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Sunday Agenda -

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Sunday Agenda

Chris Bowen, Financial Services Minister

30 August 2009

Interview with Chris Bowen, Financial Services Minister

Sunday Agenda program, 30 August 2009

Helen Dalley: The economic meltdown of the last few months has thrown a spotlight on financial
regulation, among other things, the need for adequate controls to stop excesses. It's also thrown a
spotlight on the government's stimulus spending on school buildings. And we're talking about those
issues today with financial services minister, Chris Bowen. And since superannuation also comes
under his portfolio we might take a look at that area as well. Thanks for joining us this morning.

Chris Bowen: Good morning, Helen, it's good to be here.

Helen Dalley: Let's talk stimulus package first. Now, there have been problems with the whole
rollout of the stimulus package. New measures had to be announced to stop rorting of the free
insulation program by Minister Garrett, on top of guidelines and rejigged moneys to cover the $1.5
billion shortfall in the schools' building program. Now, was the program not properly thought
through in the beginning?

Chris Bowen: No, not at all, Helen. What we're seeing is some parts of the stimulus package coming
in under budget; other parts of the stimulus package costing a little more than expected, largely
because . . .

Helen Dalley: $1.5 billion is a little more than a little more.

Chris Bowen: Largely because of increased take-up rates. So overall we're seeing the stimulus
package being delivered at the same cost as was predicted because you're seeing some parts
delivered cheaper than expected, other parts delivered more expensively than predicted, but
overall, as you'd expect after a very big spending program delivered in a very tight timeframe for
all the right reasons, as has been praised by international think tanks around the world, you are
going to get calibration six months later. It would be negligent of the government not to calibrate
six months later and say well this bit has cost a bit more; this bit has cost a bit less, we'll
calibrate it out over the total.

Helen Dalley: All right. But with the primary schools' building program in particular I mean you're
trying to characterise it as we're just rejigging the money around, money some which came in under
budget, but really why on earth would the government think that only 90 percent of primary schools
would want to take a free handout from the government? Surely it's common sense that 100 percent
would want that.

Chris Bowen: Well, it is about take-up rates largely but there are also other elements; there's new
schools that have been built, et cetera. But also we've seen as I say the science and language
laboratories costing less than expected. So it's appropriate . . .

Helen Dalley: All right. Can we just answer the question about why would you not think that
everyone would want it? Why did you think only 90 percent would want it because that was the
assumption?

Chris Bowen: Well, 90 percent is the normal assumption when you're planning the rollout of
infrastructure to schools. Now, this has been a very popular program, that's something that we
shouldn't be disappointed about.

Helen Dalley: A free handout you should know that everybody would want.

Chris Bowen: Well, talk to school principals as I do in Western Sydney and elsewhere, of course
they are saying this is a great program which has the potential to really improve educational
outcomes, so, yes, they are taking it up. And, yes, we have recalibrated the program to match
demand. There are some parts of the package which have had less than expected take-up. In
insulation, for example, there are some parts of the insulation program which have had less than
expected take-up. So after six months of course when you have, as I say, a very significant
stimulus package you're going to get some parts that have been taken up less and some parts that
have been taken up more.

Helen Dalley: Doesn't this dent your fiscal credibility because in fact the Commonwealth
Coordinator-General's report says that it's a combination of poor program design, inaccurate cost
estimates and excessive prices by tenderers. Now, obviously the excessive prices by tenderers you
can't necessarily control but you should have put in controls that would stop that happening. But
poor program design, that's out of the coordinator-general's words.

Chris Bowen: I don't accept that premise, Helen. What we're seeing, as I say, is the biggest school
rebuilding program in Australia's history. It's going, if you talk to principals, very very well. I
talk to principals all the time in Western Sydney and elsewhere. They say that this program is
being delivered very well. Now, of course when you have such a big program which needs to be
delivered so quickly - I mean the good thing about Australia's stimulus package compared to
overseas stimulus packages is that the timing is targeted, is being delivered very quickly compared
to others because we wanted it spent at the time when the economy needed it, not in a couple of
years time as the world was moving towards recovery. And that's what we're seeing elsewhere is that
in other countries the stimulus package is only now starting to come into play, whereas in
Australia a lot of it has already been spent. Now, yes, you're going to get bumps along the road as
you go. You're going to get things which need recalibration and that's what we've done, that's the
responsible course of action.

Helen Dalley: All right. You've said that a lot has already been spent a lot faster than other
countries, is it time to start winding back the stimulus package, winding back your spending?

