SKY SUNDAY WITH SPEERS
SUNDAY, 6 OCTOBER 2019
SUBJECTS: Banks not passing on interest rate cuts; ACCC banking competition inquiry; Responsible stimulus; Election tax policy review; 2019 Light on the Hill Address; Bill Shorten’s interview.
DAVID SPEERS, SKY SPEERS ON SUNDAY: With me now is the Shadow Treasurer Jim Chalmers. Very good morning to you. Thank you for joining us. Look this word "profiteering" from the Prime Minister there, it means technically an excessively large or unfair profit through manipulation or abuse of a dominant position. Do you agree that’s what the banks are doing?
JIM CHALMERS, SHADOW TREASURER: Good morning David. I think the frustration with the banks is understandable from the Australian community. Australians have got record household debt at the moment. Their wages are stagnant. They're frustrated that no matter how hard they work they just can't get ahead. So I think there is legitimate anger at the banks from the community, not just from the Government and the Opposition. In terms of the words that the Prime Minister uses to describe the situation, that's up to him. I certainly think that the behaviour of the banks in this instance has been indefensible. The Reserve Bank has made it really clear that the banks are still incredibly profitable by international standards. They're still getting very good return on equity and so I think for all of those reasons it would have been better for the banks to pass on these interest rate cuts in full.
SPEERS: Well as I said this isn't the first time that's happened. Indeed under Labor's time in Government there were 14 interest rate cuts, only five were passed on in full by the banks. What should be done about this?
CHALMERS: There are a range of options, David, and before I get to those I should also point out that you just played a clip from the Prime Minister pretending that he's being all tough on the banks. I think it's not just indefensible what the banks are doing, I think it's also hypocritical what the Prime Minister is doing and saying. The Prime Minister himself is not passing on these interest rate cuts via the deeming rate system to Australian pensioners and he's also got a long record of running a protection racket for the banks by resisting for two years the Banking Royal Commission. But the bit that gets specifically to that question that you just asked, David -
SPEERS: Let me just pick up on the deeming rates point there. The Government recently did reduce the deeming rate. Are you suggesting it should be pegged to the official cash rate?
CHALMERS: I think it should be more responsive to the official cash rate. There's only been one move in deeming rates but there's been multiple moves in the cash rate - the interest rates set by the Reserve Bank - which is all the way down to a quarter of what it was...
SPEERS: So you think it does need to be lowered further?
CHALMERS: I think the Government should be looking to lower it further. It should be more responsive. I don't necessarily think that there should be some sort of automatic mechanism, but I think the Government should be more responsive to the legitimate concerns raised by Australian seniors that he is not passing on the benefit of these interest rate cuts at the same time as he's getting all hairy-chested about the banks not passing it on. But the specific point I think you asked...
SPEERS: That would have a budget impact and I'll come back to that. But just back to this point about the banks. How do you get the banks to pass on a full interest rate cut?
CHALMERS: It's principally an issue around competition, David. We need to make sure that people have the incentive to shop around, that it's easier for them to do so, and that our financial system is more competitive. Now the Morrison Government has had now since June last year - so for more than a year - they've had a Productivity Commission report into competition in banking. It had 34 recommendations. Some of them went to better collection and analysis of data on mortgages. There was a recommendation in there about making the ACCC a permanent member of the Council of Financial Regulators. There were a series of recommendations in that report more than a year ago. The Government still hasn't responded to it. Now we learn on top of that that the ACCC itself wants to have a proper look at competition in the banking system and the Treasurer has not signed off on that despite the ACCC seeking that approval. When you put all of that together...
SPEERS: Do you think he should, just on that point you made there about the ACCC? It's reported, as you mentioned by Nine Newspapers this week, that the ACCC did discuss at their board level another inquiry into the banks. This one specifically on competition. Do you think they should be given the green light to do that?
CHALMERS: Yes they should be given the green light to do all they can to improve the banking system and make it more competitive. I think it's bizarre but unfortunately not especially surprising from this Government that Josh Frydenberg has so far refused to sign off on that, once again running a protection racket for the big four banks. But the fundamental point, David, beyond all of this...
