The Murray Committee has laid down an impressive blueprint for a more competitive banking system with the most radical changes to hit the two-decade old superannuation system.
The report provides a well-balanced blueprint for financial innovation which, if implemented by the government, will improve the financial service sector’s ability to service the economy well.
It has some radical plans, like adoption of the Kiwi Saver pooling model for retirement default funds, and bits that every sector in self-interest grounds will impose.
But on balance, the committee has done great job and backed its ideas with strong analysis, which makes its case compelling.
The big banks don’t have too much to fear from the plans, although Murray makes clear he doesn’t agree with their claims to be in the top quartile of global banks as far as regulator capital. Murray puts the majors more in the second tier and wants them to be in the top tier.
Treasurer Joe Hockey has said he would open the report to consultation. The big banks won’t like attempts to narrow the gap with the regionals nor the inherent fear that the big four banks present a potential systemic problem because of their massive market power.
On regulation, Murray has been less specific as advertised but there is no doubt he wants more regulation now to prevent more in the future.
This is not as heinous as the banks claim, being in line with G20 recommendations and in any case a one per cent increase in regulatory capital translates into just 10 basis points more cost on a mortgage.
Murray is worried the smaller banks will be forced up the risk spectrum if the system is left alone. He wants the government to fast-forward progress towards a national system of digital identities so everyone has his or her identity.
He talks up the need to foster innovation. And suggests some ideas of his own, like social impact bonds, where private money is used to fund the likes of jails against a recognised recidivism benchmark.
Pioneered in the US and UK, the bonds are aimed at relieving the burden on taxpayers to fund such ventures.
The committee is appealing to Parliament to start behaving like adults and come to a bipartisan policy on superannuation, starting with a definition for what the system is intended to achieve.
Its idea is that superannuation is an income retirement substitute to complement or supplement the pension system.
Murray outsources some decisions to the coming tax review, but suggests it is better to adopt Ken Henry’s plan of maintaining a consistent tax rate of say 15 per cent on both retirement and accumulation funds.
For a conservative committee, it has some up with some radical plans but this one is common sense and undoes the damage caused by Peter Costello’s only generous retirement perks.
Just for good measure, Murray wants a special levy to hit big superannuation balances.
Another rational revolutionary measure is to ban borrowing from all self managed super funds which is a common theme from many in the industry.
Excessive borrowing in self managed funds is a time bomb waiting to blow in part because many are run by less than sophisticated trustees. To manage the transition to retirement income, Murray had borrowed the Kiwi Saver model, whereby a public tender will select say a dozen default funds who will have a mandated retirement income plan.
Murray rightly wants to remove the superannuation scheme from the industrial relations system and to increase transparency with a mandated independent chair and major of independent directors.
He wants the Productivity Commission to start working now on a replacement for the My Super system because he is not so sure it is achieving the system savings it is meant to produce.
Once again this is sound policy. Rather than scrapping the system now, as Finance Minister Mathias Cormann attempted with FOFA, Murray is saying let’s give it a chance, but we will benchmark the system while we try to think up a better plan.
This article was first published in The Australian. Reproduced with permission.