Funding Australia's Future

The Australian Centre for Financial Studies launched the "Funding Australia's Future" project on the 10th July, 2013 to undertake a stock-take of the Australian financial system, and its role in facilitating economic growth within the wider economy.

The productivity of Australia’s financial system is one of the key determinants of Australia’s overall economic performance and the well-being of its population.  Throughout the economy, the finance sector underpins the efficient allocation of existing resources, the accumulation of resources for future use and the management of risk.  It affects the performance of every aspect of the economy either directly or indirectly. 

Stage one of the project sets the scene, establishing an evidence base which assists in identifying issues that warrant more detailed examination.  Daniel's paper, “Improving Australia’s Financial Infrastructure”, casts a wide net over Australia’s financial infrastructure.  It identifies six key functions for a financial services sector: clearing and settling payments; pooling resources and subdividing shares in firms and investment vehicles;  transferring resources across space and time; managing risk; disseminating information; and governance – including the management of incentive issues and information asymmetries.  These six functions provide a prism through which he assesses Australia’s financial architecture.  

More broadly, the three papers in stage one of the project flag a number of issues relating to the functioning of Australia’s finance sector and its ability to allocate capital for the long term benefit of the economy:

• Funding Australia’s banking system – how to increase the depth and diversity of bank funding sources while at the same time reducing reliance on offshore funding sources
  
• Funding Australia’s retirement system – how do we continue to develop an adequate and sustainable retirement system with a mix of private and public responsibility?
  
• International linkages – what are the likely trends in the relative returns to investing/cost of funds domestically vs overseas?  How does Australia become a more internationally integrated financial services system and is this a sensible goal?
  
• Funding Australia’s infrastructure and innovation – is there a better way for our financial system to link domestic and international pension and infrastructure funds with public sector greenfield infrastructure projects?  Is there a better way for our financial system to tap into our domestic savings to support the commercialisation of domestic innovation?
  
• The regulatory perimeter – are some areas not regulated that should be and vice versa?  Does more need to be done to encourage competitive tension across financial services? 
  

Further information is available from the project website and you can download a summary paper here.

AFR subscribers can read more on AFR.com.au, including commentary on Daniel's paperhere.

The report was widely covered in the Australian Financial Review.  If you have access to AFR online, you can read the various articles below:

• Bank’s role in funding under threat
  
• Vigilance is the price of strong economies
  
• Financing sector due for extreme makeover: study
  
• Plan needed for future financial storms
  
• Australia has to look at future funding

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