SPEERS: He's still implementing the Royal Commission recommendations. Is there a risk that another inquiry now might freeze up bank lending again?
CHALMERS: No, David. The Royal Commission which the Liberals resisted for two years and voted against 26 times did a good job of getting to the bottom of some of the rorts and rip offs in the banking system but it wasn't principally about competition. If the ACCC thinks that they can make some progress here then the Treasurer should sign off on that and let them get on with the work that they are tasked to do. I don't know why he wouldn't do that. But the fundamental issue, David, with all of this when it comes to interest rate cuts, is the Reserve Bank wouldn't need to cut interest rates to one quarter of what they were during the worst of the global recession if the Morrison Government actually had a plan to turn around the economy which is floundering on their watch. If the Government had a plan, if the Government was doing a good job, then the Reserve Bank wouldn't have to cut rates this low.
SPEERS: Okay. But how do you get interest rates, the cut interest rates, into the pockets of mortgage holders? Would you go as far as saying the Government should look at, again, the bank levy and whether that needs to be increased, if they are indeed profiteering?
CHALMERS: All of these options should be on the table, David. Not just the bank levy which is a policy implemented a little while ago, but Labor took to the election a Banking Fairness Fund - about $160 million a year levied on the biggest banks to pay for financial counselling, to get the micro financing system right, all of these sorts of things. All of those options should obviously be on the table. We're up for a conversation about that because we do have a problem here. We do want our financial system to be as competitive as possible. We do want to see those rate cuts passed through so that they can do good not just in household budgets but in the shops and businesses and in the broader economy as well. We should be up for that conversation. We certainly are in the Labor Party.
SPEERS: All right. So you're saying we should look at increasing the bank levy for starters. Certainly go ahead with an inquiry at the ACCC level into the banks. Can I just test how far you'd go on this front? What about legislating that banks have to pass on in full, an interest rate cut?
CHALMERS: That's not a proposal that we've picked up and run with, David. We think there are other things that are worth taking a look at. The point I was making about the levy or other levies was really just that we need to have a broad conversation about how we make the banking system more competitive. There are other options on the table too. The Customer Owned Banking Association has raised concerns which I think are worth considering about how the banks are levied when it comes to how they pay for the bank regulators. There are issues there. There are other issues raised in that Productivity Commission report which I ran through before. The ACCC should be able to have a look. I'm not favouring one solution or another at this point, David. I just think that the Australian people are up for a conversation about a more competitive banking system. Unfortunately the Government hasn't shown a willingness to go down that path but we are.
SPEERS: All right, well as you mentioned the Reserve Bank is trying to stimulate the economy here. It is running out of runway pretty fast now that we're under one per cent official cash rate. You have been calling on the Government for a while now to do more itself - you just mentioned that. Are you confident the Government can afford to both stimulate and protect its promised return to surplus?
CHALMERS: Yes I am, David. And it's not just us calling for some responsible and affordable stimulus in the system. It's the Reserve Bank, it’s the mainstream view of the expert economists right around Australia. The Government's out on its own here. The Government thinks - when we've got the slowest growth in a decade, we've got stagnant wages and record household debt, living standards and productivity going backwards, almost 2 million Australians looking for work or looking for more work - the Morrison Government just wants to pretend that everything's hunky dory in the economy and ordinary people know that that's not the case.
SPEERS: Let me just jump in there. You've referred to stagnant wages a couple of times there. I mean, do you acknowledge that wages are now rising at 2.3 per cent? That's above the inflation rate of 1.6 per cent, so we are seeing wage growth?
CHALMERS: Wages aren't growing sufficiently for Australians to keep up with the skyrocketing price of electricity, and childcare, and private health insurance, and all of these sorts of things. That's why so many people in Australia feel that no matter...
SPEERS: Running higher than inflation, and indeed the gap between wages and inflation is higher than when Labor was in office last?
CHALMERS: Wages have been growing, under the life of this Government, this government has the worst record on wages growth of any Government and that's a fact.
SPEERS: Okay but right now -
CHALMERS: But David, judge them by their record on wages. Wages have been historically stagnant. You go out in the main street of any of the suburbs of Australia and tell them that wages are growing strongly enough for them to keep up. So many people feel that no matter how hard they work they just can't get ahead.
