‘Since our Spring edition of Bank Notes there have continued to be a number of ongoing issues facing the Australian economy and the legal environment, continuing economic and political disruption and also some new matters to report.’



The federal budget deficit appears to be going further into the red given the revenue reductions from oil consumption, mining royalties and reduced income tax receipts from both corporate and private sector.

We expect that the discussion of the increasing and broadening of the GST tax base with a raft of other taxation raising measures will be back on the agenda in the new year together with continuing cost cutting as the government reaches the conclusion that the traditional revenue models are no longer sustainable.

New Zealand increased its GST from 12.5 percent to 15 percent in 2010 without any significant consequences and enjoys a fairly low personal tax environment (compared to Australia with a top marginal rate of 34 percent) so we wonder why the debate has not been stronger in favour of a push in this direction.


The price of oil has dropped by 30 percent since June 2014, however OPEC members have elected not to cut oil production. With the continuing production of fossil fuel, there will be a glut of oil which will eventually see its way through to costs reductions in the aviation industry and for the consumers at the petrol bowser. Interestingly, some observers don’t foreshadow the fuel surcharge charged by airlines will be substantially reduced any time soon nor will the price of petrol at the bowsers be similarly reduced by the extent to which the price of crude oil has dropped.


Much commentary has been made in relation to exactly where the Australian dollar will end its current slide.

Some economic commentators indicate the Australian dollar remains over valued and will continue to decline whereas others are hinting the current level of approximately US87 cents is about its fair value given the fact the Australian Reserve Bank has not been printing money like the US, Japan, China and many Euro zone countries.


It is noted several leading commentators have pronounced that Australia is now in an ‘income recession’ given the very low increase in the nation’s income growth over the last two quarters. This does not look good for a return to strong growth in the economy and hence sustainable business activity.

FIRB Inquiry report

As Bank Notes have previously reported there is a lot of press and commentary in relation to the potential housing bubble being created in Australia particularly by offshore mostly Chinese investors.

As a consequence, a federal inquiry was undertaken by the House of Representatives standing committee on economics into the following key issues:

  • foreign investment in residential real estate in Australia
  • the role of the Foreign Investment Review Board (FIRB).

In accordance with this link, our development team issued an eAlert on 1 December, the key findings of which are as follows:

  • there is no accurate or timely data that tracks foreign investment in residential real estate
  • there has been a significant failure of leadership at FIRB
  • there is insufficient enforcement activity, which leads to non-compliance
  • the taxpayer foots the bill for the administration of FIRB rather than foreign investors applying for approval.

Notwithstanding the high level of foreign investment in Australian real estate, the committee concluded as follows:

  • current foreign investment framework should be retained
  • foreign investment is not causing significant market distortions
  • foreign investment levels are not high enough to cause such market distortions and overseas buyers mainly buy different types of properties, in different price brackets from those of first home buyers
  • finally, foreign investment is crucial for the continuing development of the housing sector in Australia and restrictions on foreign investments would likely result in price increases.


  • Introduce further administration fee of $1500 payable by each applicant seeking FIRB approval.
  • Government, states and territories establish a single national register of land title transfers, and records of citizenship and residency status of all purchasers.
  • Introduce civil penalty regime including criminal penalties for breaching of FIRB.
  • FIRB be amended to require a temporary residence to divesting of property within three months if it ceases to be their primary residence.
  • Provide that residential property sold off the plan and is marketed for sale overseas must be marketed in Australia for the same period of time.
  • FIRB become much more active in monitoring enforcement and collection of data.

Report on Financial System Inquiry released

The Murray Report into the Australian Financial System was released on 7 December and delivered 44 recommendations to the government to consider. If implemented, these recommendations will mark the biggest change in almost 20 years to Australia’s largest industry.

The key recommendations were:

  • banks to hold more common equity capital
  • narrow the advantage big banks have over regional banks in risk weighing of residential mortgages
  • adopt a leverage note to increase banks’ resistance to shocks
  • imposing a ban on SMSFs borrowing money to buy assets
  • requiring that a majority of super fund board members be independent
  • create a new board to assess the performance of ASIC and APRA
  • financial planners be required to hold tertiary degrees and prove competency
  • create an innovative collaboration committee to ensure policy keeps pace with technology change
  • RBA should ban merchant charges on debit cards and limit charges on credit cards.

Recent legal cases


In the recent NSW Court Appeal decision of Bendigo and Adelaide Bank and Karamihos, the Court determined that the fact that:

  • the two Borrowers (who were also the Mortgagors), were elderly at the time the relevant loan was entered into
  • did not speak English as a first language
  • did not obtain independent legal and financial advice in respect of the loan,

was not sufficient to establish unconscionability of the loan.

As a consequence, notwithstanding the bank advanced the loan and ultimately obtained possession of the Borrowers’ residence to sell, the appeal by the Borrowers that the loan was unconscionable and, therefore, unenforceable was rejected.

The Court of Appeal determined that when examining whether there has been unconscionability, unjustness or unfairness enabling a Court to grant relief, practitioners must look beyond the existence of particular disabilities and to assess the impact, on the ability of the party asserting the disability to protect their own interests. The Court determined a party who understands the nature and the effect of the transaction they were entering into, cannot, with the benefit of hindsight, seek to undo the dealing or have it set aside simply because it turns out to be a bad business decision.

Personal Property Security (PPSR) Cases

Since the commencement of the PPSR on 31 January 2012, there are now a number of decisions by various Courts in Australia to give guidance to the legislation.

Primarily the decisions fall into two categories namely:

  • applications made to a Court to extend time to permit registration of a Security Interest out of time
  • the most frequently litigated disputes in respect of priority interest over plant and equipment frequently involving liquidators and financiers.

The primary lessons arising from the above are as follows:

  • register on time; ensure the collateral class is properly described in the financing statement
  • wherever plant and equipment or personal property is subject to a lease or other possessory arrangement, ensure the secured party has registered its Security Interest.