Bank Merger, Petrol Prices, Bank Fees, State Loans

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Bank Merger, Petrol Prices, Bank Fees, State Loans


Transcript No. 2000/61





Interview with Alexandra Kirk


Wednesday, 31 May 2000

8.00 am

SUBJECTS: Bank Merger, Petrol Prices, Bank Fees, State Loans


Well, the Treasurer Peter Costello says he’s approved the Commonwealth Bank’s

takeover of the Colonial State Bank because he’s satisfied it is in the national

interest. Mr Costello has joined us in our Canberra Studio.


Mr Costello, welcome.


Thank you.


How can you say that it is in the national interest for those two banks to merge?


Well, when you’re looking at the national interest, we apply three checks to it,

really. The first is we look at it from a prudential point of view. Will it make

depositors’ money safe? And we have the Australian Prudential Regulatory Authority,

which has approved it. The second is we look at it from a competition angle. Will people

be protected in terms of competition? And the Australian Competition and Consumer

Commission has received undertakings which will enhance competition, and has approved it

with various undertakings. And thirdly we look at it from the point of view of, what will

it do for our financial institutions – will it make them stronger, will it enable

them to compete more? And we received various undertakings from the Commonwealth Bank in

relation to continuation of branches.


And do you see this is as good news then for the bush?


Well, let me just go back to some of the introduction. These are two private companies.

The Government doesn’t own either of these companies – two private companies.

And it’s all very well to say well, you know, private companies should have a service

here or there, but the Government doesn’t own it. The Government doesn’t

actually sit down and tell private companies where they open their shops, as it were. No

more than we do it for McDonalds or Kentucky Fried Chicken . . .


But you have to be sure . . .


Now . . .


. . . that it’s good for people.


. . . when these two private companies both recommended that they want to merge, they

came to the Government with a couple of assurances. And the assurances were: that for the

first two years they would retain those Colonial Bank branches; in country towns where

there is only one bank they would post-amalgamation keep that branch open for at least

five years; that they would increase employment in Tasmania – and I noticed that the Labor

Party Premier of Tasmania has welcomed the arrangement because it’s going to lead to

more jobs in Tasmania – and that they would guarantee all jobs in rural New South Wales, a

guarantee that there would be no net reduction in employment. Now, where private companies

can satisfy the prudential test, the competition test, the jobs test in the rural areas,

and it gives Australia a strong financial institution, then I think that it is in the

national interest.


But as we just heard a few minutes ago, the National Party President Helen Dickie says

that country people will feel angry and disillusioned, they won’t be persuaded by the

Commonwealth promise about competitive fees and service quality. All these things just

don’t wash in the bush.


Well, let me make the point. The Commonwealth Bank is not a Government owned Bank. The

Labor Party privatised it as you know. It’s a private operation. Now, I know a lot of

people have trouble with banks, we all do. And I always encourage people having trouble

with their banks to take their business elsewhere.


But they’ve just got one less bank to take (inaudible) . . .


No, that’s not right you see, because the Australian Competition and Consumer

Commission has put enforceable undertakings, which has satisfied it, that competition will

be at least as great. Now how will that be done? It’ll be done by making this bank

open its EFTPOS, making it open its ATM to new entrants, by requiring it to give services

to new competitors into the market so that the competition is as great. And by requiring

it to do that, and by the other requirements in relation to continuation of the branch

structure you can keep the competition as great.


But where is the competition, for example, in the fact that over the past few years

bank fees have actually increased 35 per cent, they haven’t fallen.


Well, you know, I heard the other introduction about credit interchange for fees and

what the Australian Competition Commission has said, and if that’s right I

haven’t got the evidence, we have an independent commission which is required to

actually investigate those things. If there has been an agreement, and I say if there has

been an agreement on prices, then that is contrary to the law and no doubt there’ll

be a prosecution.


So isn’t this then exactly the wrong time to allow a bank merger?


Well, let me make this clear. These private companies that are taking this action . . .


But you have (inaudible) . . .


. . . there is no . . .


. . . but you have (inaudible) . . .


