Higher interest rates, lower credit card transaction costs and cheaper superannuation are likely if Treasurer Joe Hockey accepts the recommendations of the government-commissioned Financial System Inquiry.
Former Commonwealth Bank head David Murray spearheaded the wide-ranging report that aimed to shift the responsibility and cost of shoring up the strength of the financial system away from the government and taxpayers and place it with the banks.
He also raised the spectre of large changes to superannuation that will make it more competitive and add up to 40 per cent to the retirement income for an average weekly earning male.
The inquiry recommends the Reserve Bank of Australia ban merchants from surcharging for debit card transactions and that it set surcharge limits for credit card transactions that reflect the true cost of accepting the payment. This means companies such as airlines and ticket sellers would no longer be able to charge high fees to pay by credit card. They would now be limited to charging a credit card fee worth 0.5 per cent of the transaction cost.
Owners of high-cost credit cards such as American Express would continue to be charged higher surcharges, but with greater disclosure.
The report's overhaul to the financial framework also seeks to reset the regulatory system to deal with the digital revolution, which will result in the entry of new players such as peer-to-peer lenders and supermarkets.
Mr Hockey says he is prepared to take on powerful interests in the financial services industry to boost Australians' retirement incomes and increase competition in the banking sector.
The inquiry, which recommends a series of changes to strengthen bank balance sheets by mandating they hold more capital, has had some in the finance industry already say these could push up the cost of home loans.
"Capital holding recommendations have the effect of adding weight to loans and costs to borrowers, which could hurt already low first-home buyer rates, affect new housing starts and challenge seniors who are looking to downsize," according to the Property Council of Australia.
Mr Hockey urged the banks to work with the government and regulators rather than launching a campaign against the recommendations.
"This is about the security of the financial system," Mr Hockey said, noting that bank regulator the Australian Prudential Regulation Authority would be charged with finalising some details, such as the amount of money banks would have to hold as collateral in case the loans they made went bad.
"When David Murray was first appointed there was a criticism David Murray would be the voice of the big banks. Now he has made these recommendations. If APRA takes a similar view, that is up to them, as they are an independent prudential regulator.
"The banks would serve themselves best by working closely with APRA and having a considered path to manage this – I don't think creating any public alarm or angst is going to help the banks."
Mr Hockey said he was prepared to face a backlash from the major banks after recommendations calling for them to be required to hold billions in extra capital.
"Our charge is to do what is right to strengthen the Australian economy and ensure that the financial system is as robust as it can be," he said.
"Now we have got to weigh up carefully the implications for financial services providers. But I want to emphasis we need to prepare now for the challenges that may lie ahead."
Among its 44 recommendations, the inquiry called for a minimum floor on mortgage risk weights to even the playing field between the major banks and smaller banks. The big banks have said would force them to increase home loan interest rates or reduce dividends to shareholders.
The Murray report finds that competition among the banks would keep a lid on interest rates increases.
Mr Murray rejected claims by the big banks that higher capital charges would impose exorbitant costs on the system. The inquiry estimated that a one percentage point increase in capital would only result in loans increasing by 10 basis points – or 0.10 of a per cent.
Impacts on the cost to banks of funding a loan or to the broader economy were low.
Mr Murray used his press conference to attack chief executives of the banks over comments about the prospect of change before the report's release.
"The public statements by the banks are wildly above those numbers. They are exaggerated. Hopefully, other experts will look at those numbers and conclude similar to ours," said Murray.
The major banks have a cost advantage over regional banks because they are allowed to do their own estimates of how much money they require to cover bad mortgage housing loans. Smaller banks must use standardised risk, which is more than twice as high as the average for the major banks.
Mr Murray said Australians' retirement incomes could be increased by up to 40 per cent if the Abbott government accepts recommendations aimed at bringing down superannuation fees.
He said the inquiry's recommendations on superannuation would lead to reduced administration costs and fees that could see retirement incomes rise by 25 to 40 per cent.
He recommended that default fund My Super be replaced with a competitive mechanism for allocating default superannuation funds if it has failed to deliver significant fee reductions by 2020.
He also found that self-managed superannuation funds be banned from borrowing to buy assets such as property and shares.
Mr Hockey said reducing superannuation fees and boosting retirement incomes would be a "very key focus" of the government's consultations.
"If we can get the fees of companies down, if we can get fees of intermediaries down, Australians will have more superannuation for their retirement, which is the entire goal of the superannuation system," he said.
Mr Hockey called on Labor – which has opposed many of the government's proposed budget savings in health, education and social services – to adopt a bipartisan approach on the Murray inquiry.
"In the same way there was bipartisan support for implementation of the Wallace inquiry, we are looking for bipartisan support for the implementation of the Murray Inquiry," he said. "A strong and efficient financial system is vital to the long-term needs of the Australian economy and this is the sort of economic reform that Australia must embrace if we are to withstand some of the challenges that undoubtedly we will have to face in the future.
Shadow Treasurer Chris Bowen said he believed it was important that financial regulation, as far as possible, should be a bipartisan issue.
"This is a report which is important," Mr Bowen said. "While Labor in office would not have gone about it the same way, we recognise the substantial report that has been presented to government and will work as constructively as possible to ensure any sensible recommendations here are implemented and implemented in a smooth a way as possible."
Mr Bowen said he particularly supported the inquiry's recommendation for reduced credit card surcharges.
