Federal Minister for Financial Services and Superannuation and Employment and Workplace Relations Bill Shorten tells Business Spectator's Alan Kohler, Robert Gottliebsen and Stephen Bartholomeusz:
- Financial services job losses are unfortunate, but he forecasts the industry will expand in the next five years
- The Qantas grounding was 'dramatic' and 'draconian', and business opinion would not be so positive had the unions done the same thing
- The government will push ahead with Future of Financial Advice reforms, and that does mean business practices will have to change, although they are listening to implementation concerns
- He believes uniform OH&S reforms have not created the unintended consequences that many reports suggest, but simply codified common law
- Australia should be confident, but not complacent, about our position after the World Bank's suggestion of a another financial crisis
Alan Kohler: Bill Shorten, welcome to Business Spectator.
Bill Shorten: It’s a pleasure to be here.
AK: Now Bill, we’ve got some banks talking about layoffs, reducing their employment, so shouldn’t you be giving them some industry assistance along with the car industry?
BS: Oh Alan, do you think there’s any more industry assistance that could have been given to the banks than for us to guarantee them in 2008? I think that’s the mother of all industry assistance, wasn’t it?
AK: But are you concerned about the potential for reduction in employment from what’s going on in the banks? I mean obviously there are quite a few thousand people likely to lose their jobs.
BS: Yes, I am concerned. Job losses are unfortunate. Across my working career I have seen jobs lost across a range of industries. What pleases me generally about the financial services sector in Australia is that from November 2007 until now there have been 13,500 jobs created. Now, I’m mindful very much of what’s happening in global banking. I’m mindful that both foreign banks in Australia and domestic banks in Australia, they’re cutting their cloth. I was pleased that from the global financial crisis onward they seemed to be hiring when many other industries were shedding. So, I understand at the moment why banks are letting go of people. I hope that process is done fairly. Voluntary redundancies – perhaps people reaching the skinny end of their banking careers. They might be looking for a voluntary redundancy. I’m sure that the professionals in the system will try to do what they can. I’m also aware that some services offered by banks are offshored, but part of that is inevitable. I’m also optimistic that in the next five years, according to the forecasts I’ve received from my department, the financial services will again expand. I’ve got no doubt that the European, or the euro, crisis is not a matter of weeks or months. It could take much longer to see that resolve. But the Australian banking system and financial services is a solid prospect and I’m not going to be one of those people talking it down.
AK: More broadly, obviously, our unemployment rate is lower than elsewhere in the world, particularly in the West in Europe and America.
BS: Much lower. You’re right.
AK: But employment is soft in banking, retail, manufacturing and so on, yet the government’s fiscal policy is contractionary. The Reserve Bank is reducing interest rates to try and maintain the economy, build it up and maintain employment, but in effect the government and its fiscal policy is working against that. Isn’t that something you should rethink?
BS: I think fair is fair when we talk about our fiscal policy. Since the global financial crisis, as I’ve mentioned we guaranteed the banks. I think everyone gave that a tick and it might even pass the industry assistance test you set me in our first question. But we also increased the disability pension and the aged pension at a time when it would have been easier not to do so.
AK: But that’s got nothing to do with employment. We’re talking about the fiscal policy to get back to surplus as quickly as possible to consolidate and contract.
BS: Alan, whilst I know a bit about economics, I’m also a student of history and it’s important for the context. So, when we talk about what the government is doing as of January 19 or January 20, 2012, I think it is important just to remind people in this 24-hour news cycle of what’s come before. So, we did guarantee the banks. We did increase the aged pension and disability pension. We also provided stimulus in the form of the building education revolution. But now, what we need to do is we need to make sure we can get to surplus. I think that is a sensible policy. And that’s important in the long run to create confidence. It is important we get back to surplus, so that we have our economy in the most robust shape, not only for tomorrow’s crisis, but next week, next month, next year’s challenges as well. We also have the tools of monetary policy and the floating exchange rate. Unlike a lot of Western nations, we have 425 basis points of sea room – to use an unfortunate analogy in light of the tragedy which has happened in Italy. We’ve got 425 points, 4.25 per cent of the cash rate for monetary policy for the Reserve Bank, if it feels appropriate, to help restore confidence and stimulate the economy. That’s a tool or lever which I think a lot of other nations would love to have. Also I think any student of our currency and our floating exchange rate knows that there is the flexibility offered by that device to also help cope with some of the challenges we’ve got. I mean there’s a lot going on in our economy. We’re a diverse economy. I do agree with your observation that there’s likely softness in our employment numbers. I’m releasing employment numbers later today, Thursday. We’ll see what they are. I’m not aware of what they are yet. I do agree that retailers are doing it hard. I do agree that there are layoffs in the financial services sector. But what I also believe is that the best way we can deliver job security in a post mining boom economy is through having the most skilled and mobile workforce possible combined with productivity and lifting infrastructure which is what we are working on right now.
