Good morning
I'd like to thank AsianInvestor magazine for inviting me to address your second Global Investment Summit.
I suspect that for many participants the theme for your summit, "Asia and the World", is as much a question as it is a statement.
In the wake of the Global Financial Crisis it's now evident as it was before -- that emerging markets in the Asia Pacific region are 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. In this alive and kicking in this city and across dozens of other financial and business hubs in our general time zone.
The Asia Pacific century, ladies and gentlemen, is right now and we are living it.
This means that the ballast weight of economic power has indeed shifted to this part of the globe.
But the question that many of you in this audience may seek to address, and questions that successive Government's have grappled with, is this: how does Australia, sitting where we do in terms of our unique geography and our competitive advantages – how do we best capitalise upon the Asia Pacific century?
This is what I hope to talk to you about in our discussions today.
The importance of the region
First, let me explore the importance of the region in a little more detail.
The "Four Asian Tigers" of Hong Kong, Singapore, South Korea and Taiwan are critical to Australia's growth.
In 2009‑10, bilateral merchandise trade between Hong Kong and Australia amounted to $3.8 billion. Hong Kong also has a thriving and energetic Australian expatriate community.
In fact, the Australian Consulate-General in Hong Kong is the second largest Australian polling station in the world after London, with over 10,000 electors voting regularly.
Singapore is Australia's largest trade partner in ASEAN, and our sixth largest trading partner overall. In 2009‑10, Singapore was Australia's ninth largest merchandise export market, worth $5 billion, and our fifth largest merchandise import source, worth $10.9 billion.
In 2009-10, Korea was Australia's fourth largest merchandise trade partner behind China, Japan and the US. It accounts for 8.2 per cent of Australia's merchandise exports. In 2009‑10, bilateral merchandise trade between the two economies was worth $23.5 billion.
Taiwan was Australia's 12th largest merchandise trading partner in 2009-10, accounting for 2.5 per cent of Australia's total merchandise trade, worth $10.3 billion. Australia is Taiwan's sixth largest import source, accounting for 3.4 per cent of Taiwan's imports in 2009.
What this litany of figures tells us is that the fortunes of Australia and Asia are closely intertwined like never before. And we can expect this trend to continue as the economies of the region become more deeply integrated.
Lessons from Hong Kong
I saw first-hand some of the energy, cooperation and drive that is fuelling this Eastern renaissance when I visited Hong Kong earlier this year to attend the Asian Financial Forum.
At the forum I participated in discussions on one of the most critical economic issues currently facing our region — rising capital inflows.
In some remarks I made to forum participants I emphasised that this issue needs to be seen through a global lens. That is, recent flows into Asia reflect the relative strength of economic growth in the region's emerging economies. More so when compared with advanced economies elsewhere in the world.
I also offered some insights into the Australian experience of managing capital flows. I outlined the important steps we have taken to float our exchange rate and liberalise our financial sector.
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 very well-regulated, 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 sharing of these lessons is, in my view, crucial to Australia's place in Asia over the next decade and beyond: Australia's regulators, governments and our substantial funds management industry must be ready and willing to share such lessons with our Asian neighbours.
As well as attending the Asian Financial Forum in Hong Kong, I met with leading Hong Kong-based investors like Victor Li of Cheung Kong Holdings, one of the largest single investors in Australia, and with Harry Banga of the Noble Group.
These are serious businessmen, for whom Australia is just one of a plethora of markets on the investment smorgasbord. For them, political stability and market integrity are fundamental.
I was able to assure these investors – just as I am able to assure you today – that Prime Minister Gillard and Treasurer Swan, as the stewards of our economy, are people who want to get things done.
As am I.
And though the Australian Parliamentary situation is well known and close - I'm sure some of you will had a wry chuckle on occasion about the boisterous and sometimes silly sounding commotion of it – nevertheless our management of the legislative agenda after September 10th, after our formalisation of working arrangements with three Independents and a Green, has got more than 50 new pieces of legislation into the law books. Many involving significant, game-changing economic reform.
Though I doubt Confucius ever said it, as I mentioned to our expatriate friends in Hong Kong, 'out of strange bedfellows 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 move right on from opposing nearly everything and enable minority government to keep working as it has.
Exporting our expertise
But beyond the daily political cycle, how does Australia position itself with respect to Asia?
Ladies and gentlemen, Australia, as a nation, likes to 'punch above its weight'. Whether it be on the sporting field, middle power diplomacy, in arts and film, or in the export of ingenuity – think Australia II, Doc Evatt, Priscilla Queen of the Desert, the Hills Hoist, the combine harvester, Cochlear and AC/DC.
While I don't subscribe at all to 'small Australia thinking', for a relatively low population island nation with our main population bases a long way from anywhere, it is with a sense of pride and achievement 'against the odds' that we often look upon these ventures.
But it is my view that as experts in, and exporters of, financial services know-how and acumen, Australia has a natural advantage which we are yet to fully exploit.
Australia's compulsory national savings scheme is the envy of much of the developed world. Through our superannuation system, we have already amassed a substantial pool of domestic capital available for investment.
Australia now has $1.3 trillion invested in superannuation. The figure is estimated to increase to $6.2 trillion by 2036, including $550 billion directly from the Government's superannuation reforms.
This massive, rapidly-growing pool of funds is ever at the disposal of our broader economy and continues to be a great enabler of Australian enterprise and ingenuity.
And this degree of financial self reliance is one of the reasons why Australia weathered the global financial crisis so well.
But perhaps the most important aspect of this savings pool, so far as defining Australia's place in Asia, is as a driver of a significant and sophisticated wealth management industry in Australia.
The Johnson Report, which examined how we can best build Australia as a financial centre, found that by 2009 insurance and superannuation had directly accounted for a total of 80,000 Australian jobs.
