NAB CEO Ross McEwan interview with 3AW’s Neil Mitchell
NAB CEO Ross McEwan spoke to 3AW host Neil Mitchell on Friday 27 October 2023 on topics including housing, the economy and cost-of-living. The full transcript is below. You can also listen to the broadcast via the 3AW website.
***Check script against delivery***
NEIL MITCHELL (NM): We’ve been talking about cost of living, we’ve been talking about possible increase in interest rates, people cutting back spending for Christmas – and adding to that housing and immigration. Now a lot of the focus this week have been some extraordinary increases in rents, extraordinary increases continuing in the price of housing and the shortage of housing. What do we have 170 people per rental property trying to rent a residence? We’ve had landlords saying: ‘we’re getting out, it’s just not worth it to us anymore’.
This is a rare opportunity to speak to him in the studio, the Chief Executive of National Australia Bank, Ross McEwan – thanks for coming in.
ROSS MCEWAN (RM): Good morning, Neil.
NM: Good morning. Housing – is it a crisis? Is it wrong, too hard to call it a crisis?
RM: I think it is. It’s become a crisis, and it goes back to the old thing of economics of supply and demand. We’re building about 175,000 houses a year and we need to build about 125,000.
NM: Sorry, how many do we need to build?
RM: Sorry, 225,000. And that’s been going on now for probably four or five years, so you end up with a situation we’ve got – not enough houses for people to rent, and houses, when you go to buy it, it’s getting more and more expensive because there just aren’t enough of them. That’s the problem.
NM: Is it going to get any better in the near future?
RM: It doesn’t look like it, unless we intervene right now and make it easier for developers to get on and develop and get the approvals to develop much faster. That’s what I’ve been calling for. It’s making sure that we’re clear about what a developer has to do to get an approval in and get it moving. Because if it takes years to get a development, just to get the shovel in the ground, that’s going to be passed on to the buyer of that unit or that house. And that’s what’s been happening. Prices going up.
NM: If you’re going to go develop more, you’re going to have to go to the city fringe though, aren’t you?
RM: Well, I think you’ve been having the conversation this morning about ‘closer in’ and ‘going up’. I think the danger of going to the city fringe, you’ve then got to build all the schools. You’ve got to build all the infrastructure of roading, and rail and trams. Where in the centre of the close to the city, you’ve already got those infrastructural features here – so we need to make tracks of land available closer to the city.
NM: How do we do that? Golf courses?
RM: Well, that would be controversial, just like the one you’ve been talking about this morning.
NM: Caulfield racecourse, we don’t need Caulfield Racecourse. What sort of thing?
RM: There’s a lot of land, if you actually use your mind around even railway stations, above railway stations, There’s a lot of building capability above and close to the city. And when we talk about housing, I think we’ve got to be thinking about the different types of housing, because Australia is also missing out on not enough social housing for those who are really struggling, need a house. And you just need to talk to the likes of the Salvation Army or Good Shepherd, and they’ll tell you that people are really struggling to find a house, and when they do, so much of their income is going on to just renting.
Then you’ve got affordable housing. We talk about being close to the city – how would you be being a nurse or a policeman or a teacher working in the city and having to commute 20 odd kilometres to get to work every day? One, the expense. Secondly, the time. That is a major impediment to people.
NM: What hope can be offered, or advice can be offered to somebody in their early 30s, late 20s saying: ‘I want to get into the housing’ or ‘I want to own a house or property’? What’s the advice?
RM: I’m not in the game of giving advice on the radio, we’d need a specialist but I’d probably move in as soon as you can, because look, this year we’re predicting house prices will be up by 8%. We’re predicting next year they’re going up about another 5. That’s our chief economist. It is because this comes back to, there’s not enough supply and there’s a lot of demand.
NM: I was talking to Abdul Rivi this week, former Deputy Secretary of the Department of Immigration. He’s done the figures which he used to do in government and he worked for both sides and he said the net gain in the immigration in Australia this year is 500,000 people. And what do you say? Well, let’s, let’s assume they’re couples. That’s 250,000.
NM: And we’re building 175,000 houses.
