The federal government’s response to the Financial System Inquiry (FSI) must prioritise actions that will enhance the system’s ability to fund Australia’s economic growth and high-value job creation, said Acting Chief Economist of the Business Council of Australia Simon Pryor.

“The final report of the FSI is a comprehensive assessment of the financial system that finds it has performed well and has strong characteristics, but that there is ‘room for improvement’. The majority of recommendations would improve the efficiency, resilience and fairness of the system.

“In its response to the report, the government should set out a reform program that is consistent with its overarching goals for a financial system that can best meet Australia’s evolving needs and support Australia’s economic growth.

“The benefits of any changes must be comprehensively assessed to show they exceed costs. For example, recommendations to lift bank capital ratios and IRB risk weightings would appear to impose costs on the economy for benefits that are not clearly defined and hence need further discussion.”

Mr Pryor said that while the report does not fully assess Australia’s evolving funding needs, this is something that should be undertaken.

“Our growing population and proximity to the fast growing Asia–Pacific economies mean that we need a competitive financial system to fund investment in the economy and jobs,” he said.

The Business Council supports recommendations to adopt a technology-neutral approach to regulation, lift innovation in the sector and strengthen the accountability framework for Australia’s financial regulators.

“Observations made in the report about distortions in the tax treatment of savings vehicles and the economic costs of withholding taxes are worthy of closer consideration in the tax white paper.

“The report sends an important message to the parliament that a strong budget position is critical for a robust and efficient financial system and for sustainable economic growth.

“The government’s response needs to be consistent with its response to the competition policy review, its fiscal strategy and the upcoming review into the tax system. All must work together to serve an overarching and coherent strategy to grow the economy and lift the living standards of Australians,” Mr Pryor said.