Friday, February 20, 2009

Howard Era Vultures Are Circling

It would appear that Malcolm Turnbull is responding to the turmoil in his party exactly as he might be expected to react. He is asserting his authority. It has been reported that many within the rank and file of the Liberals have a problem with what is described as his “corporate” style of leadership. In the corporate world, subordinates are expected to follow instructions, work co-operatively with colleagues, and uphold the good name of the company. When they don’t, they are disciplined and if necessary dismissed. So it’s no surprise that Mr. Turnbull seems to have been wrong-footed by the more slippery behavior of his political colleagues.

The fact that Mr. Turnbull sacked Senator Cory Bernardi from his junior front bench position as Parliamentary Secretary for Disabilities for speaking out of turn could be seen as an excessive response, but it shows Mr. Turnbull’s preference for taking decisive action. But if Senator Bernadi can be sacked for bad-mouthing Christopher Pyne, what about Tony Abbott for contradicting coalition policy? What about Andrew Robb for suggesting a Carbon Tax? What about Nick Minchin for making a point of backing Bernadi? What about Peter Costello for being, well, annoying? Hang on, Peter Costello can’t be sacked because he is already a backbencher. And that’s the problem. You can’t sack everybody. All you can do is rearrange the chairs for the existing members of Parliament. That’s why a corporate style of leadership doesn’t necessarily work in the world of politics. It’s a world where leaders are not always really the ones in charge, and where stepping on toes can see a sudden end to a career.

I have said all along that I believe that Malcolm Turnbull is the best thing that the Liberal Party has going for it in terms of leadership, and I still think so. In many ways, if he is stepping on some toes at the moment perhaps some of those toes deserve to be stepped on. After all, just what are Tony Abbott, Nick Minchin and Peter Costello playing at? All are John Howard men, all are relics of the previous government and all carry the baggage of the unpopular and unworkable “work choices” legislation, the children overboard lies, the immigration detention debacle that saw legitimate citizens locked up, the deceptions that led to war in Iraq, and so on. It is abundantly clear that Peter Costello is only interested in the best interests of Peter Costello, and not the best interests of the party or the nation. The same could well be said for the others who are presumably encouraging him to lurk in the background, a constant source of destabilization, hovering like a vulture ready to strike at the carcass of Malcolm Turnbull’s leadership, should it die as Brendan Nelson’s did. None of these characters have learned anything form defeat. Instead of tearing their own party apart, they should be tearing apart the policies of the government.

The thing is, Malcolm Turnbull is not Brendan Nelson. No disrespect to Dr. Nelson, but Mr. Turnbull is both confident and determined, while also being well armed intellectually to take up the challenge. He might find that his natural tendency to a “corporate” style is ruffling some feathers, but he is also bright enough to adapt and make use of some of his other talents for charm, persuasion, and strategic thinking. His position is being made more difficult by the Howard era dinosaurs who still think they run the show, but in reality all they are achieving is a reduction of their own chances of returning to government any time soon.

Thursday, February 19, 2009

The Government Should Help Those Who Help Themselves

The review of age pensions by Dr. Jeff Harmer will deliver its much anticipated final report next week. The report is expected to find that the single age pension is too low, and should be increased to a level where it is two thirds of the couples’ pension, which would result in an increase of around $35 a week. This would be consistent with the findings released in the interim report last year. It’s also nothing new.

We already know that the age pension is too low for anyone who is dependent upon it to exist in any kind of comfort. The single rate is now $545 per fortnight, and is well below the poverty line, no matter which definition of poverty you choose to use. We don’t need an inquiry by a public servant to tell us that. What we do need from the Harmer Report is clear recommendations on how to reform and restructure pensions to provide the level of support that they should.

I have already put forward my own suggestions many times, and they all involve a substantial increase to the rate of pension for both singles and couples. While I don’t expect my suggestions to be taken up, I do expect that the government will be kept to its promise to provide some sort of boost for pensioners in the forthcoming budget. If they don’t it will be a breach of faith so massive that it could easily be the beginning of the end of the Rudd government. But just boosting the pension, as desperately needed as it is, won’t actually fix the problem.

The only long term solution which is sustainable is one which will reduce the number of people relying on the pension, by making the superannuation system work more effectively to provide the benefits it was originally intended to. That means increasing the level of contributions to super above the current 9% paid by employers. The increase should ideally be a further 3% from government, and 3% from employees themselves. The taxpayer investment can be justified by the long term savings created by reducing dependency on the publicly funded pension system.

Equally importantly, the taxation of superannuation contributions needs to be abolished. All money going into super should be quarantined from tax to provide maximum bang for the buck. The payoff for the retiree will be a better nest-egg and therefore a better income in retirement, and the payoff for the government is that people who are more prosperous pay more tax, both directly and indirectly.