RM: And there’s our problem. Now just to be fair though, we lost something like 600,000 people out of the country through the COVID period. So we’re not-
NM: It’s catch up.
RM: Yeah, it’s catch up, but it is showing the issue that if we want to keep growing this country, which I think we do need to keep growing this country, we need housing.
NM: But nobody can tell me what the correct growth rate is. Nobody can tell me, and I don’t think anybody’s even assessing, what the correct immigration rate is. This was his point, he said it used to be about 130, maybe 150 to 170 is right.
NM: 500 isn’t.
NM: But we don’t know.
RM: But that 500 is a lot of catch up and we did need to have a catch up because we couldn’t find people in small medium sized businesses to work. If you got out into the agricultural sector, they were struggling to get people out onto the farms and the orchards and the like, so we needed to catch up and get those people back in. I think we’ve pretty well getting close to that. Now we need to work through what is the right immigration level for this country.
NM: So is immigration good for the economy or not? Some say it hides the danger of recession, it artificially inflates the economy. It’s certainly puts stress on infrastructure. Is it good or not?
RM: Yeah. Look, my view is a good level of immigration is good for an economy-
NM: Well what’s the level?
RM: Well, look, think about it. We’re all getting a bit older Neil, you and I. We need somebody to be doing the work behind us when you and I decide to get out of the workforce and we need to keep replacing and making sure we’ve got people in this economy that are going to be working, paying their taxes. Otherwise I think we’ve got a problem as we age.
NM: Fred. Go ahead, please, Fred.
Caller [Fred]: Good morning. Good morning, Neil and guest. Look, my three points are firstly, correct me if I’m wrong, but back in the 70s we had a treasurer, John Howard, who for first home buyers allowed their interest rate on their home loan to be tax deductible for a short period of time and that worked well because once you move from your first home to your second home, you lost that benefit. So it wasn’t a long term thing. Secondly, as interest rates went up to 7.5% what you found was that the government capped existing home loans to 13.5% for existing borrowers and the new borrowers had to pay the higher rates. So I can’t see why the government can’t persist first home buyers to get into the market to give them some hope.
NM: So you would cap the interest rate at a particular level of first home buyers. I don’t remember that period of having tax deductibility on the gap on your interest. I don’t remember that for a private home. For an investment property, yes. I don’t remember a private home, do you?
RM: No. But I also remember paying 18% for my first home loan and 24% for the second loan. But inflation was 14-15%. So there’s the killer at the moment, we’ve got to get inflation down. But can I just say, I’m always reluctant to manipulate a market because you either pull forward demand or push it out when you put all these incentives and changes in. I think we get back to the problem we have. We just do not have enough homes to be built. So let’s get to that point of how do we actually build some more homes, get the planning approval standardised across all the states and structured in a way that, good developments, not rubbish developments, good developers can get on and do the job they want to do.
NM: You mentioned inflation, Cup Day, the Reserve Bank announcement. Are you expecting an increase in interest rates?
RM: Well, we have been saying that there’s one more increase coming, Neil, at some point in time. I’m not too sure whether it’s Cup Day. That’s strange that Cup Day has become the big special day. But just be careful we might end up with a Christmas one if we’re not careful. Look, we think there’s one more left and we’ve been calling that for the last probably four or five months.
NM: Point two five?
RM: Probably 0.25. But look what’s really interesting and happening in the moment, we’ve had a lot of increases, we’ve had a period of stability – time when increases haven’t been coming through – and we’re now starting to see people adjusting. And it’s the change that people don’t like. It’s the constant movement of interest rates – I can’t adjust the budget fast enough. Where if I get some stability, we get some change. We’ve seen complaints come down. We’ve seen calls into our contact centres come down over the last three months, purely because customers have adjusted.
NM: They’re coping?
RM: They’re coping, now some, can I just say, some are not coping well. You just need to get out and talk to the Salvos who deal with a lot of these people, as I said, Good Shepherd and these groups that are really dealing with those who are really struggling. And there are lots of them. But generally our customers are coping. They’re finding it difficult, but they’re coping and they’re adjusting. They’re adjusting with they’re spending their money. They’re not buying that second coffee. They’re not doing as much out eating out. Travel still seems to be going pretty well, but they’re making the adjustments and I think the sooner we can get to the top of the interest rate cycle, people will adjust because they’re sensible about what they how they spend their money.
