ABC RN DRIVE
TUESDAY, 2 AUGUST 2016
SUBJECT/S: Reserve Bank interest rates cut; Australia’s economic outlook; Medicare campaign; Royal commission into the banks; 2016 Census.
PATRICIA KARVELAS: Andrew Leigh is the Shadow Assistant Treasurer. Welcome back to RN Drive.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Thanks Patricia, great to be with you.
KARVELAS: Is the Treasurer right? We need to drive investment in this country don't we?
LEIGH: We certainly do, Patricia. But the question is, how best to achieve that? As you've noted, the RBA cash rate has today been cut to the lowest level ever. Well below what the then Treasurer Hockey once described as "emergency levels". And that's partly because Australia along with many other countries in the world is facing extremely low inflation.
We've got sluggish demand right across the economy which is really struggling to make this transition out of the mining boom. The question then is what do you do about that? Because I think increasingly people are starting to wonder whether monetary policy has lost some of its bite. Maybe with more people relying on saving, there has been less of an impact of an interest rates cut. So that means again you don't want to have a Government which is turning away from investments in infrastructure and education and putting all of their eggs into the company tax cut basket.
KARVELAS: Is there any concern that Australia could be heading towards negative rates? This is very low.
LEIGH: It is indeed. Look we've obviously got a little way to go but as you get lower and lower I think there is a general view among economists that interest rates have less traction – monetary policy transmission mechanisms don't appear to be as powerful. That then makes you ask the question well what else can we do? The obvious answer to that is that fiscal policy. Government action needs to play a larger role.
But the economy isn't doing well, Patricia. We had the unemployment rate peak at 5.9 per cent in the global financial crisis and it's now at 5.8 per cent. We shouldn't get used to the fact that we've got GFC level unemployment. We shouldn't be complacent about the fact that we've had a fall in living standards of 4 per cent over the last few years. We shouldn't be relaxed about the fact that wage growth is as low as it has been in 30 years and inequality is as high as it has been in 75 years. This is an economy that is in bad shape right now.
KARVELAS: Andrew Leigh is my guest, he is the Shadow Assistant Treasurer. Our number here 0418 226 576, what do you make of this rate cut? Well people with mortgages are certainly probably pleased but there are implications for others. The Reserve Bank said that this cut shouldn't inflate house prices. Do you agree with that assessment?
LEIGH: Well I think that's probably broadly right. It will have an effect both on investors and on first home buyers. But certainly I believe that banks ought to be passing it all the way through. Funnily enough, Scott Morrison who has been quite a chest beater when it comes to the issue of being passed through, didn't hold a press conference today. It’s the first time I can remember that there has been a rate cut and the Treasurer has been completely absent.
KARVELAS: Sure but he has done an interview with a pretty tough interviewer though? That would be the counterargument wouldn't it?
LEIGH: Sitting down for an interview as you well know in politics is different from holding a full press conference. That's the normal act of a Treasurer. Of course Chris Bowen was out doing a press conference. Scott Morrison did just one interview. Frankly, people are asking themselves where has Scott Morrison been over the last month? At a time when the economy needs more economic leadership the Treasurer seems to have wandered off.
KARVELAS: The banks are not passing on the full amount, the Commonwealth bank was the first of the big banks to respond passing on around half of the cut to home owners. But they will trim variable rates by 13 basis points but interestingly, they have also announced a jump in term deposit rates, what do you make of this kind of strategy? It's not the usual strategy you see from the banks?
LEIGH: Well it's not. And presumably it reflects some attempt to use the unusual marketing window that a rate cut represents. But banks have seen a change in the marginal cost of funding and they ought to pass that through entirely. But for me, that's not the top challenge at the moment. The top challenge is where we go as a society in terms of getting ourselves out of this malaise.
The Economic Society of Australia were asked during the last election whether they thought it was better to invest in schools or to cut company taxes. And two out of three of the top economists in Australia said you want to invest in schools. We've had a one fifth reduction in public infrastructure investment in recent years. We know that building bridges, ports, urban rail and roads is all good not only from the construction phase but also from the productivity gains it brings to the economy. Less construction hurts the economy now and also reduces the economy's potential in the future. That has been another drag on growth since the Abbott/Turnbull Government came to office.
KARVELAS: So what will spur growth in business if low interest rates aren't having an impact?
LEIGH: In the long term, growth is largely a function of the amount of investment you've got in physical and human capital and the technology you've got to turn that investment into productive assets. We need to drive productivity, Patricia. And we can do that through making sure that our work force is smarter. We don't know precisely what the technological innovations of the next decades will be, whether they will come in driverless cars or whether they will come in some form of different use of smart phones but we do know that education is the best way of making sure our labour force benefits from those technological changes. So education, education, education.
KARVELAS: But given this stage more than ever we're looking at business confidence, you'd think you'd want business to be investing more than ever. Wouldn't a company tax cut perhaps help at this stage?
