Minister for Financial Services, Superannuation and Corporate Law
9 June 2009 - 14 September 2010
Commonwealth Parliamentary Offices, Sydney
Friday, 15 January 2010
SUBJECTS: Australian Financial Centre Forum Report, independent tax review, United States decision on bank bailouts, ASIC, corporate bond market, ATO, private equity, unemployment rate, stimulus package, monetary policy.
Thanks for coming, ladies and gentlemen.
In September 2008, on behalf of the Government I commissioned Mark Johnson and the Australian Financial Centre Forum to advise the Government on the next steps to promote Australia as a financial services centre. In Opposition, the Labor Party identified financial services as an area necessary for reform, to identify and eliminate Government-imposed barriers to a better trade performance for Australia's financial services. More exports creating more jobs.
And I'm very pleased to be releasing, together with Mark Johnson, the Report. I'd like to thank Mark for his work in this very substantial Report and also thank the other panel members – Paul Binsted, Alf Capito, Patricia Cross, Jeremy Duffield, Craig Dunn and John Story.
The Government's efforts in financial services and our ambition to make Australia a financial services hub have underpinned our policy initiatives over the last two years. The reduction in Australia's withholding tax rate and other policy initiatives that we've taken over the last two years have had the ambition of promoting Australia as a financial services centre. This Report is all about the next steps; what's necessary to drive this ambition further.
We'll consider this Report over coming months very seriously. Some of the recommendations have a budgetary context and will need to be considered in that context, against other competing priorities. Some of the recommendations, of course, will also need to be considered in the light of the independent tax review being chaired by Ken Henry and its other members. We'll be considering those recommendations in conjunction with our consideration of the independent tax review.
Some of the recommendations are long term and will take some time to implement. The proposal for an Asian funds management passport, for example, will require the cooperation of other governments and will take some time to negotiate with other governments, should the Government go down that road.
Others are shorter term and several, in effect, are already being implemented. For example, the recommendation about a change to the regulatory framework for the corporate bond market is already being dealt with through a discussion paper which is being released by ASIC. I've asked ASIC and the Forum to engage further on what other work needs to be done in that regard. The recommendation on trade missions, for example – the Government is already, in effect, implementing. Recently I was in London and New York promoting Australia as a financial services centre. Next week I leave for Hong Kong, for the Asian Financial Services Forum, and will have the same mandate in Hong Kong.
So we'll be considering these recommendations and be responding formally in due course. But this is a very useful contribution to the Government's consideration of what more needs to be done to promote Australia as a major financial services centre around the world. I'll ask Mr Johnson to make a few brief remarks and then both of us would be happy to take your questions.
Well, thank you very much, Minister.
I guess the first thing I'd like to observe is that this is an industry Report on the industry. We've worked with reference groups and behind the reference groups of industry bodies. We've conducted, I guess, more than 200 interviews with individual organisations across the industry and through many of the supporting services – tax, legal and education. What this has given us an opportunity to do is to see the totality of the structure of the industry, any of the issues that arise can be put in an industry context for consideration by policymakers. And so I think that's been one of the valuable [inaudible] of the exercise.
We've tried also to put this in the context of what a financial services sector should accomplish: what it should do and how it should do it. What should it do? It should actually be for the benefit of all Australians and consumers, producers and users of financial services. An efficient, modern, competitive, open financial services sector is in the interests of everyone, just to provide a greater range of choice and on the best terms and prices. So that's a principle that we've used to apply to all the analysis. What that has led to, we hope, is a set of principles that can be useful to policymakers as we go ahead.
As the Minister observed, a number of our recommendations are long term. Our market is dynamic and will continue to change. All our competitive markets are dynamic and they will continue to change. And so we are provided, we hope, with some principles that can assist with the industry and the policymakers as they deal with what is going to be a continued process of reform, without any obvious end in sight.
Thanks Mark. Over to you, folks.
Minister, do you think the current tax law is holding Australia back from being the financial hub that you would like it to be?
I do think there's been a case for reform and the Government has acted on that case for reform. For example, by reducing the withholding tax on distributions from Australian managed funds to offshore investors from effectively the highest rate in the world to effectively the lowest. And I've said continually that there's more to do, and this report makes a number of important recommendations on what more can be done. As I say, we'll be considering, in conjunction with our consideration of the independent tax review and in conjunction with our budgetary considerations, and we'll be considering them in that context.
So obviously tax is a key area where it comes to promotion of Australia as a financial services hub. That's the feedback received by the panel; it's feedback received by the Government and we've shown by our track record that we're more than happy to take that feedback on board.
What recommendations or principles most excite you, without actually pinning yourself in at this stage?
Look, there's 19 recommendations and they're all worthy of very serious consideration. I can't stand here today and prioritise them. I can't endorse, on behalf of the Government, the Report or any of the particular recommendations. I think they're all good recommendations worthy of very serious consideration.
Minister, just on another issue, do you support the idea that the American President has introduced of taxing banks for money that they've been bailed out with?
Well, that's not a problem that we have to consider in Australia, given that we haven't had to bail out any banks. I'm not in the business of giving policy advice to the President of the United States and I'm sure he's dealing with matters appropriately. But it's not a matter that we need to worry about in the Australian context.
