Assistant Treasurer and Minister for Financial Services & Superannuation
14 September 2010 - 14 December 2011
Australian Chamber Of Commerce Luncheon
Island Shangri-La, Hong Kong
19 January 2011
A warm Aussie summer's greetings to you all.
One of those penetrating things about my country – our country - is that we are, as Dorothea Mackellar put it, a land of both drought and flooding rains. The eternal beauty and the terror of Australia is something we have all been reminded of in recent days.
So many of you here have watched the scenes from home and shared your heartfelt concerns about the recent floods, which have not just enveloped Queensland and northern NSW, but have also gripped northern Western Australia and now my home state of Victoria.
The indiscriminate hand of mother nature is only underlined by the fact that parts of Western Australia are still experiencing the harshest of droughts, and the farmers and gardeners of eastern Australia had also only just welcomed relief from one the of longest and harshest runs of dry years in our history.
Droughts and flooding rains we have indeed – but I thank all of you for your thoughts, prayers and expressions of concern for those affected. And I do urge you to contribute if you can in some way to the relief funds.
I suppose somewhere in all this is an unrequested but nevertheless powerful metaphor -- the contrasts and varying dimensions of both natural environments and regional economies. But let me come to that latter economic debate in a moment.
I'd like to thank initially the Australian Chamber of Commerce for organising this event, and its work in building bridges between Australia and this part of the world.
It's a relationship with a long future, built on a similar way of thinking, and face-to-face meetings like this. More than anything else it's a relationship built on respect.
'Guangxi' I believe is the apt word - a respectful and cooperative relationship which leads to trust and confidence in one another. That is what I think we have today and what we continue to invest in. It cannot be taken for granted – gaining and retaining Guangxi is a long task that needs stamina and deep will.
I believe that in this room is an audience of will, and of stamina, and of the cooperative spirit – so I am really pleased and motivated to be here.
I come to Hong Kong I might add with warm thoughts of Australian-Chinese friends on my mind, given the remarkable contribution that they have made - and continue to make - to our home community. These contributions prompt great personal and social respect from all Australians.
It is no accident that a Chinese-Australian teenager is almost always in the top three or four in so many schools HSC, VCE or equivalent leaving certificate.
It is no accident that among Australia's doctors, academics, computer programmers, working economists, architects and future thinkers, Chinese Australians stand tall.
Some say it's a work ethic that explains it. I think it's more than that.
The ability of a child to master not just two languages but two alphabets, two sorts of reading, perhaps puts in more brain connections, surely, more inter-linkages of the mind, than a monolingual education.
On top of that, though, I suggest is a stability of family life. A respect for the old, a capacity for familial feasting, a love of children, a love of scholarship, a readiness for the testing task, that puts Australian Chinese among our premier citizens.
In my experience Chinese-Australians are not easy to fool, not easy to sideline, not wise to insult.
Chinese-Australians are a positive part of our civic life back home, and they have been for the last 160 years. That is, enriching and stimulating, and contributing to the Australian story.
There are so many examples of their excellence worth respecting and carefully looking towards as we face the challenges and opportunities of a competitive, transformative global economy.
In the wake of the Global Financial Crisis it's now evident -- as I think, and I know you think, it was before -- that this region is shaping the future of the world economy.
The Asia Pacific century, as many scholars have described it, is not in our midst - it now sits atop our morning newspapers, calling us to action from cable TV, our Blackberrys and iPods, and infused within every one of our business discussions. The Asia Pacific century, ladies and gentlemen, is right now and we are living it.
And Hong Kong is what the ancient Greeks called an Agora, a meeting place and a marketplace and a speaking place. Here we have a powerful fulcrum point for this ambitious and innovative century.
As well, of course, this city is a stepping-stone to mainland China, and a launching pad of Chinese companies wanting to go into Australasia. It's an important, functioning, fulminating engine room of anything worth doing, going full steam ahead.
More so, as Australia deepens its co-operation, and collaboration, here in our region.
Bold, future focused infrastructure such as the Hong Kong-Zhuhai-Macau bridge and the Guangzhou-to-Wuhan high speed rail, will extend what might be called Hong Kong's ambit well beyond the Pearl River Delta, into opportunities almost unlimited within Earth's largest continent. Unlocking new drivers of wealth. Unlocking greater enthusiasm for our evolving economic relationship.
