Political Cartoons of the Week

cathywilcox.com.au

Chickens coming home to roost for Australian Treasurer and former banker Josh Frydenberg

When a Liberal Treasurer and former banker meets with a royal commissioner whose banking and finance inquiry he (along with the rest of the Turnbull-Morrison Government) tried to nobble.................

The Sydney Morning, 1 February 2019:

It’s known, in the game, as a picture opportunity.

Politician on the make meets constituent/kiddie/moviestar/public figure, hands are grasped, big smiles, cameras whir, flashes pop and the happy little circus moves on.

Sometimes, it doesn’t work so well. The kiddie bursts into tears. Sometimes, it’s a bust. The movie star’s smile is so radiant the politician may as well have stayed in bed.

And then there’s the day the Treasurer, Josh Frydenberg, met the royal commissioner, Kenneth Hayne.

The very air took on a chill so deep it might have blown in from the Arctic vortex currently turning the northern hemisphere to ice.

"A handshake or something...?" implored a photographer, vainly hoping to open a crack in the glacial atmosphere.

Ever had an awkward Friday afternoon meeting?

Josh Frydenberg and Kenneth Hayne sure have. pic.twitter.com/EpQEgYCmRV

— ABC Politics (@politicsabc) February 1, 2019

Commissioner Hayne, fresh from months assailed by evidence of the wicked doings of gangsters in suits and giving more than a few of them a doing-over from the bench, wasn’t in a handshaking sort of mood. Or any sort of ice-breaking mood at all.

As Frydenberg, the Treasurer of Australia, sought desperately to maintain a smile that gradually devolved into a hideous rictus, Justice Hayne studied a spot in the air that might have been in a universe far, far away, where he appeared to wish he might be transported.

His hands remained determinedly resting, jiggling slightly, on the Treasurer’s desk. Not a word passed his lips, nor the hint of a smile.

The occasion was the official hand-over of Justice Hayne’s voluminous findings on the behaviour of Australia’s financial sector.

Frydenberg had needed the photo opportunity to go well.

Why, the government he serves had twisted itself in knots trying to avoid calling a royal commission into the banks before being dragged screaming to it. Here was the moment to put that all behind him.

Justice Hayne wasn’t cooperating.

The awkward moment stretched. And stretched. The volumes of the final Hayne report sat as untouched. They might have been hand grenades…..

What the Royal Commissioner found.......

Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final Report, 1 February 2019, excerpts:

This Final Report seeks to take what has been learned in respect of each part of the financial services industry that has been examined and identify:

• issues;

• causes; and

• responses and recommendations.

1.1 Four observations

Those analyses, taken together, will reveal the importance of four observations about what has been shown by the Commission’s work: the connection between conduct and reward; the asymmetry of power and information between financial services entities and their customers; the effect of conflicts between duty and interest; and holding entities to account.

Each of those observations should be explained.

First, in almost every case, the conduct in issue was driven not only by the relevant entity’s pursuit of profit but also by individuals’ pursuit of gain, whether in the form of remuneration for the individual or profit for the individual’s business. Providing a service to customers was relegated to second place. Sales became all important. Those who dealt with customers became sellers. And the confusion of roles extended well beyond front line service staff. Advisers became sellers and sellers became advisers.

The conduct identified and condemned in this Final Report and in the Interim Report can and should be examined by reference to how the person doing the relevant acts, or failing to do what should have been done, was rewarded for the conduct…..

Second, entities and individuals acted in the ways they did because they could. Entities set the terms on which they would deal, consumers often had little detailed knowledge or understanding of the transaction and consumers had next to no power to negotiate the terms. At most, a consumer could choose from an array of products offered by an entity, or by that entity and others, and the consumer was often not able to make a well-informed choice between them. There was a marked imbalance of power and knowledge between those providing the product or service and those acquiring it.

Third, consumers often dealt with a financial services entity through an intermediary. The client might assume that the person standing between the client and the entity that would provide a financial service or product acted for the client and in the client’s interests. But, in many cases, the intermediary is paid by, and may act in the interests of, the provider of the service or product. Or, if the intermediary does not act for the provider, the intermediary may act only in the interests of the intermediary…..

