Productivity Commission’s draft report on Competition in the Australian Financial System

CHRIS BOWEN, SHADOW TREASURER: Well good morning everybody, thanks for coming.

 

This morning, yet another damning indictment of Scott Morrison’s management of negative gearing in the housing market.

 

Today we see the release of the Productivity Commission’s draft report into banking competition. Now of course competition in banking and financial services is vital and we said that the Productivity Commission should be commissioned to undertake this review. But what has the Productivity Commission found?

 

Let us remember that Scott Morrison has for months been saying the answer to Australia’s housing affordability problems is to leave all the heavy lifting to the regulators, to leave all the heavy lifting to APRA, who would engage in macro-prudential regulation and that would fix everything. He told us there was no need to fix negative gearing. He told us that as recently as yesterday.

 

The Productivity Commission report has found that because Scott Morrison has left the heavy lifting to the regulators, to APRA, that in fact banks have increased their profit margins and that has been subsidised by the tax payer due to negative gearing.

 

The Productivity Commission has said that this has led to a windfall for the banks. Their words, ‘a windfall; for the banks. And half of that windfall has been subsidised by the Australian tax payer through negative gearing. Now we’ve said all along that negative gearing must be fixed. Evidence mounts day after day for months now, that negative gearing has to be fixed. It appears that Scott Morrison is the only person who doesn’t want to fix negative gearing. Cabinet, of course rolled him when he dared even suggest it be considered.

 

Now APRA does a good job. APRA works in difficult circumstances. But APRA has been left to do all the work by this Treasurer who has been negligent. Negative gearing must be reformed. Reform of negative gearing is good for the Budget, good for housing affordability, it’s good for financial stability. It’s vital for the future. Labor will fix negative gearing. The Government’s had plenty of opportunities to fix negative gearing and they’ve missed the opportunity every time.

 

Maybe just maybe, the Treasurer might look at this Productivity Commission report and say okay, this is the final straw. We’ll fix negative gearing. I don’t think he will, but he should. He has been utterly negligent, asleep at the wheel. Leaving APRA to do all the heavy lifting, and not only has that seen a windfall for the banks, so much for being tough on the banks, a windfall for the banks, it has been a windfall, the Productivity Commission says, that has been subsidised by the tax payer. Enough is enough.

 Now I’m going to pass to Andrew Leigh who is going to talk about another instance of the Treasurer’s rank incompetence, and then we will come back to you for questions.  

 

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Well thanks very much Chris. As early as September 2016, tax experts were warning that the Government’s tax cut had problems. That was, in particular, that it wasn’t clear whether or not bucket companies earning so called ‘passive income’ would be eligible for the tax cut. This problem grew in importance through 2017, causing significant angst at tax time for many businesses. We finally saw a year after the first warnings, the Government moving legislation to fix its own Bill. To fix up a mistake that they admitted they’ve made in their own Bill.

 

Well today we have got the extraordinary spectacle of the Government attempting to patch up their patch up. They are now going to be amending their own amending bill, admitting yet again that really they can't get the basics right. This is an omni-shambles. What else would you expect frankly, from a Treasurer who was rolled by Cabinet on GST, rolled on negative gearing, not told by the Prime Minister when the Budget date had been changed, unable to listen to his own Department when they told him that he was getting it wrong on negative gearing.

 

Now the Government's decision here again just reflects the basic truth on economic management that you've seen, that the country needs stable economic management, leadership that can get the basics right and ensure that businesses can get on with focusing on their consumers and their businesses but instead businesses have been distracted by this and Scott Morrison has yet again demonstrated that he is simply not up to the job.

 

BOWEN: Thanks Andrew, over to you folks.

 

JOURNALIST: Mr Bowen, the report is also very critical of the four pillars policy, it questions whether it still works. Is that something that you will look at? Part of your re-election agenda maybe reviewing that or getting rid of it?

 

BOWEN: The four pillars policy in our view has been integral to financial stability. It was important in Australia getting through the Global Financial Crisis. It is in our view not beneficial for banking competition to see the four big banks being able to merge so we support the four pillars policy. It was an important Labor initiative many years ago. It wasn't changed by John Howard or Peter Costello to their credit, they understood its importance and we will not be changing the four pillars policy. We will oppose efforts to repeal the four pillars policy.

 

JOURNALIST: Would you empower the ACCC or ASIC to become a proper competition regulator to encourage more competition in this sector or establish another regulator altogether?