Some of you may not be aware – and some of you may be envious - that I live in Melbourne, close to Flemington racecourse, and I'm a vigilant patron of the Australian Jockey Association.
So I go to the races a bit. And when I arrived here on Sunday afternoon I sampled your version of the sport of kings. And I was well-satisfied, and came away richer. And was pleased to hear the Melbourne Cup celebrations of Hong Kong rival Flemington's. I find that an important meeting of minds.
The Cup was first simulcast here in 1993. And the new, internationalised excitement and exchange of money was so moving to all the participants that the official starting time was immediately changed from 2:40 to 3:00pm.
Just to show how much we love the smell of Hong Kong dollars in the afternoon.
As everyone here knows – Australians pride ourselves on our adaptability – especially for such an important cause.
Indeed a few years ago when the Federal Parliament was required to sit on Cup Day in order to debate some particularly pressing legislation. The Speaker still managed to suspend proceedings for half an hour so as the sweep could be conducted and due honour could be given to the Great Race.
Never stand in the way of a good politician and a bet worth making.
But I am of course here to tell you, fellow punters, fellow capitalists, of what the Gillard Government is currently up to on the great course of economic reform, and what we'd like to do in this region, and do soon at this time of economic transformation.
Hong Kong bounced back gangbusters after the GFC, not altogether surprisingly. I'm advised local unemployment is about 4.1 percent, local growth heading towards 7 percent plus. In Australia these figures are 5.2 – half that of the US and most of Europe – and our growth this year is forecast to be 3.5 percent.
Hong Kong and Australia have both done well. These are a good set of numbers. And both, significantly, or I think it's significantly, are deeply integrated, deeply embedded, into East Asia now as never before.
I'd like to pay my respect to the Chinese Government and to Hong Kong's administrators for their achievements. Beijing could have made the business environment a lot tougher in Hong Kong but they have allowed the rule of English based law and finance and established business conduct to be retained.
This is central to the successful future of Hong Kong and is neither to be taken for granted nor left absent from public statements and congratulations from visitors like me.
I have no doubt that most of you in the audience have a strong record of having to rapidly adapt to the changing Hong Kong – first political change and now the sweeping economic environment. But based on the strong foundations that existed, and the marvellously trained workforce of the people of Hong Kong – I believe Hong Kong has maintained real business integrity and huge capability. This today is of benefit to both China and the West.
And I am pleased to note that Australia has contributed to the strength and enduring qualities of those foundations to which I refer.
Both Hong Kong and Australia have a high number of East Asian countries in their top 10 sources and destinations for both trade and capital flows.
I think this puts us both in, if you like, not so much the same lifeboat as the same rocket ship.
Late last year I publicly described our circumstances as complimentary – and my visit this week only reaffirms my confidence in that complimentary descriptor.
In the post GFC environment the Australian dollar has increased in value considerably – reflecting our strong economic fundamentals and strong budget position. There are swings and roundabouts here – an appreciating dollar is not altogether an unmitigated blessing and it is challenging for some of our industries. It does bring beneficial impacts for consumers through cheaper imports. Yet it makes it harder for some sectors of our economy to compete internationally - like manufacturing and tourism.
After the GFC Australia has almost no public sector debt and like many countries in Asia we're experiencing high levels of capital inflows.
This means, as much as ever, that we do need to hone the domestic policy settings, the international dialogue and regional cooperation.
One exceedingly obvious thing to do is to promote adjacent resilient economies with robust institutions such as Hong Kong. I will put at least that thought into your minds, to ponder.
In Australia we were lucky in both the Hawke-Keating and the Howard-Costello Governments, as well the Rudd-Swan and Gillard-Swan Governments, to have a really well-regulated, really vigilantly regulated banking and lending system. Because of these governments, all of these governments, and their leery eye on the Big Banks, we are now in our twentieth consecutive year of positive GDP growth in Australia.
The lesson here for me at least is that persistency and consistency on delivering shrewd economic reform should not be underestimated.
And though the Australian Parliamentary situation is well known and close - I'm sure some of you will have joked about the sometime rather loud and silly sounding commotion of it - our management of the legislative agenda after September 10th, after our formalisation of working arrangements with three Independents and a Green, has got fifty-three new pieces of legislation into the law books. Many involving significant, game-changing economic reform. 'Out of strange bedfellows,' as I'm sure Confucius never said, 'comes often adequate fruit.'
