The good, the bad and the ugly of the Murray inquiry

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The Murray inquiry's observations on financial advice, household debt and super are commendable, but its boneheaded proposal for the government to underwrite RMBS is a concern.

A gov­ern­ment report is always a Parson’s Egg, and I’ll start with the parts of this one that were excel­lent. These were its wari­ness about and obser­va­tions on super­an­nu­a­tion, finan­cial advice and house­hold debt.

The rai­son d’etre for super­an­nu­a­tion in the first place was that it enforced “sav­ing for the future” by indi­vid­u­als, and one doesn’t save mon­ey by going into debt. That was the rea­son that bor­row­ing by super­an­nu­a­tion funds was banned in the first place when the sys­tem was designed. The deci­sion by the Howard gov­ern­ment in late 2007 to remove this ban was one of the worst deci­sions made by any gov­ern­ment in the last 20 years. The com­mit­tee sen­si­bly sug­gests revert­ing to the orig­i­nal pro­hi­bi­tion on bor­row­ing by super­an­nu­a­tion funds.

The Finan­cial Sys­tem Inquiry com­mit­tee observes in its inter­im report that “gen­er­al lack of lever­age in the super­an­nu­a­tion sys­tem is a major strength of the finan­cial sys­tem”, but that recent­ly there has been a sub­stan­tial growth in the use of lever­age by super­an­nu­a­tion funds which, “if allowed to con­tin­ue … may cre­ate vul­ner­a­bil­i­ties for the super­an­nu­a­tion and finan­cial sys­tems” and “over time, erode this strength and cre­ate new risks to the finan­cial sys­tem”. The com­mit­tee there­fore sug­gests that the gov­ern­ment should “restore the gen­er­al pro­hi­bi­tion on direct lever­age in super­an­nu­a­tion on a prospec­tive basis”.

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