Speaking at the AVCJ Private Equity & Venture Forum in Sydney on Wednesday, Future Fund chair Peter Costello noted that while misconduct should be exposed and dealt with, the government may have failed in achieving a balanced response.
“One of the things that’s worrying me at the moment, particularly coming out of the royal commissions, in relation to financial services has been a lot more regulation particularly on financial institutions now,” Mr Costello said.
“Banks had bad practices, they should have been exposed, no doubt about it. But, some of these laws are making it much, much harder to advance credit and the costs of advancing credit are greater and I think this is a bit of a restraint on the Australian economy.
“I think we’ve got to be very, very careful here that bad conduct … doesn’t lead to over-regulation and this is always a constant thing for government. The public rightly demands government intervene, but you [have] got to intervene in an astute way, which doesn’t damage the greater good.”
Rate cuts ‘running out of efficacy’
In economic policy, according to Mr Costello, there are three arms: monetary policy, which is set by the central banks; fiscal policy, legislation and budgeting worked on by the government; and “structural policy”, entailing everything else that determines the efficiency and productivity of an economy.
For him, structural policy includes rules on tax, competition, investment and regulatory.
Commenting on different ways to boost productivity, he listed a number of factors, including efficient taxes, good transport, education and “less intrusions in regulation”, particularly in the financial system.
“It’s right across your economy, working on all of these blockages and stoppages and making sure that you get the best outcome,” Mr Costello said.
“Now, all of those things are pretty hard and they’re unsexy. And that’s why it’s much easier just to get your central bank to make an announcement on the cash rate, because that’s just done, it’s done overnight.
“But the trouble is, after your central bank has doubled its cash cuts, we’re nearly done – you’ve still got all these hard issues to go back to.”
He added the issue is evident not only with Australia, but also in other Western countries since 2008 – where governments will rely on monetary policy from central banks because it is easier to change than fiscal or structural policy.
The day before, the RBA had cut the cash rate to an all new record low of 0.5 per cent, a widely anticipated effort to boost the local economy in the face of the global coronavirus outbreak.
“If we’re at 6 per cent, you could cut rates by 2 per cent, you’d have a real effect,” Mr Costello said.
“If you’re at 75 bps and you cut by 25 bps … will it be a lasting stimulus? Probably not. I mean it was 75 bps, it’s gone to 50. [Are] people going to rush out now and say ‘I wouldn’t have borrowed at 75 bps, but I will now at 50’?
“You can’t criticise the central bank, it can only do what it can do and what it can do is move the rate and it’s moved the rate. But to think that the moving of a rate by 25 bps, or 50 bps when it’s already at historic lows, you’re running out of efficacy.”
The US Federal Reserve mirrored the move, making an emergency cut of 0.5 per cent to a new range of 1 per cent to 1.25 per cent.
Pete needs to talk to his Liberal Party colleagues about this. The entire Financial Services industry needs a complete review and overhaul, not by some dusty old lawyer with little-to-no understanding of the subject matter, but by a panel of actual practitioners AND client delegates/advocates. Because clients don’t want the majority of regulations or documentation we do either. They don’t even want SoAs let alone FDSes, RoAs or Opt-Ins. Yes things need regulating, but seriously if you’re regulating for the protection and benefit of consumers, then perhaps ask consumers what they want and need first. And don’t even get me started on ASIC’s role in the whole matter – an entire organisation of under-skilled, under-educated public servants with power complexes and a general hatred of Advisers & Brokers. Their role should be both policing and collaborative. They offend me as both a practitioner, a client and a tax payer given we’re paying their salaries.
I’m quitting and setting up a business that cold calls people, and sells horse racing syndicates. The operator told me I could make 2% per day and if I understood compounding interest. The owner has a picture of himself on his 80 foot boat on his LinkedIn profile. It’s obvious that is what the Government wants.
Sorry Peter, but we aren’t able to borrow at either 0.75% or 0.5%…because the banks don’t pass on the rate cuts of the RB. Perhaps if Government were stronger with the banks and interest rates charged were to drop from 3% to 0.5% then maybe that financial stimulus you speak of would actually materialise.
Please don’t be so basic… You don’t want more regulation with the banks… Please think before you blurt out nonesense
Hey Frydenberg and ScoMo,
Wake the hell up !!!!!
Adviser STRANGULATION By BS REGS IS TOTALLY OUT OF CONTROL.
“Let’s get more people to get Advice“ but let’s also make it so dam Red Tape Regulated and Expensive not many can afford it.
OXYMORONIC POLLIES !!!!
you could probably drop the “oxy” part to describe the pollies better!
The problem is not over-regulation. It is over-complicated regulation.
Regulation is needed to protect consumers. Regulation can be done in an efficient and effective way that ensures minimal harm to consumers, while at the same time not damaging the economy or innocent service providers.
Or, it can be done the Hayne/Frydenberg way. Excessively complex and bureaucratic, a huge burden on service providers, and ultimately providing consumers with little extra protection but lots of extra costs. Hayne may have been a skilful inquisitor, but he was an incompetent policy maker. Frydenberg has abdicated his responsibilities to the nation by implementing Hayne’s ill conceived recommendations unquestioned.
Amongst a lot of other things, I think he’s right on the money!
Reading the headline I thought that people in important positions are starting to get it but he was only talking about the provision of credits and the banks, i.e. mostly the big banks.
The sand in the financial advice area, the latest laws with their intention to make giving advice harder and more expensive – the consequences of that are not yet on anybody’s radar.