The task is far from easy and it is, of course, far from over. So I would urge so many of you as contentious contributors to our democracy to support the cause for ongoing economic reform, much of which does require legislative amendment. And therefore I ask you who perhaps have friends among the conservative ranks of politicians and colleagues talk to them about the need to not oppose everything and enable minority government to keep working as it has.
Julia Gillard - I assure you - and Wayne Swan - I assure you - are people who want to get things done. As am I.
Like Hong Kong we're into infrastructure: roads, rail, ports and a huge, wide continent-webbing broadband network. This will help, of course, and help everywhere, our wide-ranging and deep-delving economic strategies, and their purposeful inroads into our biggest coming challenges: a transformative economy, an ageing population and a sustainable environment.
In market terms we, as a Government, make no apology whatsoever for being bullish about purchasing better education, better skills and better innovation. Or meanwhile ramping up our national savings capacity through increases to our compulsory superannuation system.
My role as Assistant Treasurer, and accompanying responsibilities for superannuation and financial services, has prompted me to think carefully about where we are going like never before. I was lucky enough to become a father just over a year ago and it's made me think more deeply than ever before about the future. Not just over a few news cycles, but over the next 20 years and beyond.
For what it's worth I have an optimist's but realist's view and analysis of Australia's economic future. We are a clever people, we're a hard working lot and are blessed with a bounty of natural resources, space, healthy pastimes and a great savings system.
But we also must be hard-headed about the simple fact that no one owes us a living. And we need to keep reminding ourselves, as I'm sure you do living in here Hong Kong, that we live in a much bigger world than our suburban boundaries and regional towns of our great country. Progress can never be taken for granted. No nation, no matter where they sit, can be assured that they will remain in that position for the future. Everything that we enjoy is because other people have accomplished it before us. And we must again in our generation, accomplish the commitment to opportunities and achievements that they have given to us. Progress must be fought for, it must be earned.
So I assure you the Government to which I belong is up for that fight. I know in my bones that our citizens are capable of that progress. I think about the marvellous talent that Australia has in generating clever people.
The question at hand -- for so many Australian citizens, including you living here today in this springboard city of the Asia Pacific century -- is how is that progress, how is that next wave of prosperity actually best delivered?
I think part of the trick is to keep improving the form and fitness of Australia's financial services sector. We need to attract more global business to us, and this part of the world.
And in this Australia of course will have competition, and sometimes not least from Hong Kong, and not least from some of the organisations who employ you.
But I think that 'competition', if you look carefully at the subject with a new trans-millennial set of eyes, competition is not the best prism through which to view the dynamic between what we might call Hong Kong Pty Ltd and Australia Pty Ltd.
I think that this dynamic is in fact complimentary. There are people in Australia that would say it better we turn our back on the future and worry about the competition from overseas. I would say that is selling our nation short. And that we have in fact complimentary economies.
Old world minds think 'winners' and 'losers' can be the only outcome of a contest.
New world minds like ours, be you neo-Leninist , new free market, Friedmanite Keynesians or RMB internationalists – whatever the label - we all can see benefits, and profits, to both sides can occur if we are collusive and respectful on the field of honourable battle in a complex world. That both can win if we work at it.
Hong Kong and Australia already trade with each other a good deal. And meanwhile both of us benefit, of course we do, from the continued growth of East Asia.
By 2050 -- when I will be only eighty-two, and some of you much younger -- three of the four largest economies on earth will be in East Asia and South Asia. And so both of us can thrive as specialist financial services as the urbanisation of this region continues.
This neighbourhood is big enough, and certainly will be big enough, for two shopping malls of financial services.
China is evolving at an incredible pace and that means a burgeoning middle class who consume services. Considerable wealth is being accumulated and productive use of capital will need to be improved to manage inflationary pressures. Financial services demand for people and business will consequently be enormous.
Capable, secure servicing of capital flows and products is critical. Much of the Hong Kong business community is about providing leading edge and efficient services to the region. What Australia is offering is to strengthen this capability for mutual benefit of Australia and China – often through Hong Kong.
I respectfully recognise that China expects Shanghai to be a future Wall Street of the region and the competitive impact of such a progressive development are live conversations already on Star City ferry journeys.
