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Will our government embrace these three reforms?

Keeping Australia competitive in the world today is a never-ending challenge of adjustments, reform and emulating world best practice.

The period from 1983-2000 saw well overdue reforms in the areas of labour market regulation and IR; trade and protectionism; sensible deregulation of the finance industry; superannuation; taxation and surplus budgets, and many more initiatives. Both the ALP and Coalition governments played parts in that era.

But nothing much has happened since.

The three areas of most interest to business are parliamentary, taxation and labour market reforms. We will touch on all three.

1. Parliamentary reform

The issue is simple: we need a democratic government, and we don’t have one. We have an upper house (Senate) that is not democratically elected, given that 12 seats are given to each of the states and two to the territories, regardless of population. This enables smaller states, fringe parties and single-issue members to be elected who are not representative of the electorate. They have veto powers on any bill passed by the democratically elected governing chamber, being the House of Representatives.

As a result, the lower house, democratically elected to govern the nation, is too often held hostage by minorities in the upper house. In short, we do not really have a British Westminster system at work. Their upper house cannot veto lower house bills, only delay them.

The chart below shows the undemocratically elected upper house, the ‘unrepresentative swill’ according to former Labor prime minister Paul Keating and the ‘feral’ chamber by another much-later PM. The Senate now controls Australia via its veto power.

As can be seen, this was not a problem for the first six or seven decades after Federation in 1901. While the Senate never fulfilled the role of protecting state interests—being a political-party chamber from the outset—at least it was dominated by the major parties. Fragmentation began in the second half of the 20th century, and special-interest minorities now make it impossible for either Labor or the Coalition to ever get a majority to implement their policies. We are now, no longer, a democracy.

This makes it near impossible to do the major reforms we need without them being rejected or watered down to be token and useless. As said earlier, there have been no meaningful reforms in the 21st century as a result.

We need to remove the veto power of the Senate (upper house) as in the UK, where their upper house (unelected House of Lords) can no longer veto a bill, only slow it down for a short period.

It will be difficult to change the veto power of the Senate, but it needs doing. It would require a long campaign over a year or two, driven by a competition-winning advertising agency that make the issues simple, needing of change and doable. A touch of humour or the ridiculous in the process wouldn’t go astray either; so Aussie.

2. Taxation reform

Wider tax reform is needed to help business be more internationally competitive, and for workers to be able to keep more of their wealth generation (wages) but be taxed more on their spending. In short, change the overall mix of taxes in the community to world best practice (WBP).

Australia is already one of the lowest taxed developed nations in the world at 28% of GDP versus the 35% OECD average. How long that should or could continue after our current GFC Mark II crisis as a result of our management or mismanagement of the economics of the COVID-19 is a matter of political choice.

This analysis looks at our mix of taxes, not the total impost.

The chart below shows our current taxation mix plus other government revenue from Government Business Enterprises (GBES) and other investments, followed by a reformed mix of taxes to WBP standards of the components.

The next exhibit reflects the following changes (reforms):

  • Individual taxes are reduced by 5%
  • Corporate tax rate lowered from 30% to 25%
  • GST has exemptions removed and the rate lifted from 10% to 15% (a la NZ)
  • Payroll taxes abolished
  • Stamp Duties abolished

The above mix becomes more in line with other advanced economies that have chosen to favour increasing expenditure taxes and decreasing income (wealth creation) taxes.

This is an area few governments have had the will to tackle, and simply don’t know how to sell it to the electorate. Reforms to our Senate are perhaps a precursor. If tax was tackled, perhaps again a competition-winning advertising agency could take on the logic, fairness and benefits of a new mix of taxes.

3. Labour market reform

Workers are on a new journey in the current Infotronics Age of services and Information and Communications Technology that displaced the Industrial Age of manufacturing and electricity in the mid-1960s, over half a century ago.

The characteristics of this journey as it involves employment are summarised below:

In essence, our new age is on a path to reduce subservience or ‘bondage’ of workers. This path is being resisted by unions and older generations, for control, habit or fear reasons. Less so with younger generations, especially the Millennials (under 38 years-of-age) and Generation Z (under 18 years-of-age).

