Treasurer Scott Morrison talks about slow wage growth, credit rating and the banking levy
Ross Greenwood: The other big part of the news today quite clearly is banks. The bank tax is ongoing and then also, the AAA credit rating. Right now, you’ve seen three of the major ratings agencies from around the world reaffirm Australia’s AAA credit rating. The one that is most important of those three, you’ve got Moody’s, Fitch, is Standard & Poor’s.
The reason why Standard & Poor’s is so important is that it already has Australia on a negative credit watch. Just a short time ago, I spoke with Craig Michaels who assigns the AAA credit rating to Australia from S&P Global. He said he’s worried about some of the forecast inside the budget. In particular, what happens if there’s any sort of, if you like slippage with equals in the forecast in regards to getting back in to surplus in 2020-21.
Here’s what he told me just a short time ago.
Voice from Craig Michaels S&P
Craig Michaels: Given that very high level of slippage and our concern that there could be more, we think any further significant slippage would probably not be consistent with a AAA credit rating.
Ross: That is Craig Michaels just a short time ago on this program. The man who has to deal with that but also has to navigate the controversial bank tax through our parliament is our Treasurer Scott Morrison who joins me now. Many thanks for your time, Treasurer.
Interview with Scott Morrison, Treasurer – Growth, Credit Ratings and Banking Levy
Scott Morrison: Good day Ross, good to be with you.
Ross: Could I just ask first up in regards to Craig Michaels, the whole notion about slippage as he calls it with getting Australia’s budget back into balance in 2020-21, you’ve put those forecasts out there, you’ve seen wages again come in at record lows today since them being recorded in terms of growth, are you at all concerned that the budget may not be able to be balanced by 2020-21?
Scott Morrisson : Well, that’s our projection at the moment and the agencies said something very similar last year and then went on to reaffirm our credit rating in December and they’ve said that what they wanted to see in the projections of the balance to still remain in 2020-21 and it’s to deal with unlegislated measures which we did and still maintain that projection to balance in 2020-21 and they’ve affirmed our AAA credit rating again today.
So I think in this Budget, we have addressed the key issues that they have highlighted up until this Budget and we will retain our focus on ensuring that we do the things that are needed to ensure we get the support of the credit markets around the world. The ratings agencies are very important of course, but what’s frankly even more important are the people who buy our sovereign debt and they’re the ones who make their own independent assessments as well and they’re buying our debt at good prices and we continue to have our debt oversubscribed both domestically and internationally.
Wages growth – 3.75% by 2020-21
Ross: Okay, which is important? Because that means that Australian debt is highly sought after from overseas but I take you to the wages growth number that came out today, 1.9%, obviously private sector wages are very much slower than even the public sector wages, in other words government employees. Now the Budget also does forecast that wages growth by 2020 will have recovered to growing at 3.75% per year. Given the fact that-
Scott Morrisson: 2020-21, Ross.
Ross: 2020-21, that’s right.
Scott Morrisson : That’s four years away from now and it’s in the short-term, the growth is not projected at those sorts of levels. In fact what we saw today is consistent with what we would have been expecting for this time this year, I mean, wages growth has been very subdued.
One of the things, and there are many things we’re doing in this Budget, which we spoke about last week on Budget night, there’s the significant investments in infrastructure, the lowering of the tax rate for businesses that we’ve already legislated and one of these things, Ross is, I’ve been concerned that the deficit levy over the last three years has been a bit of a drag on the economy and I’m pleased to be seeing that going off on the 30th of June.
And when I talk to small businesses they’d much rather see people coming into their shops and into their businesses and spending money with them than spending it on higher taxes with the Government. And so I think that measure coming off on the 30th of June will be good for our economy and it’s always bad for your economy, frankly, when people are doing better, where they’re being asked to pay tax which has them working one day for the Government and one day for themselves.
Ross: Which leads me conveniently into the banks, of course, because you’re asking the banks to pay more tax, the banks have now got a significant campaign against the Government to try and somehow change either the bank levy or to change the Government’s mind. Of course, the former Treasury Secretary, now the Chairman of the National Australia Bank (ASX:NAB), Ken Henry, he’s talked about this today, here’s what he’s had to say.
Voice of Ken Henry
Ken Henry: In my view, the tax is bad policy. It’s a policy which is reminiscent of the sort of taxes that we had in Australia before the big tax reform started in 1983 and certainly when the GST was introduced. All taxes of this sort were abolished. So it’s bad policy but on top of that, the process has been a bad process.
Ross: That is Ken Henry last night on the ABC. Just explaining in regards to Ken Henry, he’s now calling this a bad tax as it were, the government is absolutely hell bent on trying to make certain this goes through.
Scott Morrisson : Well, it will go through, I mean let’s get a couple of things clear about Ken. It was about 18 months ago Ken went on the same program and told everybody that he thought revenue should be used to support budget repair, so he was saying taxes should go up. But when you try and put a tax on a bank which he’s the chair of, well he thinks that’s a bad policy. I can only assume from that that he would prefer that we put taxes on the Australian people.
On top of that, Ken was a distinguished independent Secretary of the Treasury, and after that he went on to be a special adviser to Prime Minister Julia Gillard working as part of her team, now he has been a Director of NAB since I think about late 2011 and when the previous Labor Government put a bank deposits tax on we didn’t hear boo from Ken, didn’t hear a word from him over that issue.
So, look, at the end of the day, Ken’s the chair of a bank, they don’t like a tax coming on their bank. Today we’ve had the AAA credit rating affirmed and we know, because NAB’s own people have said that if we were to lose the AAA credit rating that would mean a credit downgrade for the major banks and that would cost them about ten basis points which they described as not really a very big deal.
