The financial services industry has a great story to tell consumers about the economic benefits it provides for Australia, but thanks to populism and social media, the message doesn’t seem to be getting through.
Industry in firing line as politicians fight for survival
By Mark Smith
The financial services industry has a great story to tell consumers about the economic benefits it provides for Australia, but thanks to populism and social media, the message doesn’t seem to be getting through.
That’s the view of former Treasurer and now chairman of the $130 billion Future Fund, Peter Costello, whose address to the FSC Leaders Summit was keenly anticipated by conference delegates and the assembled media.
Mr Costello said the “very healthy” returns of the financial sector get shared broadly through the economy. With government, though the tax system, and with virtually all Australians in the form of the dividends they receive as shareholders via the superannuation system.
“The big bank profits are so healthy, they end up paying an extraordinary proportion of the government’s company tax collection,” Mr Costello said.
Yet despite this, he added consumers tend to focus on the “handsome salaries” paid to banking executives and feel “unloved” by the industry.
“The reason the Government was able to put a levy on the sector in the Budget was because there was no opposition to it,” he said.
The GFC fallout
Australia’s experience in the aftermath of the 2008 financial crisis, Mr Costello explained, was quite different to the US and Britain and has in no small part led to the banks in 2017 being in such good health.
“Our regulatory system — which was focused on stability — performed exactly as it was designed to do.
“Apart from the wholesale guarantee, the government did not have to intervene to save any bank. In this country there was no bailout, there was no failure, there wasn’t even a loss over a quarter let alone a year. Nor was there any substantial mortgage default or hardship.”
The strength of the so-called “four pillars” and the perceived stability provided by them, presented an opportunity for them to increase their market share and competitive position.
In more normal economic conditions, Mr Costello said there may not have been allowed to grow so large amid competition concerns.
'Politicians fear for their own industry’
So why consumers’ enduring animosity? And why the tough stance of policymakers?
The former Treasurer says politicians are, in a sense, fighting for their own industry amid a rise of populism that itself is being driven by mistrust of institutions and authority amplified by social media and a faster news cycle.
“Politicians feel for whatever reason that they have to respond to an electorate that is increasingly angry, part of which is feeling left behind, that are registering protest with the political class at the polls,” he said. “We have seen a reassertion of national sovereignty, we’ve seen governments increasing taxes.
“Perversely, a sector that came through a testing time of financial stress with flying colours has not endeared itself to Australian consumers, but has sunk in esteem.”
Royal Commission not the answer
Happily, Mr Costello doesn’t think the answer is more regulation and certainly not a Royal Commission into the banking and financial services sector. Sadly, he adds, that won’t silence more calls for both.
“With the advice of public relations “experts”, the CEOs will appear before the Parliamentary Committee and issue the usual mea culpa,” the Future Fund chairman predicted.
“They will engage pollsters who will reassure people that all is well. But none of that will change fundamental perceptions.”
Though there was no silver bullet for the issue, Mr Costello did offer some advice to senior financial services executives: “What they need to be able to do is to explain the benefit their industry brings to consumers and to society, and further, to explain how their remuneration packages offer each value for money.”
This conversation was part of the 2017 FSC Leaders Summit in Sydney on July 26.