Many factors are contributing to this preference for freedom:

  • Casualisation, where part time and casual work provides more choices
  • Average working hours shrinking from a 65-hour week (1800) to a 30-hour week (2020), allowing for two months’ leave each year, and increasing leisure
  • The move to being rewarded for output rather than the rigidity of input (hours) regimes
  • Lower cost of starting one’s own business (predominantly service businesses)

The fact that over 330,000 new business start-ups occurred in 2019 is a pointer to the pattern of taking charge of one’s own destiny when it comes to livelihood. This rate, representing 3% of households for many years, points to a preference for a B2B relationship by more and more workers over the industrial age B2E (business to employee) relationships.

Also, the churn rate of employees in corporations, around 8% a year, while not necessarily an indication of instability or dissatisfaction in each case, does point to the mobility of employment. More so in some industries than others.

It is just as hard for current governments to handle labour market reform, as other reforms, so productivity growth will be impeded for some years yet. And it is in poor shape currently.

So what?

There are encouraging promises made by Scott Morrison with regard to reforms on the Anzac weekend in April. He indicated all the reform studies and recommendations going back for many years will be taken off the shelves and out of the archives, dusted down, and used to establish a genuine reform programme.

This would be helped enormously if all parties to reform cooperated, including the federal government and the opposition, the states and the unions. One would think a post-pandemic environment should provide enough goodwill to see a large measure of this co-operation occur. But whether ideologies will give way to fundamental, rational and commonsense approaches to allow this to happen remains to be seen.

The near certainty is that without parliamentary reform to alter the veto power of the Senate, we could expect only watered down sub-optimal reforms.

We can but hope.

 

Phil Ruthven AO is Founder of the Ruthven Institute, Founder of IBISWorld and widely recognised as Australia’s leading futurist.

 

23 Comments
Chris Wells
May 26, 2020

The idea that an upper house can effectively hold a mandated elected lower house "to ransom" has always irked me. It seems in the last 2 decades that not much is achieved because of the loss of control of the senate by the sitting government.Not since John Howard had control of both houses has so little true reform gone through our parliament.If an idea is proposed in the lower house it should be judged "on it's merit" and not simply opposed because the opposition has introduced it.Honestly,the number of times I have thought that it has become a waste of time voting because of the increase of these childish attics we see in the parliament .As for the average voter deciding who to vote for,their decision seems to be a "whats in it for me" scenario or "cargo cult"mentality.

Roger Johnston
May 26, 2020

The two charts that would reflect our situation are government expenditure now and then. Reform is certainly needed in energy, state law variations, employment, environment, taxation and Australian ownership to name but a few.
What is the vision and how do we get there?
If we had a referendum on the people;s need reform areas would anybody listen ?

Ian Simons
May 25, 2020

Keeping Australia competitive in the world today is a never-ending challenge of adjustments, reform and emulating world best practice.
This is the header line of the article.
One of the key components of competitiveness is the cost and availability of energy. Nations rise and fall due to this very issue.
The trend is clear that Australia's energy future (economically!) lies with renewable energy. https://www.forbes.com/sites/dominicdudley/2019/05/29/renewable-energy-costs-tumble/#3775bf84e8ce
Yet, here in Australia, the fossil-fuel industry appears to dominate our supposedly democratically elected government policy (senate or no senate). Until we can emerge from this bind, our democracy appears to be ill-equipped to "move forward into broad, sunlit uplands".

Mark lauder
May 24, 2020

Major tax reform would benefit the country greatly. Its a shame none of the political parties have courage to tackle the issues.
With respect to worker reform the concept that most workers prefer to be casual and embrace "freedom". Well they do have plenty of freedom now as many are unemployed having lost their jobs. Many of these workers have quickly found themselves in poverty depending on welfare. Having job security is important for many, not just those who have families/mortgages etc. We live in a society first , the economy should be there to serve the people.

Graham Hand
May 22, 2020

Thanks for the extensive comments. Phil has read them (as he says, 'brickbats and bouquets') but will not have time to respond to them all.

Christopher Kelly
May 23, 2020

I think Phil's suggestions on tax reform are timely, probably necessary and practicable.
Rather than focus on parliamentary reform however, there are other ways of determining public expectations outside of a democratic vote. As we live in the information age, a combination of data mining, statistical inference and artificial intelligence could produce an accurate picture of what the public wants in terms of social services and policy direction. What would be interesting, is if we got rid of cash totally and potentially paid GST directly to the ATO on a transaction basis via EFT. The ensuing data would help policy makers and give a "real time" profile of the economy and country when consolidated.

