The outspoken chairman of the Future Fund, David Murray, has backed demands for a new banking inquiry, raised concerns about the possible sale of the Australian Securities Exchange, and believes Australia’s economy and financial system are at risk from the nation’s high level of foreign debt.
Front page The Australian Financial Review, Wednesday 1/12/2010.
There is nothing so beneficial as an argument between persons of goodwill.
Old Jewish proverb.
PROLOGUE
Business leaders were conspicuously silent during the entire period of the Rudd government and it has been suggested that retribution was a possibility if criticism was forthcoming. Mr Rudd was universally regarded as being both ‘thin-skinned’ and somewhat vindictive. It is a feature of governments all over the world that appointments are often made across the political divide to counter criticism of mates receiving favours. The old adage of having them inside the tent being better than outside the tent easily comes to mind. For example, Brendan Nelson got a great gig to Europe after losing the Liberal leadership enabling Mr Rudd to wax lyrical about what a great talent he was thus belittling by implication his replacement, Mr Turnbull as no great talent and thus an inferior replacement. Additional kudos came from the impression of grand generosity to a defeated foe, much like the Caesars of old. Recently Ms Gillard has appointed Don Argus ex BHP chairman to the Mining Tax Review panel probably in the belief that his solution will be acceptable to the government and receive critical acclaim from the voters as he seems to have a DNA unaligned to Labor.
Politicians build bridges to various constituencies through their regular awards and appointments. The ‘Australian of the Year’ can be a scientist, a climate change activist, a medico and best of all a sportman, preferably a cricketer. The Governor general can be an eminent lawyer, a political colleague, a woman or churchman.
David Murray joined the Commonwealth Bank in 1966 and became Chief Executive in 1992 serving in that capacity for the 13 years to 2005. In April 2006, sometime after his retirement, he was appointed chairman of the Future Fund by John Howard.
Ecinya thinks that his interview is noteworthy because it concerns a number of well expressed statements on issues of significant importance that require considerable thought and considered action.
THE MURRAY INTERVIEW
The David Murray interview covered 5 main areas –
- A new banking inquiry.
- The mining tax and what should happen to funds collected, should it proceed.
- The Australian agriculture sector.
- The Singapore bid for the ASX.
- Australia’s high level of net foreign liabilities.
A Banking Inquiry
The Wallis inquiry reported in 1997 and a new inquiry would enable a calm debate to take place about what changes to banking regulations might be appropriate. Mr Murray specifically mentioned that the ability to switch mortgages was an important issue.
Mr Murray said: "I would like to see more competition in the financial services sector but not through government involvement. When governments own banks the asset allocation decisions become tilted by political considerations and their efficiency is impaired. It doesn’t work having government banks and in fact they have been some of the biggest disasters for governments here. The one mistake in running a bank is to attach the mortgage rate to the official cash rate. It’s incorrect matched pricing. When you set up mismatches like that in a bank it has other consequences. And by artificially determining how those prices should be set you actually cause the banks to take their eye off the quality of the management of their balance sheets."
The Mining Tax
Mr Murray echoed the ‘thought bubble’ created by Mr Glenn Stevens of the Reserve Bank that some of the increased revenue from the historically favourable terms of trade be quarantined in a ‘prosperity’ fund. Mr Murray thought that such moneys could find their way into the Future Fund, extending its original mandate. Given that the purpose of the proposed mining tax is to bring the budget back into surplus it seems difficult to imagine that the government would embrace the idea of putting any of the projected tax into any existing or new fund.
There are quite a few flaws and red herrings in the common conclusion of Messrs Stevens and Murray. Firstly, the Future Fund was really set up to enable an independent sell-down of the 16.4% stake in Telstra held by the government. Secondly, there is the implication by Messrs Stevens and Murray that the real purpose of quarantining any funds (via mining tax or terms of trade gains) is to keep them away from a government that has not spent its funds wisely whilst in office on matters such as pink batts, other climate change subsidies, schools, detention centres, one-off tax refunds etc. Paying off government debt is a form of savings so the projected use by the government is a legitimate aspiration. It is also hard to intellectually agree with Mr Murray that his "biggest driver is that we exist for our children and not for ourselves. If you look at all this stuff going on you wouldn’t believe we even have any children." A prosperous nation in all of its manifestations is good for our children, so it is hard to fathom that that an arbitrary allocation of a tax windfall ‘for our children’ is a fully developed economic thesis. Rather it seems to be a moralistic argument to justify some other shortcoming.
If Mr Murray thinks the government are poor economic managers then he should say so. Mr Stevens is in no position to make such a statement. His job is clear cut and relatively unambiguous. His criticisms and suggestions need to be behind closed doors and expressed in higher or lower interest rates if fiscal policy is inadequate or inappropriate. Additionally, if Mr Murray thinks the Opposition have some balmy ideas such as the election-induced paid maternity leave scheme and a billion dollar hospital for Mr Wilkie’s Hobart then he should say so as well.
The Australian Agricultural Sector.
Mr Murray said: "With our land mass and the aggregate amount of water that falls on it we should be able to supply food to the world. The most important initiative in this country is to sort out water rights and water availability." Ecinya emphatically agrees. The rural sector has been ignored for years and systematically abused over time as the twin ravages of drought and flood have been exacerbated by high interest rates and food imports. Additionally some rural policies such as the dairy industry have been devastating for rural areas.
Singapore’s bid for the ASX
Mr Murray said: "Australia is a very sophisticated economy. Its efficiency relies upon a very good system of exchange for securities. I think it’s important to make sure that the system isn’t impaired or rendered inefficient by any merger."
Mr Murray’s comments are more in the nature of a caveat rather than opposition to the proposed merger but there are many that believe that foreign ownership means foreign control, less transparency, and less supervision.
In the same newspaper on the same day as the reported Murray interview (page 3), the corporate regulator ASIC called for a wide-ranging examination of the share-market rules, including listing criteria, that allowed small, high risk companies to float on the share-market. Many old hands in the stock-market are of the view that standards have dropped over the years since the ASX listed as it became a toothless tiger. In relation to annual reports and prospectuses quantity has replaced quality.
Australia’s high level of net foreign liabilities
Mr Murray makes the point that Australia’s foreign debt at 60% of GDP is higher than that of the United States or France and therefore, if the mining boom should abate then our economy is fragile indeed. He maintains that Australia is in "a very, very risky position". We are a nation that imports far too much and our export base is fairly narrow. Manufacturing has all but disappeared in Australia.
ECINYA OVERVIEW
Business has, over the past several decades, the last decade in particular, become extremely muted in its suggestions to and criticisms of government at both the state and federal levels. It is a welcome development that Mr Murray has joined the debate as he has a profile that carries some weight. In relation to the banks we refer you to Ecinya’s recent Insight article (clik for access). We also hope that others are encouraged to join the debate. It is very interesting that skills shortages are back on the agenda and for years many tradesmen employers complained about the trade training schemes implemented by government that discouraged the practical employment of apprentices.
We hope that the government begins to listen to legitimate business concerns in relation to the matters raised by Mr Murray and others. We hope that the bridge to business that Mr Murray is part of, is ‘not a bridge too far’.