KEYNOTE ADDRESS, CUSTOMER OWNED BANKING ASSOCIATION REGULATORY AFFAIRS SUMMIT
National Gallery of Australia, 22 August 2018
Thank you, Michael [Lawrence], for that introduction. As a member for the ACT, welcome to those of you who are not Canberrans to the best city in Australia (as rated by the OECD). I acknowledge that we're meeting on traditional lands of the Ngunnawal people and pay my respect to their elders past and present.
At the outset I wanted to say a few words about where the Australian economy is tracking. I’ll begin, because I'm a natural optimist, with the things that look positive. The Reserve Bank recently noted that there has been a broad pick up in global growth in 2017 which has largely carried through to 2018. Chinese growth is increasingly consumption driven, East Asian semiconductor trade is healthy, European machinery investments has been strong. In the United States and Japan and Germany and in Britain, unemployment is in a multi-decade low. Forecasts for global growth have been revised up for 2018 and 2019.
For Australia, commodity prices remain solid. Analysts are a little concerned about the medium term outlook. Some of that turns on the changes that China is making around managing local production to improve urban air quality. A good thing for the air in their cities, but it may have knock on effects on our iron ore exports.
If you're a business, global interest rates are now as low as they've been since 3000 B.C., according to analysis done by the Bank of England. So that's the upside. That's my Edward de Bono ‘yellow hat’ analysis.
But if I put on my de Bono black hat, I can't help noticing a few other troubling signs. Inflation in Australia continues to be low, below the Reserve Bank's target. That's a sure sign that we've had something of an output gap building up over several years of subpar economic growth. We've got household income growth that's weak and that's dragging down consumption growth. Our spending on essentials hasn't actually changed that much, but we're spending a lot less on discretionary purchases, restaurants and recreation. We've got a frighteningly high household debt to income ratio, which could prove problematic when global interest rates are at a 5000 year low.
We've also got a somewhat soft labour market. Five and a half per cent unemployment puts us above the OECD average and one or two percentage points above many other advanced countries. Just to give you some perspective on this, if we had America's or Germany’s unemployment rate, then around 200,000 more Australians would have jobs. That's before we get to issues of underemployment and the rise in permanent casual employments that my colleague Brendan O'Connor has articulately discussed.
And a topic Michael Lawrence touched on in his introduction. We have had a little political uncertainty lately. This particularly affects sectors that are looking at making long term investments. Not only did the Assistant Minister you invited to debate me decline your invitation. He's today tendered his resignation, as have more than a handful of his colleagues. That's not just a political sideshow. It’s important for those of you who are concerned about the nation’s long term trajectory. Reporting yesterday said that the casting aside of the National Energy Guarantee would have a particular impact on energy investment. Some analysts suggest that between $3 billion and $5 billion of proposed investment is now in doubt as a result of uncertainty over energy policy. That's investments in wind, in solar and in gas. It's difficult to make long term investment decisions if the government doesn’t have long-term policies.
We also have challenges with market concentration in Australia. The Australian economy has many sectors that are dominated by simply a handful of players. In department stores, newspapers, health insurance, supermarkets, domestic airlines, internet service providers, baby food, beer and of course banking, the biggest four firms control more than 80 percent of the market. We have a plethora of mergers, but a paucity of start-ups. Turning that around will be vital.
In research published in the Australian Economic Review with Adam Triggs, we collected market share data on 481 industries and found high levels of market concentration across the majority of Australian industries. A new report by the Productivity Commission has found that as a result of the pricing power that major banks enjoy, ‘approximately half of the average loan price that major banks charge is estimated to be a premium over the marginal costs - double the margin that other Australian owned banks have and well above that of banks and other high income countries’. That's a concern not just for consumers, but also increasingly for those who are worried about research and development. If you enjoy a monopoly position you need to do less investment in R&D than otherwise. In addition, an important strand of research is suggesting that wage stagnation may have a lot to do with market concentration.
But I think there are causes for optimism when we think about the future of banking. Customer owned banks and mutuals represent one of the strongest forces in banking. Australia's 80 mutual banks, credit unions and mutual societies aren’t going through the same controversial patch as the rest of the banking sector. Among your four million members, you enjoy a considerable degree of satisfaction and that satisfaction is reflected in the confidence with which the customer owned banking association launched the ‘Own Your Banking’ campaign. You've had an influx of interest and inquiries, in part because people are shocked by the stories that they've been seeing coming out of Royal Commission.
Member owned banks are strongly integrated in your communities, supporting sporting programs and social activities. I commend you on that work, I encourage you to do more of it. It's absolutely vital to how Australians see their banks and it's vital at a time when Australia is becoming increasingly disconnected. Over the last generation, we've seen a decline in membership of Scouts, Guides, Rotary, Lions. Fewer Australians play an organised sport, go to church or are members of a union. We've seen concerning statistics around volunteering and donating. As Shadow Minister for Charities and Not-for-Profits, I've been holding a series of ‘Reconnected’ forums across Australia, meeting with now over 1400 community sector leaders in 14 forums – talking with them about what we can do to turn around community in Australia. Part of that is thinking about how the community sector and the corporate sector can better work together. Customer owned banking is a vital part of rebuilding Australia's civic fabric which has frayed in recent years.
Former Treasurer Wayne Swan once described building societies and credit unions as possibly the ‘fifth pillar’ of Australian banking. To ensure that fifth pillar stays strong, there's some really important issues that our body politic needs to bear in mind. The first is to consider the findings and recommendations the Royal Commission seriously. You’ve had strong engagements with our treasury team, in particular Shadow Treasurer Chris Bowen and Shadow Minister of Financial Services Clare O'Neil, who both send their warm wishes to you today. As the Royal Commission comes down, whether we are in opposition or in government (who knows this week!) we will carefully study its recommendations. We’re alive to the recommendations of the Productivity Commission around trailing commissions and ensuring that it is easy as possible for customers to make a choice about where to bank. We’re aware too that the customer owned banking sector wants to avoid unintended consequences from legislative and regulatory measures targeting the larger players. We've been focused on working with you on those issues over recent years. When the Royal Commission recommendations come down, making sure that the impact on your sector is correct will be one of our priorities.
Another is access to capital. Almost two years ago, on the day of the US election, I spoke to many of you at the Business Council Co-ops and Mutuals conference in Old Parliament House. Under the banner of ‘Inclusive Ownership, Inclusive Growth’, I announced the Labor Party would commit to ensuring fairer access to capital for co-ops and mutuals. It was a policy we had taken through our internal party processes and reflected Labor's strong commitment to the co-ops and mutuals sector. I was enormously proud to be able to announce it and almost as pleased a year later when the Turnbull Government announced that they were going to follow suit, accepting the recommendations in the Hammond Review. What is disappointing though is that we are now almost two years on from when Labor committed to this policy, almost a year on from when the Coalition followed suit, and yet we don't have legislation before Parliament. Whoever the government is, this is an important commitment to your sector and one which will benefit all Australians. We need to get it done.
So again welcome to Canberra. It is great to have you here in this crisp city of ideas. Thank you for coming together to share your thoughts with one another and with the policymaking community. I wish you all the best with your important conversations today.
Authorised by Noah Carroll, ALP, Canberra