SPEERS: If we look at the official figures right now, wages are growing above inflation, at a stronger rate than they were when you were last in office?
CHALMERS: Wages growing faster than inflation is not the test, David. Wages growing sufficiently for people to provide for their loved ones is the test and I don't think there's any objective observer of what's happened under the life of this Government who says that wages growth has been sufficient. The point that I'm making, the broader point, you asked me about whether the Government has to choose between stimulus and the surplus? No they don't. We're not at a fork in the road where it's a choice between keeping the surplus that they've promised or doing something to boost the economy or having some kind of plan whatsoever to turn around this floundering economy. The Government doesn't have to choose. They pretend that they do as an excuse not to have a plan for the economy but people know that something can be done here. The tax cuts in the system have been helpful but nowhere near helpful enough. The interest rate cuts have been helpful but nowhere near helpful enough. More needs to be done. The Government doesn't have a plan to deal with the weakness in the economy which has emerged on their watch.
SPEERS: So how do you know they don't have to choose? How do you know they can deliver this surplus - forecast at around $7 billion - and stimulate as well?
CHALMERS: For a couple of reasons, David. I mean the budget is strengthening because they've got these multi-billion dollar under spends on the NDIS, but also because they've had a spike in the iron ore price and the dollar is very low. Both of those things feed through into stronger company profits which means more taxes.
SPEERS: Aren't both of those things that you've listed there, aren't these potentially temporary? You know, iron ore prices spiking, an underspend in the NDIS? They may not happen next year or the year after. If you do increase Newstart, if you do bring forward more tax cuts, those sort of things you're talking about, they're permanent spending increases.
CHALMERS: The surplus for this year forecast in April was for $7 billion. We know from the year just finished that that should be substantially higher. The point that we're making is that there is some room there to do some responsible and affordable stimulus. The Government shouldn't be using the surplus as an excuse to do nothing or to have no plan. We've put forward constructively some ideas to bring forward infrastructure spending, to look at Newstart and increase it, to bring forward some of their own tax cuts, to have an incentive for business investment, to have an energy policy - the absence of which has been a handbrake on growth - and to have a wages policy.
SPEERS: They're all permanent increases -
CHALMERS: In some cases, when we're talking about infrastructure investment we're talking about infrastructure and maintenance which is already on the books and which would just be brought forward. We're not calling for the Government to throw the kitchen sink at this... (interrupted) ... go ahead David.
SPEERS: Sorry. Newstart increases, tax cuts; they are permanent impacts on the budget.
CHALMERS: When it comes to the tax cuts we're only talking about bringing forward part of the tax cuts which are already legislated for 2022 so we're only talking about a couple of years of impact there. Newstart would be a permanent change, but it would be a beneficial one. Infrastructure would be a temporary change. Depends how you build the incentive for business investment, remembering that business investment is at its lowest it's been since the early 90s recession. There are levers that the Government can pull. They refuse to do so. They're always looking for excuses not to have a plan for the economy. We don't think that's good enough. The mainstream view is that the Government should be putting forward some affordable stimulus and that that can be done without jeopardising the surplus.
SPEERS: Let's turn to Labor's policy agenda. Bill Shorten, as I'm sure you've seen in the Herald Sun this morning, is again well he's again taken responsibility for the election defeat. But he said that he accepts Labor's quote "tax reforms around franking credits created a sense of vulnerability and anxiety among older Australians". Is he right to single out franking credits?
CHALMERS: I think there are a range of views about the tax policies we took to the election and clearly we couldn't build enough support for them and so we need to have a hard headed look at them. That's what Bill's reflecting. That can't have been an easy interview for Bill to give. I think he did it in a characteristically classy way and in lots of ways he set an example for the rest of us. We've all had to pick ourselves up and dust ourselves off after the election and I think what Bill's done to be a champion for Australians with a disability and for people who are being hounded by the Government's Robodebt program has been terrific and I pay tribute to Bill for doing that. His views on the policies that we took to the election obviously carry a lot of weight. When I read the interview that Bill gave he didn't just make the point that you've identified. He made a series of points, including that it's possible that we took too many issues to the election and that made it hard to build the case for them. We may have spread ourselves too thin. I think all of those things are worthy of our reflection. We do need to listen to the message that was sent to us on election night. We should have won the election and we didn't. We've got things to learn from that and I think Bill's contributions are a really important part of that reflection.