Finally, the allocated pensions where most superannuation winds up after retirement also need to be flexible enough to allow people to have some control over their own destiny. Currently, these private pensions are given preferential tax treatment and are structured in such a way as to require the recipient to drawdown a percentage of the capital each year as part of their income. The end result of this is that at some point the money will run out, which becomes rather awkward if you are still alive when it does.

In the wake of the Global Financial Crisis, which has had a devastating impact on the financial wellbeing of self funded retirees, the government has temporarily suspended these compulsory drawdowns of capital so that retirees are not forced to cash in assets at prices well below where they were a year ago. Now that’s a good move, but I have to wonder why it should not always be the case. The idea of the compulsory drawdown is to ensure that people use their own resources before they claim public pension benefits, but if it suits a retired person to take a smaller income now in order to protect his capital, shouldn’t he always be allowed to do that? So long as a person isn’t deliberately manipulating their position to wrongly claim a pension or avoid tax then they should be allowed the flexibility to choose not to spend their money when they believe that is the more prudent course.

The best way to stop people depending on the government to provide for them is to make sure that they can provide for themselves.

Wednesday, February 18, 2009

That’s Not A Contract, That’s An Ultimatum!

The Federal Government is in the process of putting together national consumer laws which are intended to achieve both consistency between the states, and a better deal for consumers. Such a national code is only possible with the agreement of the states, and will require them to enact their own legislation to bring the national code into effect. When that finally happens it will reduce the cost burden on businesses complying with half a dozen separate jurisdictions with their own separate sets of laws. It will also provide consumers with greater clarity on just what are their rights.

The new code will include a set of regulations for so-called standard contracts, announced this week by the Assistant Federal Treasurer Chris Bowen. Essentially, a standard contract is a form contract which is imposed upon a consumer with a standard set of terms and conditions which the customer must sign in order to receive the service or goods on offer. The use of the standard contract has spread throughout many aspects of modern life, and one of the most obvious examples is the mobile phone contract. It’s no coincidence that the mobile phone contract is also one of the biggest sources of complaints from consumers. Another big source of complaint is the area of gym membership contracts.

The difficulty is that many standard contracts are to some extent one sided. A common problem is for customers to be unable to get out of a contract in the event that their circumstances change, or sometimes even when the service provider is no longer able to provide the service. In extreme cases, the service provider is allowed by the terms of the contract to actually change the terms of the contract unilaterally, or to extend it, without any further negotiation or agreement required.

Although it can be said that consumers should read the fine print and be aware of just what it is that they are signing, the truth is that the contracts are offered on a take it or leave it basis. If you want to have the mobile phone at the advertised price, you have no choice but to sign the papers. If you want to join the gym in your suburb, you have no choice but to accept their terms and conditions. And although it should make good business sense to offer customers good terms, that hasn’t always proven to be the case.

While the move to regulate standard contracts to ensure that they are fair is long overdue, the success of the plan depends upon what is considered to be fair and who decides whether or not it is. This task will be left to the Australian Competition and Consumer Commission, which will be given new powers to enforce the code, as well as the courts. There is however one exception. Financial services. This area is already the domain of a Federal Agency, the Australian Securities and Investments Commission.

It remains to be seen whether the same principles of fairness will be applied to loan contracts, but it certainly should be. Buried within most mortgage contracts is a clause which gives the bank the power to independently and unilaterally alter any of the terms and conditions of the loan, including the level of any fees, at any time. When you sign such a contract, how can you possible know what it is that you are agreeing to? That’s not a contract, that’s an ultimatum! You might as well be handing over a blank cheque. No wonder most of us feel as if we are signing over our soul when we take out mortgage!

While we tend to think of a contract as a negotiated agreement, the truth is that most of us have no say in almost every contract we sign. That’s why it is imperative for consumer protection laws to provide the balance which is missing in the market place.

Tuesday, February 17, 2009

Waiting In The Wings… But For What?

It’s hard to know just what Peter Costello thinks he is doing, lurking on the Liberal Party’s back bench. It has been reported that after Julie Bishop stepped aside as Shadow Treasurer, Mr. Costello declined an invitation to take up the post. And who can blame him. After all he had eleven years as the real Treasurer, so why would he want to be the Shadow? There is speculation that the only front bench position that interests him is that of Party Leader. But if that was true, wouldn’t he already have the job?

There is no doubt that there is plenty of support for Mr. Costello to play a senior role in the opposition, whether as Shadow Treasurer or otherwise, both from his colleagues and from Liberal voters. But it’s hard to see any good reason for him to take anything less than the leadership. It’s also questionable whether he would be as good for the Party as some seem to think. Despite his reputation as a lively Parliamentary performer, he now carries the baggage of the past. He may have presided over a period of economic prosperity, but the timing of the plunge over the precipice makes it clear that the current government is not to blame. Even more divisively, Peter Costello will be forever connected to Work Choices, the single most crucial factor in the Liberal Party’s loss of office.