Robert Gottliebsen: Bill, do you believe that bank profits should be reduced rather than the workforce retrenched?
BS: I don’t believe in nationalising the banks. I think the banks -
RG: I did not say that. I asked whether the bank profits should be reduced.
BS: Yeah. I’m answering your question and I’m setting the outliers of my answer. I don’t believe the Government should be determining the profit levels of banks. No, I don’t. It’s up to shareholders and banks to determine what they think is good treatment of their employees; what they think is a long-term proposition as opposed to a short-term proposition. But do I say that a company should never, ever lay off people? No. I won’t say that. But by the same token there are costs to laying people off which aren’t always measured in the immediate saving in the wages bill. If you cut too much, then you lose skills which on the upturn you need to rehire and retrain. I’m not saying banks are doing this automatically, but I do think that you’ve sometimes got to weigh up the short-term gain to cash flow by cutting wages to the longer-term position of retaining skilled staff.
RG: Will you be happy if bank profits fell say 10 or 20 per cent? Do you think it would save some of the workforce?
BS: Oh, I’m not going to make a judgement call. Shareholders, which are mums and dads, want to see good profits in banks. By the same token banks should understand, as I’m sure they do, that their workforce is the key ingredient in their success. These are balancing acts which they don’t need a government on the sideline second guessing, but, in my experience both employing people and my experience in diverse parts of the Australian economy, sometimes it may seem simpler to just chop heads, but in the long run you need to rehire those skills. But these are balancing acts with modern, sophisticated employers that are capable of making judgments. I’m not going to set what the official profit should be for a bank. That would be an overreach.
Stephen Bartholomeusz: Bill, you refer to the measures the government took in 2008-09 to support the banks and the economy. The World Bank this week has said we’re on the verge of another crisis worse than what happened in 2008-09. Does the government have a set of emergency responses prepared?
BS: Well, first of all, the World Bank report hardly referred to Australia and I think their focus was squarely on Europe and Asia. I believe that we do have a set of tools available to us, monetary policy. We have the exchange rate. We have options about government spending if necessary. I think that what’s in the economic response kit is fairly well known. I think in the medium term the problems in Europe will continue. I think they have two or three direct effects in Australia. The most important is confidence. It is a challenge when you’re an elected representative. On the one hand you want to make it clear that there are difficulties out there in other parts of the world, but on the other hand I don’t want to unduly panic people and crush confidence yet. I would just refer back to the sort of common sense ‘airport test’. When Australians come back from overseas they do work out, by and large, that this country is going better. My greatest concern – other than the effect that Europe might have on confidence – is that by the same token we shouldn’t be complacent here. We’re a small country of 23 million people. We’ve got a minerals boom but as our volumes go up around the world prices will ease off. Of course the demand in India and other parts of Asia is going to only increase, so I think minerals will still carry us part of the way in the future. I think the Government’s agenda of training people up – the reality is most Australians who are 20 now will have eight or nine jobs in their lives. The best way we can guarantee their job security is not always just defending a particular job, although it’s relevant at certain times and in certain sectors, but it’s making sure that the people in these jobs as their structural adjustment in the economy can move to new jobs, and that’s what this government is focused on.
SB: As we saw last time around, the biggest vulnerability of our system and our banking system is the access to wholesale funds, particularly from offshore, but we saw the CBA covered bond issue, the prices are spiking and the availability of funds is starting to shrink. Is there anything the government can do to secure the funding requirements of banks?
BS: Well, I should have added that along with confidence versus complacency, the other issue arising out of Europe I believe is the lack of availability or liquidity of borrowing money overseas. It’s no secret that the Australian banks do borrow a large proportion of money from overseas. We’ve developed the covered bonds market. We think that is a good development. I also believe that increasing compulsory savings from 9 to 12 per cent will add more money into the system in the future. We are also seeing Australians saving more, more than they ever have before, in household disposable income. Before the GFC or the global financial crisis I think there would have been barely two to three per cent. Now, it’s been north of 10 per cent persistently. And of course the downside of that is that perhaps Australians are spending less in certain sectors of retail, but we are saving more. I think the banks are offering better deals for depositors than they might have previously in the search for liquidity. So, I think there are a range of measures out there, but it is difficult for the next number of months in terms of liquidity and wholesale funds.