Chris Bowen: No. To reduce the stimulus package now would be to pull the rug out from under the
Australian recovery and to throw more Australians into unemployment. You know to keep unemployment
static you need to create about 20,000 jobs a month; you need the economy growing at 2 percent a
year. And that's very difficult in the current economic environment internationally. The stimulus
is a very important part of making sure that no Australian more than necessary is on the
unemployment line, and so to reduce the stimulus now or to withdraw the stimulus now would, a) put
more Australians on unemployment and, b) deny Australia infrastructure investment and deny
Australian schools much needed investment in their educational resources. We won't do that.

Helen Dalley: All right. But at a time when there are signs that the economy is strengthening, and
we had very good business investment growth in the June quarter, so the private sector is
investing, why does the government have to spend so much? Isn't it time now to pull back on some of
that and let the private sector take it up?

Chris Bowen: No, because we are still to see some way to go in this international economic crisis.
There are still dangers . . .

Helen Dalley: What, you're saying things are going to get worse?

Chris Bowen: I'm saying there are still dangers in the international economy. As the secretary of
the treasury said, there is still a danger of a second wave. There's still a lot to go yet. We
still are going to see more increases in unemployment. There's still some way to go. And so this
was a very carefully designed and calibrated package which was timed to wind down as the economy
recovered. And that's what we've done. But we need to see it through, we need to stick to the
strategy.

Helen Dalley: Do you think you risk being labeled fiscally reckless if you keep spending at a time
when the Reserve Bank will probably be starting to lift interest rates fairly soon?

Chris Bowen: Well, we've seen interest rates at their lowest level in almost 50 years. We've said,
and the Governor of the Reserve Bank has said, that you should expect more increases over time. But
the Governor of the Reserve Bank has also praised the government's fiscal stimulus package, said
that it's been very important and will continue to be very important. So we're going to stick to
the strategy, Helen, to do otherwise would be the irresponsible thing.

Helen Dalley: All right. So you don't think you're working against monetary policy and the Reserve
Bank's strategy with your fiscal policy?

Chris Bowen: No, no we don't. We think that it's very important to keep that stimulus in the
economy because there is some way to go in this economic crisis.

Helen Dalley: Just turning to general education funding, are you comfortable with the fact that
some private fee-raising well off schools in New South Wales possibly might get up to $15 million
more than their normal entitlement for funding under the socioeconomic status formula which your
government is continuing? Are you comfortable that you can justify that?

Chris Bowen: Well, Helen, we went to the election, we went to the people, with a commitment to keep
that funding formula in place for the term of this agreement. Now, we have an old fashioned view
that we should meet that commitment. Others have a different view, we respect that, but we promised
to keep it in place. We also promised to review the funding formula as the agreement runs to an end
and we'll do that in 2010 in preparation for the new funding agreement coming into place. And
everybody will have their say and we'll work the issues through. But we won't . . .

Helen Dalley: So do you think the SES should be scrapped, the socioeconomic status should be
scrapped or changed?

Chris Bowen: Well, we'll work that through. The education minister will work it through and bring
it to the cabinet and we will work it through in as open and transparent way as possible.

Helen Dalley: All right. Turning now to superannuation. You do wear a lot of hats. The review going
on now, now it might clamp down on stock lending, which of course helped the short sellers during
the market crisis, and it might also clamp down on trying to ensure that fund managers and trustees
work in the very best interests of investors. Now, do you support those sorts of changes?

Chris Bowen: Well, there are a range of issues and there's a number of issues that we're looking at
both through the Cooper review that you're referring to. There's also a parliamentary inquiry into
financial advice more generally for other products. And there are issues. And I've said there are
issues and I've said that fees and commissions are problematic and that we need to have a good look
at fees and commissions and that commissions . . .

Helen Dalley: So that's the main area you really want to attack?

Chris Bowen: Well, I do think that commissions, not only provide a potential conflict of interest
but also a perception of conflict of interest. And I've said that the Financial Planners
Association have done some good, but I've also said that we leave the option open for legislation
to enshrine those changes and to go further if necessary. We'll work those through with those two
reviews that are going on; the Cooper review into superannuation and the parliamentary committee
into financial advice more generally, and we will leave no stone unturned to ensure that
Australians get the best financial advice possible, and that means often going to financial
advisors but that there's no conflict of interest and no perception of conflict of interest.

