Wednesday, December 18, 2002

Inquiring all summer

On Life Matters 9 December I talked about the extraordinary number of important government inquiries taking place over summer and asked - why it is that John Howard (belatedly) seems in so much of a hurry.

By far the most important is the Prime Minister's Home Ownership Taskforce.

Set up at the end of November, with submissions due by the end of December and with a final report due by March the deadlines are tight.

But the work won't be as hard as it might have been. Virtually everyone on the Task Force and its subcommittees has already indicated that they support the idea that'll be investigated. (See John Quiggin for a note that suggests that this may have been a criteria for an invitation to work for the Taskforce.)

Malcolm Turnbull's Menzies Research Centre will run the Task Force. It is the group which has been pushing the proposal. As was once said about Allan Bond the Prime Minister appears to want his advisors to tell him how to do what he wants not whether he should.

Which worries me little. The idea of allowing individuals to buy houses through a limited partnership with financial institutions has much going for it...

Right now, many individuals are condemned to all of the indignities and uncertainties that go with renting because they can't afford to buy a house.

Almost as bad, most of those that can have put everything they own and more into "one property in one suburb of one city. No one who is engaged in any sort of responsible financial advice would ever advise someone to do such a thing, and yet most Australians do."

Super funds and financial institutions by contrast are crying out for an asset such as housing. In aggregate residential real estate is safe - a much-needed hedge against stocks and bonds.

The MRC wants stamp duty and other rules changed to allow financial institutions and individuals to buy houses in (say 50-50) partnership. The individual ("managing partner") would have the right to live in the house and make alterations etc to it for as long as they wished.

They would have an incentive to maintain the house well, because when they did decide to sell they would get to keep a certain proportion of the proceeds (say 50 per cent, or maybe 45 per cent).

Although the institution has no say in when the house is sold, in aggregate the resale rate will be predictable and will provide regular income, without the fund needing to lift a finger to manager the property.

Australia has led the way in financially innovative solutions before. We invented HECS, we invented the Child Support Agency ideas now copied elsewhere. This idea has the same sort of potential.

At least that's what the Prime Minister thinks. On Life Matters I said he is acting like a man who has little time, and wants to achieve something worthwhile before he goes. Curiously Ross Gittins arrived at the same conclusion (about little time) at about the same time.

Also inquirning over summer is the Dawson review of the Trade Practices Act which was due to report at the end of November but has had its deadline extended until the end of January. Allan Fels looks set to get much of what he wants.

And the HIH Royal Commission which has to report by the end of February. Its terms of reference do not include and have been interpreted not to include the political donations made by HIH and FAI. A pity. Because they may be part of the explanation for what happened.

And there's the hard-to-come-to-grips-with Prime Minister's review of the corporate governance of Commonwealth statutory authorities. John Uhrig ex of Westpac and CRA has been given until June to report on the management of organisations including the Australian Taxation Office, Australian Competition and Consumer Commission, Australian Prudential Regulation Authority, Reserve Bank of Australia, Australian Securities and Investments Commission, Health Insurance Commission and Centrelink.

What's it all about? The PM promised it during the election. He gives the impression it is about bringing the organisations which bug business under tighter control of Government Ministers. Which is probably exactly the wrong thing to do. As the Palmer Report into the collapse of HIH makes clear. If the relevant Minister (the then Treasurer John Howard) hadn't intervened to issue an insurance licence to FAI over the head of the Insurance and Superannuation Commission in late 1970's the HIH collapse may not have happened. The right answer is probably less Ministerial control over Allan Fels, Graeme Samuel and the lot of them. It must be said though that there was a failure of corporate governance at APRA. It was under funded and as the Palmer Report makes clear, its board members had a hands-off approach to their job.

I discuss here what appears to be a general laxity in these organisations when it comes to investigating complaints.

My fear is that the people to whom the Prime Minister promised the inquiry want more laxity not less.

Update/ Correction

A closer reading of Ross Gittins talk shows that he didn't suggest Howard was to resign in the year ahead. He canvassed the possibility in great detail before concluding that Howard wouldn't do it.