SB: The other aspect of that equation of funding is that the banks’ funding costs are going in the opposite direction to where the RBA seems to be moving official rates. That could blunt the effect of monetary policy and any response to the crisis.
BS: There’s no doubt that banks argue that the costs of raising capital mean that they say that they can’t always in the future pass on interest rate cuts. These will be matters which I’m sure the Reserve Bank will take into account. Also, I think banks argue their case voraciously from their corner, but they also understand that the depositors of banks like increased interest rates, but small businesses, credit card holders, mortgage holders, they also need to see reductions. If you don’t pass on the benefits of the RBA cuts, you reach a certain point where you’re actually affecting your own customer base. Anyway, these are finely balanced judgments which, each time the RBA makes a decision, we put our case, the banks put theirs and – most importantly – the consumers put theirs. What is uppermost in our mind is jobs, though.
AK: But that brings us to the earlier theme of the economy and monetary and fiscal policy. Monetary policy is going to be blunted probably by the fact the banks won’t be able to pass on full cash rate cuts. Europe is going into recession because of the austerity programs that a lot of those countries are implementing to get their budgets back to surplus. You’re going back to surplus quite quickly. And what they’re finding in Europe of course is that the recession is going to make it more difficult for them to go back to surplus. So, aren’t we facing a similar situation here, but obviously not quite as severe?
BS: In all fairness, that’s a question with about six parts, so I’m just trying to go back to the first part of your observation, Alan, which is that the European recession has been caused by European governments moving to austerity.
AK: Contributed to.
BS: Contributed to. I actually think that’s several chapters into the story of what’s happened in Europe. What’s happened in Europe is that governments have spent money without reigning in debt. What’s happened, in some economies, is that since their taxation system isn’t greatly respected that people don’t see a premium in just adhering to the tax system. There are some liquidity issues around some of the private European banks. I think the challenge for the Europeans in terms of recession and austerity is: do their politicians have the will to make hard decisions, but, even more than that, do the people who they govern have the will to accept the hard decisions? Now, this contrasts to Australia. I know we didn’t get a lot of support from the Opposition, but pick an issue like the flood levy, this government persevered with the flood levy and we’ve seen money go into reconstruction. This government is moving us back to surplus. We had a lot of advice – don’t go back to surplus, don’t try to go back to surplus, you shouldn’t talk about it, you should just spend your money, not try and deal with Commonwealth government debt. I think we made the right call in 2008. I think that did help stimulate jobs. This time around we’re moving back to surplus. We’ve got other levers and we are working on the post mining boom economy. And when we look at infrastructure, we’re trying to create, we’re trying to clear blockages in ports and in airports. I think that we’ve got a mix which is reasonable, but 2012 is going to be remarkably challenging nonetheless.
RG: Bill, your government has led Australia in the new reforms for occupational health and safety rules. Most of your proposed legislation is good, but the project is being held up by a few bad drafting errors. It’s about two or three hours work to fix them; will you do it?
BS: Well, when we say Australia has led the push for a national occupational health and safety laws, we’ve done so in partly due to the voice of the Australian Industry Group, the Business Council of Australia, the Australia Chamber of Commerce and Industry. I think most Australians rationally accept that we federated in 1901, it’s probably time we could have one set of national laws. There’s been a bit of a what I would liken, and you may or may not agree with this, a ‘Y2K’ scare campaign about the OH&S laws that CFA firefighters – that’s the volunteer firefighters in Victoria – won’t be able to be volunteer firefighters because they’ll be liable for everything that goes wrong. The latest Y2K scare, and of course I’m using the analogy of the Millennium Bug which a lot of countries worried about, but then didn’t materialise, is that foster parents will no longer be able to be foster parents because of the new duties. These stories are not right. These laws were passed last year before I became the minister. I’m going to meet with the volunteer groups just to allay their concerns. If there is any drafting ambiguity, of course we’ll look at it, but we’ll do it in a pragmatic, common sense way. What has been unfortunate is that whenever in Australia someone tries to do something which all Australians objectively agree is the right thing, all of a sudden we’re seeing the Coalition coming out and being knockers. I think it’s about time the business community just reminded the Coalition: You’re welcome to try and get into government, you’re welcome to oppose the government, but pick the right issues. Arguing about OH&S laws, scaring volunteers, scaring people where there’s no need to, to me that’s just petty politics which is one of the reasons people get switched off the negative game of politics. In answer to your point, I’m going to meet with the groups. Volunteering Australia is the peak group for all volunteers in Australia. They endorse the changes that Minister Evans brought in last October. They’ve re-endorsed them this week. Some newspapers have been running articles on some occasions without even ringing us to check or put our side of the story. If there are any unintended consequences, we will fix them, though I don’t accept the premise that there are a whole lot of unintended consequences. I do accept the premise that if people are confused, we need to clear it up for them.