Fourth, too often, financial services entities that broke the law were not properly held to account. Misconduct will be deterred only if entities believe that misconduct will be detected, denounced and justly punished. Misconduct, especially misconduct that yields profit, is not deterred by requiring those who are found to have done wrong to do no more than pay compensation. And wrongdoing is not denounced by issuing a media release.

The Australian community expects, and is entitled to expect, that if an entity breaks the law and causes damage to customers, it will compensate those affected customers. But the community also expects that financial services entities that break the law will be held to account. The community recognises, and the community expects its regulators to recognise, that these are two different steps: having a wrongdoer compensate those harmed is one thing; holding wrongdoers to account is another…..

1.2 Primary responsibility

There can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities: their boards and senior management. Nothing that is said in this Report should be understood as diminishing that responsibility. Everything that is said in this Report is to be understood in the light of that one undeniable fact: it is those who engaged in misconduct who are responsible for what they did and for the consequences that followed. Because it is the entities, their boards and senior executives who bear primary responsibility for what has happened, close attention must be given to their culture, their governance and their remuneration practices.

The Final Report contains 76 recommendations and the Morrison Government states that it will “take action” them all. However the number of parliamentay sitting days Prime Minister Morrison has scheduled for 2019, commencing on 12 February 2019 and thereafter for thirteen days until 30 May, rather rules out the Parliament addressing the issue for much of this year.

Volume 2 of the Final Report holds findings on the Case Studies. These studies involve the National Australia Bank (NAB) and its affiliates, the CBA Group, the AMP Group, IOOF, a subsidiary & associated entities, ANZ Bank, Suncorp, Q Super and Hostplus Superannuation Fund.

The Royal Commissioner made 24 referrals to the regulators ASIC and APRA to take action over misconduct and all but one of the major banks were named in referrals.

On 4 February 2019 when Frydenberg asked by mainstream media why the Coalition Government had not addressed some of these issues sooner he tried to defect blame to Labor not once but twice for not acting when it was last in office.

Unfortunately for the Treasurer this opinion had already appeared in The Sydney Morning Herald on 28 April 2018 reminding voters of the truth:

The Coalition wasn't merely asleep at the wheel when it came to the practices being exposed at the banking royal commission: it pulled out all stops to allow some of them to continue, including attempting to circumvent the will of parliament, in an extraordinary 12-month burst of activity that began within weeks of its election.

It had inherited Labor’s Future of Financial Advice Act, legislated in 2012 but not due to take full effect until mid 2014, 10 months after the election that swept it to power.

The result of a parliamentary inquiry and years of agonising about how to protect consumers in the wake of the collapse of investment schemes including those run by Storm Financial, Timbercorp, Opes Prime, Bridgecorp, Westpoint, Trio and Commonwealth Financial Planning Limited, the law banned secret commissions and, from that point on, required financial advisers to put the interests of their clients ahead of their own.

Actually, it came into effect on July 1, 2013 during the life of the Gillard Labor government, but the Securities and Investments Commission decided to take “a facilitative compliance approach”, meaning it wouldn’t enforce it until July 1, 2014, which turned out to be after the Coalition took office.

The law banned kickbacks and commissions paid to advisers by the makers of the products they were selling, which for the dangerous products had been extraordinarily large. Advisers putting retirees into Storm Financial had been paid 6 to 7 per cent of the amount invested. Advisers putting clients into Timbercorp had been paid 10 per cent plus an ongoing fee for as long as the funds stayed there.

Labor’s law wound back, but did not completely eliminate, the ability of banks to reward their staff for recommending the banks’ own products, and it only applied prospectively. Existing kickbacks could remain but clients would have to be told how much money was being taken out of their investments each year and would have to approve.

Once every year they would be given a statement explicitly telling them how much of their funds was being siphoned off to pay their adviser. Once every two years they would be asked if they wanted it to continue. If they said "no" or said nothing (which would be the case if they were dead, or the adviser had lost contact with them) the outflow would stop.

Clients who felt they were continuing to get good service from their adviser could allow the withdrawals to continue, which might be why it so terrified the (largely bank-owned) advice industry.

Days before Christmas 2013 the Coalition outlined amendments it hoped to get through parliament. Fee disclosure statements were only to be provided to new clients. Old ones could remain in the dark. And there would be no need for clients to opt in to having money removed from their accounts, ever. And there would no longer be an overarching requirement for advisers to act in the best interests of their clients, merely steps they would have to follow, “so that advisers can be certain they have satisfied their obligations”.

