Governments should not design financial products

The Labor government's two attempts to design financial products - the first home saver account and green loans - were both failures. The experience should convince any government that policy should not extend to that level of detail.

When the government launched the FHSA program in 2008 it forecast that $4 billion would flow into the accounts in the first two years. The results are well shy of the mark; according to the Australian Prudential Regulation Authority there was a total of $78 million in FHSA at the end of March.

The scheme offered a low tax rate and a government contribution worth up to $3400. To qualify, savers had to keep the money in their accounts over four financial years and put the proceeds towards purchase of a first home (or into a super fund if a home was not purchased).

The big drawback for savers was the four-year qualifying period. People felt it did not give them enough flexibility. The government tweaked the program in this year's Budget but did not change the qualifying period.

The green loans program, an interest-free finance scheme to assist people to add solar panels and other green technology to their homes, was announced in the 2008 Budget. The government set aside enough to subsidise the establishment and interest costs on 75,000 loans worth up to $10,000 each.

By March this year, when lenders stopped taking applications for green loans, the 12 financial partners that had signed up for the scheme had written a total of 800 loans.

A common theme in both cases is the lack of involvement of large banks. Most of the financial institutions that actively supported the programs were small banks and credit unions. Without the marketing push that the big four can give to new products, the schemes struggled.

Big banks would look at the cost of setting up a new product and decide it was not worth bothering for such niche products.