“The first duty of government is to protect the powerless from the powerful.” (Code of Hammurabi, 1772BC.)
The sixth king of Babylon, Hammurabi, was onto it early in the piece. But what about the 28th Prime Minister of Australia, Tony Abbott? Some 3785 years have elapsed since then.
This week was to have been a triumph for the government. It marked the grand cutting of the red tape, a centrepiece of Coalition reform, and was a good thing, too. Instead, the red tape was rendered a red herring by an issue of greater consequence.
Arthur Sinodinos fell on his sword. The Sinodinos affair goes to the heart of the No. 1 threat to democracy: corporate lobbyists. These people, spawned from the political classes, exploit their connections to influence government decisions.
Assistant treasurer Sinodinos, in his previous post as a director of Australian Water Holdings, stood to earn $20 million for his influence.
Just five days before Christmas, he announced his amendments to the Future of Financial Advice reforms. FOFA had been designed to make advice more transparent.
Although enfeebled by the former government, the reforms did place the interests of the powerless before those of the powerful – before those of the big banks, that is, who control the market for financial advice.
The amendments roll back FOFA. They are a boon for the banks.
Sinodinos had previously worked for the National Australia Bank, one of the four big winners in the FOFA cave-in.
Here was another triumph of the powerful over the powerless. If there were any further evidence required of the disadvantages in our superannuation system faced by the poor and unwitting, a study just published in The Australian Economic Review fleshes out how ”low-cost default” super has higher costs and lower returns. In other words, the least-informed are most exploited by the rollicking superannuation gravy train.
The study’s authors, Anup Basu and Stephanie Andrews from Queensland University of Technology, examined how much in default funds were placed with active managers despite the overwhelming evidence of inferior performance by active managers.
Industry funds, too, are at fault.
Contrast the policy treatment of these consumers with the slew of tax breaks enjoyed by wealthy superannuants. The Sinodinos amendments only entrench the institutionalised ripoff.
It was no small irony that the senator did receive some support this week, from the Financial Services Council, the lobbyists for the banks and their vertically integrated financial advice operations, whose submission on FOFA was unsurprisingly in favour of the rollback.
Governments of both hues have been protecting the powerful at the expense of the powerless for years. But it’s getting worse. Not only is power more concentrated now in the hands of a few big banks, but these few enjoy taxpayer guarantees to boot. The rewards are privatised, the risks socialised.
The upshot from this ”moral hazard” that arises from Too Big to Fail policy is not just an unfair society but a pernicious drag on the economy. Risk is not priced properly, nor is capital allocated correctly.
There is no more dramatic example of this than Wall Street, which surges on a sea of printed money while growth in the broader economy remains tepid. The bankers have their swagger back, but some 47 million Americans are on food stamps. That’s one in five households.
Meanwhile, Wall Street forked out more than $100 million on lobbyists last year. They bought Capitol Hill. Some 285 members of Congress were registered lobbyists.
Sadly, Australia is headed the way of this withering plutocracy. Social welfare spending may be a problem but corporate welfare is worse. It is small business, not big business, whose cause should be championed by government.
Still on the theme of influence: while Canberra tiptoes about in fear of offending Jakarta, the Indonesians routinely take Australian business people for a joyride.
Readers may recall the most scintillating example of this in our coverage of Intrepid Mines, a company stripped of its jumbo gold project in Java by its conniving local partners.
When Intrepid’s junior partners gave it the bird in 2012, the miner signed up Jakarta businessman and TV network owner Surya Paloh to try to get the project back. Paloh had ”vast experience in navigating the waters of Indonesian business” and was appointed to the board and given 5 per cent of the stock.
Intrepid has still lost its mine but it managed to jag $90 million in a settlement from its Indonesian partners. , Paloh stands to reap his 5 per cent. So if Intrepid shareholders vote for a return of capital, he stands to make 5 per cent of the cash returned on top of his 51 million shares – perhaps $9 million.
Sources say he did not do much in the way of influence to bring home the Intrepid settlement. But he is running for president of Indonesia, so – what with being a well-connected Indonesian bloke with a TV station and all that cash – he could do quite well in the elections.