As July 1 2014 approached and it looked as if the amendments wouldn’t get through parliament, Finance Minister Mathias Cormann gazetted regulations that purported to have the same effect. Parliament would have been able to disallow them when it next met, but he delayed tabling them until the last possible moment, lengthening the period of time they were in force without being tested. Then Labor trumped him by reading them out aloud in the Senate, which effectively tabled them and forced a vote. Cormann managed to get the Palmer United Party on side and keep the regulations at first, until Jackie Lambie split with Clive Palmer over the issue and left his party and voted them down.

Then, when all had been lost, the banks and financial advisers begged for more time. They have been "thrown into disarray" and wouldn’t have their systems ready. ASIC said it wouldn’t enforce the law until July 1, 2015, two years after it had been due to begin.

ASIC and Cormann had given the financial advice industry an extra two years in which to charge commissions and escape an overarching requirement to put the clients first.

Even now, all this time later, I can’t work out why Cormann tried so hard.

The truth about dividend imputation/franking credits that Morrison and Co are not telling you

“Example – low taxable income A self-funded retiree couple has a $3.2 million super balance, plus their own home, and $200,000 in Australian shares held outside super. Even after drawing $130,000 a year in superannuation income, and $15,000 a year in dividend income, they would report a combined taxable income of $15,000, and pay no income tax at all.” [Australian Labor Party, Fact Sheet, 2018]

In 1987 the Hawke Labor Government introduced legislation which changed taxation law regarding dividend imputation/franking dividends.

In order for tax on dividends not to be paid twice – once by the company issuing the dividends via underlying company tax on profits and once by the shareholding receiving those dividends – it introduced franking credits. Whereby the tax on dividends for which the shareholder has previously been liable was credited to them for use in a given financial year to offset all or part of their tax liability for that year*.

Any excess franking credits could not be used as there was no shareholder tax liability remaining to which these credits could be applied and, therefore no chance that any dividends were being taxed twice.

In 1997, 1999 and 2000 the Howard Coalition Government changed the rules on franked dividends until by July 2000 excess franking credits became fully refundable and a great many shareholders began to receive cash tax rebates from the Australian Taxation Office (ATO) for taxation that they had never personally paid.

Based on ATO 2014-15 figures people earning more than a million dollars a year received 17 per cent of franking credits and about half of all franking credits went to those who earn more than $180,000 a year. 

According to a study by the Australian Institute reported in 2015; the wealthiest 10 per cent of households – those earning disposable income of more than $207,000 – gain almost 75 per cent of the $10 billion in franking credits siphoned directly to them.

CommSec explains the franking credit system this way (retrieved 4 February 2019):

Dividends are paid out of profits which have already been subject to Australian company tax which is currently 30%. This means that shareholders receive a rebate for the tax paid by the company on profits distributed as dividends.

These dividends are described as being 'franked'. Franked dividends have a franking credit attached to them which represents the amount of tax the company has already paid. Franking credits are also known as imputation credits.

You are entitled to receive a credit for any tax the company has paid. If your top tax rate is less than the company's tax rate, the Australian Tax Office (ATO) will refund you the difference.

Case study: James receives a tax refund

James owns shares in a company. The company pays him a fully franked dividend of $700. His dividend statement says there is a franking credit of $300. This represents the tax the company has already paid. This means the dividend, before company tax was deducted, would have been $1,000 ($700 + $300).

Come tax time, James must declare $1,000 (the $700 dividend plus the $300 franking credit) in his taxable income. If his marginal tax rate was 15%, he would have paid $150 tax on the dividend. Because the company has already paid $300 in tax, James will receive a refund of the difference, which is $150.

If James was in a higher tax bracket he may not have been entitled to a refund of any of the franking credit, he may even have to pay additional tax. However, if he is a low [taxable] income earner, it is possible to be refunded the full amount of the franking credit…..

Refunding of excess imputation credits

The refund applies when your total imputation credits that are attached to your franked dividends paid exceeds your basic income tax liability for the year.

A cash amount can be refunded to you reflecting the amount of excess imputation credits, after applying them and any other tax offsets to which you are entitled to. This will in turn reduce your basic income tax liability to zero.