So it’s not a big deal if it’s losing the credit rating and they have a ten basis point hit, but if they’ve got to pay a six basis point tax, well, apparently it’s the end of financial civilisation as we know it. So look the banks don’t want the tax to come on. In the UK, they had a similar measure and the banks absorbed it and, frankly, they should do the same here.
Ross: Just one thing I noticed, Fitch Ratings, the bank analyst there, Tim Roche today said in the UK that once it was introduced it started to increase in the UK, do you believe this is a once-off or is it something that in the future may be tweaked upwards in the future if the Government needs the revenue?
Scott Morrisson: I certainly don’t have any interest in doing that, I mean it’s the conditions that we’re doing this– we’ve set it at this modest level in our consultations with groups like APRA and the Reserve Bank which has been set at a modest level, it poses no systemic risk to the banking sector, I mean, the ABA’s Anna Bligh said that, after she said that it’s going to create some sort of systemic risk or something of that nature, I think that was a bit of an over reaction.
This is a reasonable measure, it actually evens the playing field, there are a lot of banks that are pretty happy about this tax, regional banks, smaller banks, banks that want to put a bit more competition on the big banks. Foreign banks also, I should stress, provide a lot of competition to the big banks and that’s one of the reasons why Paul Keating let them in.
Non disclosure agreements with banks
Ross: All right, let me go to another aspect of this and that is the non-disclosure agreements that you have asked the banks to sign. Now, the banks again today have arced up about the fact that they claim that this is now secret, that they can’t get this out in public and out into the open, what would you say about their allegations of secrecy in regards to the way in which this is being, you know, discussed with them and indeed inside their own organisations?
Scott Morrisson : Well, they would say that, wouldn’t they? I mean, what we’ve done on this is the same process we used for the multinational anti-avoidance legislation, the diverted profits tax. The previous Labor Government had done similar things on legislation during their time, on corporate integrity, taxation measures– that’s not unusual.
These non-disclosure arrangements the banks themselves and other listed companies would be pretty familiar with those. They can share the information they have with anyone in their banks at all, they can share them with their boards, they can share it with their corporate advisers but it’s obviously subject to those non-disclosure arrangements and equally we’re going to respect the privacy and confidentiality of the submissions they’ve made to us.
I mean, one shouldn’t assume that all the banks are representing exactly the same position and that would obviously breach the sort of commercial issues between those banks and we have no intention of dishonouring that either. So, it’s a two-way street, the legislation will be introduced in the next sitting fortnight and then it will be open to the full scrutiny of the Australian Parliament-
Ross: So it won’t diverted into a committee, into a Senate Committe as the Labor party is seeking at this stage?
Scott Morrisson: Well, they’re allowed to do that, Ross. I mean, the Senate is the master of its own domain, as we know we had to reverse $14.7 billion worth of savings measures because the Labor Party with the Senate refused to support them. And I note today that the S&P
made an important point about this in confirming our AAA rating today, they sent a bit of a message to the Parliament and they were basically saying they had to muscle up a bit on the fiscal side of things and, because of the AAA credit rating, they watch our Parliament very closely about whether they’re prepared to support the measures the Government is putting in place to bring the budget back to balance. So that puts a big responsibility on our Senate to do the right thing by our credit rating and the Australian people.
Ross: Just one thing, because the allegation from some of the banks, someone within the bank industry is that the Government appears to have just simply plucked this bank levy measure from literally thin air as though it was a last minute thought to try and get the balance back into the budget over a period of time. How long had you been planning the bank levy?
Scott Morrisson : Months and months. I was in the UK earlier this year and that, you know we were looking at things over there at the time, I was also looking at their executive accountability regime when I was over there and with some issues we’d already been working up and so we’ve been working that through for some months. I mean, the banks would say that, Ross. The banks don’t want this to come in, that’s the bottom line. They’ll seek to delay it, they’ll seek to kick up dust around it and try and confuse people about it, they’ll complain about process, they’ll do all of those things-
Ross: But the one thing they’re saying is they’re going to pass it on, that’s the bottom line of it is that they say we will pass it on. Now, if a person or a business is thinking that they’re going to cop that bank tax, that quite clearly is going to go well hang on you know who’s actually being taxed here, is it the banks or is it me? That’s the fundamental problem, is it not?
Scott Morrisson : Well, this is why, it’s six basis points. As you know, the cash rate moves in positions of 25 basis points at a time. I think we have to get this in some proportion, one. But two, in the UK, they decided to absorb it, they did. At six basis points that is totally absorbable by the bank and the fact that they’re actually threatening customers, threatening shareholders and running around like this, frankly, I think is not serving them at all.
They’re just basically telling Australians that some of their worst fears just may well be right. Now, I stress not all the banks are doing that. ANZ’s (ASX:ANZ) been pretty quiet, haven’t heard from CommBank (ASX:CBA) for a while, and haven’t heard from Westpac (ASX:WBC) for a few days out there in the public, but I’ve heard a lot from Ken.
Ross: Very interesting, Scott Morrison, Treasurer of Australia. Great to have your company on the program as always, it’s going to be an interesting debating point. We’ll take plenty of calls around the place on that no doubt on 13 18 73 and we appreciate your time.
Scott Morrisson : Not at all and look, Ross, I look forward to maybe catching up with you next week, I’ve been visiting some amazing businesses. After a Budget, you visit all these incredible businesses around the country and their stories are amazing and they’re really appreciating what we’re doing on small business with the instant asset write-off and the lower tax rate and GST on a cash basis. They’re appreciating that but it’s a story for another day but it’s great to see Australian businesses out there making their way.
Ross: Well, the other thing I want to talk to you about is housing affordability at some stage as well and some of your measures there, so we’ll do that in the next week or so – Treasurer Scott Morrison here on Money News.
Scott Morrisson: Cheers.