Day 429: 'Lawyers make lousy economists’
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 429.
Today in summary: Finance Minister Mathias Cormann buries Future Fund chairman Peter Costello’s idea of a public default super system; Treasurer Josh Frydenberg says he will not “abolish” mortgage brokers; whistleblower reforms were passed by Parliament today, ASIC gave an update on its royal commission response plan; and ANZ's home lending growth has fallen to almost zero following the royal commission hearings.
-- Alex
@AlexESampson
Current banker panic level: 😨😨
Please don’t keep The Inquisition to yourself. Forward this email to your colleagues and encourage them to sign up for free here.
1. Finance Minister Mathias Cormann personally told Future Fund chairman Peter Costello the government would not be adopting the former treasurer’s proposal to create a default publicly-run savings scheme, reports The Australian. Senator Cormann also told Senate estimates:
“It is not government policy. Full stop.”
Earlier this month Costello proposed the government create a public fund to manage people's superannuation as part of its response to the banking royal commission.
2. Shadow Treasurer Chris Bowen today told Parliament his plan for dealing with mortgage brokers was imminent, but still brewing.
“We want to deal with the matters that the royal commission identified with mortgage brokers and the problems that they identified. Of course, we’ve been taking our time to carefully consult with all relevant parties and we’ll have more to say in the coming days about the approach. The approach will be fully transparent and explicit in our approach, not only well before the election, but in the immediate future.”
Bowen rejected questions by Leigh Sales on ABC 730 last night on why Labor had not provided the comprehensive response to the banking royal commission it had promised:
“I don't accept the premise of the question, we have responded to the royal commission, we pointed out that we would have rather responded two years ago when we called for the royal commission.”
Treasurer Josh Frydenberg told the Senate the Coalition was “standing with mortgage brokers”.
“We will not abolish mortgage brokers like those opposite, who, if they implement every single one of the Hayne recommendations, as they've promised to, will see the big banks benefit at the expense of the small businesses, namely the mortgage brokers.”
3. Whistleblower reforms were passed by Parliament today, creating a single whistleblower protection regime for the corporate, financial and credit sectors and introducing a new protection regime for reporting tax misconduct. The new legislation amends the Corporations Act 2001 (Corporations Act) and the Taxation Administration Act 1953 (taxation act) and will extend the corporate whistleblower protection regime in the Corporations Act. The legislation delivers on the government’s commitment to protect individuals who blow the whistle on tax evasion and tax misconduct.
4. Corporate regulator ASIC today provided an update on its plan for responding to the banking royal commission final report.
ASIC chair James Shipton said:
“This update is a crucial document for ASIC as it highlights our important work to date of putting ASIC on a more effective strategic footing, including creating a functionally separate Office of Enforcement.”
5. The Australian Financial Review is reporting that ANZ's home lending growth has fallen to almost zero, with chief executive Shayne Elliott admitting the bank may have been "overly conservative" in reducing investor lending. Australia-wide home lending growth came in at 4.2%, compared with ANZ’s 1%, with its portfolio shrinking A$534 million in the December quarter. The fall comes after the banking royal commission exposed ANZ’s over-reliance on the controversial Household Expenditure Measure benchmark — which is the subject of an ASIC consultation — to assess borrower suitability.
Today’s burn prize: An unnamed lawyer
🔥🔥🔥
"With the fire lit under ASIC's toes to prosecute first and ask questions later, and the penalties now so large, it will lead to a lot more court cases."
Australian Financial Review senior national affairs columnist Jennifer Hewett quotes an unnamed lawyer in her opinion editorial discussing the changes that may come from the banking royal commission.
The Commentariat
The Australian’s contributing economics editor Judith Sloan questions the purpose of royal commissions and asks whether they are the best instrument to deal with pressing matters. Sloan says they have become “ultimate instrument of virtue-signalling” for politicians wanting to “demonstrate they really care about something”. Sloan argues they are best at amassing evidence but ill-suited to recommending regulatory reform.
“The point here is that lawyers make lousy economists. The fact that mortgage providers pay the commission may not be nearly as important as lawyers think. The concept of incidence — an economic term — tells us that the technical point at which a charge (or tax) occurs is not necessarily where the real burden of the charge falls.”
Former IMF chief economist and Harvard University professor of economics and public policy Kenneth Rogoff discusses in the Australian Financial Review whether, 10 years on from the GFC, the world is safe from another financial crisis. He concludes that we’re probably not safe and that the next crisis could be completely different to the last, pointing to “severe cyber attack, or an unexpectedly rapid rise in global real interest rates”.
“Unfortunately, we don't live in normal times. Crisis management cannot be run on autopilot, and the safety of the financial system depends on the competence of the people managing it. The good news is key central banks still, by and large, have excellent staff and leadership. The bad news is crisis management involves the entire government, not just the monetary authority. And here there is ample room for doubt.”
AFR senior national affairs columnist Jennifer Hewett discusses the “blockbuster drama” that was the banking royal commission, questioning whether meaningful change can be expected. Hewett says the results of reform will play out long after the shock of the final report.
“Hayne's recommendations disappointed those hoping for radical structural shifts in the financial services industry by deciding not to back the end of ‘vertical integration’. This allows financial institutions to manufacture financial products and sell them to customers, often via the provision of financial advice.”
This is an introductory service while we’re building a comprehensive daily paid online publication, coming soon.
We’re not here to offer opinion, simply to cut through the noise, and help you make sense of the emerging policy and market trends you need to be across. We call it pure intel. You can read more about us here.