Ross Greenwood speaks to Treasurer Josh Frydenberg who says the Banking Royal Commission interim report shows that financial entities were motivated by greed and were deciding how they obeyed the law, rather than responding to the rulings and laws, and that needs to change
Introduction: Was ASIC too soft on the banks?
Ross Greenwood: It’s a serious situation. Of course the government no doubt will respond. I know one of those people who will be amongst our cabinet will be considering what sort of aid Australia can provide is our treasurer Josh Frydenberg, whose on the line right now. Many thanks for your time, Josh.
Interview with: Josh Frydenberg, Treasure
Josh Frydenberg: Nice to be with you.
Ross Greenwood: Have you discussed this with the Prime Minister and the cabinet at this stage?
Josh Frydenberg: I continually talk to the Prime Minister about all manner of issues, including the tragedy in Indonesia. We have a wonderfully close an important relationship with our near neighbour and we’ll continue to support them in any way we can. Particularly through these tragic circumstances.
Ross Greenwood: Has there been any discussion as to what assistance or what aid Indonesia has called for or needs at this time?
Josh Frydenberg: I know that the Prime Minister’s been in touch with the Indonesian President. I’ll leave it to him and the Foreign Minister to respond in due course.
Ross Greenwood: It is a serious situation. No doubt resources from Australia will be required at some stage. I want to also take you to, clearly, some of the issues of the day. I note today that the property prices continues to fall in the major capitals cities, Melbourne and Sydney. Which as a result, some would suggest, of regulatory action taken by financial regulators to cool down housing markets. Have they done the right thing or is there any danger that these property markets could overshoot and have an impact on the broader economy?
Josh Frydenberg: Well, as you know, APRA took action in response to investor loans in the residential market. We have seen our prices come back down to a sustainable level. That being said, we continue to watch the housing market.
Certainly, Bill Shortens new property tax, whether his attack on negative gearing will not help people maintain the value in their homes. That’s a real danger for them.
Ross Greenwood: Given what you’ve heard in the Royal Commission and in particular the response of regulators both APRA, the banking regulator, and ASIC, the corporate regulator, given the fact that APRA now has put out these policies to try and cool down housing markets, do you have confidence in APRA and its actions, given what you’ve heard about the regulator’s response in the Royal Commission?
Josh Frydenberg: Well, I do have confidence in our regulators, but I do think they needed to do better. That was the clear message out of Commissioner Haynes interim report. It had a very strong message, particularly for ASIC, that they should not be pursuing negotiations at the expense of the litigation, when it comes to providing proper enforcement of the laws that we have.
Ross Greenwood: They were soft weren’t they? That’s the real conclusion of the Royal Commission and this interim report. That they weren’t prepared to take on the biggest in town, they negotiated around them because they were fearful of, or didn’t have the resources to take on the legal action of other agencies like the ACCC might have taken on.
Josh Frydenberg: Too timid, is the way I would like to put it. It was clear at the tail was wagging the dog. These financial entities were deciding how they obeyed the law, rather than responding to the rulings and to the laws put down by the court’s. the parliament and ASIC.
That is certainly something that needs to change going forward. Having spoken to James Shipton, the head of ASIC, he’s very conscious of the need for ASIC to have a good look at the way it approaches it’s enforcement, because only with a big stick and the moral suasion that comes with proper enforcement do you actually get a cultural compliance in the sector.
Ross Greenwood: Josh, the one thing that’s come out of this Royal Commission, time and again, is an imbalance of power. If a small business, or an individual, or a farming family, or somebody who’s on the wrong end of an insurance claim, tries to take on a big bank, or even a big insurance company.
They end up being heavily penalized, simply because they don’t have the financial muscle to take on the big insurance companies or the banks. Well, the same actually true of government’s.
If you consider your own regulators, they do not have the same resources that the banks have, the multi-billions of dollars in profits every year. Even if they’re fined, let’s call it a $1,000,000,000 or penalized a $1,000,000,000 out of all of this, well, really, that’s three months profit for most of the big banks.
It’s, yes, sure a heavy penalty, but it’s not necessarily a crushing penalty on those organizations.
Josh Frydenberg: Well, you’re right. Commissioner Hayne made it very clear that some of the penalties handed out when they were handed out immaterial to the banks and did not reflect the deal of hurt, a great deal of hurt that they’ve caused to their victims. Clearly, business, as usual, is not an option.
The banks have been putting profits before people. Greed has been a motive. The basic standard of honesty and fairness have gone out the door.
Ross Greenwood: You’re treasurer, what happens to change that culture, to change that attitude?
Josh Frydenberg: Well, we’ve taken already an action on a number of fronts. We’ve beefed up the resources of ASIC. We’ve put in place a prosecutor, who is Daniel Quinan QC, with a specific responsibility for enforcement action. We’ve put in place the banking executive accountability regime.
