Turnbull’s about-face on the banks
Maybe it was the Berlin location. More likely, it was the stark realisation that the government’s appalling handling of the banking royal commission was creating even more damage. Two kilometres away from Hitler’s bunker, where the Führer perished, Malcolm Turnbull cut and ran this week. At least, he tried to, admitting he would have been “better off politically” if he had called the commission “several years ago”.
This was in sharp contrast to the obfuscation of his financial services minister, Kelly O’Dwyer, who on national television the day before refused nine times to admit she and her colleagues had got it wrong. She accused the interviewer, Barrie Cassidy, and the Labor Party, of obsessing about these issues. The minister had been instructed to hold the line. “Sometimes in politics you have to eat shit sandwiches” is a view she has held before this. True, but it’s how you do it. The idea is to enhance a government’s credibility rather than destroy it. Former Queensland premier Peter Beattie was a master at it. The template is simple: admit the mistake, apologise, say you have learnt from it and move on.
Turnbull’s Monday morning news conference didn’t measure up on that score. And that’s because, since coming to government in 2013, the Liberal Party has got the politics wrong. They have shown an ideological preference for their mates at the top end of town. It leads them to a grievous misreading of the public mood. There is no other way to explain it. The evidence is compelling.
One of the first budgetary actions of the Abbott Coalition government was to rip $120 million out of the corporate regulator, the Australian Securities and Investments Commission (ASIC). That led to the direct loss of 200 staff, severely curtailing the agency’s ability to do its job properly. There were great delays in following up self-reporting from the banks.
That was accompanied by Finance Minister Mathias Cormann doing his level best to nobble Labor’s Future of Financial Advice reforms. Cormann wanted to remove statutory requirements that advisers act in the best interests of their customers and reveal trailing commissions on their advice. This was done at the request of the banks and was only stymied when two crossbench senators changed their minds and voted the Cormann amendments down.
The Gillard government’s FOFA reforms were left in place but not revisited. Thanks to the royal commission, we now know that the biggest financial advice operation, AMP, ignored the regulation and lied with impunity to the regulator.
Turnbull, O’Dwyer and Treasurer Scott Morrison all insist they knew what the banks were up to and took steps to address the situation. It is true that $125 million was pumped back into ASIC. Penalties have been beefed up and a one-stop shop for consumer complaints established. All this was done with the acquiescence of the banks, a sure sign they were desperate to head off the searing, public inquisition of a royal commission.
Turnbull argued at his doorstop in the shadow of the Reichstag building that he was more interested in getting on with the job of looking after customers than holding a lengthy commission that in the end could not prosecute anyone or pay compensation, and would delay real action. The argument is so thin as to be risible. This is borne out by the government itself: in response to the first week’s hearings, it has announced new tough measures.
All of this has done real damage to the government’s credibility. How can it have argued incessantly for the past two years against a royal commission and accuse Labor’s Bill Shorten of being nothing more than a “stunt master” while now claiming credit for establishing something they claimed was “unnecessary,” “expensive,” “a lawyers’ picnic” and “damaging to the international credibility of our banking system”.
Already the Hayne royal commission has done more to bust the culture of the banks and the cosy relationship they had with their regulator than all of Turnbull’s futile attempts to thwart it. And that’s because it has shone the spotlight on egregious behaviour towards consumers, work that million-dollar fines or penalties agreed to in secret “enforceable undertakings” with ASIC did not do.
The government attacks the unions, particularly the CFMMEU, for seeing fines as the cost of doing unlawful business. It has now been exposed as being far more tolerant of its corporate mates doing the same thing. No wonder Labor can throw back at the Liberals the charge of running a protection racket for the banks.
The stench coming from the royal commission is souring the government’s attempts to have the Senate pass the final $35 billion stage of its corporate tax cuts. The big banks stand to be major beneficiaries, to the tune of $13.2 billion in tax savings over the next decade. Independents Tim Storer and Derryn Hinch have gone completely cold on the idea. The government is now pinning its hopes on the two Xenophon senators, trading under their new name, the Centre Alliance.
Rex Patrick and Stirling Griff are taking a leaf out of their retired leader’s book. Nick Xenophon always made a play for centre stage when his vote was crucial. His colleagues have reopened talks with Cormann and the government. As a result, they have come out of the shadows and can’t help but be noticed. Griff has shot down any idea of a final answer until they see the shape of the budget in two weeks’ time.
Griff told Radio National he was not convinced that Australia’s current corporate tax rates are uncompetitive internationally. Tellingly, he said some of the top companies in the Business Council of Australia (BCA) over the past two years have paid zero tax. He also says the effective tax rate being paid is closer to 12 per cent. He says: “It’s hard to see how a reduction in corporate tax is not going to lead to a reduction in public services like health and education.” The government has been supplying them with “truckloads of data” but unless they can produce “magic data from serious sources” the Centre Alliance will continue to oppose the cuts.
Curiously, Pauline Hanson and her two parliamentary colleagues say they will still support the cuts but they are increasingly worried there may be an electoral cost in doing so. She seems to be looking for wriggle room, saying the banks should be required to use the tax windfall to pay victims’ compensation while at the same time insisting the banks and not taxpayers should be liable for the redress. Her confusion or dissembling can only worry the government.
Hanson told the ABC: “Hand on heart, no, I have never said there will be an increase in wages. I’ve actually said the exact opposite.” A few weeks ago, she said common sense tells you the windfall would go to shareholders. Now she thinks the cuts will create “more jobs [and] keep companies here”.
The BCA, at its appearance before the Senate committee set up to scrutinise its assurances on pay rises and more jobs, failed to impress. When Greens senator Lee Rhiannon asked BCA chief executive Jennifer Westacott to name a country where a cut in corporate taxes led to wages growth, Westacott couldn’t immediately think of one. She put the answer on notice.
Labor is convinced the politics of this proposal are toxic for the government. Even if Cormann can get the numbers now, Shorten will promise to repeal the cuts. A Labor Facebook post comparing the government’s policy to cut the energy supplement to pensioners with the tax cuts went viral at the weekend, attracting half a million views. Shorten asked how is it that Turnbull can’t afford $7 a week for pensioners but can afford $13 billion for the big banks?
Labor’s pre-budget positioning is calling on the treasurer to drop the so-called zombie measures, the unpopular cuts he can’t get through the Senate but keeps on the books as savings. Nine of the measures hit pensioners.
According to analysis by Deloitte Access Economics, Morrison is in the best position of any treasurer since the global financial crisis thanks to an uplift in world growth and a lift in commodity prices. But economist Chris Richardson is warning against generous giveaways, such as personal income tax cuts, because the mistake of past treasurers, Labor and Liberal, was to presume the better times would last. Newspoll found voters to be of a similar mind this week, seeing paying down debt as a priority.
It will be fascinating to see how much notice the treasurer will take of that, especially as he has forgone the $8 billion in revenue he was going to get by raising the Medicare income tax levy. Morrison has abandoned the justification it was to fund the NDIS so he can attack Labor as high-taxing.
The government is encouraged by the two-party preferred figure tightening in the latest Newspoll poll. Labor now leads by just two percentage points. The result surprised and delighted Turnbull and his travelling entourage in Germany. There’s no doubt the best result in 16 months is a fillip for the embattled PM, even though it can mostly be explained by a change in the way preferences were allocated. The Essential poll next day still had the gap at six points.
Closing it will be hard if voters think the government has bankrupted its credibility. For now, Turnbull is bunkering down.
This article was first published in the print edition of The Saturday Paper on Apr 28, 2018 as "Downfall: Scenes from the banker". Subscribe here.