NM: Have we come to that cliff supposedly where people who had fixed mortgage rates have now gone floating?
RM: I’ve always said I didn’t think there was a cliff because it actually came off over a two year period, so that’s hardly a cliff, but it has been the adjustment period for those customers. We’ve had a number who have had some difficulty and the the best thing for people to do if they’re in difficulty, call their bank quickly so that we can actually address this. We’ve got a group called NAB Assist who look after those customers having troubles. We can have them in and out of there in 90 days, as long as they tell us early and we can help them out quickly. And that’s the call I’d say.
NM: The inflation figures, now the Treasurer is saying they’re not really that bad, that they’re caused by petrol and various international conflicts. I know most economists seem to be disagreeing with that. How do you interpret the inflation figures? How dangerous are they?
RM: It was higher than we anticipated the other day. As I said, we’d called one point one I think it was and it turned up at one point two and it turned up at the top of the grouping, so it was higher, but there are some factors running through there. You know you have got petrol coming through with oil prices going up.
NM: It’s going to be up for a while?
RM: It is, given what’s going on in the world and the uncertainty. Go back to that point of uncertainty – as soon as you get certainty, things come back again. But the trend was our friend. It was coming down, which is good. We still think by the end of next year we’ll be down to 3 odd percent back again, by the end of 2024.
NM: What is driving inflation now then, petrol?
RM: Petrol has been driving it and it still comes back to…
RM: Rentals, but it’s supply and demand of things. Where there is not enough supply and too much demand, and unfortunately that’s why the lever of interest rates has been used.
NM: Are you confident about the underlying state of the economy?
RM: I am. And…
RM: I’ve been calling that for quite some time. The reason why is we’ve got some good fundamentals in this economy with a very good mining sector that keeps moving along quite nicely. We’ve had the agricultural sector and some parts of that are still going well. Prices have come off from beef and lamb, but you’ve also got to go back to the point of immigration is very helpful at a time of when things are slowing down, because whoever comes into the country, they need somewhere to live, they probably need transport. They use all the things you and I do. That keeps an economy going. But this is a very good economy.
NM: But we’ve got a horrendous level of federal and state debt. Surely that has to be addressed, does it not?
RM: Over time it does. Yep, it does. And some of that was built up because of COVID. We were in pretty good shape pre.
NM: Some of it was built up by massive blowouts too, particularly in Victoria.
RM: We won’t get into the states Neil, but you’re right. We’ve got to be like a household. You’ve got to live within your means.
NM: But the figure the other days was, we’re spending as much servicing the loans as we spend on defence, nationally – which is $50 billion or something.
RM: Which then usually means things slow down.
NM: What’s the option? You mean the economy slows down?
RM: The spend slows down, actually like you do with your household. That’s what people are doing now in their households, they’re realising their incomes are such that, you know, they’ve got to readjust.
NM: The only way to address debt, well there are two ways, three ways – you can grow the economy which seems a long shot at the moment, or you can cut spending or increase taxes. And we don’t seem willing to do either.
RM: We’ve got to do a bit of everything. We’ve got an economy that’s still running and growing. We’ve got, looks like when we get out into 2025, which isn’t now that far away, we’ll be back into two plus percent growth, which will be good. But we do need to be very careful, just like a household is, where you spend your money.
NM: Do we need to review the tax system?
RM: If we’re going do it, I heard the comments on that this morning.
NM: From the OECD?
RM: Yeah, from the OECD.
NM: They’ve got a horror list. They want to increase tax on superannuation, death taxes, people over 70, increase the GST.
RM: Well, watch out Neil, they’re coming after you [chuckles].
NM: That’s true [chuckles].
RM: I would do a complete review rather than a piecemeal review. As soon as you do a piecemeal review, things go in directions you weren’t quite expecting to. Do a proper review. God forbid could we get two big parties to actually sit down and try and work it out together, because one’s going to inherit it from the other. But I’d a complete review rather than just pick some bits and pieces.
