Earlier this week, the Federal Government and a group of industry bodies announced a partnership to co-fund an Industry Funded Financial Counselling body, designed to bring together industry and the financial counselling sector to enable better support for Australian consumers. We take a look at the announcement, and highlight some opportunities and risks for the funding body as it enters its development phase.
What was announced?
In 2019, Louise Sylvan AM undertook a review (the Sylvan Review) into the coordination and funding of financial counselling services for the Morrison Federal Government. That review recommended an industry-funded body that would support the delivery of on the ground financial counselling services. At the time, pre-pandemic, Government’s collectively provided approximately $40 million in funding to financial counsellors, with the Sylvan Review finding that this was not meeting demand, and was resulting in customers who were doing it tough being unable to access services that could assist. This was resulting in industries failing to recover debts that might have been able to be paid.
Sylvan recommended that industries that contribute to the demand for financial counselling, and benefit from their availability, support Governments in providing funding.
In the four years since the Sylvan Review was finalised, industry has worked with consecutive Governments to try and agree on a model that would deliver upon this recommendation. Tuesday’s announcement is the culmination of this negotiation, with the Federal Government announcing that a range of peak bodies, including the Australian Energy Council, have signed memorandums of understanding with the Government to fund the body for three years.
Why is this important?
As the community is increasingly challenged by the high cost-of-living, energy retailers are holding higher debts, with more customers than ever receiving hardship support and payment assistance. But energy debts are not the only problem facing consumers. Whilst it is often said that energy is the last bill a customer pays, ultimately, a customer’s financial difficulty is based on having higher costs than income. This means that for a customer looking for $500 to pay their energy bill, they have already paid out money for housing, fuel, groceries, insurance, telecommunications, and an array of other necessities. In this sense, while an energy bill might be the straw that breaks the camel's back, genuine support must be economy wide, and consider all of a customer’s costs – not just the bill that happens to be stuck on the fridge on a particular day.
Having all of industry contribute to the delivery of financial counselling services will support customers who have outstanding bills, but can also enable them to consider all of their costs and contribute to a more sustainable financial position. This helps industry, who benefit from having a customer base empowered to manage their own debts, and by understanding their own affordability issues they can make commitments to longer term payment arrangements that can keep a customer connected.
Will it work?
The AEC has continued to advocate that a mandatory industry funded scheme is critical to deliver upon the Government’s objective of a more stable financial counselling sector that meets the needs of Australian consumers. Whilst a voluntary mechanism as was announced this week is a useful starting point, ultimately a voluntary model introduces risk for the financial counselling sector, and also for those contributing to its funding. If businesses are able to ‘opt in and out’ depending on their own financial position, the benefits of the scheme will be dramatically eroded. Either other participants will need to pay more to cover any reductions in funding to ensure the sustainability of the financial counselling sector, or funding will drop with limited notice. That is sub-optimal.
A voluntary model also leads to equity problems. Whilst all creditors will benefit from a well-resourced financial counselling sector, only some will pay. Such problems are common, but in a voluntary model they are exacerbated. For example, in the energy sector, the Australian Energy Council’s commitment to the model is being funded by a subset of its members – Origin Energy, AGL Energy, EnergyAustralia, Red Energy, Alinta Energy, Simply Energy, and Shell Energy Australia. A better model would see all benefiting industry participants contributing proportionately. A mandatory model would also require those in the land-based gambling, telecommunications, and buy-now-pay-later industries to contribute.
The AEC hopes that the three year commitment to a voluntary model will allow industry and the funding body to develop an effective business model that will give confidence to Government and Industry that a mandatory model is achievable – delivering enhanced benefits as opposed to the current voluntary approach.
What happens next?
The Government has provided a grant to Financial Counselling Australia to work with industry on setting up the governance, operations, and financial management functions of the new body to be ready to take donations on or before 1 July 2024. The AEC will support this process by working with other contributing industries on a development committee tasked to operate as a proxy-board for the body until a more formal arrangement is implemented.
Today, it’s time for industry to congratulate itself for its efforts in working with Government and the financial counselling sector to deliver something that could make a genuine difference in the lives of many. As Federal Social Services Minister Amanda Rishworth said at the launch on Tuesday, an extra $10 million per year will provide access to financial counselling for more than 25,000 Australians – a dramatic increase in capacity for the sector, and no doubt a welcome development for a community doing it tough.
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