The best volume of the Hayne royal commission report on bank, financial industry and superannuation rorts is the one that he didn’t bother to write.
It’s not the one about bank culture and a growing predilection over recent years for outright dishonesty from senior figures at the big end of town. It’s not about that dubious eternal human optimism that business folk, freed from the shackles of regulation, can be trusted to do the right thing, most of the time at least. It’s not the one about blatant and inevitable conflicts of interest in which venal self-interest always triumphed over the interests of customers. It’s not even the one about weak cops on the beat, without the will or the resources to do the right thing.
It’s the one about government as the essential partner in the whole larcenous enterprise.
Not as a patsy with no idea of how people were being cheated by the Australian financial system, but as an active collaborator facilitating and enabling the rorting, actively setting out to weaken the rules, to remove inconvenient roadblocks, and to deny resources and guidance to those who were supposed to provide the very limited policing that a “free market” could not provide.
It’s the one which seriously invites the question of whether the modern Coalition, and the economic ministers who have dominated it since the election of the Abbott government in 2013, can seriously pretend to be the better economic manager, or the party one can expect to win at elections whenever voters are focused on control of the economy, growth, jobs, lower taxes, smaller deficits and lower debt.
A government which either so misunderstands the Australian financial system, or which conspired with its leading bandit chiefs to assist it in its depredations on the public, can hardly claim to be better at understanding the business environment or to have a better tradition of caution, prudence, fiscal responsibility and financial rectitude. With some of the political players, there are even questions about moral fitness to be entrusted with the levers of power.
And this at a time when political contributions pouring in to Coalition coffers raised issues about whether some ministers were acting as mere agents of the paymasters, rather than profiting from the coincidence of business recognising that its interests would be best secured by government committed to free markets.
The public, the public interest, and sectors of the economy have suffered from the improper transfer of the public’s money into essentially unproductive paper shuffling, churning, fake fees and expenses and the generation of superannuation outcomes, for those silly enough to avoid industry funds, that were millions, even billions, short of what might have been achieved in a more efficient and more honest system.
In May this year, if not many times before, opposition parties will be asking voters whether the political management of such outcomes can be easily divorced from other issues of management of the budget, or the general economy.
But taxpayers might do more than contemplate lost profits and opportunities, or how they might be better off had successive treasurers done their jobs. Voters must also ask if they are better off in a more coarsened moral framework of business. Or if they benefit from the significant damage done (rightly) to the reputations of some of Australia’s greatest financial institutions, and many of the great and good of the private sector.
Our banks and financial institutions have been led by prominent men and women rich with postnominals and evidence of national honour and reputation. Folk at times given significant public duties, in which they “disinterestedly” outline the desirable shape of the Australian financial system, as well as, occasionally, the structure of industrial relations, desirable rates of taxation, the proper functions of the public administration, and ways of making the lives of poorer people in the welfare system more wretched and less entitled to any sort of process or dignity.
Even with an artificially shortened parliament, resuming in the week ahead, ministers are working on their alibis.
Perhaps the Treasurer, Josh Frydenberg, is yet to appreciate that some simple expression of responsibility and contrition would be a starting point, even if one could imagine his bridling at suggestions that he was a key play in undermining old systems and controls. Remember his first job of burning up unnecessary business regulation? He and others with a banking background were allying with other economic dogmatists to put a visible hand into the workings of the economy. Far from promoting the general welfare of society, the self-interested beneficiaries operated in combination to rip everyone off.
Remember too the dedication and self confidence with which Minister for Finance Mathias Cormann threw himself into the demolition of the Freedom of Financial Advice laws. These focused at reducing conflict of interest so that middlemen and rent-seekers in the financial advice industry could get kickbacks from “products” they recommended, even as they gouged their “clients” for what, on average, proved to be markedly inferior outcomes.
The better part of valour for anyone embarrassed is to admit errors of judgment and perceptions, and to apologise for delays in setting up an inquiry – indeed for prolonged resistance to the idea that there ought to be any inquiry at all. It is to be remembered that the inquiry came about only because of revolt from within the government. Labor and the Greens had long called for an inquiry, but they lacked the numbers.
Then one insists that one had no idea that things had been so bad, and so systemically so. One had, of course, realised that there were a few bad apples in the barrel, and that there had been some widespread abuses. But, various ministers will argue, they had no idea how entrenched, pervasive and run-of-the-mill the practices were, or how they were becoming a part of the system’s DNA, particularly as its rewards system and bonuses – even the general banking modus operandi – began to corrupt fundamental concepts of service and fair dealing.
Ministers will piously add that they had believed that the various regulatory agencies had been “tough cops on the block” – likely to detect transgressions and to come down on it like a tonne of bricks. Finally, they will piously say, government had acted, and toughly, when some misfeasance had been uncovered (before the commission was called), and honestly and sincerely believed that the major problems were dealt with.
Then, secretly applying the onion, they will speak of their concern about unremitting attacks on banks, some from folk who always blamed others for their own lack of business acumen, poor judgment and bad luck. Australian banks are big by world standards - mostly too big to fail. They are well capitalised (indeed better capitalised in recent years). Prudential regulation may have paid too little attention to their morals and their culture, but had closely monitored balance sheets, in part flush from the changing rorting environment.