We’re setting up the financial complaints authority. We’ll respond, effectively and quickly, to the recommendations from the Royal Commission, in its final report expected in February.
Ross Greenwood: Is it a problem right now that many of the executives who may have been responsible for some of the behavior in the past. No matter what the recommendation of the Royal Commission. They have left the organization. They’ve left the insurance companies. They’ve left the banks. They’re not accountable.
New management comes in and says, “It wasn’t us. It was somebody else”. The problem is the people who have been potentially the perpetrators of some of the issues that have been investigated by the Royal Commission, they’ve just simply walked away in some cases with many millions of dollars.
Josh Frydenberg: Well, they haven’t really been some casualties of the Royal Commission’s–
Ross Greenwood: What my point is, they’re not the real casualties. They’ve actually walked away scot-free. That’s what I’m trying to get at.
Josh Frydenberg: Well, let’s wait and see Ross, what’s in the final report because, as you know, this report looked at the misconduct and the inappropriate behavior. Tried to unpack the reasons for it. The final report though will be making specific recommendations as to the way forward and could potentially make referrals to the appropriate law enforcement agencies.
It’s not for me to preempt the final report in any way, but clearly, that is the process that one would expect to go forward.
Ross Greenwood: If Kenneth Hayne, the Royal Commissioner, requests more time from the government, will he be given that time?
Josh Frydenberg: Yes, he will.
Ross Greenwood: He’ll be given that time. In other words, if it needs to go beyond the next federal election, before the final report is handed down, you’d be prepared, as treasurer, to accept that?
Josh Frydenberg: Absolutely. The Prime Minister’s made similar comments. Bill Shorten seems to think he knows better than The Commissioner. The Commissioner, if you read through his 1,000 page report, has been extremely forensic and rigorous in his analysis.
He also points out that the existence to the Royal Commission does sap away some the confidence in the final system. His responsibility is to work through the issues as quickly and effectively as he can.
If he does need more time to perform this work, he’ll be given us and if he doesn’t, we’ll expect the final report in February, but Bill Shorten has his own political reasons why potentially he wants to prolong this.
Ross Greenwood: Couple of bits and pieces here. The final budget outcome come out last Friday, it showed an improvement over the past year of $19,300,000,000. The underlying cash deficit $10,100,000,000. The budget is improving quickly. There is speculation as to whether you can get back into a surplus next year, or the following year.
Just putting that aside, the budget is improving significantly and rapidly. You’ve got employment, which is improved significantly over the past 12 months. You’ve got interest rates at record lows in Australia. It would appear as though financial conditions, right now, are as good as they get.
Given all of that, why is it so many families and businesses appear to be feeling so much economic pain, right now?
Josh Frydenberg: Well, there are pockets of pain throughout the community in particularly the drought-stricken communities in Queensland and New South Wales, which has also had knock on impacts into other states. You’ve got the long-term unemployed.
We have seen real wages growth are lower than what we would hope, but at the same time, the economy, overall, is showing very strong momentum. The final budget outcome for 2017-18 was the third bit of good news that we’ve had in a few weeks.
We had the national accounts, which you and I discussed, Ross, which showed that the economy was growing at its fastest rate since the height of the mining boom in 2012. We’ve created around the thousand jobs a day. With records jobs growth of more women, seniors and young people coming into the workforce.
We have Standard and Poor’s, one of the worlds leading rating agencies, reaffirm AAA Credit rating. The economy is working well, but it doesn’t run on autopilot. That’s why our political opponents, Bill Shorten, pose a real risk with their $200,000,000,000 worth of taxes. They hide it in deficit.
Ross Greenwood: Just this one thing to finish off with. Given all of that good news, you’ve just given me. Given concerns that you might have on the other political side. I understand where the polls sit right now. Why is it that some people feel as though things are tight, things are tough for them? What’s that about?
Is it a case of people are whinging, that they don’t recognized how good things are? Is it that the people are actually hurting because of electricity prices, private health insurance premiums, education fees and so forth? Where does it come from?
Josh Frydenberg: Well, you’re right. The higher energy prices have a affected the household budgets and were very focused on driving down the cost of living and that’s why we’ve got a laser like focus from now on on driving power prices down and we’ve seen them drop recently in Queensland, South Australia and in New South Wales and that’s just the start of what we’re hoping to achieve.
We’ve also introduced significant childcare reforms because that’s a major cost to some household budgets and we’re seeing more people come into jobs, that’s reducing our welfare bill, which, in fact, the number of working age Australians who are on welfare is now at the lowest level in 25 years.
We are taking action across the board and we’re very conscious that those who are doing it tough, need a hand up, not necessarily a handout, and that’s what drives our Liberal Party and National Party philosophy.
Ross Greenwood: There you go, Josh Frydenberg, our treasurer, many thanks for your time here on the program this evening.
Josh Frydenberg: Always good to be with you and your listeners. Thanks, Ross.
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