ABC RN DRIVE
TUESDAY, 12 MARCH 2019
SUBJECTS: Labor’s push to give Australians a living wage, Josh Frydenberg’s backflip on the recommendations from the Banking Royal Commission, Labor’s plans to give Australians hotels control over their businesses.
PATRICIA KARVELAS: Dr Andrew Leigh is the Shadow Assistant Treasurer and he joins us. Welcome back to RN Drive.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Thank you, Patricia. Great to be with you.
KARVELAS: So the Federal Government has abolished the plan to dump trail commissions for mortgage brokers because of concerns around competition. They're going to get the ACCC to review it and they've got another review in three years. Why not review it given so much of the sector says that they worried about competition and that this will favour the big banks?
LEIGH: You just have to look at Kenneth Haynes’ report, which said on the issue of trail commissions ‘to put it bluntly they are money for nothing’. Now that’s a pretty damning indictment on their system. Trail commissions have been removed in other contexts and we believe it's appropriate to follow the Hayne Royal Commission’s advice on this.
KARVELAS: Treasury's advice was that it wasn't a good idea.
LEIGH: We believe that the evidence that was put to the royal commission, is very strong on abolition of trail commissions. Labor’s said we'll phase them out. We think that's the right thing to do for the sake of borrowers and as the Hayne Royal Commission pointed out, trail commissions stand an incentive for brokers to act more in the interests of lenders than borrowers. Again, it's about ensuring that mortgage brokers are operating as professionally as possible, that they're acting strongly in the best interests of the client. We take very seriously this Royal Commission report. I understand the government which voted against the royal commission 26 times and called it ‘regrettable’ when it finally announced it, doesn't want to go ahead and implement the recommendations, but we believe you’d need a very good reason not to follow through with recommendations of a royal commission.
KARVELAS: Rod Sims from the ACCC - I'm about to speak to him, actually - he says that there are potential competition issues in scrapping mortgage brokers and trailing commissions is an issue that should be reviewed. He says it's a good idea to review it and have a look.
LEIGH: No one’s talking about scrapping mortgage brokers. They play an important role in the industry. Three out of five new mortgages-
KARVELAS: Well, a lot of them will go out of business if you listen to what they're saying.
LEIGH: We've worked very carefully with mortgage brokers. We’ve announced that our policy in terms of commissions would be one which would set the commissions at a level of 1.1 per cent. We worked constructively with the sector to ensure that they continue to play a valuable part. But the Hayne Royal Commission has been pretty unequivocal on the issue of trail commissions and we think it's appropriate to begin phasing them out now.
KARVELAS: All right, let's move to another issue. It's an issue that Labor says is very important - in fact, the Opposition Leader said there would be a referendum on wages, that's how significant the issue is. Labor is campaigning heavily on lifting wages, which have remained stagnant. Given the slowing that we're seeing in the economy, unemployment rising in many states, are you confident the economy can handle the increase?
LEIGH: I think an increase in wages, Patricia, will be good for the economy. Short-sighted businesses think that they can have badly paid workers and well-paid customers. Smart businesses recognise their workers and their customers are the same people. And so one of the reasons we've had retail sales in the doldrums, why new car sales figures have been appalling is this sluggishness in wage growth. Since 2016, corporate profits are up 43 per cent. Wages are up just eight per cent. You look over the current course of last year - you've got corporate profits up 10 per cent, wages up 2 per cent. The fact is, Australia needs a pay rise. We need to get wages going again. Part of the challenge that we've got in Australia is one of household income having stagnated and households not getting their share of the productivity gains.
KARVELAS: But your own research linked increases in the minimum wage to increases in unemployment. You determined in your own research that a 3 per cent increase in the minimum wage could lead to a 1.2 per cent increase in youth unemployment. Do you stand by your research?
LEIGH: Patricia, I’ve looked very carefully at the impact of minimum wages. It's never led me to oppose an increase in the minimum wage.
KARVELAS: But I didn't say - I said you determined that a 3 per cent increase in the minimum wage could lead to a 1.2 per cent increase in youth unemployment. Do you stand by that research?
LEIGH: Patricia, I've worked very carefully on a whole range of issues around the minimum wage and simply to look at one aspect in one state doesn't give you the whole picture. The fact is right now in Australia we need to deliver a pay rise for low paid Australian workers.
KARVELAS: So do you stand by the research though, that there is a link between raising the minimum wage and unemployment?
LEIGH: I have never argued against a minimum wage increase-
KARVELAS: I'm talking about the link, not arguing against it. You might think it's still a good idea. That's not the question I'm asking. I'm talking about the research.
LEIGH: The key with this, Patricia, is you have to look at everything in balance. You have to look at the wage effect, you have look at the employment effect. You have to come up with an overall decision and it has to be right for the times. When I was writing back in 2003, we didn't have this real wage underhang that we have right now. We didn't have a gap between productivity and wages. It's the opposite now from what we had in the late 1970s, where we had wages outpacing productivity. Over recent years, wages have lagged productivity. Workers haven't gotten their fair share of productivity gains and it is absolutely right that Bill Shorten and Labor are calling for a better wage deal for average Australian workers.
KARVELAS: Okay, you might support the notion but I'm talking about the research that finds that unemployment would increase. Is there a risk given the research that you've produced?
