This week is the most important week in economic and fiscal policy for years as reforms that will have major long-term benefits face the axe.
Between one thing and another, this week will be one of the most significant weeks in long-term economic policy for years — probably since the financial crisis.
The repeal of the carbon price will cost the government around $4 billion a year in lost revenue, at a time when there is such a “budget emergency” that high-income earners have been slapped with a deficit levy. More to the point, it will delay the necessary decarbonisation of the Australian economy by years, significantly increasing the cost of that process in the view of such hardline environmentalist bodies as the federal Treasury and the International Energy Agency. To the extent that Australia’s decision to not merely halt but reverse action on reducing its carbon emissions undermines the willingness of other economies to undertake their own emissions abatement schemes, it also imposes additional costs on our children and developing countries exposed to climate change.
Then there’s the opposition’s move to prevent the government from repealing another critical Labor economic move, the Future of Financial Advice reforms, with a disallowance motion to be voted on in the Senate tomorrow.
There are serious economic and fiscal stakes in play here, too. Gutting FOFA will mean a transfer of between $300 million and $550 million a year from Australians to financial planners, the big banks and AMP, meaning clients of retail funds will be billions of dollars poorer in retirement and more likely to rely on the aged pension in decades ahead. If anything, the cost will be greater given there’s a major drafting flaw in the regulations repealing FOFA which will allow conflicted remuneration of any kind as long as it is calculated indirectly.
The high cost of superannuation funds management is an issue that will be a key test of how serious David Murray’s financial services inquiry is, when it releases its interim report tomorrow. The cost of superannuation was flagged by the Reserve Bank in its submission to the inquiry, but Murray’s background not merely as a former bank CEO but as one of the key drivers of the Commonwealth Bank’s entry into wealth management suggests the risk that the issue may be tackled less seriously than it needs to be. In that case, it will be emblematic of a review that began life as one of Treasurer Joe Hockey’s best ideas in opposition, only for it to be nobbled once he was in government.
“The big banks and their alliance with the Coalition makes them one of the most powerful economic forces in the country …”
The big banks are continuing to push the line that they need deregulation. The Australian Bankers’ Association has lamented that tomorrow could be more about preventing the big bank-driven repeal of FOFA than about the Murray Inquiry; the National Australia Bank has complained that the government’s FOFA reforms substantially increased its compliance costs and they are “unsustainable” (having posted a record half-year profit of over $3 billion two months ago); former CBA head Ralph Norris says the extensive $100+ million rorting of customers by Commonwealth Financial Planning was just a few rogue planners and not a systemic problem.
The big banks and their alliance with the Coalition makes them one of the most powerful economic forces in the country, and one of the most successful: from 2011, when it appeared Hockey was serious about addressing the systemic issues in Australia’s financial regulation that have produced a cartel of implicitly “too big to fail” institutions, not merely was Hockey brought to heel in his inquiry terms of reference, but the government has proceeded to burn political capital in order to deliver a win for the banks by gutting FOFA.
That brings us to the final reason why this week is important — albeit for less long-term reasons than the policy issues outlined above. After this week, Parliament goes into a shortened winter recess until the end of August, at which point the government will be definitively no longer new but in the middle of its term. The way things went last week, government MPs might be grateful there’ll be fewer opportunities for ministers like Greg Hunt to bungle legislation.
But the winter recess, when many MPs and ministers depart Australia for warmer climes, is usually a political lull. The Coalition risks entering that lull with little of its budget passed, while deeply unpopular with an electorate that often seems to have tuned out of what a disliked Prime Minister and Treasurer have to say.
Either it can keep on keeping on with what it’s doing, hoping that eventually the political cycle will turns its way and Clive Palmer will start to alienate voters, or it can try some different tactics and a different message, in which case this week in Parliament is the best time to start.
If this week in Parliament is dominated by the government patting itself on the back about getting rid of the carbon price, we’ll know it’s chosen to keep on doing the same thing that has failed to work so far.