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Monday, 26 May 1997
Page: 3955


Mr ZAMMIT —My question is directed to the Treasurer. The Treasurer will be aware of the response of lending institutions to the Reserve Bank's cut in official interest rates last week. Can the Treasurer advise the House of the government's assessment of the reaction of lending institutions and whether consumers are fully benefiting from the new low interest rate environment?


Mr Wilton —No!


Mr SPEAKER —Order!


Mr COSTELLO —As the Prime Minister has already said, nothing gives this government greater pride than to have interest rates in Australia at their lowest level in 24 years—


Mr Howard —How long?


Mr COSTELLO —Twenty-four years—and to deliver to home buyers and small business in the way that we have. As the Prime Minister has already indicated, the standard variable mortgage rate is now at 7.2 per cent and that represents a 3.3 per cent decrease in the standard variable mortgage rate since this government was elected to office. As far as the government is concerned, it believes that the full 0.5 per cent cut in official interest rates should be passed on by the commercial banks. The reason why official interest rates are reduced is not to benefit banks but to benefit their customers.

We have already seen that some of the mortgage originators, such as Aussie Home Loans—

Mr Wilton interjecting


Mr SPEAKER —The member for Isaacs is talking too much!


Mr COSTELLO —RAMS and Priority One, are now offering rates below seven per cent. The first thing I would say to consumers is, `If your bank is only offering you 7.2 per cent on the standard variable get down to Aussie Home Loans, get down to RAMS or get down to Priority One and find a financial institution that is offering a better deal.'

The second thing that this raises is the question of whether the competition between banks is as high as it should be. Today I have spoken to the Chairman of the ACCC who has commenced an investigation in relation to the major banks to see whether there has been any price collusion which is contrary to the Trade Practices Act. The Chairman of the ACCC will report to me, I hope, by early next week on the basis of his investigations.

The third point that this raises is whether or not the government can ensure that there are structural changes in the Australian finance industry to improve competition which will ensure that consumers get the full benefit of reductions in official interest rates. The financial system inquiry has recently reported to the government. It found:

The regulatory framework proposed by this inquiry is founded on the premise that the financial system should be more strongly competitive and efficient.

I do not think that it is well enough understood that a number of the recommendations that were made in the Wallis inquiry were designed to enhance competition to banks, first, by opening up the payment system to non-bank financial institutions and, secondly, by creating a single prudential regulator which would facilitate the new entry into deposit taking markets and the growth of new entrants as competitors to the banks.

Some of the banks have opposed these recommendations. It is highly interesting to note those banks that have opposed them. One of the reasons why they may be worried by these recommendations is the degree to which they would enhance non-bank financial institutions competing directly with banks. These are recommendations which are designed to enhance competition. They appeal to the government for that reason. This may, in fact, be a very clear case study of the need for new non-banks to get into the market and to compete with banks.

We have seen in relation to the events of last week that it was the non-bank institutions—Aussie Home Loans, RAMs and now Priority One—that were able to pass on, in full, the benefit of cuts in official interest rates. Only the banks have lagged the game and they have all lagged to the same degree. As far as the government is concerned, there should be no price taking in response to this. This reaffirms the government's resolve in relation to any recommendations that it can pick up to enhance competition against the banks through the new regulatory system to provide the best deal for consumers.