The political clock is ticking and, as Mike Taylor writes, global economic reality may overtake the Government’s policy agenda before it can deliver proof of a Budget surplus in May, next year.
With the release of its Mid-Year Economic and Fiscal Outlook (MYEFO) in late November, the Federal Government seemed to confirm the analysis of many of its critics – that it is more about the political facade than genuine economic substance.
Rather than acknowledging that Australia needed to accommodate a world economy that had entered a phase more dangerous than that which prevailed during the global financial crisis, the Treasurer, Wayne Swan, insisted on delivering a strategy based on the continuing existence of a Budget surplus.
By almost any analysis, Swan’s $1.5 billion Budget surplus is more about maintaining political capital than economic reality. Given that the Government promised a return to surplus in the next financial year, the Treasurer wants to be able to argue that it delivered on that promise. It goes to the heart of being able to prove the Gillard Government’s credentials as an economic manager.
There exists a belief in the Australian Labor Party that if the Government can assert its ability as an economic manager over the first six months of 2012 and deliver the promised surplus, then it can utilise this as the basis for a turnaround in the polls ahead of a 2013 Federal Election.
Why is this important for the financial planning community?
Because the more successful the Government’s strategy proves to be, the sooner it is likely to go to a federal election.
What financial planners need to recognise is that with the surprise change in speakers from the ALP’s Harry Jenkins to former Coalition backbencher, Peter Slipper, the Gillard Government has not just obtained an extra vote in the House of Representatives – it has obtained the stability necessary for the Government to run a full term.
To remain in power, the Government now needs only the support of two of the independents, and is much less reliant on Tasmania’s less than predictable Andrew Wilkie.
Where financial planners are concerned, this means the Assistant Treasurer and Minister for Financial Services, Bill Shorten, is much more likely to secure the passage of his Future of Financial Advice (FOFA) bills through the House of Representatives with little or no amendment.
While both the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) had exhorted their members to lobby both Wilkie and NSW independent, Rob Oakeshott, with a view to extracting amendments to the FOFA bills (particularly around opt-in), these efforts may prove to have been in vain.
Indeed, even if Oakeshott and Wilkie were to support the Opposition’s expected amendment to the opt-in provisions, the vote would be tied.
This fact makes the suggestion by Shorten that he will accede to some of the concerns raised by the FPA by moderating the Government’s approach to the annual fee disclosure statement even more crucial.
Indeed, with the benefit of hindsight, there is the suggestion that Shorten was aware of impending events in the House of Representatives when he asserted at the FPA Conference in Brisbane that his FOFA legislation would be passed intact.
It is little wonder then, that as November turned to December, both the FPA and the AFA were focusing on putting arguments before the Parliamentary Joint Committee (PJC) hearings convened to examine the FOFA legislation before it is ultimately voted on in the house.
While the PJC hearings provide yet another forum via which the FPA and the AFA can outline their continuing concerns around the FOFA legislation, the committee process is now unlikely to give rise to anything that would discomfort Shorten or his ambition to have his legislation passed.
While the PJC in the form of the Ripoll Inquiry produced a bipartisan report-backing reform in the financial planning industry, the current PJC processes seem more likely to give rise to two reports – one from the Government supporting the FOFA bills and a dissenting report from Coalition members.
The major industry organisations will also be aware that there are key elements of the FOFA changes which have yet to hit the Parliament – not least, a compensation scheme and standards of professionalism.
Then, too, there is the question of whether the FOFA bills will be passed in sufficient time to allow the industry to put in place the necessary back-office changes or whether the Government will allow an extended period of transition.
Financial planners might also care to reflect upon the degree to which, over the past four years, the Government has wound back incentives for Australians saving for their retirement beyond the superannuation guarantee.
Contribution caps were wound back under the Rudd Government and (including last month’s MYEFO) there have now been significant cuts to the attractiveness of the superannuation co-contribution and cap indexation.
Which brings us back to Australia’s political timetable and the Treasurer’s insistence that the Government can, and will, ultimately deliver a Budget surplus.
Economic conditions in Europe and the US and their impact on China suggest the first six months of 2012 will provide some of the greatest challenges ever encountered by an Australian Government – something that will focus the minds of the Government’s most senior Treasury advisers.
The Treasury will be preparing the 2012–2013 Budget at much the same time as the FOFA legislation is being subject to a vote in the House of Representatives, but it seems likely that the Prime Minister, Julia Gillard, and the Treasurer, Wayne Swan, will be focused on former US President Bill Clinton’s old admonition – “It’s the economy, stupid”.
