Tuesday, October 20, 2015

Today by Michael Lucy

Call and response
The government’s answer to the FSI is very much on-brand for Malcolm Turnbull

The government today responded to recommendations made by the Financial System Inquiry (otherwise known as the Murray review, as it was chaired by David Murray). The FSI was instituted in late 2013 by then-treasurer Joe Hockey to look at changes that may be required in the wake of the global financial crisis and other developments since the last such inquiry in 1997. The FSI delivered its final report last December.

The government’s response – i.e. an outline of which of the FSI’s recommendations it intends to implement, and in what manner – was released today. The response was originally scheduled for release on the day Malcolm Turnbull took over from Tony Abbott, but was pushed back to give the new PM, treasurer and assistant treasurer time to get a grip on the material.

Some of the key recommendations related to banks, credit cards and superannuation, and the government has accepted the great majority of them. On the whole they seem like common sense, too, and have so far met with general approval.

Three changes have received most of the attention:

  • Banks will be required to have a larger fraction of their deposits and loans on hand as capital, to ensure that they are “unquestionably strong” in the event of financial shocks;
  • The ACCC will monitor excessive credit card surcharges;
  • There will be various changes to make superannuation more transparent and customer-focused. (As the report notes, super investments in total are worth about $2 trillion so any changes here can have large effects.)

Also, the government will enshrine the “objective of the superannuation system” in legislation. As yet there has been no definitive statement of what that objective is, but it “will provide a framework for important discussions Australia needs to have about fairness, adequacy and dignity in the superannuation system”. Not much to argue with there (because there is not much substance there).

These changes seem to be good for Australia, and they are very much on-brand for Turnbull. They let him display his credentials as a modern, forward-thinking technocrat with the best interests of the public at heart.

The FSI made 38 recommendations, and many of them are about abstruse topics such as regulator funding mechanisms and unfair contract term protections. At least one, however, is already having a concrete effect. New capital controls on banks were introduced by the Australian Prudential Regulation Authority in July, and in response Westpac raised its mortgage interest rates last week. The other major banks are likely to follow suit. Last weekend, the clearance rate at auctions in Sydney was the lowest it’s been in three years. We may yet live to see the end of the real-estate boom.


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Michael Lucy

Michael Lucy is a writer based in Melbourne.



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