Read or listen to my interview with Steve Vizard on MTR about interest rates.

Interview on MTR Mornings with Steve Vizard

Subjects: interest rate cuts, ALP National Conference.

Steve Vizard:

Well the RBA in its last meeting for the year cut interest rates again yesterday and again by quarter of a percent, but it looks like the big four banks again aren’t going to pass it on. If they are they are remaining schtum.

On the line is Assistant Treasurer Minister for Financial Services and Superannuation, the Member for Maribyrnong,  Bill Shorten joins me. Bill, good to talk to you.

Bill Shorten:

Good morning Steve.

Steve Vizard:

Should the banks pass this interest rate cut on?

Bill Shorten:

Yes, absolutely. What we need in Australia at the moment is confidence. Nothing contributes to confidence like the idea you might be paying less on your mortgage, which means there is more to spend in retail, more to save. It just makes a big difference to the mood of the nation. Australia is doing better than the rest of the world, but we do need to see cash flowing through our economy and if it’s just going to the banks and they don’t pass on the rate cuts than that gives a nasty blow to business – both small and big – and of course the mortgage holders.

Steve Vizard:

I mean that’s whole point of monetary policy isn’t it, that the Reserve Bank through all of the financial intermediaries via the tool of interest rates is supposed to stimulate or contract the economy. That is what monetary policy is about. They’ve taken the cuts. They’re going to use it for their bottom line and they’re not going to pass them on. That makes monetary policy very difficult, doesn’t it?

Bill Shorten:

It does. Does anyone seriously think that if the Reserve Bank increased the cash rate of 25 basis points the banks wouldn’t move? If rates were going up, they’d be moving their rates up. When the cash rate goes down, it gets all sticky all of a sudden. So the point is, monetary policy, what you said is exactly right. It’s a $50 phrase, but what it means is we have an independent bank, which I think works better than what the Europeans have as it is generally independent. When they think the economy is overheating they increase the cost of money so it’s harder to borrow, people don’t spend as much, it has an anti-inflationary effect. But when there are challenges in the economy, when they have a look at the uncertainty in Europe, they say we want to release the pressure a little bit, make it slightly easier for people who have mortgages to have some extra money in their pocket but decrease the rate,  so unfortunately the banks’ fear is they are finding it more difficult to borrow money from the rest of the world. Because the rest of the world is not lending money, they want to keep what they are getting, so they want to increase deposits and I suspect they want to keep their profit margins so they don’t pass on the increase, which suits them but doesn’t suit the rest of us.

Steve Vizard:

Do you buy that? I mean that’s their rationale, of course that’s their rationale. Implicit in what you just said the critical phrase is ‘retain their profit margins’  - the profits that collectively gave them a record $24 billion dollars last year. Of course businesses want to maintain their profits but is that good enough?  If you had the four CEOs from Commonwealth, Westpac, NAB and ANZ in the room together, what would you actually say to those CEOs Bill?

Bill Shorten:

I’d say three things. First of all, let’s not have a short memory.  In the Global Financial Crisis of 2008 the Government of Australia, who represents the taxpayers of Australia, stepped in to guarantee the banks so there was complete confidence. So the first thing I’d say is remember why you got more money in 2008 and 2009: in part it was because of the stability of the system which the Government, who represents the taxpayers of Australia, contributed to. So that’s point one: how about a bit of memory.

I think the second thing is there’s not much point in making a big profit if all those around you are doing it hard, is it?

I think we get that it’s hard to get money globally at the moment. There has only been one interest rate reduction so far which was worth about $50 a week if you have a $300,000 mortgage. We think they should pass this one on then if you have a $300,000 mortgage it’s worth an extra $50 a week so you’d be getting $100 less in your mortgage payments than 2 months ago. If you’re on a $700,000 mortgage it’s worth $121 this cut alone. So now is not the time to be hanging on to an interest rate reduction.

So three points, don’t forget what brought you to the party, which was us, the people.  Secondly, there’s no point in your doing well if your clients and customers and small business aren’t doing well.  And thirdly, whilst it is difficult raising money elsewhere, I think that what Australia needs is confidence. If they want to see a long term rise in the value of their shares, the Australian share market needs to be confident. You don’t get confidence by behaving in a negative, pessimistic fashion.

 Steve Vizard:

Are you in the middle of a kidnapping or some kind hostage situation Bill? Is that Kevin Rudd in the backseat? What’s going on there?

Bill Shorten:

(laughs) No, no I’ve got my little daughter.  For once I’m in Melbourne, she practically thinks I am a stranger anyway.  Her mum is in the doctor, so I’m just minding her in the car.

Steve Vizard:

Well you’re doing a good job.