If you are required to lodge an income tax return, you can use it to claim a refund of excess imputation credits. If you are not required to lodge a tax return, the refund is available on application.

In other words, if “James” after deducting all other tax concessions available to him finds himself with zero tax liability then since July 2000 he has been able to claim a cash tax rebate from the ATO on tax he has never personally paid.

There are an estimated 1.1 million shareholders receiving this type of rebate on a tax they haven’t paid and they are currently costing the Australian Government well in excess of $5.9 billion each year. 

That’s billions of dollars that should rightly remain in Treasury to help cover the costs of things like national infrastructure, defence, health, education, aged care, pensions and other social services.

In 2017 the Labor Opposition announced that if it won government in 2019 it would return the franking credit rules to their original intent and no longer allow excess franking credits to be realised as ATO cash tax rebates – with the exception that shareholders who also receive a Veterans Affairs or Centrelink full or part age pension or an allowance would still receive a full cash tax rebate for their excess franking credits commencing July 2019.

Whenever Prime Minister Scott Morrison, Treasurer Josh Frydenberg or one of his other cabinet ministers and backbenchers like the MP for Goldstein Tim Wilson open their mouths on the subject of excess franking credits they are very careful not to let truth escape their lips - until such time as they get found out.

A case in point is Tim Wilson's financial interests. A subject which became sensitive once his irregular behaviour as Chairman of the Standing Committee on Economics'  
Inquiry into the implications of removing refundable franking credits became public knowledge.

This is a snapshot of a part of his financial interests. As a 50 per cent holder of equity in at least two investment/superannuation funds which may benefit from excess franking credits:

Register of Members Interests- 45th Parliament - Tim Wilson, excerpt February 2019

Tim Wilson is also an investor in funds run by Wilson Asset Management, a firm founded and chaired by Geoff Wilson with $3 billion in funds under management… Under an entry listed as a 'shareholding', Mr Wilson's register of parliamentary interests shows he and husband Ryan Bolger invested in a Wilson Asset-managed fund in May 2017 through the couple's self-managed superannuation fund. They invested in another Wilson Asset fund, WAM leaders, in December 2017.

It has been further reported in mainstream media that Chairman & Chief Investment Officer of Wilson Asset Management, Geoff Wilson, is in fact a relative of Tim Wilson and, that during one public hearing Geoff Wilson gave evidence before Tim Wilson as inquiry chairman and neither declared their personal or financial relationship. 

Indeed, Tim Wilson could now be considered ethically compromised  in his role as Chairman of the Standing Committee.

Australian Parliament, House of Representatives Practice 6th Edition

Wilson is a politician whose statements and opinions on excess franking credits cannot be trusted, heading a a parliamentary inquiry whose formal report and findings cannot be trusted.

So it is up to every voter to acquaint themselves with the facts. Make Internet search engines your friends between now and the May 2019 federal election if you want the facts on legislation and policy which is being debated in the media.

* Currently an individual's personal tax liability is calculated only on income above the first $18,200 which is exempt from taxation.

Loggers still breaching their environmental obligations in Northern NSW state forests

North East Forest Alliance, media release, 1 February 2019:

EPA ENCOURAGES ILLEGAL LOGGING BY REPEATEDLY LETTING FORESTRY OFF

The North East Forest Alliance is claiming there is no justice for forests after the EPA on Wednesday confirmed numerous breaches of the Forestry Corporation's Threatened Species Licence in Gibberagee State Forest (east of Whiporie) but yet again issued useless cautions and warnings rather than fines and prosecutions for these serial offenders.

"Over the past decade NEFA have exposed the Forestry Corporation committing thousands of legal breaches of their environmental obligations, with the EPA confirming hundreds more breaches in the last few months from NEFA's audits of Gibberagee and Sugarloaf State Forest", said NEFA Spokesperson Dailan Pugh.

"Yet the EPA have never taken the Forest Corporation to court, despite commitments to do so, and in January 2016 they made the political decision not to issue fines.

"With no consequences for their blatant breaches of environmental laws, is it surprising that the Forestry Corporation repeat them time and time again?

"If you or I went around illegally cutting down oldgrowth trees (hundreds of year old), clearing rainforest, and bulldozing roads through exclusions around threatened plants time and time again we would be put in jail, but the Forestry Corporation don't even get a fine.

