The Hon David Coleman MP
Assistant Minister for Finance
Ross Greenwood: Many thanks for your time David.
David Coleman: Good to be with you Ross.
Ross Greenwood: You fronted the bank bosses in your House Economics Committee as Chair. Do you believe, are you satisfied, that there is genuine competition between our banks in Australia?
David Coleman: Well look, the recommendation to set up the ACCC Financial Services Unit came out of our Committee, because we were concerned about a lack of competition and the fact that we hadn’t had, sorry only had one, new banking license set up here in Australia in the last ten years, tells you a lot. So we said we wanted the ACCC to go and do this initial review of competition in the sector which they’ve now done, and as you say that’s got some serious implications in terms of what the ACCC is saying about altruistic behaviour and so on. They will now do further work and come back to the Government in the next financial year with recommendations on how to further improve competition. We’ve already taken steps to make it easier to set up banks, because that was a big problem, because it was almost impossible in a practical sense to get a start-up bank off the ground.
Ross Greenwood: I mentioned this to Rob Sims, that isn’t it a problem that if you or I might decide we are going to set up a bank tomorrow, the fact is if we’ve only got two bob between us we cannot really have the deep pockets to be able to lend to basically make up the massive market share that the banks have in deposits but then also in home lending. In other words, because they have very rich and deep pools of capital with which they can lend and deposits that any start up, unless they’re a massive international bank, they really won’t have those pools of capital.
David Coleman: Well one of the issues that the smaller banks raised is around this issue related to what’s called risk waste, which I think Rod Simms mentioned to you in your call earlier as well, and basically the larger banks are required to hold less capital against a given loan than the smaller banks, effectively because APRA enables the big banks to follow a somewhat different process to calculate how much capital they have to hold against those loans. So what some of the smaller banks argue is that that does create some unfairness in the market. I imagine that’s the sort of thing the ACCC will be looking at. Obviously the stability of the system is paramount. They’ve got to ensure banks are only lending what they can afford to lend. But we’ve also got to ensure that we’ve got competition. I think in banking regulation in earlier years, prior to this Government, there wasn’t enough focus on competition.
The fact is that the ACCC didn’t have a focus on competition in the banking sector until we created this unit a year ago and we’re already starting to see results from that. It’s also noteworthy Ross if you go through the report, you’ll see some emails and communications between banks about setting of interest rates and the communication of interest rates and so on. Some of that material I suspect would be embarrassing to the banks and that scrutiny is important because the banks need to know that from now on this ACCC monitoring unit is going to be watching them very closely and recommending to Government further ways to improve competition.
Ross Greenwood: Now a couple of things here about this Banking Royal Commission. You’ve got to set it out here. It is what it is. The Government did not want a Banking Royal Commission. Effectively it was strong armed into it by members of the National Party but also the Labor Party called for it for a very long time. Given there have been revelations; the ANZ admitting there had been fraudulent activity taking place in their home lending areas, the Commonwealth Bank indicating that it had sacked mortgage brokers for a lack of activity and also questioning the quality of the information with which loans had been written, the fact that the Commonwealth Bank boss Ian Narev in a private letter had basically admitted that the whole question of paying mortgage brokers had skewed the mortgage market and left people with bigger mortgages than they otherwise would have had. Was the Royal Commission in your opinion worthwhile or not?
David Coleman: Well Ross as you know we’ve already made a number of very significant changes to the sector. So from 1 July we’ve got the Financial Complaints Authority setting up which basically makes it much easier for people to get recompense when they’re badly treated by a bank. We’ve got the BEAR regime for which we did encounter some criticism from various quarters, it’s a very tough accountability regime that starts on 1 July. And of course the Commission will look at a range of issues. Some of those issues you’ve mentioned have been previously raised with ASIC. In terms of the issues of broker remuneration that came up in the CBA context, that’s a very important issue and the Sedgwick Review back last year which the banks have all agreed to implement within the next two years, does call for big changes in the way mortgage brokers are remunerated.
Ross Greenwood: Straight answer David, was the Royal Commission worthwhile or not.
