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Aug 3, 2016

The Guardian | World | Australia | Reserve Bank of Australia - August 3, 2016: Former Reserve Bank Board Member Calls for Inquiry Into Australian Banks

Gareth Hutchens

A former Reserve Bank board member has called for an inquiry into Australia’s banking sector, saying the quality of their financial advice needs a lot more work, and warned that the Turnbull government should not pursue company tax cuts in the current environment.
John Edwards, who last week finished a five-year term on the RBA board which sets the country’s interest rates, said he does not think the Coalition has a “convincing plan” to substantially reduce the deficit within a reasonable timeframe.
He told the ABC’s 7.30 program on Wednesday that the government’s current plan depended on a “very big increase in personal income tax collections, of the order of 20% over the next three years.”
“That really involves something like a 10% to 15% increase in the personal income tax paid by all employees, and basically I don’t think that’s on,” he said.
Edwards also said the government ought to look at other forms of tax increases to bring the deficit down, including winding back super tax concessions, and the capital gains tax discount.
He said it was “ludicrous situation” that consecutive federal governments had let cumulative budget deficits, as a share of GDP, become far bigger than they ever were after the last two recessions in Australia.
“And we haven’t even had a recession,” he said.
Edwards, who was an adviser to Paul Keating, also backed Malcolm Turnbull’s call for the major banks to pass on this week’s Reserve Bank rate cut in full to customers.
The RBA cut the official cash rate to a new historic low of 1.5% on Tuesday, citing low inflation and the need to encourage sustainable economic growth, but the major banks responded by passing on some of the rate cut to their mortgage rates, telegraphing cuts to rates for business loans, and increasing rates for term deposits.
Malcolm Turnbull said on Wednesday that the commercial banks ought to pass on the full interest rate cut to their customers, or explain why they would not.
“They should do that, and if they are not prepared to do it, as appears to be the case, then their chief executives should explain very clearly to the Australian people and their customers why they have not done so,” Turnbull said.
Edwards said the banks are arguing that their cost of funding has gone up, but their average cost of funding had actually gone down in recent years, because the official interest rate has fallen from 7.25% to 1.5% since mid-2008.
When asked if there should be a royal commission into the banking industry, he said an inquiry of some kind “would be helpful.”
“We need to do a lot more work on the quality of financial advice being offered by banks,” he said.
“Particularly because they’ve become such a huge presence in funds management, and because the population is ageing.
“Their authority in that area is becoming vastly bigger than it was, even a decade ago. I think that’s where we need to get a better idea of what the culture is, and where the performance and practice is,” he said.