"The EPA's regulation of the Forestry Corporation is farcical, though the biggest problem is that by their refusal to take meaningful regulatory action the EPA are fostering what Justice Pepper described in 2011 as "a reckless attitude towards compliance with its environmental obligations" Mr. Pugh said.

"On Wednesday, in response to a NEFA complaint made 2 years ago the EPA confirmed that the Forestry Corporation failed to adequately mark the boundaries of 50m logging exclusion zones around numerous individuals of Endangered heath Narrow-leaved Melichrus, and undertook logging operations and roading within their exclusion zones.

"The EPA also confirmed NEFA's complaints of reckless damage to hollow-bearing trees and recruitment trees, while also confirming that the Forestry Corporation was not following the requirements for selection of appropriate recruitment trees.

"Though we can't be sure the EPA found all the breaches we identified because the EPA won't tell us how many they found, and when the EPA invited us into Gibberagee to be show them in March 2017, the Forestry Corporation wouldn't let us show the EPA and ordered us out of the forest.

"When NEFA made its first complaint over Gibberagee in March 2017 we hoped the EPA would take action to stop the breaches, yet when NEFA did another assessment 7 months later we found the same sort of breaches were continuing unabated. We are still waiting for the EPA to respond to the last complaints.

"In October last year the EPA confirmed over 86 breaches of the logging rules identified by the North East Forest Alliance in Sugarloaf State Forest, south of Tabulam, at that time the EPA issued the Forestry Corporation with a Warning Letter for 72 and an Official Caution for 1 offence.

"The confirmed breaches included roading through a wildlife corridor, nine cases of roading in exclusion areas along streams, failure to retain the required numbers of habitat trees, and over 70 cases of serious damage to, and inappropriate selection of, marked habitat trees.

"While failure to retain the required number of habitat trees is called one offence, in practice the EPA found that they had retained 200 less hollow-bearing trees than were legally required.

"There were numerous other breaches that the Forestry got off scot free for, for example the EPA confirmed clearing within the marked boundary of the Endangered Ecological Community Lowland Rainforest but refused to take action on the grounds that because the "forest structure and species present at this location have either been totally removed or severely altered/damaged" it precluded identifying what it had been like before logging.

"The EPA chose to ignore that they and the Forestry Corporation had jointly mapped it as Lowland Rainforest some 6 months before it had been logged and cleared.

"These offences are a repeat of similar offences we reported a year earlier in the nearby Cherry Tree State Forest. Despite the EPA's assurances they were going to take legal action there for logging and roading 4.5ha of mapped Lowland Rainforest and recklessly damaging hundreds of habitat trees, they let the Forestry Corporation off scot-free.

"NEFA estimated in that operation around 1,000 habitat trees were likely to have been damaged or had excessive debris left around their bases, though the EPA justified their refusal to take any regulatory action on the grounds that while it was "likely" the damages "were as a result of harvesting operations", they were not able to prove "beyond reasonable doubt ... that the damage was [not] caused by some other means".

"There is no justice. The EPA's sham regulation is encouraging the Forestry Corporation to repeatedly break logging laws with impunity" Mr. Pugh said.

Less than 15 weeks out from a federal election and the Morrison Government continues to pile on the debt

According to the Australian Office of Financial Management as of 1 February 2019 the Australian Government’s gross public debt stood at est. $540.82 billion – up from $277.34 billion on 30 September 2013.

So in the space of 5 years and 4 months the Abbott-Turnbull-Morrison Government increased the nation’s gross public debt by est. $263.48 billion. 

That represents a rough average of over $4 billion borrowed from domestic and foreign sources for each month the Liberal-Nationals Coalition has been in office.

On Monday 4 February 2019 the Morrison Government will borrow another $400 million (not to be repaid till 2028) and on Wednesday 6 February another $900 million (not to be repaid till 2030) - $1.3 billion over three days.

Heaven only knows how much more debt Morrison & Co will pile on before the May 2019 federal election.