David Coleman: Obviously we decided to do it and Commissioner Hayne is running a good process. No doubt he will come up with useful recommendations and the Government will consider them very seriously.
Ross Greenwood: The Government do you believe has enough time to actually implement those recommendations before the next Federal election?
David Coleman: Well we’ll get an interim report in September and the final report early next year. Of course the Government will look very carefully at the recommendations from the Commissioner.
Ross Greenwood: Okay, from the community’s point of view at the moment do you believe we are being well served by our banks?
David Coleman: Well clearly there’s ample room for improvement Ross. We do have a strong banking system. It’s important to always note in these conversations that a strong and stable banking system is in the interest of the Australian economy and Australians in general. We’ve seen what has happened in the US and Europe when the banking systems are unstable and that’s the last thing anyone wants. So strong and stable is good, but being competitive and serving consumers well is also critical. Clearly, in terms of competition, in terms of outcomes for consumers that’s been lacking. That’s why we put in place so many policies in this space. The Financial Complaints Inquiry as I said, came out of so many consumers saying it was so hard to get recompense from their bank when things went wrong and that issue is going to be very clearly addressed from the 1st of July.
Ross Greenwood: Given the fact you’re now the Assistant Minister for Finance and clearly looking for every dollar you can to help balance the budget, Bill Shorten’s idea in regards to changing tax credits on company dividends and especially those people with lower tax rates – not a bad way to scoop money up especially if you want to have a crack at very wealthy people. Problem is he’s got a lack of safe guards for those people on relatively low incomes. Would it not be a bad idea as a Finance Minister to suggest you could pinch parts of this policy to scoop up a few more dollars?
David Coleman: Not at all Ross. This is a terrible policy, which just shows again that Bill Shorten is a tax addict. He’s a tax addict. This is going to affect people, as you know, on low incomes because it’s the people with higher incomes that have the taxable incomes that mean that this issue of the refund doesn’t arise. This is going to hurt pensioners, it’s going to hurt self-funded retirees, particularly self-funded retirees on lower incomes. Frankly this is a pretty whacky policy Ross. For Chris Bowen to recommend it is one thing, but for Bill Shorten to agree to actually do it is another. It’s a very poor policy and it’s very notable that the alternative government in this country could propose something that is frankly absurd and affect over a million people whilst clearly not having thought through the implications. It’s a very bad policy.
Ross Greenwood: My observation of it David is, if I’m a relatively wealthy person with a lot of money, millions in my superannuation fund, if they’re seeking to get money out of me they’re going to have to find a better way to do it. Ultimately I’m just going to change the structure of my investments and I’ll find a different way to be able to get around tax or invest in a different way as distinct from ultimately getting a refund check from the tax office because of excess tax credits I’ve got on my dividends. There’s more than one way to skin a cat and I think that even though they might be claiming $59 billion over the next 10 years, I’d be very surprised if they got anywhere near that amount of money. Only because people behave, with tax, as they always do. They’ll find another way to try and skin that cat.
David Coleman: A lot of the people that are affected by this Ross, in fact the vast majority of people who are affected are not wealthy or sophisticated investors. These are people that maybe have a few Telstra shares, or maybe bought shares in the privatisation of big Commonwealth entities over the years, or have a small super fund with maybe $40k - $50k of income and these people are going to see material reductions to their income. Thousands of dollars. These are the last people that could sensibly be described as wealthy. They’re the ones that are going to bear the brunt of this, they’re the ones that are in the cross hairs, not the sophisticated investors with tax credits. It’s the less sophisticated, lower wealth investors that have lower incomes that are actually affected by this. How on earth Labor could have gone through the process of thinking about this policy, not identified that incredibly fundamental flaw, and decided to proceed with it is beyond me. It’s an absurd proposal Ross and it’s something that we will very vigorously oppose every single day.
Ross Greenwood: David Coleman, always good to have you on the program, the Assistant Minister for Finance also the former Chair of the House Economics Committee, we appreciate your time.
David Coleman: Thanks Ross.