The Government needs to restore competitive neutrality in the fixed income market as a first step in the development of a stronger domestic fixed income and corporate bond market, says the Australian Securitisation Forum.Other initiatives suggested include improving access to securities through a trading platform or listing, relaxing prospectus rules, putting more emphasis on financial education, and encouraging the development of new niche products.These recommendations are included in a report on the state of Australia's fixed income market prepared by Deloitte Access Economics for the Australian Securitisation Forum.On the issue of competitive neutrality, Deloitte Access Economics partner Ian Harper said the Government's Financial Claims Scheme distorted competition by providing protection for bank deposits and certain fixed income products.Harper said: "The Government could impose an explicit charge for the FCS, so that the value of this benefit is priced into the terms offered by banks and other insured deposit-taking institutions on eligible deposits."Another proposal for restoring competitive neutrality is to oblige domestic systemically important financial institutions to carry more capital. This would neutralise the potential pricing advantage these institutions have in the capital market.Harper said allowing mutuals to raise capital through bonds with franking credits attached would open up an avenue for mutuals to raise funds in competition with bank term deposits.The report said the Australian fixed income market was locked into a state of low equilibrium, with low demand and low supply reinforcing each other.He said two changes provided a catalyst for change: as the baby boomers move into retirement demand for defensive assets, such as fixed income, should increase; and new Basel III rules will force banks to hold more high quality liquid assets.Harper said these changes would not change the fixed income market's low equilibrium, but they could be a catalyst for change if they were accompanied by the right policy responses.