They were “sound” by any international standard. And very profitable – with profits flowing back generously to shareholders, most of whom were ordinary middle class Australians or members of superannuation funds. Banks, unlike many other great Australian businesses, paid their taxes, and were mostly owned in Australia.
Yet the value and stability of the banks depended ultimately on public confidence in their management and in bank adherence to the rules. That was a confidence which could be damaged by ill-informed attacks, or even by public perceptions of skulduggery. Australians were well prepared to regard banks as bastards. It might shake the system if one added the adjective “dishonest”, or impugned the whole system because the management of some incidental product – say insurance or wealth management – was less than ideal.
Those drafting such mea culpas may well confess that they realise in retrospect that they attached too much importance to the preservation of public confidence in the banking system, and that they were too slow to react to evidence of the need for a searching inquiry – a slowness they now regret.
When Scott Morrison is trotting this out, onion and all, he tries to accentuate the positive and the ultimate outcomes. He insists that even if he let the cock crow 22 times, he deserves the credit for ultimately giving in to demands for an inquiry. Sure, it was a bit late, but it was ultimately held and made recommendations the government pretends it has accepted, he and the government can be trusted to see them through.
It will be good luck if he, and they can get away with it. Or with any ancillary argument that accidental missteps, if any, along this path are not relevant to popular judgment about which parties will best manage the economy. Bill Shorten and Chris Bowen have the momentum on this issue – as well as the appearance of consistency. Labor, presumably, will always try to ground its campaigns on health, education and welfare issues, but they have been acting as if they are totally unembarrassed about their economic credentials, plans and policies.
The mistakes and errors of judgment were not on the periphery of the Cabinet system. They have involved three Coalition prime ministers, three treasurers, and the Minister for Finance as well as the now-departing Kelly O’Dwyer, in her various economic relations roles. Pretending all is now changed necessarily admits that hundreds of phrases – say by Cormann justifying choice, or the emasculation of FOFA, or the need for big income tax cuts for banks – are now inoperative.
All of the important economic ministers were attached to arguments, or dogmas no longer in favour, even by them, at least so far as the financial industry is concerned. Ministers now concede that industry superannuation funds have been far better managed for contributors, and have, on average, produced, far better results than bank or other private sector products. They have abandoned the pretence that these funds – controlled by an equal mix of employers and unions – have been corruptly dominated by wicked unions for nefarious purposes.
They now believe, thanks to Hayne, that there should be no conflict of interest in the provision of advice, or the charging of fees, or the taking of kickbacks. One no longer hears pious claims that the sacred value is choice, and the start-up assumption is that every punter is well enough informed to make up her own mind.
One may hear no admissions that the watchdogs were deliberately stripped of powers and resources, in the conscious hope that they would become weaker cops on the block. And that the government-encouraged regulators who spoke of a “light touch”, who preferred discussions and undertakings rather than criminal proceedings where outright and witting misconduct and abuse of power was involved. Nonetheless, government now accepts, or says that it does, that punishment is as importance as promises of future good behaviour, and that the powers and resources of regulators must be improved.
Swallowing this may be hard for ministers, and a government, with little opportunity to reshape an economic message before the election. But if they don’t – or if they ignore Hayne by insisting that Hayne has got it wrong (as in my opinion he has on some matters), they risk popular fury from an electorate not given to allowing the government much leeway.
But the unthinking of some of the dogma is not merely a matter for politicians. Politicians (including Labor ones, such as Penny Wong with her efficiency dividend cuts) are primarily responsible for the
derelictions of government, and for the propagation of an ideology about the removal of controls and checks and balances.
But they have been much aided and abetted in this by settled dogma within both the advisory sides of government – including Treasury, Finance, Prime Minister and Cabinet and the Productivity Commission, as well as the regulatory agencies, including the prudential regulation authority, the securities and investment commission and the office of the Director of Public Prosecutions, which has never shown any appetite (or much capacity) for corporate prosecutions. The Competition and Consumer Commission has had a more steely spine, but appears to be left out of much of the continuing action.
There’s an old saying in government that one should never call an inquiry when one does not know the answers to the questions. I doubt that the Coalition expected the answers it got, even when they knew the facts. That may have been because of underestimation of Ken Hayne. Not to put too fine a point on it, he was not chosen because government expected him to find the unsavoury facts, and to bring them to public attention with great dramatic skill. Rather, it saw him as a dull and rather technical lawyer, fairly shy and retiring, if with less propensity to embarrass everyone, including himself than his old colleague Dyson Heydon, so ill-used (if willingly) by Tony Abbott on the trade union royal commission.
As Morrison and Frydenberg are presumably working up a tax cuts passage, even as they look anxiously on fears of slower growth and the mirage of a surplus, they may be hoping that voters will forget how badly they have supervised banks, the mortgage market, superannuation and the financial advice industry. The search for distractions is a part of trying to get one’s ducks in a row. The risk, however, is that a well-directed shotgun blast will bring them down.
Jack Waterford is a former editor of The Canberra Times.