A proposal such as banning advice fees from a MySuper account seems pretty simple (recommendation 3.2). But there could be substantial issues that may not have been considered by Commissioner Hayne in his findings, as has been demonstrated by the response to his recommendation that a borrower pay an upfront fee to a mortgage broker who secures them a loan, rather than the broker receiving an ongoing commission from the lender.
Less controversial was his idea for a national scheme of farm debt mediation. But the details of this idea were barely sketched out in the final report.
Getting it right the first time would be vital if we are not to end up back in the same place in a few years time. We don’t have to go far to show there are dangers in acting too quickly.
For instance, in the wake of the Financial Services Inquiry (headed by former CBA boss David Murray), the government reconstituted the Financial Sector Advisory Council in 2016. It was supposed to give the government advice on the performance of regulators such as ASIC and APRA while coming up with potential reforms to «improve the efficiency and competitiveness of the financial sector».
In response to Commissioner Hayne’s recommendation for a new regulatory body to oversee ASIC and APRA, the advisory council has been quietly killed off. In fact, the government used its formal response to the Hayne review to give itself brownie points for setting up the Financial Services Inquiry.
But that «root and branch examination» failed to find anything of the nature exposed by the commission such as fees for no service, while the government has a collective sense of amnesia around the way it rolled back key elements of the Future of Financial Services agenda started by the Gillard government.
Hayne has given the benefit of the doubt to ASIC and APRA, effectively broadening their powers as well as delivering them a list of companies for potential legal action. Again, translating evidence from a royal commission into a brief of evidence that will stand the scrutiny of a court – as this government has discovered with its royal commission into the trade union sector – is a much more difficult task.
Standing over all of this is the state of the economy. As the events of the past decade have shown, the financial sector is pivotal to the proper operation of an economy.
The speech by RBA governor Philip Lowe this week, in which he backtracked the central bank’s half-glass-full view of the Australian economy, was more than an insight into the possible future direction of interest rates.
For the best part of the past year, the RBA has stood by its mantra that the most likely next move in rates was up. That went out the window in the face of overwhelming evidence that there are issues with current economic settings.
Tumbling house prices, consumers shutting their wallets, businesses reporting a decline in profits and trading conditions, suggestions the jobs market may have peaked and the continuing weakness in wages – none of this could be ignored any longer by the RBA.
That also fails to take into account how the 76 recommendations may affect the operation of the entire financial system.
Dr Lowe now says the chances of a rate cut or a rate increase are equally balanced. Financial markets aren’t convinced, putting the chance of a rate reduction by November at 70 per cent and certain there will be one by mid-2021.
By bowing to economic reality (his speech was starkly different to the statement put out on Tuesday at which the Reserve Bank held interest rates), the governor ensured the economy and the RBA will be a key element of the election campaign.
The last time the Reserve Bank featured heavily in a campaign was 2007 when it lifted rates just weeks out from polling day. It cruelled the Coalition’s claim to be a better economic manager than Labor while feeding into Kevin Rudd’s argument that John Howard was on a dangerous spending spree.
Scott Morrison started the year by warning of economic headwinds, arguing only the government could be trusted to keep Australians safe from the potentially bad weather. But it’s a tougher argument to make if the economy is softening, and house prices are falling, on your watch.
It’s been some time since a campaign has been fought as an economy deteriorates. The most recent was 2001 but voters’ attention was on the reaction to the September 11 terrorist attacks rather than seeking to blame the government of the day for any slowdown.
Fold in the need to come up with a co-ordinated response to the Hayne report, and a dearth of parliamentary sitting days in which to legislate some of that response, you have an economic recipe that would worry Macbeth’s three witches.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.