Tim Farrelly
May 22, 2020

I continue to be surprised by the insistence that corporate tax rates must come down. The reality of the imputation system is that the corporate tax rate paid by Australian investors is close to zero. Passive overseas investors pay 30% on Australian companies. Direct international investors in Australian businesses (Google etc) seem to pay close to zero after various forms of profit shifting.
How about a proposal that Company tax rates were reduced to 5% with a 25% additional withholding tax to be paid by international investors? Sounds great? Except it's what we already have...

Edward van oort
May 22, 2020

Leaving aside Phil's ideologically-tainted suggestions regarding tax and workplace reform, I take issue with his comments on democracy. Suggesting that the Westminster system is in any way 'democratic' or 'representative' to me shows a lack of understanding of democratic process. It is an archaic system that has completely lost its relevance in the past 100 years and doesn't represent the views of society. If you want a really democratic system you'll need to go for a true representative system, like most northern European countries have AND put a lid on lobbyists (of any persuasion). And may I suggest a very powerful federal ICAC......

Would be editor/moderator
May 22, 2020

Now who's being 'ideologically-tainted'? For goodness sake, can't someone say something that they believe without a smear attempt as the opening line of a comment on what they said?

I respectfully suggest that a better comment to say what you believe, Edward, would have been:

"I disagree with everything Phil has said, but wish only to comment on his views of the Westminster system. I believe that this system is not 'democratic' ....... ".

Dr Bruce Moon
May 24, 2020

With much respect, may I suggest that your 'moderator' comment is ideologically driven. By asserting Phil has an ideological basis, Edward is being open about his perspective; he clearly doesn't like Phil's ideological underpinnings. I suggest you are more supportive of Phil's ideological position and would like to see open criticism of such minimised.

Phil is very clearly coming from a neoliberal (ideological) perspective and has fashioned his view according to the Hayekian notion that business is a better model from which to administer society than the political parliamentary structure in which he finds himself.

As for 'democracy', Phil offers a rather simplistic view. Back in the 1960's Richard Lucy coined the term Washminster to describe the (evolved) Australian mode of governance. He has elaborated his view into a text; The Australian Form of Government. Phil might do himself a service to read the text.

Fortunately, the checks and balances (as rough and as skewed as they are) that comprises the upper house not only minimises reckless behaviour in the lower house, but also instills a level support (albeit small) by Australian citizenry towards the parliamentary system.

While it is far too early to argue the neoliberal era is coming to a close, it is appropriate to say the ideology has run its course and many are now advocating replacement structures. On this, refer - https://thecorrespondent.com/466/the-neoliberal-era-is-ending-what-comes-next/61655148676-a00ee89a.

Would be editor/moderator
May 25, 2020

Dr Moon, no, I don't necessarily have an ideological affinity with Phil's comments. I was simply reacting as my comment said - Edward's opening remark was unnecessary and unhelpful. He could have made his point in a better way.

Alexander Stitt
May 21, 2020

Oh dear! Poor Phil has fallen into the old trap of presuming that just because just over 50% of people in just over 50% of electorates voted for "X", that "X" has a mandate and should plough ahead at all costs and without interference because “the people” are behind them. Sorry, mate, but that's just a wrong analysis.

So too is trotting out the old canard that the Senate is "unrepresentative swill" a wrong analysis.

First, the history - without the Senate, there would be no Federation. I'm inclined to think also that without an on-going Senate, Federation would fall apart. So the task is to work out how to govern effectively in a bi-cameral system where the upper house has a different weighting to the lower house. Plenty of governments have found a way to do this so any failure is not a fault of the Senate, but a failure in the government of the day. Conversely, the task is not to bitch about the system, but to master it.

Second, there’s a fair argument that the Senate, for each State, more accurately reflects the diversity of the will of the people. That doesn't suit the major parties, but then our best interests (we the people, not we the corporations) is not fully aligned with the major parties’ best interests anyway, so that’s a good outcome. It’s true that there have been quirks and whimseys and similar that have delivered some perverse Senate outcomes. And that has cut both ways – to a government’s advantage and to its disadvantage. My understanding is that the worst of these “quirks” have now been curtailed, and I'm sure the system could be improved. However, a much better improvement would be having, say, 5-member electorates in the House of Reps, thereby allowing a much more reasonable representation in the lower house of the expressed will of the people than the current “just over 50% …” process. And it’s almost certain that would deliver a Parliament requiring much more negotiation finesse on the part of the government than most recent governments have been able to muster.