Mr Johnson, where have you found the greatest weaknesses have been in your Report?
Well, let's start from the fact that we've got a very good system here, pretty well. It's a very efficient, competitive, open system. But the key defect that you find is in a chart there that I think is Table 2.6. The point is this: that with an efficient, competitive system with the fourth largest pool of superannuation funds in the world, with all the skills that support that and so on, we are not a big importer or exporter of financial services. We're richly endowed in the same way that we're richly endowed with coal and iron ore, or whatever it is, in the financial services sector.
And we have expected it to be more international, and so you ask the question: why have we tried to track through? Why? And tax uncertainty, or the uncertainty of the number of the rules is, our opinion, one of the big issues that has held back the internationalisation of the industry. You then ask the question: is internationalisation good? Our answer to that is almost certainly, in a well-regulated system, because it's going to provide consumers with greater choice, more competition, more product innovation. So it's that analysis which is quite startling – why we've got this really good system but how it hasn't blossomed, in a sense, into the rest of the world – that really started us and focused us on tax, and that then focuses us on the investment manager regime particularly.
Does Australia risk opening itself up to more exposure problems overseas in allowing that internationalisation to occur?
I think almost certainly not. What we're simply suggesting in the investment manager regime is that there are a number of tax aspects there: where is income earned, what kind of income, who's earning it and that kind of thing clarified, so that activities currently taking place offshore can be brought onshore and the skills and systems we have to support those applied. So that would be a net gain to the Australian economy, and it's a net gain from doing a lot of the things we already do and do very well.
Why is the development of the corporate bond market side [inaudible]?
Well again, we came at that, in a sense, from the viewpoint of consumers. A deep corporate bond market provides a greater range of investment choice for savers, particularly for people with superannuation where you want long term assets to match the long term liability. And there is a shortage of those kinds of securities in Australia. Also, from the point of view of corporations, it broadens their access to finance; it allows them to get better maturities and so on rather than relying entirely on the banking system; and most fundamentally, because we are and continue to be a capital importing country for the foreseeable future, broadening and deepening all the savings avenues seems to be a very sensible national objective.
Minister, I suppose the elephant in the room with all of this, as you'd well be aware, is the standoff between the private equity industry and the Tax Office. What's the Government's most up-to-date thinking on that issue at the moment? It does tie in with this.
Sure. A couple of points, John. Firstly, you don't need me to tell you but I need to say the Australian Tax Office is independent, at arms length from the Government, and we'll always respect that. And it's appropriate for the Tax Office to implement the law as it sees fit. It is also appropriate for the Government to monitor the situation and to intervene if necessary, if the Government, at the end of the day, feels it to be necessary – as we showed with our decision, announced on Budget night last year, to regard income for managed funds as capital when there's an irrevocable declaration to do so, which was in response to a Tax Office indication that they would be implementing the law in a different way.
So we've shown that where necessary, and where appropriate, we will respond. The Assistant Treasurer and I are in regular contact about such matters and we will monitor the reaction and the implementation of the Tax Office ruling, and respond if and when necessary. I think the recommendations in this Report underline that certainty is important when it comes to tax – that's been the feedback to me, both domestically and internationally – and that's something the Government's very alive to.
Minister, is the Government [inaudible] that the unemployment rate has peaked?
Well, we have our forecast on unemployment and that is the current forecast. Yesterday's figure is very encouraging. It's very encouraging in the international context; when compared to every other comparable nation Australia's result has been remarkable and that is in no small part due to the Government's response through the stimulus package.
But as in relation to ongoing forecasts, we have a forecast and we stand by that forecast, and it will be updated in due course at the normal time.
So the stimulus package still needs to be there?
Absolutely. The stimulus package is still very important. But I make this point: the Opposition calls for the stimulus package to be withdrawn. It seems to have passed them by that it is being withdrawn by its design. It seems to have passed them by, for example, that the First Home Owners Boost ended on New Year's Eve, as did the improved depreciation regime for many companies.
So we designed the stimulus to be withdrawn over time as the economy improved, and that is what has happened. Now, the Reserve Bank has gradually increased interest rates from their record lows and they are gradually withdrawing stimulus. The Federal Government is gradually withdrawing its fiscal stimulus. We are working as one to manage the economy; fiscal policy and monetary policy working in the same direction. That seems to escape the logic of Tony Abbott and Joe Hockey.
Well, ASIC has released a discussion paper on the regulatory burden which goes with the insurance of corporate bonds. That is very encouraging and I'll be encouraging ASIC to engage with Mark Johnson and the panel members on the appropriate response to that discussion paper.
That's what I was referring to.
There's obviously some long term recommendations in this Report. Is there some of the shorter, more easier ones that we could possibly see sometime this year, before the election?
Sure. As I say, some are effectively already being implemented. The corporate bond one, for example, we have a discussion paper that's well progressed. The trade mission one, we are effectively implementing as we go. So it would be my hope to certainly respond to many of these recommendations during the year. As I say, some of the ones with budgetary contexts will need to be considered in that context.
But certainly, some of the recommendations are shorter term and some will take a long time to implement.
Thanks for your time.