20 October 2015
Transcript - #2015059, 2015

In the role of: Minister for Small Business and Assistant Treasurer [21 September 2015 - 18 July 2016]

Interview with Patricia Karvelas, RN Drive, ABC

SUBJECTS: Government’s response to the Financial System Inquiry.

KARVELAS:

Kelly O’Dwyer is the Assistant Treasurer and the Minister for Small Business. Minister welcome and congratulations on all your appointments.

MINISTER O’DWYER:

Thank you very much Patricia, it’s lovely to be with you.

KARVELAS:

Now firstly to superannuation. You want to give people their choice of superfund in more situations. Is this really a problem anymore and why does the Productivity Commission need to look at it?

MINISTER O’DWYER:

Well it is a problem at the moment because currently if you are someone who is covered by an Enterprise Bargaining Agreement, the decision as to where you put your savings, which fund you put your savings into for your retirement, is not a decision that you get to make – it’s covered by the Enterprise Bargaining Agreement. So you have no choice in the matter. Now we think it’s entirely appropriate for individuals whose money it is, to make the choice about which fund is most appropriate for them, for their family circumstances and for, ultimately, their retirement.

KARVELAS:

But Labor’s Jim Chalmers, who joins us soon actually in a political panel, says Labor is weary of the process to look at alternative ways to manage default contributions. They see it as an ideological attack. Is it?

MINISTER O’DWYER:

No it’s not an ideological attack at all in fact far from it…

KARVELAS:

But it’s largely union superfunds that you’re trying to squeeze out of the system.

MINISTER O’DWYER:

Not at all. There are retail funds that are also covered by Enterprise Bargaining Agreements as well so it’s not correct of him to make that suggestion. In fact this is one of the key reasons Patricia, that we have got the Productivity Commission looking at how we can make superannuation more competitive, more efficient and how we can get the right process, the right framework in place, for default funds. It’s an entirely independent organisation from government. We’re asking them to do the work so that Government can consider it.

KARVELAS:

CEO of Industry Super Australia, David Whiteley, is wondering why you need to send it to the Productivity Commission.

“Well there was a broad Productivity Commission review undertaken in 2012 so I must admit, it is a little bit puzzling as to why the Government wouldn’t implement the recommendations of that Productivity Commission review. It seems odd for the Productivity Commission to now undertake exactly the same review they did three years ago.”

So given you sound like you’ve made your mind up on this, why another review, why not just implement the recommendations on the table?

MINISTER O’DWYER:

We haven’t made up our mind other than we believe it’s important for individuals to have more choice in their superannuation fund and where their money actually goes. We think that most people get to make choices about how they spend their money and it’s important they also have choices about how they save their money as well. We think it’s important that the offerings that are available to people to put their money into are the best possible products that are on the market and that when it comes to default funds, we believe it’s critically important as well that default funds be opened up to competition so that we can ultimately drive down prices as well in terms of the fees that are actually paid and I think, most people when they look at their superannuation funds understand that fees are paid as part of that process and where competition can be entered into here we believe that will have an impact on fees.

KARVELAS:

Onto the banks, they’ll need to build up their financial reserves. It’s an agenda that APRA, the Australian Prudential Regulation Authority, is already pushing. It’s seen Westpac increase its variable home loan rate by 20 basis points last week. Scott Morrison, the Treasurer, has criticised Westpac for it, but that’s a bit hypocritical isn’t it also inevitable that we’re going to see these rates increase now as a result of this?

MINISTER O’DWYER:

No, it’s not inevitable. In fact the findings from Murray were that we need to have banks that are unquestionably strong and we have accepted that recommendation. Obviously during times where we have external shocks, where there is a financial crisis, we need to have banks that are able to withstand that. We were able to do that before, but Murray has said that we need to make sure that our banks are always going to be unquestionably strong. So a number of those banks needs to ensure that their capital adequacy is greater than it is today. Many of them have already been raising their capital adequacy rates, and they haven’t put up their mortgage rates – there is no direct link between those two things and the Treasurer has made some pretty clear statements in relation to Westpac for whom it’s their decision but they have to justify their decision to raise their rates and certainly other banks have not done the same.

KARVELAS:

But the Australian Bankers’ Association Chief Executive says banks would decide to pass on the extra costs to consumers. What does that mean? Should we expect higher interest rates? Is it an inevitability?

MINISTER O’DWYER:

High mortgage rates are you talking about?

KARVELAS:

Yes.

MINISTER O’DWYER:

In terms of to get a mortgage? No I don’t think it follows necessarily at all. In fact I’ve just mentioned to you before that all of the other banks are going through the same process at the moment and they haven’t put up rates and the question is really one for Westpac to justify to their customers.

KARVELAS:

But if they do it, they might have to justify it to customers, but if the consequence is that consumers miss out by effectively facing higher costs, that’s a political reality that you have to deal with isn’t it?

MINISTER O’DWYER:

We don’t see a direct link there. I know the argument has been put by the bank, we don’t accept that argument, it’s not one that’s been made by other banks.

KARVELAS:

One of the other very positively, you’ve got to say, positive elements of this is that these credit card transaction surcharges are going to be basically be reduced. That you’ve really changed the system here. Given you’re doing this, why not ATMs? If you’re cracking down on credit card fees, why not the ATM fees too? Here’s Green’s treasury spokesman Adam Bandt on this:

“Banks are making over $600 million a year out of ATM fees and much of that is going straight to the banks bottom line. There is no reason to allow banks to continue to gouge customers with ATM fees of $2 or $2.50 when it only costs 77 cents to get your money out.”

Wouldn’t this also be a fairer consumer outcome to use the language of your other proposals, why not make it apply to ATM fees?

MINISTER O’DWYER:

Well, let’s talk first Patricia about what we have actually done today because it is a pretty big announcement and today what we have done is we have said all of those people who say that they are going to charge you excessive surcharges for using for instance your credit card or any other card, that they are not going to be able to do that from next year onwards. They are not going to be able to charge excessive fees, they are not going to be able to gouge you as the consumer, they are only going to be able to recover their costs. We think that is a great outcome for consumers and we know that that has been echoed by a number of consumer organisations, such as Choice as well. This is a big change, we think it is a very positive change and we have been prepared to make that change. In terms of what other things we might consider the Payments System Board which is part of the Reserve Bank of Australia is currently considering the interchange fees between different banks at the moment and we will await their report which will come to Government at the end of the year.

KARVELAS:

Given though you have cracked down now on credit card fees and you are very right, you have been lauded by a number of groups for making that decision. Do you personally now as a Cabinet Minister responsible see that ATM fees should be the next area you reform?

MINISTER O’DWYER:

Patricia, I am here to talk about what we have done today.

KARVELAS:

Just trying to take you to the next story.

MINISTER O’DWYER:

We can talk about all sorts of things tomorrow but let’s talk about what we have achieved today because we have been able to deliver with our response to the Murray inquiry, more than 48 measures which goes into a level of detail not only around bank adequacy and resilience of our financial system, not only choice in our superannuation funds in efficiency and transparency around those but also we are raising professional standards as well for financial advisers, this is a very key part of our response to the Murray inquiry. We believe that a lot of people have lost a lot of confidence when they go and get financial advice, we are raising the bar when it comes to receiving financial advice because those professional advisers now need to meet a code of ethics requirements, they need to subscribe to that, they need a degree, they are going to need continuing education requirements as well and this will mean that people can have confidence that when they go to a financial adviser that that financial adviser will be giving them the advice in their best interests.

KARVELAS:

Minister thank you so much for giving us some of your time.

MINISTER O’DWYER:

Great pleasure, Patricia.