SPEERS: You gave your own speech - the annual Light on the Hill Address - to the Labor faithful last week in which you acknowledged the need to take a new set of policies to the next election, not the same ones that were taken to this year's election. You said Labor needs to quote "focus on growth and redistribution not growth or redistribution." Can you just unpack that for me? Do you think some of the policies you did take to the election in some ways might have sacrificed, cost economic growth?
CHALMERS: The speech wasn't fundamentally a critique of the past. It was more of a call for us to look to the future. I think, obviously, no political party takes an identical set of policies to an election as the set of policies they took to the election before. I think that's self-evident. What my speech was really about was that we should take the fight up to the Liberals on the economy. We do have a compelling story to tell about economic growth. We do need to focus on economic growth and redistribution, not economic growth or redistribution. I want the Labor Party that I'm part of to be a really broad-based party which understands what life's like in the outer suburbs, which is focussed on the economy and jobs and wages and which has a better grasp on the future than our opponents. And that's what the speech was fundamentally about.
SPEERS: Do you think some of your policies were anti-growth, is what I'm getting to? Were some of the policies you took anti-growth?
CHALMERS: No, I think we had a compelling story to tell about growth in the last term but because - as Bill has rightly identified - we did have some big, controversial tax policies, and we did spread ourselves too thinly on the commitments that we made, that that growth story was obscured, and we got in our own way a little bit. I think what our show wants to do now is we want to make sure that we do put an emphasis on economic growth. We are the party of economic growth. We're the party of aspiration as opportunity. We have a good story to tell.
SPEERS: Given that, I mean given aspiration as opportunity and so on - I mean there's a lot of focus on franking credits but can I ask you about the so-called Budget Repair Levy you took to the election? Increasing the top tax rate by 2 percent, I mean that's hardly pro-growth and aspiration and opportunity is it?
CHALMERS: You shouldn't take a limited view of aspiration. I mean, aspiration is about people having the opportunities to provide for their loved ones, and work hard, and study hard, and get ahead. I don't accept the limited analysis that the Liberals and others put forward about what aspiration is. But you're right to point out that we had a series of proposed tax changes which we took to the election. Not just the franking credits change, and not just negative gearing, but we had a series of tax policies. I've spent most of my time since the election consulting really broadly with colleagues, but also the broader community and the business community, about all of those tax policies that we took to the election. Inevitably there will be some that we keep. There will be some that we discard. There'll be some that we update. Fundamentally my approach has been this, and I say this privately and publicly: we've still got challenges in the budget. We've still got challenges in the economy. We have to be upfront about those but we need to find the best possible way to address them. If there are better ways to address those challenges than the one we took to the last election then obviously we will update our policy agenda for the election in 2022. We're not in a rush to do that. We've got the time to do it, and we will do it properly.
SPEERS: Final one: Bill Shorten also said in this interview that he wants to be in public life for another 20 years but he's hung up his leadership running shoes. He no longer wants to be Leader. Do you believe that?
CHALMERS: I do, absolutely. As I said before I think it has been absolutely outstanding to watch Bill and the way that he's dusted himself off, the way that he is a champion for people with a disability and people being hounded by Robodebt. He, and the way that Anthony has started as Leader, has really set the tone for our Opposition in this term and the Labor Party in this term. We have a job to do. All of us, Bill, myself, Albo, everybody has a job to do. We can't afford to, you know, drag our bums around and mope around about the last election. We need to look to the future. That's what my speech was about. Everybody's on the same page and I think Bill's on the same page too. I think that that interview was a really good indication of his positive frame of mind and looking to the future.
SPEERS: All right. Shadow Treasurer, Jim Chalmers, thanks very much for joining us this morning, particularly an hour earlier in Queensland. Thank you.