A change of heart over financial advice regulations has exposed holes in the Coalition’s senate strategy. By Sophie Morris.

Labor rallies crossbench senators over FOFA reforms

Clive Palmer, left, and Ricky Muir before their alliance soured.
Clive Palmer, left, and Ricky Muir before their alliance soured.

A funny thing happened in the senate on Wednesday. Ricky Muir, a political novice who is yet to deliver his “maiden speech”, stood up and schooled the government in senate procedure.

Muir’s contribution lasted barely three minutes but was fascinating for its tone – sober, thoughtful, devoid of bombast – and for its substance. 

The motoring enthusiast said he understood why he was being accused of flip-flopping, after initially supporting the government’s Future of Financial Advice (FOFA) regulations in July, but that decisions at that time had been made in haste, without the ability to consult.

Since then, he had heard from investors who had lost everything due to poor financial advice. By teaming up now with Labor, the Greens and other crossbenchers to disallow the regulations, he said he was “keeping to my senate commitment to make informed decisions”.

“This motion is about ensuring that significant legislative change is made in a way that is consistent with proper parliamentary and democratic process,” said Muir, who had hitherto been considered part of the Palmer United Party’s voting bloc.

“I have heard both sides of the story about the changes to FOFA, but I would like to be clear about one thing. I am not interested in hearing about whether the government thinks this is all about the industry super funds and the union movement, nor am I interested in hearing about whether the opposition thinks this is all about keeping the big banks happy. 

“What I am interested in is protecting consumers and protecting my constituents. This disallowance motion ensures that any proposed changes to financial advice laws that impact on consumers are properly scrutinised by the parliament.”

Now, senate procedure may not be a topic to excite the masses but, in a parliament with such a motley crossbench, it matters. The insistence by Muir, and the other senators who joined him in the so-called Coalition of Common Sense, that significant changes be made via legislation, rather than regulation, was a blow to the government.

Already the government has flagged that it would consider using regulation to overcome senate opposition to some contentious budget measures, including possibly the GP co-payment. Regulation is easier for the government to implement than legislation, requiring a majority of senators to vote it down, rather than a majority to vote it into law. But it is also more precarious. Now the government has been warned by the senate that it will not be tolerated.

This was one underlying message from what happened in the senate this week. The more obvious repercussion was that the already-fractious upper house has just got a whole lot messier since Muir and Jacqui Lambie have made it clear they are no longer in thrall to Clive Palmer, and Labor has showed it can rally crossbench numbers to defeat government measures.

Suddenly, dealing with Palmer must seem to the government like the easy option, now that it cannot count on him to deliver four of the six crossbench votes that it needs to pass legislation opposed by Labor and the Greens.

The coup by opposition and crossbench senators in overturning the government’s changes to Labor’s FOFA reforms has also crystallised concerns among some Liberals about how the government is managing the contrary upper house. These concerns include that the Coalition’s senate team has been too dismissive of Lambie and Muir, whose votes they will now need to court separately from Palmer. 

Another complaint from within the Liberals is that senate tactics still resemble those of an opposition, rather than a government with a legislative agenda. A corollary of this is that there is a narrow focus on chamber tactics, rather than on a strategy that includes winning a debate in the court of public opinion, which is always going to matter in a senate with an essentially populist crossbench.

Having defeated a previous disallowance motion, the government – and the banks – assumed the issue had been dealt with, but behind the scenes, consumer advocates and victims of financial fraud were talking to Lambie and Muir, persuading them they had made a mistake.

The first sign of this about-face was when Lambie told The Saturday Paper three weeks ago that she regretted supporting a dilution of protection for consumers against financial fraud. “I have a bloody problem with FOFA,” she said. “I think we’ve allowed the laws to be maybe watered down.”

Labor sensed an opportunity. The issue came to the fore last week, after the victims of failed investment schemes gave emotional testimony to a senate committee in Melbourne. 

Naomi Halpern told the committee how her plans to responsibly save for her retirement had left her with a $650,000 debt and depressed after the collapse of schemes recommended by her accountant. “I had no idea what was going on, and I trusted him,” Halpern said. “I was terrified, totally panic-stricken, filled with dread.”