 

BOWEN: Well look obviously that part of the PC report is something that needs to be worked through. We have been well served by and large by the architecture. I have made points recently in speeches that some of that architecture of our financial regulation has become blurred in recent years and that concerns me. A blurring of responsibilities between APRA and ASIC for example. I had also commented that the Council of Financial Regulators was opaque and more transparency would be welcomed and I note that the PC agrees with that, they have said that the Council of Financial Regulators should issue minutes for example which I have previously made similar points. That the Council of Financial Regulators is increasingly important and that more transparency would be welcomed and that there has been a blurring of responsibility amongst our regulators. For example the BEAR regime is the responsibility of APRA when many would argue it should be the responsibility of ASIC. When it comes to competition obviously ASIC plays a role but if there is a sensible reform package there that something we keep an open mind about and I will have a look at very carefully and would be happy to engage with the Government about.

 

JOURNALIST: On your plans for a Royal Commission, are you going to expand it to look at the regulators to see if they are (inaudible). The Government has…

 

BOWEN: Explicitly rejected that.

 

JOURNALIST: Yes, they’re having their own Royal Commission. If you win Government will you still review the regulators independently?

 

BOWEN: Well, look, Phil, I do think that there are issues to be addressed. The PC report is now a mechanism, in part, to do that. I think, as I've said before, the financial regulation architecture has served Australia well. It's seen us through the financial crisis, etc, but it has been blurred.  I think it's important that everybody is clear about the responsibility of each regulator, that nothing falls through the cracks, and that the regulators are clear amongst themselves about who's responsible for what. Whatever mechanism is needed to do that, I do think that's a legitimate area for public policy review.

 

REPORTER: Just on negative gearing, the Treasurer Scott Morrison yesterday said that his own personal experience working for the Property Council-

 

BOWEN: Slomo knows best, in short.

 

REPORTER: Worked for the Property Council for six years and knew better than Treasury. Your thoughts on his qualifications?

 

BOWEN: I'm not interested in commentary on the Treasurer's professional experience. I am critical of the role he plays now. I mean, the fact of the matter is, the Treasurer is very quick to release Treasury advice when it suits him. Selectively, to journalists. And in some instances, we've established that it's not actually Treasury advice, but Treasurer's office advice - which, as you would appreciate, is very different to Treasury advice - but he's called it Treasury advice. Sometimes we've FOI'd that, and it doesn't really exist. So he's very happy to release Treasury advice when it suits him, and even call things "Treasury advice". But when Treasury advice completely contradicts him, he sits on it and doesn't want it released. So the point of the matter is his credibility. Now, I happen to think that, of course, the Treasurer should weigh up the advice before giving it. Of course he should, and talk to other regulators and shift it through. But when the Treasury has clearly given him advice that what he was saying publicly was, frankly, a lie, then there was an obligation on him to be more forthright about that.

 

REPORTER: On a totally different no note, do you think it's in the public interest for people to know if senior politicians have affairs with their staffers?

 

BOWEN: Let's go to the nub of this issue, because it's obviously prominent in the media today. The Labor Party has made no public statement about Barnaby Joyce's personal situation for the last six months, despite the fact it's been well-known in this building, and we're not about to start today. I have plenty of criticisms of Barnaby Joyce. I think he's a very poor Deputy Prime Minister. But my criticisms of him are of his job. And frankly, his personal situation is none of my business and with respect, it's none of anybody else's business. I am very critical of his performance as Deputy Prime Minister. In terms of his personal life, I wish him nothing but the best, and his family nothing but the best, and I have absolutely nothing else to say on the matter.

 

REPORTER: What's Labor's view on the evidence in the PC report regarding banks exploiting their most loyal customers for years on end?

 

BOWEN: Well, they're making the point, I think, that there is an inertia in the market. That it's difficult to change banks. Now, the last Labor government - under Wayne Swan - introduced reforms in this space, mortgage exit fees, etc. The Productivity Commission's reporting now that there's more to do. And there may well be more to do. And again, that's thing which is a legitimate area for consideration, building on those previous Labor government reforms. Just yesterday, Labor pointed out in the House in support of a piece of government legislation that it's very easy to sign up for a credit card online, but very hard to cancel a credit card online. It should be as easy to sign up for one as to cancel one. So there are sensible discussions to be had there, and we'll engage in that process. Anything else?

 

REPORTER: Can I just ask you your thoughts on the activity on Wall Street overnight?

 

BOWEN: Well, on all these matters, of course, there is market volatility. And of course, I understand many people are concerned about the decline in the market, particularly people who rely on their shareholdings as a considerable part of their portfolio, particularly in retirement. We need to keep these movements in context. They are substantial falls but they’re off the back of substantial gains in the United States in recent times. Of course, I think most people understand that markets move and we need to take a sober, balanced and careful consideration of the implications over time and not respond inadvertently or too expeditiously to daily movements. While, of course, I do monitor the situation very closely, as I'm sure the Treasurer is - I would imagine the Treasury's get Treasury advice on the movements and their implications - let's take a medium-term view and not be too alarmist about very short-term movements.

 

OK? Thanks very much.