Coalition pets such as the banks, private health insurance industry and private schools get off lightly in the federal budget.
Coalition pets such as the banks, private health insurance industry and private schools get off lightly in the federal budget. Photo: Warren Hackshall







The budget was an exercise in settling scores and looking after mates.



Sure, it improved the nation’s finances. But at every turn it
took the opportunity to punish or threaten the Coalition’s critics
while protecting its supporters. Australians on benefits get their
incomes cut by up to 10 per cent and in some cases 18 per cent. They
will be charged for previously free visits to the doctor. Organisations
that normally speak up for them such as the Council of Social Service
have been told their government funding will be extended by only six
months this year and then the contracts put out to tender.  




Big food, big tobacco and big alcohol have been thrown the
carcass of the Australian National Preventive Health Agency. Like the
introduction of Medicare co-payments the move won’t actually save the
budget any money because the savings will be redirected to medical
research, but it will please corporations which have been amongst the
Coalition’s biggest backers. Coalition pets such as the banks, private
health insurance industry and private schools get off lightly. The
government will hand private schools $6.8 billion in the coming
financial year - no cutback on what was scheduled - and $9.3 billion the
following year. The private health insurance rebate survives with
barely a scrape. It’ll cost $5.5 billion this coming financial year and
$5.8 billion the next.



And the banks profit hugely from the tens of billions of
dollars handed out every year in superannuation tax concessions, also
untouched.



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They are about to be given a second helping. Hurriedly pushed
on to the back burner in March when assistant treasurer Arthur
Sinodinos stepped aside over questions about his behaviour at the NSW
Independent Commission Against Corruption, the government is about to
revive its attempt to neuter parts of the financial advice law.



It wants what the banks want. They want to remove the
requirement for financial planners to always act in their clients' best
interests, and they want to reintroduce limited commissions.



It’s a prospect that terrifies anyone who had just watched Four Corners. On May 6 reporter Adele Ferguson examined the behaviour of the Commonwealth Bank, one of the banks that wants Labor’s new law to be watered down.



It rewarded its tellers for trawling through information about their customers to find prospects for financial planners.



“A lot of people, what they don't understand is that the
teller will be looking up their details on the bank's information
system, identifying if they could be sent to a planner,” a former
Commonwealth planner said. “They are given targets for referrals each
week.



“The emphasis is always on trying to get the maximum share of
wallet out of each customer. The planners have actually been
incentivised or forced in a way to give advice that's not in people's
best interests, and the whole system is really structured to bring that
about.” Four Corners told stories of families almost brought to ruin
after the Commonwealth Bank and its representatives steered them out of
safe products into dangerous ones, in some cases “without ever
explaining the risks”.



Labor’s law, already in place, requires financial planners to
take all reasonable steps to act in the best interests of their
clients.



The banks and the Coalition want to water this down so they
merely have to complete a checklist of six specific steps. Monash
University corporate law specialist Paul Latimer told the Senate inquiry
that removing the overarching best interests requirement would be like
leaving doctors with only a few specific boxes to tick instead of asking
them to also ensure they were acting in the best interests of their
patients.



And they want to allow tellers to once again receive commissions for pushing products and advisors their customers’ way.



Why? Right now the big four banks with the AMP control 80 per
cent of the financial planning industry. If they can’t leverage their
tellers that share will shrink. And incentives work.



In 2012 two economists from the Federal Reserve Bank of Chicago and Ohio State University published a study entitled Do Loan Officers’ Incentives Lead to Lax Lending Standards?.
It found that loan officers whose pay was supplemented by incentives
wrote 19 per cent more loans than those whose pay was not. And the loans
they wrote were 28 per cent more likely to default.



Incentives work, even if - in some cases, especially if - they are small.



The banks need to blunt the Future of Financial Advice Act.
But it’s less clear why the Australian government needs to blunt it.
It’s true that banks have been big supporters of the Coalition. One of
them, the National Australia Bank, employed the assistant treasurer
Arthur Sinodinos as an executive after he left John Howard’s office and
before he joined the Senate where he drew up the pro-bank legislation
the government is about to introduce.



Governments aren’t meant to play favourites. This one has, and it’s about to do it again.



Peter Martin is economics editor of The Age.



Twitter: @1petermartin