Halpern had introduced herself to Lambie in Parliament House in July. Just minutes after the PUP had done a deal with the government on its FOFA changes, Halpern intercepted Lambie at the parliamentary cafe and planted in her mind the seed of doubt about this deal.

While Halpern was testifying in Melbourne, the gulf was widening between Lambie and Palmer, who were slinging insults at each other via press release. The trigger was Lambie’s vow she would oppose all government legislation until it increased defence force pay.

Labor senator Sam Dastyari, who chaired the committee and has been talking to victims of financial fraud, booked a flight for Saturday to Lambie’s home town of Burnie, on Tasmania’s north-west coast. During a six-hour whistlestop trip, he persuaded her it would be possible to rectify the injustice that she felt she had been involved in since supporting the FOFA changes in July.

The Coalition of Common Sense coalesced on Monday night when Lambie’s office rang Dastyari to inform him that Muir would support a disallowance motion. 

The procedural issues were nutted out on Tuesday, with independent senator Nick Xenophon taking a leading role and former Democratic Labour Party senator John Madigan also onside. Greens senator Peter Whish-Wilson, a former investment banker, was on hand to counter the arguments that banks were putting to Muir that disallowing the regulation would cause chaos for the industry and customers.

On Tuesday night, Muir, Xenophon, Dastyari and staff dined together at the China Plate in Canberra’s Kingston, having warned the government that they had the numbers to knock off the FOFA changes the next day.

Muir and Dastyari’s offices are just a few metres apart, in an outer corridor of Parliament House, but the two men have not been close. Dastyari, with a reputation as a slick operative from his days as NSW Labor secretary, is not the sort of person Muir would instinctively trust. And that’s where Xenophon has been crucial.

This deal marks his emergence as the trusted veteran crossbencher, whose views hold sway with less-experienced senators. Xenophon fronted the press conference on Wednesday morning to announce the disallowance of FOFA, but Lambie was always going to attract the cameras. Just minutes earlier Palmer had announced he had stripped her of her responsibilities in the party, saying he had not spoken to her for a month.

The drama will continue to play out but the split seems irrevocable after Palmer said Lambie was thinking about setting up her own party and needed “appropriate assistance” to get her life back on track. She, in turn, accused him of conducting a sly, personal attack and spreading hurtful rumours.

In a week in which Newspoll showed Labor had opened up a 10-point lead over the Coalition after preferences, the government knows it needs to use the next fortnight – the parliament’s final two sitting weeks this year – to turn around its fortunes and make some progress on stalled budget measures.

Yet this may have become even harder after Liberal senators Ian Macdonald and Zed Seselja used debate on the FOFA measures to lash out at Lambie and Muir, accusing them of flip-flopping and implying they could not be trusted.

Madigan says he thinks some of the government’s arguments on FOFA had merit and he invites Finance Minister Mathias Cormann to discuss legislation with the crossbench. “But they need to stop haranguing people,” he adds, referring to the criticism of Lambie and Muir.

The government’s leadership team in the senate, Eric Abetz and Mitch Fifield, is relatively inexperienced in the delicate task of managing a hostile upper house. By contrast, Labor’s leader in the senate, Penny Wong, has had to court crossbenchers in both government and opposition. During the Gillard government, Labor controlled neither house of parliament and became adept at crossbench negotiations.

Labor frontbencher Anthony Albanese, a self-confessed Tory-fighter, would be the last person to provide advice to the Coalition. But they would do well to heed the tips he learned as leader of the house in the days when the Gillard government needed to wrangle five of seven crossbench MPs or risk a no-confidence vote. 

“The problem for the government is that, during the last term of parliament, they kept insisting it was outrageous there would be any discussions with the crossbench,” he says. “But you have, in a democracy, to deal with the parliament the people voted for. The reality is the people have voted for a parliament that is mixed.”

Albo’s advice on courting crossbenchers? “Always be straight with them. Go and have a chat. There’s no great secret to it. If you’re straight with people, you’re always in with a chance.”

This article was first published in the print edition of The Saturday Paper on November 22, 2014 as "Crossing the line".

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Sophie Morris is The Saturday Paper’s chief political correspondent.

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