What the Australian Government wants to do is to continue to strengthen the capability of Hong Kong so that an emerging Shanghai adopts the similar capital accessibility, fiscal governance and strong rule of law that underpins the greatness of this financial metropolis we're standing in.
So we need to work out what regulatory bodies we could share, we really do, and what advantages we can offer to each other whenever we blunder into each other's territories: what welcome mats, what room services, what banquets, what jovial toasts, what pledges of friendship down scores of decades yet to be had can we can do together to improve our joint services.
So what actions can we take? What hindrance might there be to regional development and what's the action to remedy the hindrance of any interoperability of financial services?
One thing I think we can do is to have an Asian Region Funds Passport.
Such a Passport would provide a multilateral framework for participating economies to market funds, and move currency, across borders.
In the longer term, it would also help Asian funds to be touted and marketed in Europe through an Asian/European mutual recognition agreement.
Australia is progressing this Passport idea through APEC. It was a concept put forward at the APEC Senior Finance Officers meeting in September last year, and it was agreed that a Policy Dialogue would be held amongst appropriate economies to further explore ideas and strategies.
A Policy Dialogue organised by the Australian Treasury, and hosted by the Malaysian Securities Commission, occurred last year in October in Kuala Lumpur. It was attended by Hong Kong, Singapore, Japan, and...a few others, and noted almost everywhere.
It was well-received and in amongst the crowed and busy agenda of East Asian economies I believe it is receiving legitimate attention. Further workshops are planned and I'm optimistic that we can have a pilot soon.
Another developing idea is to have dealings with Islamic finance. I know that Hong Kong is considering this very matter this year.
It involves what I guess must be called "a level playing field". To borrow a line from the UK Financial Services Authority — "there should be no obstacles, but no special favours". Watch this space, for reports of our investigations down this path strewn of course with economic and political complexity. We'll see how we go.
Another thought we've had is what we call IMR, an Investment Manager Regime. The IMR will provide a set of comprehensive cross‑border taxation rules for a range of entities in the financial sector.
We have asked our Board of Taxation to report by December this year on the design of an IMR. We've issued a consultation paper which — I'm sure you'll be interested to hear — considers the tax rules for Hong Kong incurred by an Australian IMR.
We also asked the Australian Treasury, in consultation with the Board of Taxation, to work with the industry on their concerns with the United States' financial accounting standard Financial Interpretation Number 48, otherwise known as FIN 48, and give us a report by the end of 2010.
In preparing this report we consulted broadly, at home and overseas. What we heard gave us insights from practitioners around the globe, including fund management and tax professionals operating here in Hong Kong.
On 17 December 2010, I announced that, in line with the recommendations of the Treasury report, we will amend the tax law to mitigate and reduce and in some cases reverse the consequences of FIN 48, by clearing up what we did with past transactions in foreign managed funds.
And I'm very pleased to announce today that the Government is taking further action to address the concerns of Australian intermediaries in the funds management context everywhere we look.
From the 2010-11 and future income years, the Government will ensure that the relevant investment income of a foreign fund is not taxed only because the fund is taken to have a "permanent establishment" in Australia — in other words, if the foreign fund has used an Australian intermediary.
This will ensure that the tax law does not discourage the use of Australian-based investment advisers.
This change will apply where the relevant investment income of a foreign fund is managed from Australia but not actually sourced here — for example, where an Australian fund manager trades in foreign equities on the Hong Kong stock exchange.
Ladies and gentlemen, we're keen to do business here, and see what mutual benefit we can tempt each other with in this fabled town and well written about region, of which Rudyard Kipling rightly said:
Here lies the fool, in sepulchre cool,
Who tried to hustle the East.
The relationship between Australia and Hong Kong is fundamental; and deeper, I suspect, since the recent cascade of catastrophe after Lehman Brothers.
Our friendship has some very fond memories, but more than anything I think it is one that speaks with confidence and enthusiasm to the future.
You, the significant Australians and friends of Australia here in Hong Kong, will play a big part in this fundamental relationship, that future partnership, that buddy movie soon coming to a cinema near you.
Your Government asks you to help us, with skill and shrewdness and ambassadorial sweetness and land caution and mulltilingual tact, in the hope that your reward will be great on earth, as it is in heaven.
It's good to be here. I appreciate the opportunity and your hospitality.