouldn’t be falling over each other to pass on the rate cut in full. Is there anything more you can do, other than urging them to pass it on?

WONG: I’ve said two things about whether or not the banks should pass on the full interest rate cut. First, they should do the right thing by their customers and respond to the expectations of their customers, and I suspect if you go out and talk to most banking customers they’d say they sure should [pass the rate cut on].

The second thing we can do is ensure there’s good competition because the best way to get a good deal for Australians is to make sure there’s sufficient competition in the market. As you know, we’ve done quite a lot as a Government to try and support competition. What people can do, if they don’t like what their bank is doing, is make sure they shop around for the best deal possible.

BARRON: Senator, it seems that the retail banks have successfully decoupled their interest rate cycles and even their deliberations from the Reserve Bank. The ANZ bank will hold its own internal discussions and make their announcement on Friday week which is something they’ve been doing for a few months now. Is there an argument to say, you know what, make them declare their hand on the day so they have to claim credit or take the rap for whatever happens?

WONG: Well, as you know, the best way to deal with improving the outcomes for consumers is to make sure we have competition and that’s what the Government has done. Ultimately banks are answerable to the whole community and particularly to their customers.

DEMPSTER: Minister, it’s Quentin Dempster calling (laughs). What are you doing to enhance competition? Because we had a discussion before you came on which said, post-GFC, it was extremely difficult. It’s good to have strong Australian banks – profitable Australian banks – to underpin the strength of the Australian economy, but while the consumers want more competition, we’re not getting it?

WONG: There’s no doubt the GFC had a real effect on a lot of our financial institutions and the Government did ensure that we put in place various guarantees and other mechanisms to support the whole sector, but also some of the smaller operators. And, as well, we’ve tried to improve consumer information and enable people to more easily switch banks if they need to and switch mortgages, and to support people being provided with better information in terms of comparison.

Now, the fact is that we’ve got four big banks and they obviously have a fair amount of market share. But we’ve got to keep ensuring that there is competition out there for Australians. And in terms of the rate cut – we seem to have moved immediately as to who it will pass on. I do think it’s important to remember that, as a result of contained inflation and the Government’s budget discipline, we’ve seen the Reserve Bank have room to move not just now, but on a number of previous occasions, which has led to significant savings for people with home loans.

BARRON: Senator, what is it about the big four banks? You would think that not just with the smaller banks – Bendigo, Banks of Queensland – but with internet banking now, a lot of us haven’t been to a bank branch for years. Why do we have this loyalty to a bank which we had a piggy bank when we were 12 with?

WONG: Well … you tell me. I think people should shop around. And you’re right – we don’t go to banks very much. I think my statement always shows ‘ATM Sydney Airport’, ‘ATM Melbourne Airport’, ‘ATM Adelaide Airport’ (laughs), so it’s been a long time since I actually went into a branch. But I will continue to encourage people to look around and to shop around. There are a lot of good deals out there. There are a lot of deals that might be better than what you’ve got at the moment and we’ve certainly made it easier for people to shift banks if they need to.

COLLINS: It’s ironic, isn’t it, that here we are talking about the latitude that the banks have to pass on or not pass on the rate cut today, yet one of the reasons that they did so well through the GFC – and our big four banks are rated in the top 10 banks in the world in terms of credentialed standards –

WONG: That’s right.

COLLINS: One of the reasons they did so well is because you federal politicians – both sides, both your government and the government before – have in place APRA, the Prudential Regulatory Authority which has set a very high bar for our banks which they’ve had to meet pre-GFC and which put us in pretty good stead compared to the rest of theworld. So while they are basking in their performance compared with other banks around the world, a lot that have is attributable to the regulatory framework that governments of both persuasions put in place.

WONG: We do have a very well regulated and very strong financial sector and, you’re right, our banks are among amongst the safest in the world – certainly in the top 10 – and the facts are that that is one of the reasons, as you said, that we came through the GFC as well as we did, relative to other economies. And we are very clear that you’ve got to have a well regulated financial institution sector.

COLLINS: I’m sure we will hear reasons why they can’t quite pass on the whole amount and have to keep some for themselves, which they won’t mention again when they announce record profits, the next time profits are announced.

WONG: And this is why I think there is a court of consumer and customer opinion that the banks do have to recognise and they have to make decisions recognising that their customers and the community more broadly. But, as I said, ultimately my focus, as the Finance Minister, is making sure we have public finances which are sound and that’s one of the things the Reserve Bank alluded to in their decision and is consistent with what the Government’s been saying. We want to make sure we run a sound budget strategy and make sure the Reserve Bank has the room to move should it needs to do so.

COLLINS: Looking over the horizon, Minister – Europe is unstable, China’s growth is coming down. Do you think we’ve got capacity for a further interest rate cut? Australia?

WONG: Oh, well, there is room to move if the Reserve Bank sees fit, but I think if you go back to the statement which was released today the RBA makes the very good point that global growth is a little more fragile than we all would like and that’s obviously weighing to some extent on the confidence in the Australian economy. I think it is useful to remember – particularly in light of some of the extraordinary overexaggeration and dramatic kind of turn that we’ve seen from the Opposition – where we are. Relative to other economies we’re doing well. Relative to other economies we are likely to grow faster than any of the major advanced economies. We have relatively low unemployment and contained inflation. And we’ve got solid growth and so I think it is important that we don’t get into this position that some people want us to, where we simply talk ourselves down.

BARRON: Senator, if I can put my ‘Planet America’ hat on just briefly.

WONG: (laughs) I can’t see you.

BARRON: (laughs) I’m not actually wearing a ‘Planet America’ hat, but I wish there was one.

WONG: (laughs) I’m glad we clarified that.

BARRON: Within a month, the United States could be heading off this dreaded fiscal cliff and the talks have not been bearing a lot of fruit so far. Have you factored in the impact on the Australian economy if the United States actually goes off that cliff?

WONG: If the United States actually goes off the fiscal cliff, the global economy will be affected because that will have a very significant effect. If you look at what the CBO – the Congressional Budget Office – says about the effect of the full-scale fiscal cliff, as it were, would have on the US economy, and it would be likely to have a dramatic impact on growth. Having said that, there is obviously a fair bit of negotiation still to go. I was pleased after the election to see some of the comments by some of the senior players on Capitol Hill when it comes to these negotiations and I think the people involved, including from what we’ve seen, the President and others, understand how important this is not just for the US, but for the global economy.

JOURNALIST: What if they don’t go off the cliff, but they don’t avert it either? If it is a can-down-the-road situation, is that going to cause problems?

WONG: I think we have reflected in our budget forecast that global growth is likely to be less robust than you would like, and in fact that is in part one of the reasons behind some of the moderation in the domestic forecast that you’ve seen.

JOURNALIST: Senator, thank you very much indeed for joining us from Canberra tonight.

ENDS