Indirectly, the sector employed a substantially larger number of people, through outsourced legal, accounting, technology, administration, processing and other services.
The sharp and savvy graduates of 2011 – many of whom hail from our Asian neighbours, I might add – no longer limit their horizons to careers in the law or medicine or, might I suggest, politics!
Today these graduates are attracted to careers in finance, funds management and investment banking. The challenge of turning this growing professional class of Aussie experts into Aussie expats, into shrewd knowledge exporters is, in the view of the Gillard Labor Government, core to the success of Australia's future in the region.
Investment Manager Regime
One of the ways we are capitalising on those opportunities is by positioning Australia as a leading financial services centre. One that will attract global business to Australia and compliment the already significant financial services hubs in the broader Asian region.
We recognise that all Asia-Pacific economies have so much to gain, not by competing against each other, but by working collaboratively for our mutual benefit.
As part of that drive, Australia is progressing the idea of an Investment Manager Regime.
The IMR will provide a set of comprehensive and clear cross‑border taxation rules for a range of entities in the financial sector.
The Australian Government has asked the Board of Taxation to report by December this year on the design of an IMR, and the Board has issued a consultation paper.
We also asked Treasury, in consultation with the Board of Taxation, to work with industry on their concerns with the United States' financial accounting standard Financial Interpretation Number 48, otherwise known as FIN 48, and provide a report by the end of 2010.
This report was the product of extensive consultations, and reflects the wisdom and experience of financial services professionals around the globe.
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 clarifying the treatment of past transactions of foreign managed funds.
On 19 January, I was pleased to announce the next step we are taking to address the concerns of Australian intermediaries in the funds management field.
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.
These legislative amendments are crucial stepping stones in the development of an Investment Manager Regime. They will also more closely align Australia's taxation rules with those of other international financial centres, and help to build that bridge to Asia for our financial services sector.
Asian Region Funds Passport
Another way that Australia is encouraging the free flow of funds and ideas throughout the region is by leading the development of an Asian Region Funds Passport.
I was encouraged by the support of Hong Kong's administrators to the concept of a Passport, which will provide a multilateral framework for participating economies to market funds across borders.
This factor alone would bring considerable benefits to the region.
In the longer term, the Passport would also help funds from the Asian region to be marketed in Europe through an Asian/European mutual recognition agreement.
Australia is progressing the Passport through APEC channels, and we have made good headway on achieving in-principle agreement on the proposal.
The concept was advanced at the APEC Senior Finance Officers meeting in September last year, where it was agreed that a Policy Dialogue would be held amongst targeted economies to further explore ideas and strategies.
A Policy Dialogue organised by the Australian Treasury, and hosted by the Malaysian Securities Commission, was held in Kuala Lumpur in October last year. It was attended by Hong Kong, Singapore, Japan and several other economies that are interested in the concept.
The idea of the Passport was well-received, and I am optimistic of a pilot in the future.
Centre for International Finance and Regulation
Another key part of the Government's work to promote Australia as a financial services centre in the region is the creation of the Centre for International Finance and Regulation.
As a regional centre for excellence in financial system regulation and innovation, the Centre will provide tertiary education and training for financial regulators from Australia and the Asia-Pacific.
One of the key themes underlying the work of the Centre will be to foster financial sector innovation, while ensuring that the risk inherent in the financial system is appropriately managed through best practice regulation.
The Centre's work will inform government, regulators and financial industry practitioners throughout Australia and the region.
It will contribute to regional financial system stability by developing and supporting students, academics and researchers from the Asia-Pacific region and by building regional capacity.
The Centre will be funded at $12.1 million over four years.
A Working Group, chaired by Paul Costello, has been formed to develop a tender strategy for determining the host university, or consortium of universities, for the Centre.
Benefits of positioning Australia as a financial services centre
The initiatives I have just outlined — the Investment Manager Regime, the Asian Region Funds Passport, and the Centre for International Finance and Regulation — are inter-related.
Together, they will enhance Australia's reputation as regional hub for financial services in Asia, and as one of the most attractive investment destinations in the world.
They will also assist to export some of that quintessential Aussie ingenuity to developing markets throughout the region.
The Gillard Government is committed to developing Australia as a financial services centre, not as some noble ideal, but because of the many benefits it would bring both to our nation, and other economies in the Asia-Pacific.
We are the Party of APEC remember, our track record of focused engagement is part of Labor Government folklore.
Increased trade in financial services would boost Australia's growth prospects and standard of living. Through improved economies of scale, this would reduce the costs of financial products for Australian consumers and businesses.
And by encouraging competition and efficiency, it would expand the range and choice of domestic financial products available to consumers, and promote increased exports of financial services.
Positioning Australia as a financial services centre in the region would also mean that we would be able to offer increased job opportunities for skilled workers in the financial sector... provide attractive opportunities for the return of skilled Australian expatriates... and enhance our broader national interests in the region.
Conclusion
Ladies and gentleman, the Asia Pacific century presents us with many challenges, but also with boundless opportunity.
The opportunities for leveraging our financial services skills and expertise, in the region and beyond, for example, are potentially enormous.
Australia will need both flexibility and strength to deal with the challenges of the future.
We will need flexibility to deal with short-run volatility of the two-speed global economy.
And we will need the strength that comes from having large pools of investment for infrastructure and technological innovation.
As I have mentioned, through our superannuation system, we have already amassed a substantial pool of domestic capital. But it is the latent potential of Australia's human capital that is perhaps most important in leveraging off our demographic fortunes at the fulcrum of Asia's developing markets.
The Gillard Labor Government is working to position our policies and our people so that Australia - through ongoing dialogue and cooperation with the countries of our region – can entrench our natural advantage for generations to come.
Once, again, thank you for inviting me to speak with you today.