Senator the Hon. Mathias Cormann
Minister for Finance and the Public Service
Leader of the Government in the Senate
Senator for Western Australia
Date: Friday, 8 February 2019
KIERAN GILBERT: Let’s bring in the Finance Minister and Leader of the Government in the Senate for our regular weekly chat with him. Your thoughts on this development, was it inevitable that these two individuals would leave the NAB, particularly given their performance in the witness box at the Royal Commission?
MATHIAS CORMANN: We have been saying all week that it was up to any individuals concerned, their boards and their shareholders to determine what the implications would be for them of the findings in the Royal Commission report. The NAB made the decision they made. We note and respect that. But it is not really for us as a Government to provide specific commentary on individual cases as the Treasurer just said. That is something that we have been saying consistently all week. It is not up to the Government to determine who should chair or be the CEO of individual companies. But given the assessments and the findings made by the Royal Commissioner, of course everyone needs to consider what the implications are for them in a policy sense, in terms of the practices moving forward and indeed in terms of personnel.
LAURA JAYES: When you look at personnel, how important were these two high profile departures in a signal to the public and what does tell you about what shareholders and investors are saying about more executive accountability.
MATHIAS CORMANN: It was always going to be the case that once the Banking Royal Commission released its report that across the financial services sector and across public policy makers, that all of us had a responsibility to consider the findings, consider the recommendations and determine the best way forward. In relation to NAB that included some decisions in relation to personnel. That is a matter for them. We note and we respect their decision. But that is the conclusion they reached based on the findings of the Royal Commission.
KIERAN GILBERT: The former chairman Ken Henry, he is not former yet he is still there, he is going to usher in the new CEO, but do you think it is important to remember his contribution over many years as a senior and well respected Treasury secretary despite his tin-eared and many thought arrogant performance at the Royal Commission. Is it important to remember his long serving and public service record?
MATHIAS CORMANN: There is no question that Ken Henry has made a distinguished contribution to the Australian Public Service. More recently of course in the context of his responsibilities for the NAB, they have made certain decisions which were announced yesterday in the wake of the Banking Royal Commission findings. That is a decision that we note and that we respect.
LAURA JAYES: There is a lot of focus on mortgage brokers at the moment the Government has decided not to go ahead with one of the recommendations from the Royal Commission. But now you have two reports that your Government asked for that says that conflicted remuneration should be scrapped. Why ignore two of your own reports on this.
MATHIAS CORMANN: I completely reject your assertion that we are ignoring any recommendation. We are taking action on all recommendations. When it comes to mortgage brokers, we will be putting in place the best interest duty. We will be banning trailing commissions and volume based bonuses from 1 July 2020. Though when it comes to the proposition of introducing borrower paid lending, we have decided to proceed cautiously because of the serious potential implications of such a move for competition and for access to finance in particular in the residential mortgage market. There have been a whole series of inquiries, including from the Productivity Commission, the Murray Inquiry – that is the Financial Systems Inquiry, which had considered this particular question very carefully. Our advice and our assessment is that this is an area where we have to proceed very, very carefully in order to ensure that any decision does not have unintended consequences in terms of access to finance, in terms of competition. Any precipitous move here would actually potentially further strengthen and consolidate the dominance of the major banks and reduce the level of competition in the lending market.
KIERAN GILBERT: Yeah well we saw that in terms of the reaction on the markets to the Royal Commission, that the banks, all their shares went up commensurate to the liabilities that they would have to pay to mortgage brokers in terms of their book. But when you look at the reaction from mortgage brokers it is not just about competition, it is about the livelihood and business model isn’t it of the tens of thousands of those brokers around the country.
MATHIAS CORMANN: It is an important part of our economy, both in terms of the service they provide and the contribution they make to competition in that market, but yes, there are a lot of individuals and a lot of families that are directly involved because of employment in that particular sector. Again, we are taking action on all recommendations including this one, by moving to introduce a best interest duty, by banning trailing commissions and volume based bonuses from 1 July 2020. But, we believe it is in public interest for us to proceed very cautiously when it comes to the proposition of shifting to a borrower pays lending model, rather than what is currently in place through mortgage brokers. We believe that that is a sensible and right way forward in the public interest.