Just getting back to it now, most Australians would find it absolutely bizarre. We’ve got you, the Assistant Treasurer, Wayne Swan, both of you saying this is verging on disgraceful conduct if they don’t pass on these bank cuts. We’ve got banks existing in an oligopolistic environment that is government sponsored four pillars. As you say, we’ve got the taxpayer of Australia bailing out the banks. We’ve got the Reserve Bank, government appointed, making recommendations albeit independently. What levers can possibly exist that force these banks to pass on what they’re supposed to do?

Bill Shorten:

Well I should say that I don’t have accounts with these banks and I don’t have shares in the following two institutions, but Members Equity Bank and the Bank of Queensland have already passed it on. So if these mid-tier financial institutions can do it why can’t the bigger ones do it? So what we are talking about is not pie in the sky, it is not economic flatter theory. I’m not talking bad business sense here. Bank of Queensland and Members Equity have done it I think some of the customers should be saying to their banks, and look don’t take it out on the bank teller staff, they’re just cogs in the machine, but they should be contacting their banks and saying they should share the joy with your customers. I’d just be contacting your bank and saying ‘not good enough’.

Steve Vizard:

Is there a point where you look at the four pillars when the banks aren’t responsive enough and the levers to bring to bear what the banks can and can’t do?

Bill Shorten:

We have done a range of measures. We’ve certainly made it easier for credit unions to pass the test of becoming banks and there’s over 4 million Australians who have their money in credit unions. That means the chances are the next five people you pass, chances are two of them will have their money in a credit union. Credit unions look after $83 billion of Australian money. So there are alternatives. People are traditionally reluctant to move banks, and I can understand that, but we’ve made it easier with our efforts to abolish exit fees so there are levers that go on. In a time of uncertainty though people go for solidity so to some extent if you’re the bigger banks, you trade on the fact that you are stable and not that the smaller ones aren’t, the bigger ones just sound nicer even though credit unions, Bank of Queensland, Members Equity are doing an equally good job, so there is actual choice is mortgage. But there’s nothing wrong with old fashioned people power. There’s nothing wrong with picking up the phone and speaking to the bank manager and saying ‘hey, we’re really not happy’. In my experience if enough people ask for something then often enough something tends to move forward.

Steve Vizard:

Bill, what’s the baby situation? Are we on the move again? Are we back in the car?

Bill Shorten:

She is unbelievably beautiful, which is mainly due to her mothering and not her fathering.

Steve Vizard:

Let’s talk about the ALP. I just want to get this out of the road. The ALP National Conference. Gay marriage on the agenda. Where do you stand personally on the conscience vote on this?

Bill Shorten:

Well I certainly support having a conscience vote.  I thought what the Prime Minister did was right. There are people who strongly believe that if you are in a same-sex relationship you should be able to use the Marriage Act. There are a lot of people who strongly believe that marriage by definition has to be between a man and a woman.  I’m undecided on how I will vote if there is a law presented to Parliament.  I certainly don’t believe in discriminating against people. I respect a lot of people with religious convictions. So it’s an annoying answer for politicians to give to media people. I am undecided. I might also add, and this might come as a bit of a shock, that it’s not my strongest issue. Like I’m more worried about the jobs and the banks, raising kids. For me this issue is not the biggest issue. For the gay people I know not all of them are raising it, a lot of people with religious convictions are thinking about how they make ends meet. For those who care about it, it is a big issue, for the rest of us it’s not as big an issue. I’m not a moralist. What choices people make is up to them and I don’t really want to butt into the personal lives of people 

Steve Vizard:

I think most people would agree with you and that’s why they would regard the ALP National Conference headlining that issue and the uranium sales to India issue, both of which are important in their own right but are tangential issues in light of mortgages and the like.

Bill Shorten:

Let’s be fair. The reason why those issues get the coverage is because there’s argument in the media and it’s their job to report the controversy. There’s a lot of other things. I spoke about a National Disability Insurance Scheme. We spoke about a better deal for superannuation for people when they retire.  Because no one in the party fundamentally disagreed with what I had to say, you didn’t see it on the 6 o’clock news. There’s an element here similar to you report the road crash, not the fact that everyone else is driving safely on the road.

Steve Vizard:

In the Australian TV debacle, which I reckon most people would regard as a stuff up, is that a reflection on Kevin Rudd? Is there politics there between the Prime Minister and the Foreign Minister?

Bill Shorten:

No, there have been tenders in the past but when this latest tender process came through and there were leaks, I wasn’t in the Cabinet but they formed the view that we’ll just let the ABC do it. So you’d rather not have uncertainty but I think they’ve ended up landing in the right place.

Steve Vizard:

Bill we’ll let you get back to family matters. What are you doing over Christmas?

Bill Shorten:

Hopefully taking it quiet. Last summer we had the dreadful floods so January was spent arguing with insurance companies. Fingers crossed that nothing too bad happens and everyone has a safe Christmas.

Steve Vizard:

Good on you Bill. Thanks to you and have a good new year.

Bill Shorten:

Cheerio.

ENDS