Helen Dalley: Are you personally in favour, or do you see leaning towards legislating so that
financial planners have to act in the best interests of their clients?

Chris Bowen: Well, look, you need to be very careful in this, Helen, we've seen for example a
submission from ASIC. We've also seen a submission from the Treasury. Those submissions are
different, they have different points of view and there can be unintended consequences of any
actions, so you do need to work these issues through very methodically and that's what I'm doing.
I'll then take a recommendation to the government and the government will work it through very
methodically. But our intention will be that Australians get the best financial advice possible
with no conflict of interest in the best interests of the person receiving the advice, the
individual.

Helen Dalley: All right. On another side of that you've also this week announced taking away some
regulatory powers from the Stock Exchange and handing them to ASIC. Now, was that more a case of
you couldn't have the ASX, which is a listed company, regulating other companies that might be in
competition with it when you open it up to competition, more than a comment on how the ASX acted or
didn't act during the financial crisis?

Chris Bowen: There were two reasons for this change, Helen. One, you would expect the government to
be reviewing the regulatory environment. We took the view that this was a body in any
circumstances, this was a role best undertaken by a government body, by ASIC, that this would be
the best place. Also, as you intimate we do have some applications before us for competitors to the
Australian Securities Exchange. We want to be able to consider those on their merits. Therefore we
need the regulatory framework in place to do that. That means it was unsustainable to have the ASX
supervising their own operators, their own market participants, when you might have other operators
under a different environment or being supervised by ASIC. That would be an unlevel playing field.
It would be unsustainable to have the ASX doing it for the others and we didn't feel comfortable
with the entrants having that supervisory power to themselves as well. So this was the best model
for those two reasons.

Helen Dalley: All right. Looking at another area that's going to come up in cabinet; you'll
consider the book imports issue very soon. Are you in favour of the Productivity Commission's
recommendation to allow books, supposedly the big end of town says that they will become cheaper,
and to lift the import bans?

Chris Bowen: Well, Helen, this is a complex and nuanced issue. I was the minister in my previous
portfolio who commenced this review by the Productivity Commission.

Helen Dalley: Where are you leaning, very quickly?

Chris Bowen: Well, look, Helen, there'll be a cabinet discussion. We haven't even had a cabinet
discussion about this yet.

Helen Dalley: But you must've had some thoughts on it.

Chris Bowen: I've read media reports about cabinet members' views and I thought that was
interesting as we haven't had a cabinet . . .

Helen Dalley: And you're supposed to line up on the view that says open the doors up to
competition.

Chris Bowen: Look, I will say this, Helen, this is a complex and nuanced issue. There'll be a good
cabinet discussion about it because there is no simple response to this. The Productivity
Commission's recommended that change. They've also noted that there are cultural issues which need
to be considered and we'll be having a very good look at it and working it through in the
methodical, considered way that you would expect for a complex and nuanced issue.

Helen Dalley: Al right. One final one, New South Wales politics, now you worked for the Carr
Government as a chief of staff for a long time. You're a senior figure in the New South Wales
Right, why are you allowing this really disgraceful and embarrassing performance in the New South
Wales people who have been given the right by voters to govern this state?

Chris Bowen: Well, Helen, two points; firstly I've got plenty of federal issues to keep me busy. I
don't spend too much time thinking or working on state issues.

Helen Dalley: So what you've given them up, have you?

Chris Bowen: Well, no, I've got a very important federal job to do. But as a New South Wales
citizen I would say this, the people of New South Wales are looking to the New South Wales
Government to get on with the job and that means delivering services, delivering infrastructure and
not engaging . . .

Helen Dalley: All right. Internally should Eddie Obeid and Joe Tripodi and people like that be
forced to shut up and get back in their boxes or be sacked?

Chris Bowen: Well, I've seen media reports of both of them this week supporting the premier and so
I know what I read in media, I know what I see on television and I've seen people mooted as
possible leadership candidates saying they're not leadership candidates and they have no interest
in being leadership candidates. So I do think the media often gets themselves into a frenzy of
speculation about these matters.

Helen Dalley: It's all the media's fault.

Chris Bowen: No, I don't think but I do think the media often get themselves into a frenzy of
speculation and I think the people of New South Wales aren't interested in that and they're
interested in the New South Wales Government getting on with the job, not in more leadership
speculation but simply delivering services.

Helen Dalley: Chris Bowen, we'll leave it there, thanks for joining us.

Chris Bowen: A great pleasure, Helen.