RG: First of all, no disagreement from I don’t think anybody about uniform rules, but around the world that the word ‘control’ – If you use the word control, all the court cases and court precedents are there. Unfortunately, the draft has chosen a different form of words. They may be okay, but it means a long set of court cases to sort them out. All we needed to do was to cross those four words out and put in ‘control’, which is well tested and well understood around the world and in Australia of course and you’ve got yourself out of trouble and we’ve got our first uniform rules.
BS: Well, as Tony Jones on another TV show would say I’ll take that as a comment. I will take that advice back, Robert. I always listen carefully to what you say. I know that we’re using a concept of primary responsibility. I’ve done health and safety for twenty years. I suspect I’ve done more health and safety inspections than most politicians who have served in my role have done before me. I don’t think the law has changed. I think that we’ve codified the common law, but no one is ever too smart they can’t take advice, so I’ll take that question back along with some of the others that have been raised. When you say no one disagrees with uniform national laws, I wouldn’t mind sending a copy of the transcript to Colin Barnett in Western Australia who… plays a game of trying to lift his vote on bagging the federal government and bagging the east coast. And Ted Baillieu in Victoria is confusing us because they seemed to like the idea, now they don’t. So, I do think that some of the state governments need to decide if they support federation and uniform national laws. That doesn’t mean that we’re too arrogant not to accept observations, but there’s been a lot of debate and discussion about this before now. Productivity is affected by bad work place safety. You know, we’ve had a lot of debate about the Fair Work Act since Christmas. In that same time, six or seven people have been killed at work and that’s been a practically invisible situation.
AK: On the subject of the Future of Financial Advice, a lot of people are now calling for a delay. Are you considering a delay now to FoFA?
BS: Well, let’s see what they’re actually calling for. I read a fantasy piece in the Financial Review yesterday where Steve Munchenberg from the Australian Bankers’ Association said that our Future of Financial Advice reforms meant that bank tellers couldn’t be bank tellers anymore – which is nonsense. I know they’ll get upset at hearing this, but it’s just wrong. Sometimes I’ve found in politics it doesn’t pay to not be direct. The article in yesterday’s Fin Review said that because of FoFA bank tellers wouldn’t be able to offer advice about basic products. That’s just wrong. So, we’re going to push ahead with FoFA. The issue which I am actively consider –
AK: Are you going to push ahead with it at the same time as –
BS: I’m coming to the precision. I just first of all want to clear up – there are a lot of myths about FoFA. There are some people, say at the Australian Planners’ Association, they don’t like it, they don’t like what we’re doing, so they will hang their hat on any critique, delay, don’t do it, keep commissions, you know, kill financial planning because they don’t want to change. It’s a very fortunate industry in Australia that never has to change. So, one, we’ve got opponents who will use any argument to keep the same system which isn’t a good system. Two, we’re seeing people exaggerate the effect of it and I was using the bank tellers illustration as an example of that. Three, there has been a legitimate issue raised as far as I’m concerned, that if we’re proposing some changes on July 1, 2012, and some changes on July 1, 2013, and if these changes – which by the way the retail industry now accepts – I don’t want large organisations having to pay for two sets of IT because if there’s one thing which can always blow out in costs, it’s an IT programme. So, I’m up for a debate about the practical timetable of implementing some aspects of FoFA such that it doesn’t put undue cost on the people who have to make the changes. Very practical about that; happy to hear the arguments; happy to look at the case. But there’s no question of us deviating from the direction on eliminating remunerated commissions. We’re introducing scaled advice. We want to restore the reputation of financial planning. We are increasing compulsory super from nine to 12 per cent. Australians should reasonably expect that if they’re having more money saved compulsorily, they shouldn’t be unduly charged fees for the privilege of managing people’s retirement funds.