LEIGH: I don't believe there is. I believe it's absolutely appropriate and certainly all the evidence I've looked at suggests that raising the minimum wage would reduce earnings inequality in Australia. If you care about-
KARVELAS: I'm talking about unemployment, not not wages. My question is about employment and unemployment and not wages.
LEIGH: I’m pointing out to you that you have to look at the big picture here. You have to look at the effect across the economy - things like retail sales, wage inequality. You have to look at the impact of raising the minimum wage on the whole economy. And in that context, it is absolutely the right thing to do and that is absolutely consistent with the research that I've done. I've done a lot of work as an economist at the Australian National University and continue to look very closely at this issue since I've entered parliament. There are a whole range of issues which-
KARVELAS: So do you accept then, given you have done the research, that there could be a risk in terms of a rise in youth unemployment?
LEIGH: I don't believe so. I think-
KARVELAS: Why is it different now?
LEIGH: Well, the fact is that the real wage hasn't been keeping pace. So nothing in my research suggests you should keep on cutting the minimum wage. We're not seeing workers getting their fair share of the productivity gains. We've got this growing earnings inequality in Australia, which really does eat at the heart of the Aussie fair go. You know, if the Liberals want to bring up research that I did 16 years ago, I wish they would also look at the work that I've done looking at the link between strong unions and better equity, The work that I've done looking at supporting a strong social safety net rather than ripping the guts out of it as they've tried to in successive budgets. The Liberals are focused on cherry picking one little bit of work that I’ve done-
KARVELAS: But you don’t contest the work, do you? What I said was accurate, wasn't it?
LEIGH: Patricia, I'm focused on making sure that we get the decision right-
KARVELAS: I know, but the question I asked is - but what I referred to is accurate, isn't it?
LEIGH: You need to focus on the economy. I'm trying to take you out of the weeds, into the big picture-
KARVELAS: Weeds matter. The weeds matter. I mean, it's a fact and you can’t contest that fact, can you?
LEIGH: Patricia, we need to focus on the big picture, the overall impact on the economy. I want to get you out of that narrow focus on one particular aspect-
KARVELAS: Well, unemployment is not irrelevant, Andrew Leigh, and I think a lot of people agree here. The impact on employment and unemployment is a pretty relevant factor.
LEIGH: Patricia. I admire your tenacity. It’s admirable, but I don't think it's reasonable. What we need to do in this context is to look at the overall impact on equity and growth. We will have a faster growing economy if we can get retail sales going again. The real problem - what happens when you redistribute income from the bottom fifth to the top fifth of the distribution is you're moving it from spenders to savers and that's one of the things that's hurting equity in Australia at the moment. The economy is is doing fine if you're an ASX 100 CEO, but it looks a whole lot different for workers who are working as cleaners, as checkout operators, workers who are working on production lines. They haven't been seeing their fair share of wage gains in Australia. That's why raising the minimum wage and raising the fair level of wages so they're keeping pace with productivity is absolutely the right thing to do.
KARVELAS: Labor wants an increase to the minimum wage, but you can't say how much it should increase by. Why not? Why aren’t you able to give a figure to voters so they know what we're talking about here?
LEIGH:The minimum wage has been set for more than 100 years by an independent commission. We believe that's appropriate. We think the independent commission largely gets it right. We didn’t think they got it right on on penalty rates, we have said that in that case we would intervene. But broadly speaking, the way in which this has worked right back to Federation is that governments and oppositions business and unions will make submissions and Fair Work Australia will come to its judgment on the right level of wages. But we think that is that that ought to be higher than it is today.
KARVELAS: Just on another issue, you've made an announcement today that I'd like to understand more, hear more about. You’re saying if elected, Labor would ensure that Australia's accommodation providers would have the ability to set their prices so they can compete with multinationals. What do you mean by that? What would happen and what would change to the current regime?
LEIGH: It's important to take a step back and recognize how the system works right now. So there's two big multinationals online booking providers - Expedia and Booking.com - that account for about 85 per cent of the market. They maintain a strong market share through requiring that hotels don't offer a cheaper price on their own website. And that's meant that they've been able to frankly gouge hotels, taking commissions of up to 30 per cent. So if you get a $100 hotel room, it can often be the case that $30 of that is going to an offshore multinational, just for placing the booking. We've said we'll get rid of price parity clauses, as France, Sweden, Belgium, Austria, Germany and Italy have done - allowing people to book direct and save through their local hotels.
KARVELAS: Okay. So it's a pretty big shake up to the system. Would it be easy to implement?
LEIGH: It ought to be straightforward. These price parity clauses are currently legal. We would ban them. That's a major change for the accommodation industry. It’s been welcomed by accommodation providers who recognise that they need a government that isn't backing offshore multinationals over all these small businesses, but is putting Aussie small businesses first. And again Patricia, to come back to the effect on retail sales and employment, this is about putting those firms that employ a large number of Australians - often on modest earnings - right at the centre of Australian policy making. We don't think that we ought to be supporting multinationals and tax havens when Aussie small businesses aren't getting a fair go. So this sits alongside a lot of the policies we've announced in the competition space, whether it’s backing independent mechanics or auto dealers or dairy farmers, whether it's boosting the litigation budget of the competition watchdog or giving them a market studies power, banning unfair contract terms. We’ve got a lot out there in the competition space to make sure that we've got strong competition and the wage growth will flow from that.
KARVELAS: Andrew Leigh, thank you so much for joining me.
LEIGH: Thank you, Patricia.
Authorised by Noah Carroll ALP Canberra.