Assistant Treasurer Josh Frydenberg has suggested that businesses be “levied” to pay for the Australian Securities and Investment Commission, but one local expert says it would be against the public interest.

Rodney Maddock - Adjunct Professor of the Department of Economics in the Faculty of Business and Economics at Monash University – argues that the cost-shifting plan may not be able to achieve what it is designed to do.

In article for The Conversation, Maddock says that the move may not lead to more transparency or any significant improvements.

Frydenberg’s discussion paper says increasing business taxes to pay for ASIC is based on the following facts;

  • the Financial System Inquiry suggested it;
  • the change would ensure that the costs of the regulatory activities undertaken by ASIC are borne by those creating the need for regulation (rather than all taxpayers);
  • it would establish price signals to drive economic efficiencies in the way resources are allocated in ASIC;
  • it would improve ASIC’s transparency and accountability.

But Mr Maddock sees it differently.

He says that the fact that it was suggested by the Financial System Inquiry shows the Government picking and choosing amongst the recommendations of the Inquiry, making it a factor in the ASIC reforms, but not a deciding one.

“The second argument is far more interesting,” Maddock writes.

“The discussion paper pitches the proposal as an example of user pays. The logic is that consumers of financial products need to be protected and that the costs of ASIC providing that protection should be paid by the firms operating in that industry.

“By similar logic all consumer product protection undertaken by the ACCC should also be costed out to the industries involved.

“All food safety protection might be dealt with the same way and all border protection might be farmed out to all international travellers.

“We would not even need public schools, because students could be charged for the educational services they receive.

“Clearly we could operate that way. In effect, our taxation system would not be necessary and it would be replaced by a complex system of user charges.”

“Unfortunately the Minister is not proposing to reduce general taxes, just to raise some specific ones.”

He says the idea that ASIC should be paid for by industry to improve transparency is naive.

“The proposal is rather like asking the players before a match to announce publicly how much they were going to pay the referee.

“It will be difficult for the groups being regulated by ASIC to complain about its spending for fear of potential retribution. Costs are likely to rise as a result.

“Inevitably it will result in groups fighting with each other to shift ASIC’s costs from between categories and ASIC has the potential to set them off against each other.

“And there will still be some budgetary oversight so there are no savings just costs.”

“It is not clear that the proposal is in the public interest. It does not reduce costs. It is an increase in business taxes.”

Overall, he argues that separating the regulators from government control could make them lazier and more expensive.

Instead, Maddock says encouraging the regulator and the regulated to be more comfortable closer together could be the best way to boost regulatory capture.