And third, some of our biggest governmental FUBARs have been when the government of the day did have control of both houses. “Work Choices” anyone. Conversely, the Senate has many a time saved us from a some seriously bad government policy – for example, Tony Abbot and “Smokin’” Joe Hockey’s never delivered budget. My clear learning from seeing about 40 years of lawmaking under my vote is that robust challenge to the policy first put forward by any government results in way-more robust law.

Viva La Senate!

And just to cement my tribe of enemies out there, I see there’s some replay of the usual “wasteful three tiers of government” argument. Show us the data! We might pay some regard then. To my mind, a much more productive line of “effectiveness / value for money” argument is to better clarify the responsibilities of the 3 tiers and eliminate overlap and duplication. If there’s one lesson the COVID-19 disaster should have taught us, it’s that State governments are way more relevant (and generally way more effective) in our day-today life than is Canberra. And, curiously given how different their union is to our federation, the same is true in the USA, where the states have got on with the job in the way that best suits them each, while the Feds have held 2-hour daily press conferences promoting quackery.

Cam
May 24, 2020

I generally agree that the Senate is helpful as a house of review. I'd be interested in views of them blocking the ETS in the 2007-10 parliament though where the Greens in the Senate blocked Rudd's policy.

In relation to 3 tiers of Government, what would improve things is a concept of national uniform legislation with local service delivery. Having 8 different sets of road rules and 8 different bodies advising on this is crazy. If there are some areas where its viewed the current system serves us well, have national legislation with 8 appendices which are legislated by the states/territories and override the national legislation, Periodically the appendices get reviewed and moved to the national legislation if everyone agrees.

I know someone who did a massive thesis early this century calculating the cost at around $40b a year. That figure will be much larger now. So a plan to recover some of that seems sensible.

If the states have been the key to COVID 19, then surely Scomo being overseas during the bushfires isn't an issue.

Jeremy Dawson
May 21, 2020

Your definition of democracy seems to be that one of the two major parties must have an absolute majority in both houses, even though the voters have shown that that is not what they want! And the present situation doesn't prevent any policy being implemented - it only requires majority support (which can be either both major parties, or the Government party plus some of the minor parties).

Michael Horn
May 21, 2020

The only aspect of the article with which I agree is the level of political stagnation and lost opportunities in this century. Most of the content of the 3 proportions are idealogical and lack any test of fairness or social justice. Democratic decision making has weakened but not due to make up of the Senate - rather the capture of political decisions by powerful, rich individuals and minority groups. The rising influence of unelected media and policy advisers have weakened the capacity for objective evidence informed advice from government departments. Innumerable reviews and inquiries have developed reforms across taxation, energy, welfare, etc which have been largely ignored.
It is clear that technology changes have and will continue to create substantial shifts to our labour market, including off shoring of work to the cheapest sources of labour overseas. But the article completely misrepresents the state of work in Australia-marked by stubborn unemployment, record levels of underemployment, increased reliance on migrant workers underpaid and abused by employers. The use of labour hire firms, underpayment of casual or contract workers is inconsistent with a notion of greater freedom and choice for many workers. We need new forms of labour association coupled with stronger rights and protections for workers. In addition reforms to labour market assistance are urgently needed - to strengthen productivity, Increase portability of workers over their working lives, and invest in effective social enterprises aimed at those with disabilities or learning disorders.
Taxation reform is required. But there is no disincentive to productive enterprise. Rather we need to redistribute the tax cake to ensure large businesses and wealth individuals pay their fair share of tax to enable investments in education trading and health. Why no mention of CGT and negative greeting tax reforms? These enable unproductive wealth creation that has distorted the housing market and reduced tax revenue.
For these reasons, and probably many others, the propositions in the article are fundamentally flawed and outdated. The Covid 19 pandemic has clearly shown the vital importance of strong social and welfare nets - as inevitably reliance on private market enterprise will fail.