LAURA JAYES: AGL has posted a more than $500 million profit. Angus Taylor has been somewhat outraged by this. Your Government keeps on warning on this big stick that you have. Are you actually going to use it?
MATHIAS CORMANN: That is absolutely our commitment that if and as required that we will ensure that customers across Australia get a fairer deal. We are responding to ACCC recommendations, including and in relation to the big stick legislation that we have put forward and that is something that Angus Taylor as the Minister for lower energy prices continues to progress so that we get a fairer, better deal for consumers.
KIERAN GILBERT: I thought a Liberal Government would still like to see companies making bigger profits though?
MATHIAS CORMANN: Of course, it is all a matter of balance. Of course private companies should be able to pursue profit, but it is a matter of operating in a market environment that is fair and reasonable and that is fair and reasonable to customers and where there is no inappropriate market manipulation, collusion or any other bad behaviour, which artificially drives up prices and profits at consumer expense. It is a matter of making sure that the market operates appropriately. The ACCC has looked very carefully at all of this and has made some recommendations on how the operation of the market could be improved and that is something that we are acting on.
LAURA JAYES: There is also a number of committee hearings on franking credits going on at the moment. There is one in Chatswood today. The allegation is that they are being used as Liberal fundraisers. Can you ensure that that is not happening?
MATHIAS CORMANN: This is a very important public policy issue, which is appropriately the focus of a Parliamentary Committee. The Labor party is proposing to go after the retirement savings of hardworking Australians, who have worked hard and saved all their lives to be able to look after their own needs in retirement. It is important that these issues are appropriately fleshed out …interrupted
LAURA JAYES: No fundraising?
MATHIAS CORMANN: I am not aware of the specific issues that you are referring to. Of course there is fundraising taking place in the lead up to an election. I do not think that that would surprise anyone. But the work of the Committee is quite separate. The work of the Committee is separately very important. What it shows is the devastating effect that the election of a high taxing Shorten Labor Government would have on retirees, but on all Australians and indeed how it would make our economy weaker and it would make Australians poorer.
KIERAN GILBERT: The RBA Governor’s speech this week has attracted a lot of attention. Now, well we do not know which way rates are heading for their next movement, there was an expectation the next move would be up. Now, with the headwinds that there are locally and internationally, possibly a rate cut could be in store. Is this, what is your assessment of the economy as we stand this morning, this February, a Budget just a couple of months away ahead of the election? It could be a time when you are handing down a Budget or your colleague Josh Frydenberg is, a time when the economy is coming off.
MATHIAS CORMANN: Firstly, the setting of the official cash rate is entirely a matter of course for the Reserve Bank independently based on their assessment of where the economy is at and all of the other relevant factors that they appropriately and independently consider. In terms of where the economy is at, the most recently released National Accounts data showed 2.8 per cent growth over the past year. That is broadly in line with our two and three quarter forecast for 2018-19 in our half-yearly Budget update. We are expecting growth to pick up to about three per cent, which again is consistent with what the RBA is saying as well. Look, our economy continues to grow. It is growing more strongly than any of the G7 economies with the exception of the United States. But there are downside risks. There are global economic headwinds. There are a whole range of downside risks that are perhaps strengthening as the RBA Governor indicated earlier this week. That is why this is the worst time to impose more than $200 billion in higher Labor taxes. If we, in the context of global economic headwinds, were to go back to Labor’s failed approach of the past of imposing higher taxes on the economy, it would make our economy weaker, it would push up unemployment and as unemployment goes up and there is increased excess supply in the labour market, wages would fall. We want to continue to implement our plan, which has been successful over the last five and half years in strengthening the economy. We want to continue to implement our plan, which will attract stronger investment, stronger growth, more jobs, lower unemployment and indeed on the back of lower unemployment and lower excess supply in the labour market, strengthening wages growth into the future.
LAURA JAYES: Finance Minister Mathias Cormann, thanks for your time, see you next week.
MATHIAS CORMANN: See you next week.