NM: Let’s have a look at the bits and pieces. Is the superannuation system too generous in your view?
RM: No, I actually I think we should be very proud of the super scheme that we’ve got here in Australia and the structure of it. I’d be careful to tinker, you can tinker but don’t do too much with it. It’s actually a real asset for this country and for individuals. We are, I was looking at some stats the other day, the second best country in the world for individual assets. Because of the super scheme we’ve done very, very well.
NM: What about the GST? Should we look at increasing, or changing it – increasing it or expanding it?
RM: Go back to look at the whole thing, because GST connected to personal tax to connected to company tax. How do you get a system that works longer term? When we’ve got big demands for aged care, disability care or the hospital system is in need of help. And also our education system. How do we do a complete review? Don’t do it piecemeal.
NM: It must frustrate… how many people does NAB employ?
RM: About 37,000 people.
NM: How many in Victoria?
RM: About 12 to 13,000.
NM: Are you going to move them out?
RM: The moves that have happened recently, and I’m sure I’ll get no sympathy for this whatsoever, there’s about $60 million worth. And then you say to people when they want to move to Sydney, ‘it’s okay’.
NM: What do you mean $60 million for?
RM: The increase in tax that we pay into Victoria.
NM: This payroll tax.
RM: Yeah, and the mental health tax.
NM: $60 million extra?
NM: From working in NSW?
RM: No, from working in Victoria.
NM: Yeah, but if you go to NSW you save $60 million.
RM: Exactly. Now, we’re not going to be making those moves, but you do quietly over time say ‘if somebody does want to work out of Sydney, well that’s fine with us’.
NM: Shayne Elliott from the ANZ says it’s one of the toughest places to do business in Victoria, for those sort of reasons. Other businesses outside banking have said similar. Do you think Victoria is the toughest state to work in?
RM: It’s expensive to be here, but it’s got a lot of advantages being in the great city of Melbourne. It is still one of the most liveable cities, so you balance that up. But all states have to be very careful. There are other places that you can quietly, over time, move labour.
NM: So have you moved labour out of Melbourne or not?
RM: No, we haven’t at this stage. But…
NM: At this stage? [chuckling] What does that mean?
RM: Well, I’m not making comments on that one [chuckling]. We judge it every time we set up a unit – where do you set it up?
NM: Well, that’s fair enough. That’s what you’ve got to do. I was getting to the point of government doesn’t seem… it must frustrate you, government is nowhere near as efficient as private enterprise. Can you sit down with government and talk about these sort of things? And say, look we don’t want to go to Sydney, but look at this?
RM: We’ve had very good relationships across federal and also most of the states have been very open to having those conversations.
NM: And which states will that be?
RM: And we’re not going into the next one Neil. But look, we’ve found actually most of the states are very open to having conversations. And the big conversations we’ve been having across states is around housing.
NM: You’ve been having big conversations in Victoria?
RM: We’ve been having bigger conversations somewhere else Neil, and some conversations here in Victoria.
NM: Now that disappoints me. I mean, we’ve got problems. We’ve got massive debt here as we’ve talked about, we’ve got problem repaying that debt. We’ve got all these other issues bubbling underneath.
Like it or not, the banks used to be the b*stards. I know. I think you’ve sort of come back from that.
RM: I’d like to think that, yes.
NM: Telstra’s taking that over, I think. I hope that view is gone. And I hope that any government of any colour anywhere in the country, state and federal will be saying ‘we gotta talk to you’.
You’ve got ideas. You’re in touch with your customers. You’re in touch with lending to businesses. You’re in touch with how their balance sheets are going. You’re in touch with all these things.
RM: We get pretty good access and the big topics, they’ve been very, very happy to talk to us and take ideas on board. And housing is the big one at the moment.
NM: So the phone’s just rung, it’s Tim Pallas, do you want to talk to him?
RM: Happy to chat.
NM: Thank you so much for coming in.
RM: Neil, nice to see you, cheers.
For further information:
NAB Media Line
M: +61 (0) 3 7035 5015