Have a go Jim
Treasurer Jim Chalmers, perhaps the most influential Treasurer Australia has had since Paul Keating?
One of his pillars has been to implement a concept of "value at the forefront of economics" across the treasury portfolio. A refreshing change to have a thinker in place at the helm; no longer are we talking about a treasurer who thinks only of "ins and outs" but instead speaks of core values.
Politics or Realpolitik? Perhaps a lot of politics to validate his actions, either for himself or for others. One could easily argue, perhaps these "core values" are a means to justify cutting down on governmental excesses, close off loopholes and transform stale governmental bodies while aggravating and ignoring anyone involved. Ahem, $3m superannuation tax anyone?
Who is in charge?
Let's move on to something completely different. We all know our RBA Governor, yet how many can name the Chair of APRA?
An issue I have had and constantly struggle to grasp is understanding how APRA has managed to escape scrutiny on changes to credit availability over the last decade. My worry since 2017 has always been the unchecked balance of power and influence APRA has had on the stability of our residential housing market. Resi borrowing in Australia became entirely too easy (2014), then was turned off like a switch (2017), to finally be encouraged again (2020) in the most nuclear way possible. The RBA cops plenty of grief for housing market stability yet APRA never gets a mention for wielding the many tools at their disposal with little care for market stability. "Prudential" Authority.
Our esteemed Treasurer made wholesale changes to APRA, appointing a new chair, deputy chair, and a few new board members. John Lonsdale is the new Chair of APRA for those that are interested.
He's also made some major changes at the RBA, having appointed 4 out of 8 board members. And the deputy chair remains vacant as of today, meaning a 5th Chalmers appointee at some point.
So, everyone on the APRA board and majority on the RBA board are friendlies. Not a bad position to be in to project soft power! And projecting soft power onto monetary policy and macropru (directly?) surely helps him somewhat, right?
Bank Hybrids and the Cost of Capital
Let's change tact again and discuss something (but not really) different – bank hybrid securities. There is a dialogue today of whether Australian hybrid securities are fit for purpose and appropriate for the market, especially with APRA suddenly deciding that they are worried about the retail holders of these securities. These are not soft comments to make, and surely not ones you would make without the political support either.
APRA conveying that hybrids either:
- Become easier to bail in, ultimately riskier securities
- Force banks to change their capital mix (less hybrids)
- Raise more capital from overseas
I'm going to stick my neck out and say something cynical, all 3 in some way target the franking concession on hybrids and I believe that the third outcome is the most likely in this situation. A newly appointed head of a government body acting in the favour of our esteemed treasurer struck on balancing the budget and executing his vision.
Our banks are among the most profitable in the world and the cost of capital is effectively subsidised by the taxpayer due to franking credit concessions available via hybrid securities. Banks only need to stump up 70% of the actual cost of capital, and the tax-payer dollar covers the next 30%. Is that fair? Or equitable? Does this stand up to Jim's value-based accountability or value-based capitalism? I think not.
The Master of Coin
Treasurer Chalmers released a 6000-word essay at the start of the year where he speaks of democracy, yet if he executes his vision, he ends up being the most autocratic treasurer I can remember in recent history.
Weirdly enough, I don't actually have a problem with this - he's executing logical and reasonable actions in the betterment of our country and budget. I am not the biggest fan of the essay which includes him, like pretty much every money manager who underperformed the index, speaking about a recession like it was guaranteed in 2023. But nonetheless, he indirectly makes plenty of comments proclaiming his focus on reducing tax concessions and balancing the budget over the long term - an admirable goal to cut through the various loop-holes available for various groups today.
And clearly it doesn't matter who's toes he steps on with his actions, the nuclear vision of taxing unrealised assets in SMSFs above $3m is insane. Luckily tall-poppy syndrome means that this will be a popular measure.
But perhaps I'm a bit harsh in all of this, Ken Henry in his 2014 speech made a good point:
"As a profession, we are never going to agree on who those winners should be. And many of you will never feel comfortable even thinking about policy objectives at that micro-outcomes level. But I would encourage you not to be too critical of those who are prepared to give it a go. I would encourage you to accept, at least, that the discussion is one worth having."
— Ken Henry, 2014
We can be critical, and I might not agree (and even strongly disagree), but I'm glad someone is having a go.
Have a go Jim, have a go.