Not only has the nation moved on, it appears as if Peter Costello has not. He is now seen as a ditherer, someone who had the opportunity, but didn’t have the fortitude to take it. Even when Brendan Nelson’s leadership crumbled, Peter Costello could not bring himself to make a move. Whatever his motivations might be, people could easily see that as indicating one of three things. One, he wants it, but only if it’s handed to him on a plate. Two, he wants it, but is waiting for a better opportunity. Or three, he actually doesn’t want it at all, but is just occupying space on the back bench because he has nothing better to do and the money’s good. Could it be that the nation’s once great treasurer forgot to save up enough to provide for his retirement?

I suspect, but I have no way of knowing, that Peter Costello is experiencing a combination of all three feelings. Perhaps there really is nothing else he would rather do than be in Parliament. Perhaps the opportunities which he expected to open up in the corporate world simply haven’t emerged. Perhaps he really does still want to be leader, but believes that now is not the time. Perhaps he is waiting for a time when Malcolm Turnbull will somehow self-destruct, and the Party will turn to him in its time of need and beg him to become leader. Perhaps he sees it as somehow beneath him to have to actively seek it out, rather than be invited by desperately grateful colleagues, much the same as John Howard was after they ran out of other alternatives. The only problem with such a plan is Malcolm Turnbull won’t fall by the wayside quite so easily as Nelson, or Downer, or Hewson.

Some would suggest that if Peter Costello is not going to play an active part in the leadership team that he should get out of the Parliament and make way for new blood, as Brendan Nelson has done. It might well be in the best interests of the Party for that to happen. But it seems that Peter Costello is more likely to be considering the best interests of Peter Costello, even if the rest of us can’t be entirely sure just what those interests are.

Monday, February 16, 2009

Bank Robbery

The new regulations governing ATM fees which are due to come into effect from next month are supposed to provide customers with the benefits of improved competition, informed choice and lower fees. Unfortunately, it seems that no one told the banks. It has been revealed that four of the top five banks have confirmed that they will continue to charge so called foreign ATM fees on top of the fees charged by the owners of those machines. On top of that, it turns out that they will even charge a fee for balance enquiries, before charging a second fee should you choose to continue and actually make a withdrawal. Only one of the big banks is still considering its position.

This situation is so wrong on so many counts it would be a joke if it wasn’t ripping the money from the pockets of hard-working Australians who have no choice but to pay up. First and foremost, it is my belief that there should be no transaction fees whatsoever. Banks pay virtually no interest on the money we deposit into transaction accounts, so to all intents and purposes it is free money for the banks. Yes there is some cost associated with the book-keeping, but the truth is that they are keeping account for their own benefit as much as for yours. The interest that they charge on the money they lend out is considerably higher than the interest they pay to borrow the money from you, and that is supposed to be the profit margin that pays for their overheads. If they want to keep on charging fees, they should stop charging interest! But of course a banking license is a license to have somebody else’s cake and eat it too.

There should be no cost associated with electronic banking at all for the simple reason that we have been forced to be captive to the electronic system. Once upon a time we could demand to be paid in cash, and avoid the banks altogether. Not any more. Now, almost everybody is paid by direct deposit and we have no choice in the matter. There are even businesses who will not accept cash, but insist on electronic funds transfer. EFT has become the de facto currency of the 21st Century, and we have no choice but to use it. Currency is rightfully issued by the sovereign government, and the cost of currency is the responsibility of that sovereign government. And yet, with the de facto currency of the modern world it is we who have been duped into paying that cost through a variety of transaction fees.

Then, if we do insist on using real cash we are stung again at the ATM. If customers from Bank A withdraw money from an ATM belonging to Bank B, Bank B charges Bank A a fee for the use of the machine, and that fee is passed on to the customer. But at the same time customers from Bank B also use ATMs belonging to Bank A, so it would be reasonable to assume that there is no net cost. After all, if I owe you a dollar and you owe me a dollar, then it cancels out. The only possible reason for the banks not to operate a reciprocal arrangement is so that they can reach their long sticky fingers deeper into your pockets, and mine.

In the case of ATMs owned by non-bank providers, a case can be easily made for a modest fee for service. Obviously the owner of the ATM is not your bank and the fee is what makes it profitable for the third party service provider to offer the ATM service in a location where your bank hasn’t bothered to provide one itself. Fair enough. However, for your bank to slug you a fee for having the temerity to check your balance and make a withdrawal at a location where they haven’t bothered to provide a facility to their own customers amounts to nothing more than a greedy opportunistic raid on your money.

Not so long ago we were all slapping each other on the back over how solid our banks are in this time of Global Financial Crisis. Well, that’s why. Rather than being the result of prudent management, it’s more like the spoils of a Great Bank Robbery, only in this case the bandits are wearing the suits and they’re on the other side of the bullet-proof glass.