AK: The financial planners are complaining that it’s going to reduce their income, but that’s not only correct, it’s intended, isn’t it? Because you’ve been saying that the process is designed to make financial advice more affordable, so for that to happen, financial planning incomes need to fall.
BS: Well, I think some income streams for financial planners will change. Getting large commissions from product providers for pushing people into certain products, yes, that’ll be harder to do, absolutely. But only one in five Australians gets financial advice, so there’s a big market out there. We’re interested in making clear that financial planning is a profession. We’re interested in the idea that more Australians can take scaled advice rather than the 60-page documents they currently have to take. We’re interested in having more wealth for people to manage. We projected in financial services in the next five years there’ll be 26,000 extra jobs. We don’t believe that financial planning will be less lucrative, but some existing business practices and the way people get kickbacks and commissions from product providers to encourage people into one fund over another, that will change. We want planners to operate in the best interests of consumers. That can only enhance a profession.
SB: Bill, you referred a bit earlier to productivity in workplaces. One of the key business complaints about the way the Fair Work Act works, and I suppose it’s most notably demonstrated in the Qantas dispute, is that it appears that the unions are taking advantage of the wider scope of the Act to intervene in matters that businesses would be more properly the domain of management.
BS: Well, in terms of Qantas, let’s go to what the real bug bear was in Qantas. There was the management grounding a hundred airplanes, stranding tens of thousands of passengers and thousands of staff all over the world. I’ve done three enterprise agreement negotiations for Qantas in my old life. They have never been easy. Bargaining is never easy. Anyone who has done a serious commercial negotiation knows that. What I think made Qantas such an outstandingly unusual act was that I’d never seen an airline ground all its airplanes before.
SB: Given the choice of dying slowly or creating a confrontation than putting it in to the Fair Work Tribunal. What would you have done?
BS: So, why didn’t Qantas come to the government? Why didn’t Qantas flag they were going to ground the airplanes without actually inconveniencing thousands of people? Why couldn’t they have given 72 hours notice and said ‘right, this is what we’re going to do’, and they couldn’t have run all the same arguments?
SB: My understanding of the first part of that answer was that the Qantas board was given advice that it wasn’t legal for them to actually approach the government directly.
BS: I don’t agree with that advice. I haven’t seen that advice. If you’ve seen it, I’m not privy to it. I’ve done a thousand negotiations, Stephen. I don’t like wildcat actions by anyone. It doesn’t matter if you’re a worker or an employer. If a trade union in Australia had stopped a hundred planes flying, had stranded tens of thousands of passengers in Australia and overseas, thousands of airline staff overseas and in Australia, I don’t think they’d be getting the pats on the back … Just to bring it to a head. Say Qantas was negotiating for six months and wouldn’t budge, and were doing things like cutting overtime, and a union did the same thing Qantas did, would you be as harsh on the union or as nice on the union as you are on Qantas?
SB: I think that kind of downplays the impact that the campaign was having and would have had.
BS: But no, I’m actually saying let’s not have one rule for one in judgement and another rule for another. The Government would have intervened regardless of who had done that dramatic, draconian action. Secondly, what was to stop Qantas at least giving people notice? I actually think the passengers might have if Qantas wanted to square off and say we don’t like this action, but why not give people the notice? Why keep a mum away from her kid, a single parent mum flight attendant in Honolulu from her child? Why not give people 72 hours notice, take it to the Commission? They could have done that.
RG: One more question. What do you reckon where Tony Abbott’s weakness is?
BS: This constant negativity. If you want to be the alternative government, you’ve got to have a positive plan and that weakness has now been shown into relief. Really from the election in 2010, to late last year, Tony Abbott has been selling the story that they’re one scandal or one heart attack away from government, one cross bencher defecting. The problem for them now is they’ve wasted 16 months on a narrative which isn’t the case now, and now they’ve got a slightly different game. They’ve got to say ‘this is what we would do’ rather than just relying on a message that the Gillard government was a temporary government. We’re not a temporary government and we’re getting on with things. Like it or not, we’ve got on with the price on carbon. Like it or not, we’ve got the superannuation through the House of Reps. We are advancing on our FoFA reforms. We have got the mining tax going. So, I think Australians want a story of the future and hope. They don’t just want to be told the negativity. That’s his weakness.
AK: Thanks very much for joining us, Bill.
BS: Thanks, gentlemen.
Follow @AlanKohler on Twitter