. . . no, no, no, there’s no guarantee that if these companies didn’t merge

that they’d continue their branches. And if there wasn’t a merger, any of these

banks at any time can close a branch, as we’ve seen. A merger isn’t the thing

that causes branch closures, what’s been causing branch closures is automation. And

regardless of any merger – have a look at the Commonwealth Bank, it’s been closing

branches. I think it’s quite wrong to say that the branches relate to mergers. In

fact, all of the evidence over the last two or three years is that mergers have very

little to do with branch closures, it’s automation and ATM that’s leading to

that. Now, I actually think, as it turns out, that because this merger came along and

conditions were put on the continuation of branches and guarantees of employment,

you’ve probably actually got guarantees of employment that if there wasn’t a

merger you wouldn’t get. For example, I can tell you this. You wouldn’t be

getting the new jobs in Tasmania if these conditions hadn’t been volunteered and



Just on another issue of the ACCC, it’s saying that contrary to your promise, it

cannot guarantee that petrol prices won’t rise anywhere in the country areas under

the GST because it can’t ensure that the subsidies that you’ve put in place will

flow through to the consumers. Now, you were warned about this by your own backbenchers,

is it time to look at another mechanism?


Well I don’t know what allegation you’re making there. But what the

Government is doing is it’s paying a grant to the retailer. Not to the producer, not

to the distributor, but direct to the retailer which it expects to be passed on. And if

it’s not passed on, I can assure you that consumers will inform us. Consumers are

going to be the great policemen in relation to that. And where you pay that . . .


And then if that’s what happened, if that doesn’t happen what are you going

to do about it?


Well if the consumers . . .


The ACCC says it can’t do anything.


. . . well if the consumers come to us and they say, here’s BP station in such and

such a place, he’s got a grant and he hasn’t passed it on, I can assure you that

they’ll get a phone call and they’ll have various lectures on what the use of

their grant actually is going to be. And we will ensure that it’s passed on. And

what’s more . . .


What, by public embarrassment?


Well, it’s only paid, not for the benefit of the petrol retailer, but for the

benefit of the consumer. We’re not going to keep on paying it to a petrol retailer so

that the retailer can take the benefit. We’ll make sure that it’s passed on, and

I’m sure that the Australian Competition Consumer Commission will also ensure that.

In fact, in all of my dealings with business the complaints that come back to me is always

that the ACCC has too much power. I’ve never heard a business yet complain it

didn’t have enough.


Finally, earlier this month you called a $1.6 billion entity needed to prop up the

Budget bottom line a loan and not a grant. You’re now out on a limb, not one State to

whom the money goes agrees with you, and the Auditor General’s now looking into it.

Isn’t it time to accept the inevitable?


Well, I don’t think that’s right, that not one State does that. That’s

the first point. The second point is . . .


Well which State has agreed with you?


Well, I believe it was Queensland actually. Do you say . . .


And they (inaudible) . . .


No, no, but that’s in their Budget. Do you say they didn’t?


They since say that that’s not the case.


Well, in their Budget they said that they did. And I haven’t seen any statement to

the contrary since . . .


So that’s one?


. . . then. That’s the first point. The second point, of course, is that this is a

loan, this has to be repaid.


And if the Auditor General says . . .


No, hang on, hang on . . .


. . . it’s not a loan . . .


. . . let’s go through it. A loan has to be repaid. There is a written agreement

which says, this is a loan which has to be repaid.


And you’re giving the States. . .


No . . .


. . . the money . . .


. . . no . . .


. . . to repay it?


. . . hang on. It has to be repaid. Whether we give the States the money or not, it has

to be repaid. It is a loan. Now some of the States are saying, oh well, we’d rather

treat that as a grant. Let me tell you, that is not a grant, that has to be repaid. It

doesn’t matter what any State says . . .


So what about what the Auditor General says?


It doesn’t matter what the Auditor General says, a loan has to be repaid. And we

are insisting that that be repaid. This idea, that first of all you can say, something

that has to be repaid is not a loan, and then try and get out of repayment, is completely

contrary to the agreement. We have agreed with the States in an Inter-Governmental

Agreement, which every single one of them has signed up to, that we would make them a loan

which is repayable. And no amount of slipping and sliding by

any State Government to say, oh, it’s not a loan and we don’t have to repay

it, changes the character of that. There is a written agreement for that loan which makes

it repayable, and the Commonwealth will be insisting that it be repaid, I can assure you

of that.


Mr Costello thanks very much.