Chris Merritt | May 29, 2009 The Australian
THE push to roll out a national electronic conveyancing system is close to collapse because the nation's governments have not allocated $20 million to establish a company to run the new system.
Kevin Rudd was warned this week that without repayable seed funding for the new company, the national e-conveyancing project is at risk of "complete failure".
The Prime Minister received this warning in a letter from Les Taylor, who chairs the steering committee that has been planning the new system.
Even though the Council of Australian Governments has agreed that the states should establish a single national e-conveyancing system, Mr Taylor wrote that the savings from the project were at risk of being lost for at least a generation.
Those savings have been estimated by industry groups to be worth $250 million annually.
"I have to tell you that the real prospect that you and your COAG colleagues are facing is the complete failure of this important micro-economic reform project," Mr Taylor wrote.
A former general counsel of the Commonwealth Bank, Mr Taylor said lawyers, bankers and conveyancers were likely to abandon the project unless $20 million was provided to establish the company that will run the system.
The project could be saved "by a modest injection of seed funding by the Commonwealth", Mr Taylor wrote.
Mr Rudd's office told The Australian the federal Government had already provided significant funding through COAG in exchange for the states and territories agreeing to set up the new system.
A spokeswoman for Mr Rudd said the Government was committed to providing $550 million to the states and territories as part of COAG's "seamless economy national partnership agreement".
"In exchange, the states and territories agreed to reform and harmonise regulation across 27 regulatory hotspots, including the creation of a national electronic conveyancing system by the end of 2011," the spokeswoman said. "This includes an upfront facilitation payment in 2008-09 of $100 million, to be shared between the states on a per capita basis."
Mr Taylor's letter to the Prime Minister is the result of concern among the private sector groups involved in conveyancing that none of the money flowing to the states under the COAG agreement has been earmarked for the e-conveyancing project. Because the e-conveyancing company is not due to be established until September next year, it will be too late to have access to the Government's $100 million facilitation payment that will be made this financial year.
And while the COAG agreement provides a strong financial incentive for the states to make progress on 10 priority areas listed in the agreement, those priority areas do not include e-conveyancing.
If the states fail to meet their commitment to establish the project, they could still receive their full reward payments from the commonwealth so long as they make progress in the other areas covered by the agreement. Concerns have also emerged that the problems associated with the national system could be associated with Victoria's growing commitment to a separate state-based e-conveyancing system.
Victorian Opposition frontbencher David Davis said he believed the state Government had now spent about $50 million on its state-based system, which is known as ECV.
"It's a tragedy that a genuine national system has been spiked by the activities of the Victorian Government in preference for their $50 million white elephant," Mr Davis said.
COAG's endorsement of a single national system raised doubts about the future of ECV because the national system would operate in each state.
While ECV has been open for business for about 18 months, it has been boycotted by solicitors because of concerns by their professional indemnity insurer that it could expose lawyers to increased potential liability.
The major banks have refused to use ECV because they do not wish to encourage the development of state-based systems that would diminish the efficiency gains from e-conveyancing.
All the private sector players in conveyancing are concerned that COAG's decision to delay the establishment of the national system means years of preparatory work by the steering committee is in danger of being lost.
By delaying the start date for the project from March next year until the end of 2011, COAG has already wiped out cost savings for home buyers that, based on industry estimates, are worth about $437 million.
Mr Taylor's letter to Mr Rudd says private sector groups involved in conveyancing had made it clear to the steering committee at its last meeting that without a clear funding commitment, they did not believe their organisations would continue to support the project.
These groups include the Law Council of Australia, the Australian Institute of Conveyancers and the Australian Bankers Association.
The steering committee, which also includes representatives of state and federal governments, has been working towards establishing a national e-conveyancing system since 2005.
While its work has been hampered by disagreements between the state governments, Mr Taylor told Mr Rudd that many key requirements were well advanced.
"Unfortunately the point has now been reached where unless a firm commitment to provide the funds necessary to establish the corporation and to attract capable and skilled directors and executives is forthcoming, then I have to tell you that it is my considered opinion that the industry participants in the project will be highly unlikely to be able to continue their support of the project," Mr Taylor wrote.
"The fact is that if the banks and legal practitioners, in particular, walk away, the project will fail and the considerable value and progress created by the committee's work to date will be lost.
"If this is allowed to happen, then the prospect of electronic conveyancing delivering financial benefits to Australians, particularly greater housing affordability for young people will be lost for at least a generation," Mr Taylor wrote.
The Australian Bankers Association said the uncertainty over the capital base for the national system was a great concern.
"You cannot expect private sector organisations like banks to stand idly by and do very little while the states have gone back to their people to discuss funding," said ABA director of retail regulatory policy Ian Gilbert.
"Each bank will have to make its own decision but it's totally unrealistic to expect that people will be kept on hold, on ice, while the jurisdictions sort out questions of funding.
"This is not the way that the private sector would go about it. It would all be up front, organised and settled," Mr Gilbert said.
Law Council of Australian president John Corcoran said the legal profession was extremely disappointed by COAG's decision to delay the start date for e-conveyancing.
"It really took us back to square one," Mr Corcoran said.
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