LEIGH: It's a company tax cut which is off in the never never. It doesn't come into fruition until the mid-2020s and then the flow through to the economy according to Treasury's own modelling doesn't come in till the 2030s. By that stage, Malcolm Turnbull will be a longer serving Prime Minister than Robert Menzies. The thing about making sure that you invest in infrastructure now is you've got an immediate payoff. Indeed even if you're looking at university investments, you've got a quicker pay off than you do with the Government's massively long-run corporate tax cut which is very expensive and very slow to act to help the economy.
KARVELAS: If I can just step away from the economy although I think the economy is going to be the big story over the next couple of years, there is no doubt about it. But to the federal election campaign at the moment because the Australian Federal Police say they won't take action over the controversial election text message about privatising Medicare. Is that a lucky escape for Labor?
LEIGH: This was always a ridiculous claim but the Government that there was some illegality involved here. The fact is that the Government has a lousy track record when it comes to looking after our public health system. If you're going to set up a Medicare privatisation taskforce, if you're going to cut the MBS schedule, if you're going to make it harder for people to get those pathology and diagnostic imaging tests then you shouldn't be surprised –
KARVELAS: But can I take you back to the text message, essentially no charges were laid because there are no laws in this area. Do you support calls to regulate texts and robocalls in the same way other forms of election campaign materials are regulated?
LEIGH: I think there is appropriate regulations in place, Patricia. The fact is, as the AFP said, ‘no Commonwealth offences were identified’.
KARVELAS: Sure, so you don't think there should be new Commonwealth offences?
LEIGH: Not in this area, no. I think it again points to how absurd the Prime Minister's election night speech was. Hyperventilating rhetoric, blaming everybody but himself for the terrible election result for the Coalition. And the very fact was, if they hasn't had such a terrible track record on Medicare then Labor wouldn't have been campaigning on Medicare. We campaigned to protect an institution which many Australians care about. The fact that Australians resonated with that message showed you how important it is that this Government keeps their hands off Medicare for this term of Parliament.
KARVELAS: You're listening to RN Drive, my guest is Andrew Leigh, he is the Shadow Assistant Treasurer. Just on two other issues before I let you go. How are you going to pursue this Royal Commission into the banks? Are you looking at a bill to take to parliament, and when?
LEIGH: Certainly we are keeping all our options open on that. It’s an issue which is really important to many Australians. I've sat down and spoken face-to-face with a range of victims of financial advice scandals. They're angry and they feel as though no one has owned up to take responsibility. One of the stories that stayed with me the most was a woman from the Central Coast who said that her kids are still reticent to come and ask her for $20 for a school excursion because they're concerned that Mum and Dad might be pushed over the brink and might lose their house. So the fact that these kids are still affected by a rip-off for which the bank didn't own up and take responsibility indicates how important the issue is.
KARVELAS: So will you prioritise a private members bill and getting other people on side? Perhaps trying to convince some people to cross the floor?
LEIGH: With all due respect Patricia, I won't canvas parliamentary tactics when we return. But we will keep all our options open on an issue which I know is front and centre for many Australians. Not just the victims, but also people who just believe that we can do a better job with our banking sector. We need a super-strong banking sector in Australia, because we're so reliant on overseas funds, about half a trillion dollars –
KARVELAS: But will it be your number one priority when you get back to Parliament?
LEIGH: It'll be a very important priority for us, absolutely.
KARVELAS: On the Census. What's your assessment of the ABS keeping people's names, addresses and other personal details for, I think, four years - up from 18 months?
LEIGH: As you say, they're extending it and they've made a case in the public arena that there's benefits to the public from that additional period of data-matching. But that's a policy change. The ABS shouldn't have to defend policy changes that are being made to the Census. It's their job to administer the Census, but it ought to be the job of the relevant Minister to go out there and argue for a policy change.
The thing is we have the absurd situation, with the Census a week away, of not being sure who the relevant Minister is. Some people are being told that it's Scott Morrison, others that it's Kelly O'Dwyer. It used to be Alex Hawke, now somebody says that it's Michael McCormack. I honestly have no idea which Turnbull Government Minister is responsible for the Census. But I can tell you this, they haven't fronted the media. They haven't explained why the changes are being made to the face of many Australians who are just genuinely concerned about why this shift has been made.
KARVELAS: I have been inundated with texts with people saying they want to boycott the Census, they don't want to participate. What's your message to those people?
LEIGH: My message to those people is; I understand your anger, but don't cut your nose off to spite your face. By boycotting the Census you take resources away from your community, because the Census is used to allocate resources across communities and across socio-economic groups. So take out your anger directly, not indirectly. Write to the Turnbull Government - there's a bunch of people you could write to, I've just listed some of them. Perhaps even by Census night they will know who the responsible Minister is. But fill out that Census form as accurately as possible, because it really matters for our community that we get an accurate snapshot of Australia on Census night.
KARVELAS: Andrew Leigh, many thanks for your time.
LEIGH: Thank you Patricia.