G Phillips
May 21, 2020

The whole idea of democracy for our Commonwealth is that less populated states (some with bigger distances to cover) get an equitable share of the income to cover basic costs.
If you consume national TV or Radio, the “News” (mostly bad) is largely from the Eastern Seaboard.
The rest of us still need sufficient clout to allow our voices be heard. By holding up unfair legislation, the Senate (perhaps unwittingly) encourages the lower house members to pause long enough to listen to their own voters, rather than blindly (or coercively) following the party line.
I am Australian. I don’t want to have a British Westminster system which, from where I sit, eschews scientific evidence in order to promote the financial interests of white males with imaginary friends.

Mark Knight
May 21, 2020

Great ideas Phil. Forward thinking and considered.
Two comments from me:
1. The Left are revelling in this new form of socialism now adopted in Australia. Whether temporary or permanent, the present situation comprising 4 of the 5 elements embraced by them (big government, big spending, big welfare and as little work as possible) has them salivating. The only missing ingredient of their Utopia is big taxes. They will not sit idly by while this increasingly serious form of socialism is replaced in turn by what they didn’t like before. Albo has already started signalling obstruction and confrontation. So the chances of your reforms getting up are pretty remote in my estimation.
2. There are so many other areas where reform is also needed. Just a few more are water resources, nuclear power, railway infrastructure, change preferential voting to first past the post, abolish compulsory voting, fix the broken education system,. I could go on.

Alan George
May 21, 2020

Your observations and suggestions are correct but I am not hopeful things will change. The senate makes the current parliament unworkable due to the obstruction by minor parties whose politicians are not particularly bright. Increasing the GST is a good idea except the welfare groups and unions say it disadvantages the poor. So it wont get a guernsey. We are heading down this dangerous path of more socialism. Central banks have used QE coupled with lowering interest to appease younger voters who have no idea about saving, budgeting or investing. The key is the education system which needs a complete overall. Our education systems have been so dumbed down. Our politicians lack the conviction to dish out any form of tough love. As Margaret Thatcher once said 'socialism is great until you run out of other people's money'!! The end game is approaching.

Carlo Bongarzoni
May 21, 2020

Great contribution Phil - as always! Alas I suggest that our PM perhaps lacks the conviction, vision and importantly the determination to act on such fundamentally essential changes. All 3 areas that you suggest involve changing the mindsets of electorate majorities - particularly of the Left, the entrenched Greens and other minority parties, the Trade Union heavyweights. The tax issue is particularly fraught too because Australia has a poor record on tax reform.
Another area of Constitutional reform must surely also include somehow strengthening Federal "rules" to finally ensure all Australians are governed by the same laws, educational curriculums and standards, and other basic areas mostly financed by the National government but currently administered and managed by States. And lastly our country has to reduce the enormous cost of our poorly performing and cossetted public service that adds to our red tape, lack of urgency, cost per head of population and gross under-performance. Carlo Bongarzoni

mike doherty
May 21, 2020

Leave the gst as it is, reduce the company tax to 20%,leave personal taxes as is,abolish stamp duty,abolish payroll tax and finally make companies pay closer to the 20% buy setting a minimum tax of 5% on all companies regardless of deductions.
Set a federal government royalty (1 or 2%)to start with, on all our exported minerals and gas in addition to state royalties. We cannot go on letting our gas and minerals be plundered. Our gas is just being given away and we have little to show for it.

Graham Blackman
May 21, 2020

Great future vision. I have a feeling that some rougue employers and unions would spoil the resultant changes. I would prefer to see more consensus government and workplace, with employers giving employees a share in profits and a representative on boards of management. The old Fletcher Jones model should be revived. At the present moment employees think that money grows on trees. If they knew what the profitablity of their employer was, they might be more enthusiastic about consensus management. We live in a capitalist system and the only way this system is to survive is for the employers to make a profit, and the employees be paid enough to be able to buy the goods and services that the business wants to sell. It is a delicate balance.

Neil Dearberg
May 21, 2020

If is was possible to reform the Senate [long overdue] would it also be possible to replace our expensive and restrictive three tiered system of governments and replace with a Federal Gov and Provincial Govs?

Tony Carr
May 21, 2020

I believe as do many others that the major parties have missed a great opportunity in the last 3 months to forge a coalition. This IDEA that they must be opposed to each other on all matters needs to stop and stop NOW.


 

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