According to Stephen Koukoulas voters can add that additional $1.3 billion to this 28-year debt repayment schedule for just 29 per cent of the total public debt Abbott, Turnbull and Morrison racked up to date:

$19.0 billion - Nov 2029

$12.0 billion - May 2030

$13.9 billion - Apr 2033

$6.95 billion - Jun 2035

$12.0 billion - Apr 2037

$8.0 billion - Jun 2039

$3.6 billion - May 2041

$13.0 billion - Mar 2047

How old will you, your children or grandchildren be before this debt is paid off?

NSW Far North Coast – big on diverse marine wildlife with very few sharks

Dolphin pod on the move

ABC News, 31 January 2018:

Marine scientists monitoring the waters along the northern New South Wales coastline say the threat of sharks is overblown and they have the data to prove it.

The National Marine Science Centre at Southern Cross University and the NSW Department of Primary Industries (DPI) collected two years' worth of drone footage as part of the State Government's Shark Management Strategy.

Professor Brendan Kelaher and his team tracked marine wildlife at locations known for shark bite incidents including Lennox Head, Ballina, Byron Bay and Evans Head.

To their delight, they found a thriving and vibrant marine ecosystem and very few "dangerous sharks" among the estimated 4,000 large marine animals they counted.

"One of the outcomes of our data ... we know it's up to 135 times more likely to be a dolphin, which is really good news," Mr Kelaher said.

"Sharks are a little few and far between and what we saw was this other diverse wildlife, which we're excited about."

The drone cameras captured scenes of whales coming close to shore to feed and schools of dolphins.

One of the most breathtaking sights, Mr Kelaher said, were fevers of cownose rays congregating near surfers in complex geometric patterns.

Less common were sharks, which typically took hundreds of flights before one was spotted.

Cownose Rays

NSW Chief Scientist's interim report re Independent Review of the Impact of the Bottled Water Industry on Groundwater Resources in the Northern Rivers region was due on 1 February 2019

The NSW Chief Scientist and Engineer Professor Hugh Durrant-Whyte is currently conducting an Independent Review of the Impactof the Bottled Water Industry on Groundwater Resources in the Northern Riversregion of NSW.

As part of the review members of the Office of the NSW Chief Scientist & Engineer conducted consultation sessions in the area with stakeholders on Sunday 20 and Monday 21 January 2019.

The NSW Coalition Berejiklian Government was scheduled to receive an initial report from the Chief Scientist and Engineer on 1 February 2019.

This date, coming as it did during the period when there is a growing awareness of the ongoing ecological crisis cause by mismanagement of the Murray-Darling Basin water resources by federal and states governments, may explain why there has been no mention made by the NSW Government of this interim report in the media.

However, concerned communities and residents in the Northern Rivers region deserve to have this report made publicly available as soon as possible. Not conveniently hidden away until after the 23 March state election.

BACKGROUND

Environmental Defenders Office NSW, November 2018:

The NSW Chief Scientist & Engineer will provide advice on sustainable groundwater extraction limits in the region, as well as advice on whether the current or proposed groundwater monitoring bores are sufficient.

Local councils have been advised to suspend approving any new applications for water mining until the report is complete in mid-2019.

Since 2017, EDO NSW has been providing advice to clients in the Tweed valley who have concerns about the way in which water bottling developments are assessed, approved and enforced.

Water bottling – the extraction, processing and bottling of groundwater for sale - is controversial, as it can compete with other water users and have adverse impacts on groundwater-dependent ecosystems. These operations also generate considerable plastic waste and the water transport tankers can impact the amenity and safety of people living in rural areas.

With bottling looking set to expand in the Tweed valley, our Legal Outreach team conducted a workshop on water regulation and enforcement in the Tweed Valley to help the community understand and participate in the regulation of water bottling operations. We also drafted several letters to the local council on the approval process for bottling facilities in order to clarify the legal standards in the local environmental plan and the scientific studies needed to support a development application for a facility.  

With our assistance, our client produced a detailed report alleging ongoing and systemic breaches of development consent conditions for four local water bottling facilities and setting out the range of enforcement options available to Council. We then met with Council and briefed Councillors on their powers and responsibilities as the regulator under law. We were able to work constructively with Council to ensure the full range of investigation and enforcement options were understood and since then Council has taken decisive steps to ensure water bottling operations in the Tweed are complying with the law.

The Chief Scientist & Engineer is expected to provide his initial report by early February 2019, with a final report to be published in mid-2019.