Despite the fact a federal election is probably less than six months away, the Australian financial services sector is likely to be left feeling sadly neglected on the policy front.
The consensus among those financial services lobbyists dealing on a weekly basis with Canberra is that neither the current Coalition Government nor the Opposition will deliver any broad-ranging policy announcements capable of exciting either fund managers or financial planners.
While the Howard Government’s 2006 Budget delivered what is now being broadly acknowledged as the most radical changes to superannuation in more than a decade, the 2007 Budget contained virtually nothing.
The magnitude of the 2006 Budget changes was underscored by the degree to which superannuation funds and financial planners found themselves struggling to come to terms with a new regime structured around transition to retirement, the abolition of reasonable benefit limits and the removal of the so-called exit tax on superannuation.
Combined with those factors was the so-called $1 million tax-advantaged window of opportunity that has seen a surge in superannuation inflows, particularly in the self-managed super funds arena.
It was therefore probably inevitable that in the wake of the far-reaching 2006 Budget changes the 2007 Budget looked like a disappointment to the financial services industry.
It follows that the 2007 federal election campaign will be equally disappointing where discussion of the big financial services issues are concerned.
However, the chief executive of the Investment and Financial Services Association, Richard Gilbert, believes that the environment will not be completely barren and predicts there will be some policy movement, particularly with respect to refinements to the superannuation environment.
Asked for his view on the policy outlook, Gilbert predicts that the next big issue for discussion is the next round of superannuation tax cuts.
“Superannuation has gone from being a second or third order issue to a first order issue,” Gilbert said. “And this has been accentuated by the Government’s superannuation advertising.”
He said that the advertisements surrounding the new ‘simpler super’ regime were not only educational but were directing people’s attention to the superannuation reforms.
Looking at it from the Opposition’s perspective, Gilbert said history suggested that the Australian Labor Party would be looking at front-end taxes and that if history were any guide to Coalition policy, then the Government would be looking further at the co-contribution regime.
However, he expects no great change at the financial planning end of the spectrum, believing that both major parties now believe that the Financial Services Reform Act is doing its job and that “planners need to move on”.
Gilbert qualifies this opinion, though, by stating that both major parties are focused on reducing red tape within the financial services arena.
This is something that will be welcomed by the Financial Planning Association (FPA), with chief executive Jo-Anne Bloch having already welcomed recent Government changes that effectively delivered a reduction in the level of red tape encountered by planners.
Commenting on draft legislation unveiled by Parliamentary Secretary to the Treasurer Chris Pearce in early May, Bloch said it would ease the compliance burden on planners, making good financial advice cheaper and more accessible to the majority of Australians.
“The Government deserves a vote of thanks for listening to the concerns of FPA members when drafting this Bill,” she said.
“We have long campaigned that the compliance burden on our planners has made it difficult in many cases to make good financial advice affordable for everyone. This new legislation goes a long way to breaking down those barriers and cutting red tape.”
Bloch said the Simpler Regulatory System package, included several critical improvements including that planners would not be required to produce detailed and costly Statements of Advice where the investment was less than $15,000, or where advice does not involve recommendations of a product, or where no remuneration was received.
She said this would ensure that FPA practitioner members could help Australians who wanted advice on issues such as consolidating multiple but small superannuation accounts and could not afford advice because of their difficult circumstances, or who simply wanted some guidance but did not necessarily have the money to invest.
While the Federal Government may have delivered only minimal change with respect to financial services in the May Budget this year, that has not served to diminish the amount of attention it has been receiving from politicians in Canberra over the past four or five weeks, with recent Senate Estimates Committee hearings revealing that both major parties are highly focused on getting the policy balance right.
Indeed, the Senate Economics Committee used its first session in June to quiz the Secretary of the Treasury, Ken Henry, on the sustainability of the Government’s 2006 Budget ‘simpler super’ regime and the implications of the Government’s latest intergenerational report.
Henry, a seasoned veteran of Senate Committee hearings, handled the questioning from Opposition and Australian Democrat Senators with aplomb but nonetheless gave some hints as to where the Treasury believed some tidying up may be needed.
Of particular interest to planners were his assessment of the complexity of the existing superannuation and taxation systems and the costs encountered by retirees.
Henry made clear in his comments that he saw some room for a simplification of the existing legislative and regulatory environment, perhaps even beyond the changes encompassed in the ‘simpler super’ regime.
The secretary of the Treasury told the committee that he had concerns about “policy changes over a significant period that have sacrificed simplicity for equity”.
He said that the need to reduce the level of complexity confronting older Australians had been a significant motivator in recent policy development.
Henry agreed that those least able to cope with complexity had been most affected.
“We have had put to us that the financial advice, particularly tax advice, that older Australians seek when they retire has a quite regressive impact,” he said.
Asked whether he was referring to fees, Henry said: “Yes, that is right. The fees for advice do not reflect their income”.
Responding to Henry’s comments, the Opposition spokesman on financial services and retirement incomes, Senator Nick Sherry, gave an indication of Labor’s thinking when he said: “I am pleased you have concern about that, because it is a concern right across the system, both pre and post-retirement. I look forward to something being done about pre-retirement commissions and fees.”
Henry said in response to Sherry that he accepted it was an issue.
Sherry also gave some validity to Gilbert’s prediction that the Australian Labor Party would be looking at front-end taxes with respect to superannuation when he asked Henry for a figure of the cost to revenue of the abolition of the so-called superannuation withdrawal tax.
“I would like to see the figure of the cost to revenue of the abolition of this tax, because in the scheme of things it is pretty minor when compared to other taxes,” he said.
On the broader questions of financial services industry policy, the Government and Opposition are maintaining some key points of differentiation.
Key among policy changes being canvassed by Labor are:
> a single financial services regulator;
> a central clearing house for superannuation contributions;
> a simplification of financial services disclosure documentation;
> a significant reduction in the withholding tax rate for foreign investors; and
> a possible prohibition of commissions-based selling with respect to superannuation.
