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Government must hold firm

THE Federal Government should hold the line, press ahead with a reform agenda of the financial sector and avoid any tendency towards populist backsliding, which could undo all the good that has been done says Australian Stock Exchange chairman, Maurice Newman.

Mr Newman was addressing the Committee for Economic Dev-elopment of Australia regarding the Financial Services Restructure in Australia.

“The financial sector has undergone profound change over the past decade due, in part, to the deregulatory impetus of the Campbell Inquiry, but also as a result of four powerful drivers of change identified by the Wallis Inquiry: technology, globalisation, financial innovation, and consumer needs and demands,” Mr Newman said.

“The financial services sector is currently undergoing a paradigm shift. Our old view of the world has become untenable, not so much because of new knowledge but because of the removal of technological and regulatory barriers.”

Technology has given rise to a whole new industry.

“People can buy and sell shares virtually instantaneously and without the physical intervention of a stockbroker,” Mr Newman said.

“The cost of data processing and transmitting data has dropped dramatically.”

The widespread adoption of international accounting standards and greater liberalisation has made the financial sector more competitive and created new opportunities for Australian companies to gain access to world markets.

“Outflows of foreign direct investment have risen 25 fold in the past 25 years, from US$14 billion to US$350 billion a year...cross-border trading of equities is now believed to exceed $10 trillion a year,” Mr Newman said.

“Innovation in the financial sector is another part of the paradigm shift – from mortgage originators and securitisation to extraordinary sophisticated derivatives – not to mention hedge funds.

“The final drivers of change are consumer needs and demands, which of course can be both drivers of financial innovation and brakes upon it.

“The information age...will make consumers, not only more discerning, but also more responsive or susceptible to critical comment and misconceptions.

“A recent world-wide poll published in the Economist showed protectionists just outnumbered free traders around the world – 47 per cent to 42 per cent.

“In Australia, unfortunately, the protectionists were ahead 60/40.

“The good news is free-traders in Australia gained eleven percentage points during the previous year, so there may be hope for us,” Mr Newman said. “The stark alternative for Australia is to be swept away by it, into a declining Asia-Pacific backwater.

“Both major political parties should be preparing the Australian public to accept the limited choices we face and pointing out the risks of pursuing populist policies, frequently championed by the redistribution coalition” he said.

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