If the government adopts most of the Murray recommendations the nation will be fundamentally changed, because the thrust of the changes go way beyond banking and superannuation fees.
And I believe the Murray changes if adopted will be for the better, but they will require the Abbott Government to alter its whole approach. I want to list eight ways in which our nation could be transformed, and you will notice that I leave banking and superannuation fees until last, not because they are unimportant, but because they tend to obscure other big issues.
1. First and foremost it gives the Abbott Government the opportunity to act in a way which the nation desperately wants. In issues like this, the nation yearns for its elected government to consult with the Opposition rather than talking to ragbags on the senate cross-benches seeking the lowest common denominator.
Opposition Leader Bill Shorten knows as much about the detail of the Australian financial system as anyone on the government side. Accordingly, improving the financial system is something they can talk about in the national interest. And if the government can’t bring itself to talk to the Opposition, then in two years Abbott and his cabinet will be out on their heads and Shorten can make the required changes. And when the two parties talk about the financial system maybe that will lead them to talk about other issues, which will foster further national improvement. Shorten and his shadow treasurer Chris Bowen know that if they gain office in 2016 they will face very similar problems to the current government. It’s in their interests to negotiate.
2. Murray has taken a vital step in reducing income inequality in Australia by going out of his way to specifically endorse the government’s proposal to extend unfair contract protection to small businesses. This change is, if anything, as big as any other proposed by Murray and it will be opposed with more vigor than any other Murray change.
At the moment the lawyers for large organisations (government and corporate) draft into contracts with small enterprises, as a matter of course, horrendous unfair provisions. That needs to be stopped. The public service hates the idea, but it will create a huge rise in small business activity and employment. It was a cornerstone of the Abbott Government’s election but, along with avoiding duplication in education and health expenditure, the public service has done everything it can think of to bury it. The plan was originally proposed in Kevin Rudd’s first election campaign, but again the public service buried it. This Murray recommendation (number 33) can be endorsed by Bill Shorten because it’s an ALP idea.
3. The Murray report is the beginning of the end for the superannuation lump sum and the current retirement plan of millions of Australians. But no one party can make that change because, while it is in the national interest, it will be extremely unpopular. The Coalition must unite with the ALP on this matter. Currently, many people spend their superannuation lump sums and then go on the government pension. The nation desperately needs this to change because we must use our superannuation funds to reduce the pension bill in the era that is ahead.
4. To provide long-term income for superannuation pensions there needs to be securities to back it up -- preferably inflation-linked securities. Infrastructure can offer this, but the current rules provide that institutions take up the infrastructure securities and then flog them to retail customers and charge big fees. Murray starts the process to stop this fee gauging by reducing the requirements of large listed companies to issue “simple” bonds to retail customers and to develop standards for simple bonds. That recommendation needs more work but it’s a big step in the right direction to fund superannuation pensions in self-managed funds, which provide 55 per cent of all pensions.
5. Murray wants to stop self-managed funds from borrowing to buy dwellings. Treasurer Joe Hockey should seek Bill Shorten’s permission to do this immediately. If Hockey is asleep, then we will see an avalanche of these deals in the next six months -- it’s like announcing that excise on liquor will be increased in six months. Everyone will jump in. Again, Hockey needs Bill Shorten’s approval but I would be surprised if Shorten stood in the way.
In the case of housing the biggest forces boosting the market (apart from low interest rates) are Chinese buying and negative gearing. Negative gearing wills the subject of a tax inquiry. It is likely that the ability to negative gear will be curbed.
6. It looks like banks will require $15 billion to $20 billion in additional equity. They will earn the extra profits to cover the additional capital, not by attacking loan or deposit customers but by becoming more efficient. As a result, we are going to see Australian banks embrace technology on a scale much greater than the past to improve efficiency. Branches will be closed or revamped. And that technology drive by the banks will spread through to the bank customers -- the whole community. The Murray report has sections that promote innovation, which tie into the bank changes. Thank goodness for the NBN.
7. Self-managed funds will continue to grow, but the growth will be curbed because Murray will force the big APRA funds to think about the interests of their customers instead of being a ticket for Sydney Harbour residences for executives and analysts who add little to the welfare of their customers. What Murray should have recommended was that the Future Fund starts a low-fee retail fund as a mirror image of its main fund.
8. Yes, banks will need more capital because they have over-leveraged their operations in the housing sector at a time when the Chinese and negatively geared investors boosted the prices. Nothing illustrates the danger of this better than the Sydney market, where apartment prices have risen 15 to 20 per cent with no rises in rents.
